NYC Home Costs Skyrocket Outpacing Inflation by Triple

Plus: Fed’s Powell hints at stable rates with sub-3% inflation; Foot Locker bags LA’s largest 2023 industrial lease; Vegas multifamily market sees revival amid job growth.

NYC Home Costs Skyrocket Outpacing Inflation by Triple

Plus: Fed's Powell hints at stable rates with sub-3% inflation; Foot Locker bags LA's largest 2023 industrial lease; Vegas multifamily market sees revival amid job growth.

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Market Snapshot

S&P 500
GSPC
4,278.00
Pct Chg:
-0.8%
FTSE NAREIT
FNER
642.56
Pct Chg:
-2.1%
10Y Treasury
TNX
4.992%
Pct Chg:
1.8%
SOFR
1-month
5.31%
Pct Chg:
0.0%

*Data as of 10/20/2023 market close.

📆 Earnings Calendar

Monday, October 23, 2023

📊 Share your insights: Take the 3-minute Fear and Greed Commercial Real Estate Survey by John Burns Research and Consulting and CRE Daily.

QUICK HITS

  • Fed’s Stance: Jerome Powell, Federal Reserve Chair, expressed cautious optimism in his latest speech, noting inflation below 3% but emphasizing the Fed's dedication to a 2% target amidst uncertainties.

  • Major Lease: Foot Locker secured the biggest industrial pre-lease in Los Angeles County for 2023, committing to 361K SF at El Monte Logistics Center until Q2 2031. This reflects a shift towards cost-efficiency in industrial leases post-intense pandemic-era competition.

  • Vegas Multifamily: Las Vegas's multifamily domain shows signs of rejuvenation. Although rents have climbed by 0.2%, occupancy stands at 93.1%. Despite a 5.6% unemployment rate in May, job growth in sectors like leisure and hospitality surpasses the national mean.

  • Industrial Premium: NYC’s outer boroughs now lead as the most costly U.S. industrial market, with rents hitting $26.02 per square foot in Q3 2023, per a Cushman & Wakefield report, overtaking San Francisco.

  • Gig Shift: Warehouses are leaning into the gig economy for labor, offering flexibility akin to Uber. Gig logistics workers rose from 15.1% in 2021 to 21% in 2023, reflecting the demand for flexible work schedules.

  • Coworking's Plateau: Shared working spaces in the U.S. saw minimal growth in Q3 2023, with a mere .15% increase from Q2, marking a slowdown after the prior 10% rise, as reported by CoworkingCafe.

  • Experiencial real estate: VICI Properties has acquired 38 bowling centers in a sale-leaseback transaction valued at $433 million. The deal is a part of VICI's strategic expansion into the recreational sector.

  • Mortgage volume: The Mortgage Bankers Association forecasts a drop in 2023's commercial and multifamily mortgage volume to $442 billion, a 46% decline from 2022, marking its third revision since February.

  • Gangsters and Fraudsters: Matthew Allen Dickason, owner of an Atlanta-based law firm, faces scrutiny after allegations of diverting several million dollars intended for client transactions for personal use.

  • WeWork’s Rework: Landlords with WeWork as a primary tenant owe $2.6 billion in CMBS debt. Nearly 80% of these loans, half due within a year, face potential default risks.

  • Apartment Conditions: NMHC’S October 2023 survey indicates a weakening apartment market. Rising interest rates and strict lending standards were to blame.

  • Studio Overhaul: Established in 1952, CBS Television City in Los Angeles is set for a $1.25 billion upgrade by owner Hackman Capital Partners to meet the rising demands of streaming services and visual effects.

  • Easing Costs for Conversions: SF Mayor London Breed proposes a ballot measure to waive transfer tax for buildings converted into residences, aiming to reduce office conversion costs.

  • CEO Exodus: While the 'Great Resignation' wave seems to be settling for most workers, it's intensifying for CEOs. Over 1,400 CEOs have stepped down from January to September this year.

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THE BIG IDEA

NYC Homeowners' Burden Skyrockets — Costs Climbing Triple the Rate of Inflation

The cycle of near-constant repairs and construction across New York is pushing up insurance expenses.Photographer: Michael Nagle/Bloomberg

Rising fees for NYC condos and co-ops are outpacing inflation threefold, due to stricter inspections, increased insurance premiums, and new environmental regulations. While the affluent might shrug it off, middle-class families, retirees, and first-time homeowners teeter on the brink of displacement.

Rising expenses everywhere: Persistent citywide repairs and construction are causing insurance costs to soar, with some properties seeing a 300% increase. Additionally, modernizing old heating and cooling systems in specific buildings could cost homeowners up to $25,000, based on estimates from a carbon-emissions limits advocate.

Widening cost gap: From Q1 2020 to Q3 2023, NYC condo and co-op board charges, covering utilities and maintenance, soared by about 54%. Meanwhile, the US saw a consumer price increase of just 19% over the same period.

Regulation tug of war: As NYC tightens building codes, homeowners scramble to keep up. Some criticize these rules as profit-centric, while others deem them vital for safety, seeing them as safeguards for New Yorkers.

Insurance woes: Traditional insurers are bowing out, pushing buildings to merge different policies for complete coverage. And while NYC's Local Law 97 champions eco-friendly measures, it's prompting debate over who should bear these costly upgrades.

➥ THE TAKEAWAY

Bottom line: New York, the storied city of dreams, stands at a crossroads. As homeownership costs skyrocket, many residents must consider a pressing dilemma: "Does the city's charm justify the rising expenses?" Only time will reveal if this financial strain dims the city's long-standing allure.

AROUND THE WEB

💻️ READ: Respondents to a Federal Reserve survey expressed concerns over persistent inflation, potentially maintaining high interest rates and potential losses in the commercial real estate market.

▶️ WATCH: Mark Zandi, Chief Economist at Moody’s Analytics, discusses potential interest rate cuts, the Federal Reserve's upcoming decisions, and the present economic landscape on 'Closing Bell Overtime'.

🎧️ LISTEN: Dean S. Adler, CEO of Lubert-Adler Partners with $9B in equity, joins Chris Powers to discuss market trends, vetting private credit, office assets, and unexpectedly building a grocery empire.

CHART OF THE DAY

Domestic Respondents Report Net Percentage Tightening Standards for Commercial Real Estate Loans

Following the regional banking crisis and major U.S. bank failures, there was anticipation of stricter credit standards in commercial real estate (CRE) lending. However, the expected drastic tightening hasn't fully occurred, especially in the multifamily sector. Get the full report here.

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