REAL ESTATE INVESTORS CHOOSING SINGLE-FAMILY RENTAL HOMES. Invitation Homes, the largest owner of U.S. rental houses, has formed a joint venture with Rockpoint Group, a Boston-based property investor, to spend about $1 billion to buy another 3,500 rental properties.
Invitation owns about 80,000 houses and has been spending an average of $200 million a quarter during the economic shutdown to add more. It issued $448 million worth of stock in June to fuel its buying spree.
Invitation is putting $75 million into the new joint venture, which will borrow $600 million to go house-hunting with.
Investment company Nuveen recently announced a $400-million bet on a venture that will buy rental houses in Arizona, Florida, and Texas. Brookfield Asset Management, a Canadian firm, bought a company owning 10,000 rental houses from Alabama to Ohio and raised $300 million to buy more.
Invitation and American Homes 4 Rent, a similar operation, are reporting rising rents and record high occupancy rates. The companies’ share prices, and those of competitor Tricon Residential, have outperformed those of funds investing in shopping malls, office towers, and more traditional real estate investment vehicles.
Private-equity real estate investment companies hold an estimated $150 billion in cash needing something to do, analysts say.
Adults under 40 with high incomes but burdened by student and credit-card debt will choose suburban homes as they start families, the rental companies expect. However, they often will not be able to save a down payment or qualify for a mortgage as home prices remain high.
“There is an acute shortage of homes available for sale, a dynamic which should support home prices and keep many families who would prefer to purchase a home in the rental market,” said Barclays analyst Ryan Preclaw told the Wall Street Journal.
TREND FORECAST: We reported the strong growth of the Bigs buying up the house rental market during the Panic of ‘08. As with other economic sectors, with the majority of financial assets in the hands of the few, their buying power will continue to grow as the “Greatest Depression” worsens and the middle class continues to shrink.
BAY AREA OFFICE RENTS FALL AS TECH COMPANIES KEEP WORKERS HOME. San Francisco-area office rental rates slumped 4 percent from 1 April through 30 September, a drop more than double that of any other major city, according to Costar Group, a research firm.
Bay area businesses leased 700,000 square feet of office space during the third quarter, 81 percent less than the 3.6 million signed a year earlier.
“The deal activity has totally dried up,” said broker Chris Roeder.
About 15 percent of area office space was occupied in September, and less in the city center, compared with about 25 percent across the country, according to various real estate service companies.
The lack of office traffic has crippled thousands of businesses in the city and threatens the survival of as many as 1,900 restaurants, the Golden Gate Restaurant Association has warned.
San Francisco rental rates skyrocketed over the past 20 years, as tech start-ups believed that an address in the city would lend credibility to their ventures and draw investors’ attention.
FORECLOSURES POISED TO RISE IN COMMERCIAL REAL ESTATE. A growing number of lenders are quietly negotiating to take possession of properties from their borrowers, said Jay Neveloff, a partner in Kramer Levin Naftalis & Frankel, a New York City business consulting firm.
Across the U.S., 278 commercial properties backing securitized mortgages were in foreclosure during the week of 29 September, at least 80 of which suffered reversals because of the economic shutdown, according to Trepp, a real estate data firm.
Recent high-profile foreclosures include Chicago’s iconic Palmer House hotel and several luxury apartment blocks in New York City.
“It’s coming,” said Jay Olshonsky, CEO of the NAI Global real estate services firm. “It’s just a question of how bad it’s going to be.”
The result will be worse than during the Great Recession, Olshonsky predicts, when tens of billions of dollars’ worth of commercial properties were foreclosed.
In addition to hotels, restaurants, and shopping malls, the growing foreclosure portfolio will include more and more office and apartment buildings, he noted.
“We’ve never had a situation where people weren’t paying their rent on their apartments like we have now,” Olshonsky said.
EMPTY MANHATTAN APARTMENTS TRIPLE IN SEPTEMBER. In September, 15,963 Manhattan apartments were standing empty, compared to 5,299 a year previous, according to data from real estate firms Douglas Elliman and Miller Samuel.
The vacancy rate is now almost 6 percent, compared to less than 3 percent before the pandemic.
The vacancies have forced rental rates down by 11 percent, with the typical two-bedroom apartment now renting for $4,817 a month and a one-bedroom for $3,306. Rents for studio apartments have fallen 14 percent.
To lure tenants, landlords are now offering an average of two months’ free rent.
As the City’s financial woes mount and residents face service cuts, landlords and real estate brokers see a bleak future.
“I think we have a little ways to go,” said Steven James, Douglas Elliman’s New York City CEO. “The consumer knows the landlords are on the ropes and they know they’ve got them.”
The loss of rents likely will squeeze smaller landlords who are less well-capitalized to withstand the downturn, analysts predict, ultimately jeopardizing mortgage lenders, banks, and the city itself, which relies for a third of its budget on property taxes.
TREND FORECAST: All of the above real estate trends have been forecast by us since the lockdowns in March when COVID rules and regulations were imposed by politicians.
Our forecast remains: Most big city residential and commercial property values will continue to go down as more people work from home, tourist traffic slows, crime rises, and people flee to “safer” upscale, exurban areas.
