INVESTED IN KNOWLEDGE
Trends & Insights
Stay informed. Let our research, insights, thought leadership and news help you make knowledgeable investment decisions.
Research Library
MarketSnapshot
At Northmarq, we are committed to offering our clients the latest trends and expert analysis to power their decision making. Our MarketSnapshot suite of reports contains critical market data covering a variety of commercial real estate property sectors. In each report, you will find: Investment sales volume data Average cap rate information Buyer distribution analysis... and more! Single-Tenant Overall Market Single-Tenant Office Single-Tenant Industrial Single- Tenant Retail Multi-Tenant Retail
Latest Publications
The Top 100: Tenant Expansion Trends
Quarterly summary of future growth plans for the top 100 retailers, as selected by brand recognition, expansion rate and frequency of investment sale transactionsAverage cap rate and sale price information for the most commonly traded retailersCredit rating summary with parent company informationAverage square footage ranges and store counts for each tenantKey takeaways and tenants to watch
March 28, 2024
Case Study: The Compounding Benefits of a 1031 Exchange
The immediate tax deferment from a 1031 exchange leaves the taxpayer with more money to reinvest in the short term. It can also help them hold onto around 25% more from a property sale by avoiding four levels of taxes. On paper, there's no direct profit for the investor - just taxes that are not paid upfront - but having more to reinvest also means greater returns over time.The most readily apparent benefits of a 1031 exchange occur within the 180-day exchange window: the taxpayer offloads an investment and acquires a new one without losing any of the investment's value to taxes. However, being able to reinvest that money instead of losing it to taxes does even more for the taxpayer in the long term.Consider the impact of a 1031 exchange on a hypothetical investor looking to change the nature of her investments.Anne Jones has owned a retail center for approximately two decades, collecting rents and taking $10,256 in annual depreciation deductions. That has reduced her tax basis to $244,880. However, she has now decided she does not want the management responsibility and will sell the retail center for a market value of $1.25 million, enabling her to purchase a more passive investment, like a DST.If Anne doesn't use a 1031 exchange, she will only have an estimated $942,400 to reinvest after paying all applicable taxes, as follows:Federal capital gains tax (20%): $153,000Depreciation recapture tax (25%): $51,280State capital gains (approximately 5% — varies by state): $38,250Net investment income tax (3.8%): $29,070Total Tax Liability: $271,600Reinvestment Total Without a 1031 exchange: $942,400 ($1,250,000 - $271,600)Anne can defer her tax liability at all four levels if she starts by engaging a Qualified Intermediary (QI) to help her structure both the sale and reinvestment as a 1031 exchange. If every step of her transaction occurs within a 1031 exchange, she will have the full $1.25 million to buy the new property.The immediate impact of retaining almost a quarter of the total sale value is that Anne is not forced to buy a less valuable property as her new investment. However, the long-term effect is much more significant. Assuming a 7% compounding rate of return over 10 years, reinvesting the entire $1.25 million will nearly double Anne’s investment to approximately $2.45 million.If Anne instead sold the retail center without a 1031 exchange in place, she would only have the $942,400 to reinvest. With a 7% compounding rate of return over 10 years, her investment with the reduced sum would be worth approximately $1.85 million. Again, her return on the purchase price is almost double, but she has missed out on roughly $600,000 compared to the returns she would have had with a 1031 exchange. And that is just in the first 10 years.The benefits of a 1031 exchange in both the long and the short term are clear. Deferring taxes when selling eligible real estate to reinvestment enables better immediate investments and ensures taxpayers do not miss out on compounding returns.
March 26, 2024
Richmond 4Q23 Multifamily Market Insights report: Sales activity picked up to close 2023
Highlights: The past year has been an active one in the Richmond multifamily market. Developers delivered projects totaling 5,349 units, and absorption was considerably stronger than in 2022. The heightened demand resulted in a mostly stable vacancy environment and allowed for modest rent growth.Vacancy was steady throughout much of the year, despite a surge in new construction. Vacancy inched up 30 basis points in 2023, ending the year at 6.1%. Net absorption totaled approximately 3,700 units in 2023.Rents gained ground in 2023, although increases were concentrated in the first half of the year. Asking rents were $1,495 per month in the fourth quarter, up 2.2% from one year earlier. Transactions in the Richmond multifamily investment market were limited in 2023, although the pace picked up at the end of the year. The median price for the full year was $175,000 per unit, while cap rates ranged between 5.5% and 6.25%.Read the report, or learn more by engaging with our office in Richmond, Va.
