Features

PACE Financing Tool Gains Momentum in Challenging Development Environment

by Kristin Harlow April 25, 2024

Property Assessed Clean Energy (PACE) is a financing tool that provides long-term, low-cost construction financing for new and existing buildings. Some of the eligible improvements include energy efficiency, water efficiency, renewable energy and resiliency measures such as seismic and stormwater measures. For commercial real estate properties, the acronym is listed as C-PACE. Rafi Golberstein, CEO of Minneapolis-based PACE Loan Group, says there are many reasons why developers like PACE financing today, but the most important is the cheaper cost of capital. REBusinessOnline spoke with Golberstein to learn more about the financing tool and its benefits. REBusinessOnline: What is driving momentum for PACE financing? Rafi Golberstein: PACE is effectively solving a hole in the capital stack. In today’s market when banks and mortgage lenders have tightened up significantly, typically lending less and providing less leverage, that creates a pretty large equity check requirement that is significantly larger than it was two years ago. PACE is coming in to help alleviate some of that pressure to allow these projects to still move forward. In some cases, we’re actually cheaper than the banks. For the developer, it makes a lot of sense to use PACE. There are other structural reasons as well. Bank …

April 25, 2024

Which Office Buildings Are Strong Candidates for Adaptive Reuse?

by Kristin Harlow April 23, 2024

With office occupancy still well below pre-pandemic levels due to the prevalence of the hybrid work model and companies downsizing their space needs, property owners are resorting to creative solutions for vacant or underutilized buildings. The conversion of office properties into new uses such as multifamily or hospitality is one approach. While these adaptive reuse projects are not for the faint of heart, they are an important way to avoid demolition. Construction debris from demolition projects contributes to the building industry’s huge carbon footprint, states Alan Barker, principal and residential market leader at Chicago-based architecture firm Lamar Johnson Collaborative (LJC). When considering an office conversion project, the first step is to make sure that the building’s structural integrity can safely accommodate renovations. Beyond that, office buildings that are a good fit for adaptive reuse typically have flexible floor plans, access to light and ventilation, existing utilities that can handle changes in capacity, and a location that offers proximity to amenities, transportation and parking, according to Barker. Recently, LJC created an adaptive reuse scorecard to help developers and building owners assess a property’s potential for a conversion project. The scorecard is comprised of seven categories: development potential; building form; building systems; …

April 23, 2024

Features

How To Maximize Commercial Investment Opportunities Amid Challenging Market Conditions

by Taylor Williams April 18, 2024

By Derrick Barker, CEO and co-founder of Nectar It’s a hard time out there for commercial real estate. The main impact of the Federal Reserve’s interest rate hikes is that capital is harder to come by. That has resulted in credit standards tightening and fewer transactions happening in the market; according to CBRE, commercial real estate sales volumes were down 54 percent through the third quarter of 2023 on a year-over-year basis. As has been reported thoroughly, this will be a problem for commercial borrowers that are not well-positioned. In terms of how we got here, in 2021 and 2022, many investors purchased properties at high prices, using two- and three-year bridge loans. They underwrote these deals with aggressive rent growth and price appreciation assumptions, which were occurring in real time, matched with cheap capital and allowed for record prices. Now these investors have to find ways to meet their obligations, which they took on by promising to achieve these aggressive assumptions. When their short-term bridge loans come due, they will have to refinance or sell their properties in an environment where capital is scarce and expensive, if available at all. Meeting their mortgage and investor obligations will be difficult …

April 18, 2024

Features Multifamily Seniors Housing

Seniors Housing Occupancy Rises to 85.6 Percent in 11th Consecutive Quarterly Increase, Says NIC

