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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
Capital Corner: Life Companies - Never too big, too small, or too short
Despite the impact that the COVID-19 pandemic has had on some sectors of commercial real estate, life insurance companies are actively lending with a strong appetite for new business, which is benefitting borrowers. With plenty of capital yet to be deployed for the year, many life companies are boosting their allocations compared to last year, adding new flexibility for the length and size of the financing structure. There are several interesting dynamics at play today. First, as the economy is reopening and travel is becoming more acceptable, some life companies are making their first trips since COVID-19 hit and are out in the market. Many are boosting their lending activity. Capital Corner Podcast Life Companies: Never too big, too small, or too short The second dynamic is life companies are expanding their focus beyond multifamily and industrial – the two most resilient asset classes during COVID. Although the office sector still faces some uncertainty, more capital is returning for office. As companies are beginning to bring employees back to the office after working remotely for 18 months, life companies may be looking at financing solid suburban office transactions, for example. Meanwhile, essential retail has performed well during the pandemic, and now some retail segments are rebounding, spurring interest from more lenders. Life companies are looking at grocery-anchored retail, and some location-specific retail assets with services for example. New entrants into the marketIn addition to the traditional players, newcomers are entering the space. In some cases, these companies are newly formed, and in other instances, companies have consolidated and increased allocations to deploy capital. There is also more foreign capital coming in through life insurance companies seeking yield as these groups are attracted to the solid fundamentals of the U.S. commercial real estate market. The bottom line is many lenders are competing, resulting in aggressive pricing and lenders looking to get creative. It is an evolving landscape as allocations and deal appetites change. NorthMarq has loan production and loan servicing relationships with more than 50 correspondent life insurance companies. We continue to have dialogues with our core life companies as well as new entrants. Across our network of offices, we have the inside track of what is occurring in the capital markets. Capital programs have become more dynamicWhat has changed significantly is in previous years, when life companies had a set allocation and program of what they wanted to do, they put their game plan together, executed on the game plan through the calendar year, and restarted the next year. However, it is totally different today as the capital markets and programs are more dynamic and quickly changing. Life companies are now asking us where the opportunities are, so we are consulting the capital and the borrowers, which is unique. We are in the middle of it all. Because it is so fluid, we are helping life companies put together a game plan based on our experiences and what we are seeing in the market. How are life companies getting creative?Lenders are continuing to chase yield, but how they do it may differ lender to lender. Life companies each have their own approach to how they evaluate new business. For example, some life companies are doing construction to permanent financing while others will even do new joint venture equity for industrial and multifamily deals. This chase for yield is driving them to look to different areas so the short-term and long-term match up with the asset-liability mix. We are seeing life companies be innovative and really play in all areas. This creativity, varying terms, and floating fix are alive and well in the market today. If a borrower has a transaction that fits the “strike zone” of the life companies, yields are in the low 2s, there is full-term interest only, flexible pre-pay on the loan term, and accretive leverage. If owners hit that strike zone, life companies can probably offer the most competitively priced capital in the market today. Competition is a boon for borrowersIt is an ideal time to be a borrower in terms of very accretive leverage and good terms and a large number of high-quality groups chasing the transaction. These groups pursuing deals are practically changing on a weekly basis as to who is the most aggressive, or the quickest to find a new niche market. It is a constantly evolving market. This makes it even more imperative from a borrower’s perspective to have a capital markets team that can navigate through this ever-changing environment. Construction perm loan is a product for owners looking for long-term financing without having participation risk on the banking side. Borrowers can select a one-stop-shop and not only dial in a good accretive construction loan but a good long-term loan as well. The interesting dynamics here are the going-in leverage, the ability to lever up post-stabilization, and the terms, which are full-term interest-only at certain leverage points as well as a coupon, that in some instances, is well below a construction loan rate that borrowers would obtain from a bank. In one example, the developer of a $52 million, 288 unit to-be-built multifamily in Port Charlotte, Florida, was able to lock in the interest rate for the construction and long-term operation phase of the financing at application, reducing personal equity and risk and meeting the financial goals of the project. Susan Branscome, managing director in Cincinnati, and Bob Hernandez, managing director in Tampa, teamed up to identify the right life company lender relationship to fit this assignment, where the loan and preferred equity piece totaled 85 percent of the capital stack. Short-term loans have significantly changed in 2021 in terms of the