Investor Sentiment Shifts Back to Multifamily Amid Broader CRE Decline

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Good morning. Investor interest is down across most CRE sectors, but multifamily is gaining ground, fueled by looser conditions, high mortgage rates, and rising single-family home prices.

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• Normalization period: Moody’s Kevin Fagan describes the commercial real estate market as stabilizing, with rising transaction volume and a shift in demand dynamics.

• Portfolio sales: Lenders are increasingly selling large portfolios of properties and loans to rebalance commercial real estate holdings, signaling a potential market shift toward financial stabilization.

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• Mortgage rates: The average 30-year U.S. mortgage rate climbed to 6.44%, driven by strong economic signals and rising Treasury yields, adding pressure on homebuyers and suppressing mortgage applications.

• High risk: Developers built 300,000 flood-prone properties nationwide since 2019, despite escalating climate risks and insurance costs.

• Gaining momentum: U.S. home builder confidence increased in October despite high mortgage rates and low affordability, driven by improving sales expectations for the next six months.

• Oil bust: Lea County, New Mexico, now America’s top oil producer, is thriving on oil wealth but braces for an inevitable downturn, with officials fearing it could be severe.

• Buyer’s market: Despite strong demand, multifamily remains a buyer’s market due to record-high supply, with potential rent growth anticipated by 2026.

• Hyde Park: An East Coast investor bought a 24-unit property in Hyde Park for $9 million as interest grows near the upcoming Obama Presidential Center.

• Facing foreclosure: Falls Apartment Group risks losing two Pasadena complexes to foreclosure over a $33.5M debt, with auction set for November 5.

• DFW BTR boom: After a slow start in 2024, Dallas-Fort Worth developers anticipate a surge in build-to-rent projects fueled by pent-up demand and easier financing.

• Luxury housing: Extell Development acquired 655 Madison Ave for $160M, planning to replace the 24-story office tower with luxury condos and retail space.

• Cooling at the ports: Port-proximate real estate demand is declining as retailers revert to just-in-time inventory strategies, despite increased import volumes at major U.S. ports.

• East Bay: Prologis sold a 112,620-square-foot Hayward distribution center to Beeline Group for $41 million, continuing its strategy of divesting non-strategic assets.

• Big deal: Ambient Capital Partners bought a 49-acre industrial outdoor storage portfolio in Harrison and Kearny, marking New Jersey’s largest deal in the emerging asset class.

• Fifth Ave revamp: NYC aims to transform 20 blocks of Fifth Avenue into a pedestrian-friendly boulevard, expanding sidewalks, adding seating, and reducing car lanes to enhance strolling and shopping.

• Retail expansion: Ulta Beauty aims to open 200 new stores by 2027, targeting both established and smaller markets to reach 1,800 locations nationwide.

• Soaring costs: U.S. office vacancies have led to over $43.5 billion in lost potential revenue, with New York City alone accounting for $7.6 billion.

• Meta sublease: Strava will relocate its headquarters to a 41,000-square-foot space at 181 Fremont Street in San Francisco, subleased from Meta.

• Deal of the day: Sonesta will franchise 114 U.S. hotels owned by Service Properties Trust, shifting from management to franchise agreements as SVC sells these properties to reduce debt and enhance liquidity.

📈 CHART OF THE DAY