👑 And the current king of multifamily is...

Happy Thursday, Best Ever Community!

In this week’s newsletter, we explore why Class A is the current king of multifamily, private equity fundraising spikes despite economic uncertainty, and Kim Lisa Taylor of SyndicationAttorneys.com reveals the 10 steps to becoming a successful syndicator.

Also, our very own Ash Patel is hosting a webinar on Aug. 31 to discuss how you can invest in the hottest asset class in real estate: flex industrial. Sign up here to save your seat!

 Let's CRE!

⭐️ Top Story

Class A: The (Current) King of Multifamily

🏆 Demand for luxury apartment rentals is outperforming other segments in 2023 despite economic uncertainty and rising interest rates. According to a new report from Institutional Property Advisors (IPA), a division of Marcus & Millichap, Class A vacancy rose 30 basis points from the end of 2022 to mid-2023, compared to 40 and 80 in Class B and C segments, respectively. This occurred despite record Class A construction, with nearly 200,000 new units delivered in the first half of 2023, surpassing the previous record by almost 25,000 rentals.

📊 Class A vacancy is expected to continue drifting up, normalizing rent growth through EOY. Entering Q3 2023, average Class A rent rose 4.5% YoY, aligning with the typical growth of 4.1% seen from 2010–2019 but below the strong 2021–2022 period. This pace is expected to soften through the end of 2023 as vacancy rises.

😣 Multifamily investors have seen better days. Increased operating expenses are driving down NOIs. ​Insurance rates are up 13.6% on average and as much as 28% in some metros. Owner/operators across the country have experienced tax increases as high as 15.3% per unit in some markets.

💸 But that’s not all… A recent Trepp report shows that operating expenses across the top 50 metros are up an average of 10.7% YoY. According to Trepp’s property line-item financials, utilities typically account for 15% to 20% of overall operating expenses. This translates to an increase in operating expenses of anywhere from 1.6% to 2.1% — and that’s before PITI, etc. This is where historically high mortgage rates can actually favor investors, especially in Class A.

🔮 Will It Last? The affordability gap between renting a Class A apartment and a monthly mortgage payment on a median-priced U.S. home grew to about $660 in Q2 2023. This gap, along with inflation and resuming student loan payments in the fall, is expected to keep renters in apartments for longer. With rates rising to 7.48% on a 30-year fixed mortgage, the highest since 2000, this gap is unlikely to close anytime soon, likely extending Class A’s reign atop the multifamily sector.

🗞 No-Fluff News

🏘️ Multifamily Focus

Delinquencies Up, Servicing Down: Multifamily CMBS delinquencies rose 24 basis points to 1.83% in July, according to Trepp, while loans going into servicing fell two basis points to 3.26%.

Developing Confidence: According to the National Association of Home Builders, multifamily developer confidence was positive for Q2, despite credit availability, delayed approvals, and increased expenses hampering development.

A Student Housing Boom?: The student housing pre-lease rate reached 91.4% in July, according to RealPage analytics, the highest of any July on record. 

📰 Other CRE News

Private Equity Fundraising Spikes: Despite economic uncertainty, private equity capital-raising trends show increased investment in CRE, with more funds being raised and more funds seeking capital, according to a Q2 report by Preqin.

A Ray of CRE Sunshine: Retailers are on track to open 1,000 net new stores in the U.S. this year, signifying the sector’s resilience despite inflation and interest-rate challenges.

Beacons of Hope: Confidence indicators are on the rise, the threat of a recession is falling, and after stripping out gas, food, and housing, the inflation rate has fallen to 2.5%, closer to the Federal Reserve’s goals set over a year ago.

👋 Meet Innovation Commercial

The quickest path to innovation is collaboration. And with more than 28 years of CRE experience, Innovation Commercial’s experts are the key to enhancing your business’s innovation engine, offering world-class brokerage and investment advisory services in the following: 

• 🧪 Life Science & AgTech: From simple Discovery R&D labs to highly regulated laboratory and greenhouse setups, Innovation Commercial offers specialized real estate solutions. 

• 🏭 Industrial: For owners and occupiers of industrial properties — be it manufacturing, distribution, or retail — Innovation Commercial aligns its strategies with businesses’ unique needs. 

• 🏢 Office: Eyeing office space? Innovation Commercial’s expertise lies in identifying market trends, helping clients find the perfect space, and securing the best lease or purchase terms. 

• 💰 Investment Opportunities: Unearth real estate opportunities that resonate with your business goals. From sale-leaseback advisory services to coordinating property sales and leasebacks, Innovation Commercial is here to optimize your financial benefits. 

👉 Learn more about Innovation Commercial today.

✍️ From the Best Ever Blog

Drawing from years of experience as a real estate securities attorney, Kim Lisa Taylor of SyndicationAttorneys.com recently shared invaluable insights into how to become a thriving syndicator on the Best Ever blog. Through this 10-step guide, she outlines the crucial stages that separate the accomplished syndicators from those who stumble after a deal or two. Some of the initial steps she recommends taking to achieve success in the world of real estate syndication include:

• 👟 Choosing an Asset Class and Beginning Training: Select an asset class (and trainer) aligned with your goals and interests, and continue your training with advanced courses, mentorship, or coaching.

• ☎️ Building Your Investor Database: You should have 30–50 pre-vetted investors with $50,000–$100,000 each to invest by the time you have a deal and need to start raising money.

• ✅ Hiring the Right Attorneys for the Right Jobs: Hire a commercial real estate transactions attorney to handle the real estate transaction and a securities attorney to create your corporate structure and securities offering documents.

💬 “Plan to be in this business for the long haul — syndication is NOT a get-rich-quick scheme. It’s hard work. If you follow the steps and stay on course, your syndication dreams can and will happen for you.” —Kim Lisa Taylor

👉 Read the full article for all 10 steps.

💻 FREE Webinar!

Learn About Investing in Flex Industrial Real Estate
From Industry Pro Ash Patel

Are you curious about investing in flex industrial to diversify your portfolio, but hesitant about the risks and unknown factors?

Join us in this free, live, 30-minute webinar at 2 p.m. EST on Thursday, August 31 to answer all of your questions about investing in the most sought-after asset class in commercial real estate!

👉 Reserve your seat now!

📚 What We’re Reading

Join Joe Fairless, founder of Best Ever CRE and co-founder of Ashcroft Capital, for the Best Ever Book Club, a non-fiction book club (led by Joe) in which we read and discuss books that can have a positive impact on our lives as real estate investors.

This month, we're reading 10x Is Easier Than 2x by Dan Sullivan and Dr. Benjamin Hardy.

✍️ Sign up today!

📂 Free Document Download

How to Create a Letter of Intent (PDF)

A letter of intent (LOI) is a letter that represents your intent to purchase the property and defines the primary terms of your offer. It is non-binding, meaning you are not legally bound to the terms you propose. The purpose of this document is to outline what information to include in your LOI.

👉 Download now!

🙏 Thanks for reading!

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Hope you have a Best Ever rest of your week!

—Joe Fairless