number of life companies that have pushed into both short-term fixed and short-term floating. From a leverage perspective, the real takeaway from life insurance companies on the short-term side is they are playing at higher leverage points and winning from a standpoint of traditional leverage long-term bullet loans. However, life companies are also very good at the short term, higher leverage, value-add across different product types. Life companies as aggregators of capital are out raising money so they have short-term capital like any of the debt funds, and they can deploy it as part of their arsenal. One example was a stabilized industrial portfolio of 12 properties totaling 2.5 million sq. ft. that required acquisition financing complicated by a number of issues, including tenancy changes impacted by the pandemic, its size, and the tight timeframe to close. The borrower bought these assets to add to their already sizeable portfolio, which had a three-to-five-year hold timeline. Michael Chase, managing director of the Boston office, targeted three potential life company lenders who had previously financed assets with this borrower, knowing that the familiarity from both sides of the transaction would mean a smoother, faster process in underwriting, appraisals, and closing documents. Deals of this size and profile see pretty aggressive quotes from life companies since industrial is second only to multifamily assets in their targets for lending. The pricing was aggressive, and the yields were tight. But what was most important to the borrower was the rate-lock at application and over the seven-year term of the loan. In addition, as the correspondent for the life company, Northmarq was able to have control over third-party engagements, with two-week turnarounds in appraisals, quick approvals on leasing changes, and seamless onboarding to Northmarq’s loan servicing platform. Long-term loans have been life insurance companies’ bread and butter. The life companies, with the products they sell, will continue to have a need for long-term debt. The cheapest cost of capital from a life company today – again, for that strike zone -- continues to be in multifamily and industrial. Whether short term or long term, the cheapest coupon and the most dialed-in on the terms are going to be in those two product types. For long-term financing, life companies can really tailor to the needs and requests of the borrower. There is plenty of room for life companies for long-term financing, as the agency lenders don’t have an interest. In a recent example, a single-tenant CVS pharmacy under construction in an infill Denver neighborhood landed with a life company offering to rate lock at application below 3.5% interest rate. Because the tenant was so interested in this specific location, they were willing to sign a 25-year lease starting upon the expected November 2021 closing date. That lease drove the 25-year, fixed-rate financing program consistent with the borrower’s business goals of estate planning, cash flow, and asset preservation. Ultimately, Matt Franke, senior vice president – Houston, said a life company with strong interest in single-tenant net lease properties offered the strongest rate and relationship for the borrower. Life companies are primed for solid production for the remainder of 2021 and into 2022 with an abundance of capital and aggressive pricing.
September 1, 2021
Tampa Q2 Multifamily Market Report: Hiring Surge, Population Gains Fueling Unprecedented Rent Growth
Highlights: The Tampa multifamily market ended the first half of 2021 in a very strong position, with vacancy rates below 5 percent, unprecedented rent growth, absorption ahead of last year’s pace, and the labor market on an upswing. The strong market fundamentals are expected to continue throughout the remainder of the year.Vacancy ended the second quarter at 4.9 percent, matching the level from one year ago. The rate has improved in 2021; year to date, vacancy is down 40 basis points.With momentum building in the economy and demand elevated, rents are posting significant gains. Asking rents surged by more than 19 percent year over year, the strongest gain in the nation.Transaction activity accelerated, and prices pushed higher during the second quarter. The median price in deals closed to this point in 2021 is $160,000 per unit, while cap rates continue to compress to less than 4 percent. Preliminary indications suggest the second half of this year should be particularly active in the local multifamily investment market. Read the report
September 1, 2021
Wyatt Campbell featured in Multi-Housing News: Self Storage emerges as lender comfort zone
SAN DIEGO, CALIFORNIA (August 30, 2021) - Wyatt Campbell, vice president in NorthMarq's San Diego office, shared his insights on self storage in a recent story about self storage's emergence as a "comfort zone" for lenders. Self storage rental rates experienced their biggest fourth quarter increase on record at the end of 2020: 3 percent for climate-controlled units and 2.4 percent for non-climate controlled units, according to Moody’s Analytics. What’s more, rental rates grew 1.8 percent for climate-controlled units for the full year in 2020 and 1.7 percent for non-climate controlled units. Those were the biggest increases since 2014 and 2016, respectively. At the moment, an eagerness among lenders to put money to work, the continuation of historically low interest rates and healthy fundamentals are benefitting self storage borrowers. Debt funds, CMBS lenders, banks, life insurance companies, REITs and the Small Business Administration are active in the sector, and more debt providers continue to allocate capital to it. “Self storage has always had a stable lender pool, but it has been a little bit limited,” said Wyatt Campbell, a vice president with NorthMarq. “But lenders that are staying away from other asset classes are now looking to dip their toe into self storage.” Check out the full coverage on Multi-Housing News.