by Taylor Williams April 16, 2024

By Jeff Shaw ANNAPOLIS, Md. — The occupancy rate for private-pay seniors housing rose 50 basis points to 85.6 percent in the first quarter of 2024, according to data from NIC MAP Vision. It’s the 11th consecutive quarterly increase in occupancy as the industry continues to recover from impacts of the COVID-19 pandemic. The occupancy figure marks an increase of 780 basis points from the pandemic low of 77.8 percent in second-quarter 2021, but still just shy of the pre-pandemic mark of 87.1 percent in first-quarter 2020. NIC MAP Vision is a product of the National Investment Center for Seniors Housing & Care (NIC), an Annapolis-based nonprofit firm that tracks industry data gathered from 31 primary metropolitan markets. Private-pay seniors housing comprises independent living, assisted living and memory care. Net absorption in the first quarter totaled roughly 5,000 units, a more than 40 percent increase over the level of absorption in the first quarter of 2023, according to NIC. “The continued upward climb of occupancy along with strong absorption levels supports the NIC forecast of returning to and surpassing the pre-pandemic occupancy levels sometime in 2024,” says Lisa McCracken, NIC’s head of research and analytics. Construction starts increased slightly from …

April 16, 2024

Chad Riddle Multifamily Development Bohler quote

Affordable Housing Bohler Content Partner Development Features Multifamily Northeast Southeast Texas Western

Multifamily Balancing Act: How to Achieve Profit Despite Tight Margins

by Sarah Daniels April 11, 2024

With elevated prices on everything from land to debt financing, insurance, building materials and labor, developers face an uphill climb attempting to pencil out multifamily projects at a profit. That’s why in 2024, developers are opting for practical and convenient amenities over luxury and choosing builder-friendly suburban locations over complex urban sites. And with diminishing room to raise rents on market-rate apartments, many investors and developers are shifting their attention to affordable and workforce housing, where incentives offset some expenses and, ideally, help position projects to deliver positive returns. “Market-rate developers in our region are starting to change their model to embrace more of an affordable product,” confirms Chad Riddle, Atlanta branch manager at Bohler. “Unfortunately, that puts them behind the eight ball because they may not know the tricks of the trade and they are competing with affordable housing developers that already know the business and are thriving.” There is no single strategy to pencil out a profitable multifamily project, but developers are achieving success by sticking to proven, cost-effective design elements and amenities, avoiding costly missteps and cutting down unnecessary spending throughout the development process. Drawing on affordable housing specialists and other in-house experts, Bohler helps clients avoid …

April 11, 2024

Acquisitions Features Multifamily Seniors Housing

After Lackluster 2023, Seniors Housing M&A Activity Is Poised to Rebound in 2024

by Jeff Shaw April 9, 2024

At first blush, 2023 looks like a bad year for seniors housing property sales. Total transaction volume fell 23 percent to $10.6 billion, the sector’s lowest mark in over a decade, according to data from MSCI Real Assets. “I’m not surprised to see transaction volume down from 2022,” says Kelly Sheehy, senior managing director of Artemis Real Estate Partners. “The combined impact of declining asset values, scarcity of financing for new acquisitions and lender extensions for underperforming assets has kept sellers from listing assets and have prevented levered buyers from acquiring.” MSCI’s data is based on independent reports of property and portfolio sales of $2.5 million and above. The numbers include both private-pay seniors housing and skilled nursing care, but not active adult properties. The factors limiting seniors housing transaction volume have affected all real estate asset classes. As far as property acquisitions go, seniors housing was one of the most consistent property sectors in the United States in 2023. Commercial real estate sales across the country were down 51 percent last year, and the two hardest hit sectors were office (sales fell 56 percent) and multifamily (sales fell 61 percent), according to MSCI. What’s more, seniors housing was the …

April 9, 2024

Affordable Housing Features Multifamily

Why Access to Financial Services Is a Key Amenity for Affordable Housing Residents

by Taylor Williams April 4, 2024

By Antonio Marquez, managing partner, Comunidad Partners Amenities are important when it comes to renter appeal. However, what residents want from their apartment complexes is based on different issues, like socioeconomic status. Indeed, a resort-style pool, yoga rooms and fitness centers are nice. But residents at properties owned by Comunidad Partners, an operator of workforce housing communities across Sun Belt markets, want more than these features in their community. To understand our residents — our customer base — we asked them questions, tried programs and obtained feedback. From this, we determined that our residents’ top three concerns were health, community safety and managing finances. However, expense management didn’t involve debt restructuring or financial literacy. Instead, access to the financial system was the issue. Thanks to this feedback, we’ve developed and are implementing programs at two of our properties in Texas — Villas at Alameda in Fort Worth and the Villas at Shadow Oaks in Austin — to help residents access financial services like high-interest savings accounts. These intangible amenities help build and enrich communities while strengthening resident retention and other operational factors that benefit investors. Sensing Residents’ Priorities In determining the right amenities to support residents, it’s essential to understand …

