Good Morning!

Portfolio managers see REITs outperforming private markets in 2024. Prologis has a mixed bag of predictions for the industrial world in 2024, with spec development slowing down in the U.S. A developer wants to build a skyscraper in Tornado Alley. And Seattle emerges as a Top 10 hotel market. Corporate defaults could continue at a fast pace in 2024 as rates potentially remain high. Fed Surveys reveal a hiring slowdown is expected next year. Student loans are not getting repaid. And higher wages for food delivery drivers in NYC are causing apps to pass on fees to consumers

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Capital Markets

Market News

• Fed Done Raising Rates, More Corporate Defaults in 2024

  Fitch Ratings cautions Corporate defaults will rise in 2024 as the impact of tighter central bank policy will continue to work its way through the economy. The rating agency expects interest rates to drop by only 75bps in 2024, much lower than what markets are predicting. High borrowing costs will continue to burden firms and lead to an estimated default rate of 5.0-5.5% for high yield bonds

• Millions of Borrowers Are Not Paying Student Debt

  Only 60% of student loan borrowers made a payment when the bills resumed in October. U.S. outstanding student loan debt exceeds $1.7tn, burdening Americans more than credit card or auto loan debt. The average loan balance at graduation sits at $30,000 with 7% of student loan borrowers having more than $100,000. Its possible some may be taking advantage of the 12-month grace period where payments don’t have to be made but interest will accrue

• Fed Survey Results Show US Employers Expect To Hire Less in 2024

  According to Federal Reserve bank surveys, employers expect to hire less in 2024, a trend that is expected to limit wage gains and ease inflation pressure. Economists expect an average 80,000 monthly job increase over the first three months in 2024. Down from the 170,000 jobs expected in December 2023

• Delivery Apps Making Changes to Tipping Amid New NYC Wage Laws

  New York City raised wages for food delivery drivers to nearly $30 an hour causing apps to adjust how they request tips from customers. Tech companies have also added in new customer fees blaming new city regulations

CRE Headlines

• Portfolio Managers See REITs Attracting Investor Interest in 2024

  Managers believe the private real estate market is only halfway through its valuation correction public markets (REITs) by 12 to 18 months. In 2022, REITs dropped by ~30% while private real estate valuations continued to move up, creating a valuation gap that remained through 2023. As private funds are forced to mark their assets down to levels closer to where transactions are happening, public REITs may be able to acquire assets from the private market at discounted values thanks to greater access to financing and higher liquidity

• Prologis Makes 7 Predictions for the Industrial Sector in 2024

  Prologis made some end of the year predictions for 2024 which include:

  1) The global freight recession will reverse, as demonstrated by double-digit growth in port and truck traffic

  2) The great construction bust will intensify, with global starts hitting the lowest level since the 2008 financial crisis

  3) Latin America will continue to see rent growth at roughly double the global average, driven in part by nearshoring

  4) Annual demand in China will reach the second-highest level on record, helping work through excess supply from the past few years

  5) AI and Tech, will drive up energy requirements in logistics facilities, incentivizing warehouse owners to double solar capacity

  6) Interest rate declines will double private equity real estate funding

  7) Cap rate movements will reverse. U.S. and European cap rates will compress while the expansion rotates to Asia

  Global Spec Development Starts

  

• Is Seattle a Top U.S. Hotel Market?

  In Q3 2023, Seattle ranked fifth in occupancy (80.8%) and eighth in ADR/RevPAR ($193.23 / $341.14), among the top 10 U.S. Hotel markets

  Top 10 U.S. Markets by ADR/RevPAR

  

• Developer Seeking to Build 134-Story Apartment Tower in OKC

  California-based developer, Scot Matteson, plans to build a 22-story hotel, two 23-level residential towers, along with restaurants and shops on top of parking garages in Oklahoma City in 2024. The project has already been approved for a $200mm incentive package of tax increment financing, that will be paid after construction of the first two apartments is completed. The developer is required to spend $500mm dollars in development and add 900 housing units as part of the TIF agreement. Only after the initial development plan and requirements are met, would the developer be able to start construction on the 134-story skyscraper

Deals Deals Deals

Sales

• Multifamily: Wood Partners sells Cooley Station, a 248-unit multifamily asset in Phoenix, AZ, for $80mm. The buyer was a private investor from California

• Multifamily: Lynd Acquisition Group acquires a 327-unit garden-style rental community in San Antonio, TX for $76mm from parent company, LYND Group

• Multifamily: Crescent Communities sells NOVEL Turtle Creek, a 206-unit luxury community in Dallas, TX to Goldrich Kest.

• Multifamily: Category Five Real Estate acquires a 156-unit garden-style multifamily property in Deerfield Beach, FL for $25mm from Prashkovsky USA. The asset was financed with a $15mm, seven-year, fixed-rate, non-recourse loan which includes four years interest only and a step-down pre-payment structure

Debt

• Mixed-Use: Hines and Urban Street Development secure a $220mm construction loan for a 835k sf office, retail, and multifamily project in Fort Lauderdale, FL. Bank OZK provided the loan

• Hospitality: Extell Development obtains $220mm in construction financing for its planned 31-story, 534-key hotel in Midtown Manhattan in New York, NY from Banco Inbursa 

• Multifamily: Avdoo & Partners Development closes on a $105mm senior construction loan for a 243k sf residential condominium development in Brooklyn, NY. Valley National Bank provided the loan

Developments

• Multifamily: Camber Property Group to begin construction on the first phases of its master-planned affordable development in the Bronx, NY in January 2024. The project is a public-private partnership between Camber and several New York City agencies. Bank of New York Mellon, Citibank and Freddie Mac have all provided financing. The first two phases will provide 233 affordable units across three buildings

• Student Housing: Landmark Properties announced it has recapitalized The Standard at Austin, a 934-bed, student housing community located in Austin,TX serving University of Texas-Austin students. TSB Capital Advisors arranged the debt on the transaction

• Industrial: PCCP LLC, Panattoni Development Co. and Hunt Cos. are developing a 940k sf two-building logistics facility in El Paso, TX. Completion is expected in Q3/Q4 of 2024. The asset was 50% pre-leased prior to breaking ground

• Multifamily: Soto Architecture & Urban Design break ground on H.R. Crawford Gardens, a 76-unit multi-family affordable housing complex aimed at senior in Washington D.C.’s Deanwood area. The $52mm project was financed via The District of Columbia Housing Finance Agency and he D.C. Department of Housing and Community Development

Capital Raising

• Multifamily: Novu Residential Group, secures $13mm of preferred equity from an experienced real estate firm focused on ground-up development for a 308-unit multifamily development in Jacksonville, FL. Novu said the undisclosed investor will be a long-term strategic partner

Meme Summary

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