August 31, 2021
Orange County Q2 Multifamily Market Report: Resumed Hiring Sets the Stage for a Strong Second Half
Highlights: The economy in Orange County is recovering, with employers bringing back workers at a rapid pace. This reopening trend is supporting the local multifamily market. Vacancies inched higher in the second quarter, but the pace of rent growth accelerated, setting the stage for a strong second half of the year.Vacancy rose 20 basis points in the second quarter, with the rate inching up to 3.8 percent. Supply growth in the first half has been modest, but absorption has lagged levels recorded in recent years. Year over year, vacancy is up 20 basis points.After ticking lower at the end of the last year, rents have bounced back in each of the first two quarters of 2021. Asking rents ended the first half at $2,075 per month, up 5.5 percent year over year.The median price in transactions closed year to date is $351,200 per unit, up 13 percent from the median price in 2020. Cap rates have compressed as the economic outlook has brightened; cap rates have averaged 3.8 percent in 2021, down 20 basis points from the past two years. Read the report
August 23, 2021
Capital Corner: Strength of GSE lending continues
GSEs well-positioned for robust finish to 2021 Transaction volume remains strong across all of the GSEs continuing to position multifamily borrowers to be competitive in acquisitions, cash-out refinancing, and value-add properties. FHA/HUDFHA continues to be a popular source of financing for multifamily financing. The combination of historically low-interest rates coupled with the longest loan terms provides FHA with a unique advantage in the market. Transaction volume continues to be robust as FHA heads toward the end of its fiscal year on September 30. We continue to see refinance rates (223f) in the 2.30 percent range and new construction/permanent rates (221d4) around 2.95 percent. The transaction queue remains the dominant topic as lenders and borrowers continue to manage timing expectations. There has been slight improvement in the queue (particularly in the Northeast region) and signs point to more progress in the coming months. Managing (and reducing) the queue remains a significant priority for FHA’s Multifamily group. There are active discussions occurring regarding the alleviation of the “Covid Reserve” (i.e. debt service reserve) that was instituted for all refinance transactions in the spring of 2020. Most capital providers have recently eliminated this type of reserve requirement, and we expect FHA to follow soon. Freddie MacWith just over four months left in 2021, cap management is the number one concern for Freddie Mac. Despite several increases in spreads, Freddie’s pipeline remains robust. Therefore, they are prioritizing acquisitions and maturity refinances. What does that mean for your deals? Elongated quote times, higher spreads, and tighter credit parameters. At NorthMarq, we are advising clients that can push their deals into 2022 to do so, as the cap resets at the beginning of each year. Specialty products are still available, albeit for select sponsors/repeat Freddie borrowers. Fannie MaeFannie Mae is well-positioned to offer competitive terms through the remainder of the year. While other capital sources are starting to slow down with Q4 right around the corner, Fannie’s pipeline remains robust, and terms continue to be very competitive. Capital Markets continue to be accommodating, with the 10-yr UST generally bound between 1.20 and 1.40 percent over the last 30 days, which has kept all-in rates low. And recent headlines surrounding the Delta variant, Afghanistan, and China’s economic slowdown, are all putting additional downward pressure on yields. Fannie’s strike zone continues to be 10-12 year, fixed-rate debt, as these structures tend to provide the best combination of loan proceeds, interest-only, an interest rate for our borrowers. On the loan product front, Fannie has made some unofficial modifications to their sizing requirements. And as a result, we’ve recently seen more aggressive terms approved, with additional proceeds and/or interest only on both fixed and floating-rate loans. Fannie seems to be particularly accommodating on loans with strong property performance and experienced, repeat sponsors. We’re also seeing Fannie be more open to entertaining loans on properties on that are still in lease-up, which has allowed NorthMarq to execute on deals with longer windows to stabilization.