March 19, 2024
A Beginner's Guide to Understanding Multifamily Assets
Are you a commercial real estate investor looking to expand your portfolio into multifamily properties? Understanding the various multifamily asset classes is essential for making informed investment decisions.In this beginner's guide, we will explore the different types of multifamily asset classes, their unique characteristics, and the factors that can influence their performance in the market. Whether you're new to real estate investing, interested in diversifying your portfolio, or simply looking to broaden your knowledge, this guide will provide you with valuable insights for successfully navigating the multifamily landscape.TRADITIONAL MULTIFAMILY HOUSING This multifamily asset class is by far the largest and most widely known form of rental housing, as it includes conventional residential buildings with multiple units, such as townhouses, condos, and garden-style communities, as well as mid-rise and high-rise apartment complexes. Traditional multifamily properties are an established subtype, meaning they generally have a proven track record of producing stable investment returns. These assets are often situated in developed markets and typically produce high occupancy rates and predictable rental income.Primary Investor TypesInvestors in traditional multifamily housing come from various categories, including institutional investors, private investors, and publicly traded and non-publicly traded companies specializing in income-generating real estate — also known as real estate investment trusts (REITs). FinancingSo, how can you invest in traditional multifamily? Like other commercial real estate investing, traditional multifamily investing is capital intensive. It’s rare for multifamily properties to be acquired entirely with cash, so nearly all options involve some form of debt financing. A common source for debt financing often includes conventional financing from banks. Banks are often the first option for construction loans, which are short-term loans that cover a portion of the cost of building these properties. Alternatively, for existing assets you can obtain debt financing from life companies, private equity funds, and agencies like Fannie Mae, Freddie Mac, and the Department of Housing and Urban Development (HUD). In recent years, debt funds have become increasingly popular, as these lenders are known for their higher leverage levels.Other Key CharacteristicsTraditional multifamily properties often have amenities like communal areas, laundry facilities, courtyards, and other outdoor spaces. You'll find these investments in both urban and suburban areas, with the former typically offering higher earning potential from rental income.The size and number of units in these buildings vary. You have the option to invest in a large complex with hundreds of apartments or a condo building with much fewer units. Many individual investors get started by purchasing a duplex or triplex, and then invest in larger properties with higher unit counts as they gain valuable experience in the rental market.You can also find multifamily properties that generate rental income at both market rate and below-market rate. For example, luxury properties cater to a more affluent demographic, while government-mandated subsidized properties provide "affordable" housing to a working-class demographic.Another thing you should know is that multifamily real estate is characterized by three distinct property classes:A: These are high-end properties with premium fixtures and finishes in desirable markets, such as downtown neighborhoods. As a result, they are considered one of the safest types of investments. These best-in-class properties are generally owned by developers, institutional investors, insurance companies, and pension funds.B: Class B multifamily properties are well-maintained and often located in middle-class neighborhoods, providing lots of earning potential. However, they might be in an older condition than class A properties and require improvements that eat into your profits.C: These properties are older and usually have basic, standard, or no amenities, making them more affordable for tenants. These homes might generate less rental income than class A and B real estate, but they are typically less expensive to purchase. However, some properties in this class may be in a poor state of repair, meaning you'll need to invest in their upkeep. Class C properties also face limited competition from new construction and generally feature consistent levels of renter demand.MANUFACTURED HOUSING COMMUNITIESManufactured housing communities, or MHCs for short, are factory-built residences placed on a piece of land, such as within a mobile home park. This asset class might suit you if you're looking for an affordable investment that generates a stable cash flow. MHCs are an emerging asset class that has experienced recent growth. That's because many people need cost-efficient homes with low operating costs.Primary Investor TypesPrivate investors often purchase MHCs because of their ability to generate rental income and appreciate over time. Other investor types include government-sponsored subsidized housing programs that might buy up undeveloped land for sale for low-income communities.FinancingInterested in investing in mobile home parks? You can obtain financing from a wide range of sources, including banks, private equity firms, and even crowdfunding. Agency financing is another popular way to fund these investments.Other Key CharacteristicsMHC amenities depend on the builder but can include communal gardens, children's playgrounds, and gated entrances. Community sizes and number of units also vary, with large MHCs consisting of hundreds or even thousands of manufactured homes.Because they often occupy large areas, you'll typically find MHCs in suburban or rural areas rather than city-center locations. MHCs usually offer affordable housing to low-income residents, although some communities now cater to the middle classes. Additionally, nearly half of all manufactured housing communities are age-restricted and cater to residents 55 and older. These communities often command higher rents and record less turnover than many forms of rental housing.SINGLE-FAMILY BUILD-TO-RENTThis multifamily asset type refers to communities of single-family homes specifically built to generate rental revenue, allowing you to profit from a steady stream of income. An alternative to home ownership, single-family rentals are often low maintenance because of their recent construction. While the homes themselves often have less turnover and less maintenance required by the property owner, single-family communities are less dense and have more green spaces and common areas than a traditional