🍎 What Apple's AI announcement means for CRE

👋 Hello, Best Everites! (Best Everians? Besties? … We’ll work on that.)

In this week’s edition, Apple goes AI, a CRE fraudster gets busted, and a mobile home park quickly doubles in value.

This week’s newsletter is brought to you by Ascent Equity, a real estate investment firm that helps accredited investors build wealth through strategic, passive investments in multifamily properties. Learn more about Ascent Equity here.

Off we go!

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CRE HEADLINES

👨‍⚖️ CRE Fraudster Busted: A New Jersey investor pleaded guilty to engaging in a conspiracy to obtain nearly $55 million from lenders to fraudulently acquire multifamily and commercial properties over a six-year stretch.

🤕 Hotels Hurting: A new JLL report has flagged $5.8 billion in hotel debt coming due in 2024, with lagging profitability, elevated interest rates, and mounting insurance expenses hindering refinancing efforts.

📉 Global Cash Crunch: Foreign investors spent $14 billion on U.S. commercial properties in Q1, down from $27.7 billion in Q1 2023. The last time international investors spent that little money on U.S. CRE was Q3 2011.

⏪ Multifamily Reversal: Multifamily investment conditions improved in Q1 2024 as falling property prices and NOI growth offset higher mortgage rates. This boosted Freddie Mac's AMI by 8.7% to 112.5, reversing the previous quarter's decline.

📈 Still, Delinquencies Up:  The multifamily CMBS delinquency rate increased 37 basis points to 1.70% in May, with $245 million in newly delinquent multifamily loans. Meanwhile, the overall CRE rate declined 10 bps to 4.97%.

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APPLE BETS ON AI: WHAT IT MEANS FOR CRE

While tech giants like Microsoft, Google, and Meta engaged in a generative AI arms race over the last two years, fueling a data center boom, Apple remained unusually quiet … until now. This week, the company introduced Apple Intelligence, a range of generative AI tools that it will soon incorporate into the operating systems for iPhones and other Apple products.

📱The New AI: Apple Intelligence will bring generative AI capabilities like image creation, AI writing tools, and ChatGPT functions to billions of iPhone users, as well as a smarter, more intuitive Siri that can function more as a personal assistant. These integrations — scheduled to appear on Apple devices this fall — could make AI an integral part of everyday digital lives, just as Apple made digital music mainstream with the iPod and made the smartphone ubiquitous with the iPhone launch.

💾 Data, Data, Data: The AI boom has already transformed the data center landscape by changing both how and where centers are built. Generative AI uses massive amounts of energy for computation and data storage, leading to a rise in “hyperscale data centers,” which contain many more computers and can quickly scale up. While a traditional cloud data center occupies about 100,000 square feet, a hyperscale center can be as big as two million square feet. There are over 1,000 hyperscale data centers globally (the U.S. accounts for half of that capacity), and global capacity is projected to double in the next four years.

💗 CRE’s New Darling?: Some big players are already banking on the data center boom, as mega-developer Vantage Data Centers received a $6.4 billion equity infusion earlier this year, and just this week, CBRE purchased Direct Line Global, which provides technical services to data centers. Meanwhile, according to CBRE, nearly 100% of CRE investors surveyed said they plan to invest more heavily in data centers.

WHAT IT ALL MEANS

While the initial AI wave fueled data center growth in smaller markets and rural areas, if Apple succeeds in driving widespread consumer adoption of AI, it could catalyze another seismic shift, spurring new demand in major cities and population centers where most users live and work. This potentially disproportionate demand for AI-capable data centers in primary markets could signify the future of data centers, presenting big opportunities for investors.

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FROM NIC MCGRUE

Finder's fees allow syndicators to incentivize and compensate people in their network for bringing investor capital to their deals. However, there are securities laws and regulations around paying finder's fees that investors must comply with when raising capital to avoid running afoul of the law.

The SEC and state regulators enforce stringent rules around paying finder's fees when raising capital. Here are some things you need to know to avoid Johnny Law.

🪪 Broker Licensing Is (Mostly) Required: In most cases, individuals facilitating securities sales or introducing investors must register as brokers with the SEC and FINRA. Broker registration involves specific qualifications, ongoing compliance obligations, and conduct standards adherence.

❗Unlicensed Finder Exception: There is a narrow exception allowing unlicensed individuals to receive compensation solely for introducing parties, without engaging in broker activities like negotiating terms, providing advice, handling investor funds/securities, or involvement in offering/selling securities.

🚫 No Transaction-Based Pay: Unlicensed finders cannot receive transaction-based compensation contingent on investments being made or amounts invested. They cannot be paid commissions. Their flat fee must be earned upon making the introduction, regardless of any subsequent investment.

Some states allow finders to receive compensation without a broker license under certain conditions. However, federal securities laws regarding finders still apply in addition to state laws. So, as usual, do your due diligence.

👉 Discover more tips on how to safely engage finders here.

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MOBILE HOME PARK DOUBLES IN VALUE IN 1 YEAR

Pasha Esfandiary and his team at Evoke Capital nearly doubled the value of this mobile home park in just one year. Here's how they did it 👇

🏢 Property Details: This 160-lot mobile home park was purchased in May of 2022 in Huntsville, AL, at 76% occupancy.

💸 Finances: The property was purchased for $5,425,000 and Evoke raised over $2.5 million in capital. They secured a loan at 70% LTV with a 4.4% fixed rate and 18 months I/O on a 10-year term with 30-year amortization.

💼 Business Plan: This team focused on infilling vacant lots and renovating existing park-owned homes to be sale- and rent-ready, which included new flooring, kitchens, bathrooms, lighting, and plumbing. Over the last 11 months, they have increased occupancy to 94% and plan to hold while reducing expenses and strategically raising rents.

🍾 Results: The property is currently valued at about $9 million, and Evoke projects an 8–10% preferred return as well as a 23.3% IRR for investors over the next 10 years.

If you have a deal you'd like us to feature, share it with us!

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FREE DOCUMENT DOWNLOAD

5 Tactics to Win a Bidding War (Other Than Paying More Money)

In a low-inventory environment, you’re bound to find yourself in a bidding war. This document includes five tactics to create a more attractive offer to a buyer without increasing the purchase price. These tactics are especially important during the best-and-final round of apartment deals with multiple offers.

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🙏 Thanks for reading, Besties! (O.K., that just feels right.)

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Have a Best Ever day!

—Joe Fairless