August 17, 2021
Dallas-Fort Worth Q2 Multifamily Market Report: Vacancy Rates Fall as Absorption Accelerates
Highlights: The Dallas-Fort Worth multifamily market posted a very strong period of operating performance during the second quarter. Absorption reached a quarterly total not seen in years, driving vacancies lower and pushing rents higher. Investors responded to these trends by stepping up transaction activity and pushing prices higher.Vacancy in Dallas-Fort Worth ended the second quarter at 5 percent, down 70 basis points from one year earlier, and 100 basis points lower than during the first quarter.The steep decline in the local vacancy rate was sparked by a spike in absorption levels. Net absorption topped 15,000 units during the second quarter; absorption year to date is up 30 percent when compared to the first halves of recent years.Rents gained momentum during the second quarter. Current rents are up 5.4 percent year over year at $1,248 per month.Investment activity accelerated during the second quarter, rising 30 percent from the first three months of the year. In transactions where pricing information was available, the median price in 2021 has reached $156,200 per unit, while cap rates have compressed to 4.1 percent. Read the report
August 11, 2021
August Economic Commentary: Strong Growth Constrained by Multiple Factors
The latest batch of economic reports have provided confirmation of strong growth in 2Q-21. The related story is that growth could have been even stronger without the ongoing supply chain bottlenecks and labor shortages. In addition to keeping activity below potential, these constraints are causing inflationary pressures to reach decade-long highs, thus putting added focus on potential changes in the Fed’s monetary policy. In the following review of recent economic activity, one needs to remember that none of these reports incorporate the impact of the accelerating emergence of the Delta variant of the COVID virus. GDP GrowthThe first reading of 2Q-21 Real GDP showed that the economy grew at a 6.5% annualized rate following the 6.3% increase in 1Q-21. 2Q-21 growth was expected to be stronger, but the constraints mentioned above held back activity. The economy, as measured by Real GDP, has just surpassed its previous peak from 4Q-2019. As a result of unprecedented fiscal and monetary policy actions, we have recovered from the largest peak-to-trough decline in history in record time. Having recovered the lost output from the recession, we are now back in line with the long-term trend of GDP growth and should expect upcoming quarterly reports in 2022 to reflect growth to be more in line with 2.0% - 3.5% growth. This doesn’t mean the recovery is stalling, it’s just that the economy is getting back to more normal growth rates. The primary driver of GDP growth in 2Q-21 was personal consumption expenditures, which grew at an annualized +11.8% rate fueled by the $1.9 trillion stimulus package passed in March. Much of this spending was concentrated in the early part of the quarter. InflationThe persistence of the current inflation surge remains the topic of the day. Headline CPI inflation is at a decade-high 5.4% as of June, and the Core Personal Consumption Expenditure Index (CPCE, the Fed’s preferred measure) is at a 30-year high of 3.5%. The categories most sensitive to the re-opening of the economy (rental cars, airfares, used cars, and lodging) account for the majority of increased price pressures in the CPI. This suggests that this surge in inflationary pressures is largely transitory and will diminish as supply and demand come back into balance. More persistent inflationary pressures will require wages to accelerate. The Employment Cost Index (ECI) tracks total compensation and is growing 2.8% year over year—similar to its pre-COVID reading. The degree of acceleration in the ECI and sustainability of that acceleration will be key factors in the persistence of long-term inflationary pressures. Inflation is growing faster than personal income, making it difficult for consumers to keep up with price increases without dipping into savings. The inflated cushion of savings developed as a result of COVID government stimulus checks is being reduced and is nearing pre-pandemic levels. With support from fiscal stimulus fading, and prices increasing faster than wage growth, expect consumer expenditures to slow in the second half of 2021. Housing MarketThe housing market remains hot. Low interest rates, tight inventories and high demand have been the driving forces. Inventory of homes for sale is down 19% year over year. Median sales prices are rising at 23.4% year over