apartment property. This maintenance is the responsibility of the owner or property manager. These communities are also built in strategically located neighborhoods, such as desirable areas of a city, increasing your earning potential. This emerging asset class helps you capitalize on rising rents in hot property markets.Primary Investor TypesREITs, private equity firms, and individual investors might all invest in single-family rentals. Homebuilders also invest in these multifamily properties as an alternative to selling homes, which could prove lucrative in profitable rental markets.FinancingA commercial loan from a bank is the most popular financing type for single-family build-to-rent. However, you might want to consider a construction loan to cover the cost of building these properties. HUD and other government-supported financing initiatives also provide funding opportunities.Other Key CharacteristicsSingle-family buildings often include outdoor spaces, modern furnishings, and security features for residents. They might be large properties with multiple rooms or smaller units. The former will help you make more money from rental income.You'll almost always find single-family rentals in suburban areas, often in desirable neighborhoods with good schools and green spaces. These properties typically cater to middle-income families; however, you might want to invest in government-funded homes for low-income communities.SENIOR HOUSINGSenior housing is a highly established multifamily property class that can produce lucrative returns on your investment. This asset caters to older adults, typically those in retirement, who might require home care nursing services or want to be with people of a similar age. As people are living longer, senior housing lets you earn a steady rental income over multiple years, with older adults tapping into their Social Security or private pensions to fund rental payments.Primary Investor TypesIndividual investors, private equity firms, pension funds, and life insurance companies might invest in this multifamily asset class. Since many forms of senior housing include some form of healthcare component in addition to the housing component, many investors of senior housing real estate specialize in this product type.FinancingFunding options for senior housing include agency financing, traditional loans from banks, and equity financing. If you have a good credit standing, you'll find it easy to obtain financing with competitive commercial loan interest rates and favorable terms.Other Key CharacteristicsCommunal areas, private bedrooms, and accessibility fixtures for disabled residents are common amenities in senior homes. This property asset class tends to be on the larger side, with residences often consisting of hundreds of individual units. However, you might want to invest in smaller senior properties with fewer bedrooms. You'll usually find homes for older adults in suburban areas. Additionally, government-subsidized programs might provide affordable housing options to low-income seniors.AFFORDABLE HOUSINGAffordable housing is more difficult to define than other multifamily property types in this guide. However, HUD describes it as a household that pays no more than 30% of its annual income on housing, meaning residents still have money for other essentials such as food, transportation, and utilities. Affordable housing is an established asset class, but it has become increasingly popular among investors recently because of the potential for high rental income yields.Primary Investor TypesGovernment agencies and non-profits have traditionally invested in affordable housing. However, private investors and REITs now invest in this property class to generate income from rental revenue.FinancingYou can finance this asset with a commercial loan from your bank, agency financing, or mezzanine financing. You might also receive the low-income housing tax credit (LIHTC) for building affordable housing.Other Key CharacteristicsAffordable housing amenities depend on the property type but might include communal outdoor areas, children's playgrounds, and convenient access to public transportation. Housing sizes also vary and can range from large housing communities to small apartment complexes.You'll find affordable housing in both city-center neighborhoods and suburbs. Because of rising living costs in recent years, some middle-income families might need access to affordable housing, however this property type typically caters to low-income communities.STUDENT HOUSINGThe final multifamily property type in this guide is student housing, which provides students in further or higher education with a temporary place to live. This established type of commercial real estate investing can provide great earning potential. That's because students have a stable income from college savings accounts such as 529 plans, loans, grants, support from parents or relatives, and other types of guaranteed government funding.Students – and their families – recognize that housing is one of the costs associated with higher education, and these costs are often built into a college budget. One of the primary advantages of student housing from an investor’s perspective is that college enrollments rarely fluctuate from year to year, allowing for a predictable flow of students that require housing.Primary Investor TypesThe main investor types for this property sector are private investors, REITs, and student housing companies.FinancingIf you need funding for a student housing investment, consider traditional commercial loans from creditors, construction loans, and crowdfunding.Other Key CharacteristicsYou'll find communal areas, study areas, gyms or fitness centers, and controlled security access in many student housing complexes. Apartments are the main property type, though you might want to invest in houses for students living with their partners and/or children. Student housing is typically located close to college campuses, which can be situated in downtown areas, suburban communities, as well as small towns and rural environments.Ready To Take the Next Step?Now that you have a solid understanding of multifamily asset classes, it's time to put your knowledge into action. Take advantage of the opportunities in the commercial real estate market by exploring our active listings for multifamily properties. Whether you're looking for a value-add opportunity or a stable income-generating asset, our experienced team can guide you in finding the right investment for your goals, as well as securing the most appropriate financing solution. Don't miss out on the potential returns and long-term benefits of multifamily investing. Connect with our team today and take the first step toward building a successful commercial real estate portfolio.