April 4, 2024

Features Student Housing

Strong Rent Growth, Stabilizing Interest Rates Could Spur More Student Housing Transactions in 2024

by Katie Sloan April 2, 2024

Student housing’s strong occupancy rates and rent growth stand out as a bright spot when compared with the rest of commercial real estate sectors, many of which turned in a lackluster performance over the past year. Student housing rental rates at the nation’s top 175 universities increased an average of nearly 8 percent in the 2022-2023 academic year while occupancy in the fall of 2023 was 150 basis points higher than the average occupancy rate over the five preceding falls, according to Berkadia’s 2023 Student Housing Pipeline Report. Pre-leasing heading into the 2024-2025 academic year surpassed 40 percent in December, according to RealPage, and observers expect effective rents to increase an average of around 10 percent compared to around 9 percent in the 2023-2024 period. Meanwhile, fewer lenders are willing to provide construction financing, which is slowing the development pipeline. Developers could add 48,000 beds in 2024, an increase of 11 percent over 2023, but new supply is projected to decline steeply to 28,190 beds in 2025, Berkadia reports. Those metrics, along with growing enrollment at many top universities, are fueling student housing investment demand. The problem, of course, is that student housing faces the same challenges as other property categories …

April 2, 2024

Affordable Housing Development Features Multifamily

Affordable Housing Crisis Prompts Search for Answers from Local, State and Federal Governments

by Jeff Shaw March 28, 2024

One step forward, one step back could easily be the motto for affordable housing development this year. Experts are hopeful a more stable interest rate environment will bolster transaction activity in 2024. At the same time, rising insurance costs, supply-chain hiccups and property staffing issues are forcing developers and investors to proceed with caution in the affordable housing sector. The one-step-forward theme also applies to the legislative arena. The Tax Relief for American Families and Workers Act of 2024 contained Low-Income Housing Tax Credit (LIHTC) provisions that would have incentivized developers to build more housing for extremely low-income renters. The act passed the U.S. House of Representatives in late January and is headed to the Senate, though the National Low Income Housing Coalition (NLIHC) reports that the major reforms to LIHTC were left out of the bill. These speedbumps aren’t mere bureaucratic headaches. Some experts say they stand in the way of keeping many Americans safe and secure. According to NLIHC, the United States is short 7.3 million rental homes that are affordable and available to renters with extremely low incomes, which is defined as either the federal poverty guideline or 30 percent of their area median income (AMI), whichever …

March 28, 2024

Acquisitions Content Partner Features Loans Midwest Northeast Southeast Texas Western

Finance Companies Look to Artificial Intelligence Applications in Predictive Analytics, Due Diligence, Modeling

by Sarah Daniels March 26, 2024

The emergence of generative artificial intelligence (AI) promises to greatly expand the property industry’s reach and abilities. Generative AI can offer suggestions, compile reports and create various types of content, ranging from video to software code. In the commercial real estate world, generative AI has the potential to harness myriad information to help owners, managers, lenders and investors assess portfolio performance, uncover operating risks and identify opportunities, among other activities, says Jeff Salladin, a managing director with Dallas-based private debt fund Revere Capital. But companies need to begin preparing for it now, he adds. “Commercial real estate can be slow to change — it wasn’t that long ago that mortgage brokers were sending us deals via overnight mail,” observes Salladin. “But whether they’re analysts or leadership teams, someone in your shop should be dipping their toe in the water and testing out AI.” Salladin also points out the need to proceed cautiously with this new technology as it evolves. Humans with expertise need to review what AI generates for the commercial real estate field. AI can narrow the focus of many tasks but cannot substitute for human reviewers or the human ability to critically apply information gleaned. AI Benefits Salladin …

March 26, 2024

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