year—the fastest rate this century. EmploymentThe July employment report showed a gain of 943,000 in non-farm payrolls with upward revisions to the previous two months. Gains were highest in the leisure/hospitality sector. Payrolls are still 5.7 million lower than February 2020, but at this pace the Fed’s requirement of “substantial improvement” in the labor market could be met sooner than expected. The unemployment rate dropped to 5.4% from 5.9% as job increases exceeded the increase in the size of the labor force. The participation rate showed only slight improvement, indicating large numbers still staying out of the labor force. Average hourly earnings are growing 4.0% year over year, and with surveys suggesting that firms are struggling to hire qualified workers, upward pressure on wage growth is likely to continue. Looking ForwardThe improving employment numbers and elevated inflation numbers are putting pressure on the Fed to reduce the Quantitative Easing (QE) program they’ve employed since last year. Expect some Fed guidance to come from their Jackson Hole meeting at the end of August or their next FOMC meeting in September. Remember, all of these reports were based on data before the recent acceleration of the Delta variant. The virus remains the biggest threat to the outlook. While it is unlikely that the resurgence of the virus will derail the recovery, it may certainly slow it down.
August 9, 2021
High-profile Investment Sales team joins NorthMarq in Los Angeles
The five additional investment professionals represent the 20th IS team in 40 months MINNEAPOLIS, MINNESOTA (August 4, 2021) – A five-person, high-profile multifamily investment sales team has joined NorthMarq in the Los Angeles area. Vince Norris, Jim Fisher, and Mike Smith come to NorthMarq from Berkadia, bringing decades of experience advising multifamily and land investors in the Los Angeles MSA and throughout Southern California. They will be joined by two senior financial analysts and are the 20th new IS team to join the company in 40 months. “We couldn’t be happier to have this team of seasoned professionals, who are a perfect cultural fit for NorthMarq. Not only are they top brokers in their markets with many similar clients, they also are innovative, collaborative, and operate with integrity,” said Trevor Koskovich, president – Investment Sales. “The addition of this team rounds out our extremely strong platform in the southern California markets – from San Diego up to Los Angeles – bringing us to more than 20 professionals proficient in all areas of multifamily properties.” Norris, Fisher, and Smith, who will be managing directors in the Los Angeles office, said they were attracted to the company by the flat management and the success and growth of the investment sales business. They will work closely with Bryan Schellinger, managing director – Investment Sales in the Los Angeles office, who came to NorthMarq in 2020. According to Koskovich, in addition to their multifamily advisory expertise, they are also strong leaders who will mentor an up-and-coming broker as part of the company’s Associate Broker program. NorthMarq’s Associate Broker and Associate Producer programs are industry-leading mentoring and training programs designed to help emerging talent become successful client-facing professionals. NorthMarq is recruiting candidates for the Associate Broker program in Los Angeles, Phoenix, Charlotte, and Dallas. “NorthMarq represents an entrepreneurial platform with tremendous growth potential. We were attracted to Trevor’s leadership, since he is a player/coach who understands the needs of clients and the IS team members. We are also excited to help the company build the next generation of talent,” said Norris. The team, which has private, sponsored and institutional capital clients, focuses on existing properties, portfolios and land, within all aspects of the multifamily space including market-rate, senior, and affordable properties. Senior financial analysts Trina Pitts and Brandon Norris round out the team. “We have a long-track record collaborating with strong mortgage bankers, which we think offers clients a well-rounded approach that best fits their needs. NorthMarq’s mortgage bankers are well-known in the industry, and will be critical partners as we build our business," Smith said. One of the team strengths is sourcing "off-market" transactions, which are an easy place to collaborate when the client already exists on the mortgage banking/financing, according to Fisher. In June, John Nguyen and Jesse Elsanhuty, an affordable housing team, joined the company in southern California.
August 4, 2021