March 19, 2024
Hampton Roads 4Q23 Multifamily Market Insights report: Rents maintain a steady upward trajectory to close 2023
Highlights: The Hampton Roads multifamily market ended 2023 in a slightly stronger position than it began the year. Vacancies were largely flat, and rents posted a steady advance. Fewer properties sold during the year, but there was an increase in transactions in the fourth quarter.Coming off of two consecutive quarters where local vacancy tightened, the rate rose 40 basis points during the fourth quarter to 5.7%. Current vacancy levels are identical to the figure from one year earlier.Rent gains were steady in 2023, building on increases from prior years. Average asking rents advanced 4.1% for the full year, ending the fourth quarter at $1,510 per month.While transaction activity bounced off earlier lows late in the year, total sales velocity was down about 40% from 2022 to 2023. The median price ended the year at $142,900 per unit, while cap rates ranged between 5.75% and 6.25%.Read the report, or learn more by engaging with our office in Richmond, Va.
March 19, 2024
Kansas City 4Q23 Multifamily Market Insights report: Steady rent increases recorded in 2023, likely in 2024
Highlights: Despite a modest vacancy uptick at the end of the year, the Kansas City multifamily market posted a healthy performance in 2023. Construction has been above the region’s long-term trend but has been consistent in each of the past two years.Vacancy conditions softened in the final months of the year after improving in the preceding two quarters. The vacancy rate rose 40 basis points in the last three months and ended the year at 5.5%.Asking rents rose 1.6% in the fourth quarter to $1,190 per month. Area rents advanced 2.7% in 2023, following steeper increases in the previous two years.Transaction volume in the Kansas City multifamily market was light in 2023, with the steepest activity declines recorded in the Class A segment. Total sales velocity was trimmed approximately in half from 2022 to 2023, and the median price during the past 12 months was $128,600 per unit.Read the report, or engage with the Kansas City office to learn more.
March 15, 2024
Economic Commentary: Easing Inflation and Strong Labor Market Influence Fed’s Interest Rate Mantra of "Higher for Longer"
Expectations for the timing and number of interest rate cuts by the Fed in 2024 were sharply revised in February due to the ongoing strength of the labor market and recent strength in inflation readings. At the beginning of February, five to six cuts in the Fed Funds rate during 2024 were forecast to begin in May. By the end of the month, markets had backed off the number of cuts to three beginning in June or July. “Higher for longer” is now the accepted mantra as it applies to the Fed’s interest rate policy.Inflation & Consumer SpendingFor the second month in a row, the January Consumer Price Index (CPI) surprised to the upside with the headline rate growing 0.3% for the month and 3.1% year-over-year. For reference, 2.9% was expected. The core CPI grew at 3.9%, whereas 3.7% was expected. Much of the strength in the January report came from goods and services that are historically less volatile – a potential concern for the Fed.Importantly, the Fed’s preferred measure for inflation, the core Personal Consumption Expenditure Index (PCE), increased at the fastest monthly pace since January 2023 bringing its year-over-year reading to 2.8%, down from 2.9% year-over-year the previous month. Although some of the strength in the January reading could be attributed to a re-weighting of some of the components, inflation is still above the Fed’s 2.0% target, and while it is trending in the right direction, it has not yet provided the Fed with the needed evidence to confidently say that inflation is moving sustainably toward their target.While inflationary pressures in January were elevated, there were several reports that showed that consumer spending was slowing after ending 2023 on a heated pace. Consumer spending in January grew only 0.2% following a strong showing of 0.7% in December. On an inflation-adjusted basis, consumer spending declined for the first time since August. With Disposable Personal Income growing 0.3% in the month, the savings rate was able to improve to 3.8%, but it still remains well below the historic average of 8.0% to 9.0%. The latest edition of the Fed’s Beige Book for the seven weeks ended February 26 provided anecdotal reports of increased price sensitivity on the part of consumers who continue to trade down and shift spending away from discretionary purchases.Lending Standards & Economic IndicatorsThe January Senior Loan Officer Survey reported that banks, on balance, tightened lending standards further for most loan categories in fourth quarter 2023, although the net share of banks tightening was lower than in third quarter 2023. While not as many banks are continuing to tighten their lending conditions any further, less than 2.0% are easing. In addition to tight lending standards, banks report increasing spreads of loan rates over their cost of funds for commercial and industrial (C&I) loans, as well as weaker demand for all categories of loans. Regarding banks' outlooks, they reported expecting lending standards to remain basically unchanged for C&I and residential real estate loans, but to tighten further for commercial real estate, credit card, and auto loans. In addition, banks reported expecting loan demand to strengthen across all loan categories, and loan quality to deteriorate across most loan types.The leading economic indicators for January continued their decline for the 23rd consecutive month, led by declines in the average workweek, building permits, as well as the ongoing inverted yield curve.The second reading of real GDP in fourth quarter 2023 was revised down 0.1% to 3.2%, and the ISM manufacturing survey for January declined to 47.8 from 49.1 with the new orders, employment, and production components all showing weakness.Labor Market & the Fed’s OutlookThe February employment report had two different versions of the labor market, depending on the survey. The establishment survey showed a healthy gain of 275,000 jobs but came with a significant downward revision of 167,000 to the prior two months. Nearly 75% of the job growth came from healthcare, leisure and hospitality, and government.The household survey, on the other hand, showed a decline of 184,000 jobs. Over the past three months, the establishment survey has reported a total gain in employment of 794,000 jobs while the household survey has shown a loss of 898,000 jobs. The unemployment rate, which is calculated from the household survey, increased to 3.9% from 3.7% and is now at the highest level since January 2022. Average hourly earnings grew 0.1% bringing the year-over-year increase to 4.3%, down from 4.4%.One final takeaway from the employment report is the index of aggregate hours worked so far in first quarter 2024 is flat. That has important implications for GDP growth this quarter. Barring a significant increase in this index during March, first quarter growth will have to come from an increase in productivity.In his scheduled two-day testimony before Congress last week, Fed Chair Powell indicated that there is no urgency to lower interest rates. “We’re waiting to become more confident that inflation is moving sustainably at 2.0%...when we do get that confidence – and we’re not far from it – it’ll be appropriate to begin to dial back the level of restriction.”The Fed continues to grapple with concerns about cutting interest rates too soon and re-igniting inflationary pressures versus holding rates high for too long and pushing the economy into recession. The extent of the lagged effects of the ongoing tight monetary policy are difficult to accurately anticipate. Due to the Fed’s dual mandate of price stability and maximum employment, the decision to lower interest rates, and the pace at which easing proceeds, will likely be dictated by the strength of the labor market as long as inflation continues to ease. hbspt.cta.load(7279330, '7be7f63d-99b7-45fc-b0e0-d15df96c89fa', {"useNewLoader":"true","region":"na1"});
March 14, 2024
Dallas 4Q23 Multifamily Market Insights report: Sales slow, but a wide range of properties continue to trade
Highlights: Following a healthy middle part of 2023, multifamily operating conditions in Dallas-Fort Worth cooled in the fourth quarter. Renter demand remained strong, but completions outpaced absorption — resulting in rising vacancy levels and a modest rent decline. Rapid economic growth brightens the outlook for 2024.Vacancy in Dallas-Fort Worth rose 120 basis points in 2023, ending the year at 7.1%. The current rate is higher than the region’s longer-term range; during the past five years, vacancy has averaged 5.2%.After rising in the middle part of the year, rents trended lower in the fourth quarter. Rents dipped to $1,526 per month, down0.5% year over year. Rents should trend higher in 2024 as absorption remains elevated.While the number of properties that sold in 2023 was down significantly from levels recorded in recent years, Dallas-Fort Worth was still a top market for multifamily investment sales volume for the year. Transactions closed across property classes and pricing closely tracked levels from prior years. In transactions where pricing is available, the median price reached $159,800 per unit.Read the report, or engage with our Dallas office to learn more.
March 11, 2024