📈 Are we heading for an industrial vacancy surge?

Hello, Best Ever Community!

In this week’s newsletter, we examine the state of industrial CRE and Nic McGrue explains everything you need to know about Regulation A.

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Here we go!

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ON THE BEST EVER SHOW

👋 Introducing The Best Ever Show’s Newest Podcast Host, Joe Cornwell: Ash Patel welcomes the newest host of the show, Joe Cornwell, a former police officer turned multifamily real estate investor from Cincinnati. Listen here.

📈 Daniel Angel — From Ground Zero to $50 Million: With a current portfolio valued at over $50 million, Daniel discusses the changing dynamics of value-add multifamily investing. Listen here. 

💸 Cameron Barsanti — A Blueprint for Building a Multimillion-Dollar Self-Storage Portfolio: Cameron provides invaluable insights into the self-storage business, focusing on deal flow, mentorship, and partnership.  Listen here.

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THE STATE OF INDUSTRIAL CRE

U.S. industrial vacancy and demand are normalizing as construction deliveries hit a record high, according to Cushman & Wakefield’s recent Q3 report. The report, released this week, analyzes quarterly industrial sector activity including supply, demand, and pricing trends. Here are some key takeaways.

⚖️ Deliveries Up, Starts Down: Q3 2023 saw a record-setting 171.8 million square feet of new industrial construction, marking an 18.7% increase from Q2. Year-to-date construction is on pace to surpass the previous record of 514.5 msf set in 2022. Meanwhile, developers are showing restraint in starting new speculative projects, including a sharp 61.4% year-over-year decline in construction starts.

🧽 Absorption Slows, Demand Normalizes: Industrial absorption rates have slowed for the past four quarters, yet net growth continues. Net absorption stood at 46.2 msf for Q3, a decline of 12.7% from Q2. The market is projected to surpass 210 msf by the end of 2023. A key insight here is the reduced demand for industrial spaces in 2023, attributed to the pandemic-driven goods boom subsiding and businesses anticipating an economic slowdown.

📊 Vacancy Normalizes, Rent Growth Cools: Record new supply and normalizing demand have led to a rise in vacancy. The current vacancy rate is 4.7%, up 70 bps quarter-over-quarter and 120 bps from the beginning of the year. The industrial average asking rental rate has risen slightly to $9.73 psf, marking a 0.9% increase from Q2. Year-over-year rent growth declined for the fourth consecutive quarter, landing at 12.3% in Q3.

🔮 What it All Means: The influx of deliveries, largely from speculative developments, could push the vacancy rate above 5% in 2024 — higher than the 2022 record low of 2.8%, but still below the 15-year average of 6.8%. As a consequence, rent growth will likely decelerate, nearing 10% by year’s end and dropping to mid-single digits in 2024. But as the market absorbs this supply and deliveries wane, rents could begin to rise again in 2025, branding 2024 as the year for industrial market stabilization.

📰 Other CRE News

An ‘Unexpected Twist’: The surge in apartment construction is softening the Class B market more than any other asset class, according to Jay Parsons.

Wyndham Says No to $9.8 Billion: Wyndham Hotels & Resorts declined a surprise $9.8 billion purchase offer from Choice Hotels due to regulatory and valuation worries.

Down and Out: Drugstore chain Rite Aid filed for Chapter 11 bankruptcy this week, citing more than $1 billion lost in recent months and warning investors that they could close doors for good.

Fraud, Racketeering, Bribery (Allegedly): A Houston real estate owner battling Galleria-area office building foreclosure is also accused in a federal lawsuit of a scam causing over $15 million in damages.

Out of Office: Global investors are shifting from U.S. office spaces to residential, likely spurring significant declines even in top-tier office sectors, according to AFIRE.

Rates Topped-Out?: Federal Reserve Bank of Boston President Susan Collins suggests that officials are taking a more patient policy-making approach now that rates are at or near their peak, though further rate increases are still possible.

Fannie’s New Plan: Fannie Mae has introduced a new financing program to support the creation and preservation of workforce housing for middle-income renters.

Bipartisan Support: Over one-third of Congress and an even split between Democrats and Republicans have voiced support for the Affordable Housing Credit Improvement Act (AHCIA), marking one of the most bipartisan tax bill supports in Congress.

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INVESTOR ATTRACTION ACADEMY

🧠 Want to learn how to achieve a significant edge in capital raising and effortlessly attract high-net-worth investors? Then join Best Ever CRE and Yakov Smart of Investor Attraction Academy in a FREE live webinar on October 26.

🎓 In this 30-minute webinar, you'll learn:

• The #1 question you should be asking yourself when it comes to finding investors beyond your current network. Hint: It's NOT what you think!

• Why AI is an untapped goldmine for raising capital and attracting high-net-worth accredited investors.

• The hidden system for booking meetings with potential investors and raising capital on auto-pilot.

👉 Register here to join us at 2 p.m. EST on October 26.

Can't make it on October 26? Register anyway, and we'll send you the replay.

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FROM NIC MCGRUE

🤔 Discovering the right path to funding your real estate project is crucial. When it comes to leveraging capital and potentially selling securities, Regulation A offers an intriguing option.

In this blog post, Nic McGrue delves into the key insights you need to know about Regulation A, its two tiers, and the administrative steps involved in this "baby IPO" for real estate ventures.

Whether you're an experienced real estate professional or a newcomer to the field, understanding Regulation A can open up new possibilities for your projects. So, what is Regulation A?

🔍 Regulation A is an exemption that allows public offerings to go unregistered, but it still has regulations, filings, and other obligations.

💰 It operates under a two-tiered system, allowing companies to raise up to $75 million in a 12-month period from all investor types, including accredited, sophisticated, and other investors.

🤝 Regulation A offerings permit general solicitation and do not require a pre-existing relationship between investors and the issuer.

👶 It is often referred to as the "baby IPO" due to its similarities to an initial public offering, but it involves an extensive administrative process.

📂 Initiating a Regulation A offering requires a financial audit, various disclosures, and legal documents. The process officially begins when the issuer files its offering statement with the SEC, which will review and qualify the offering.

💬 “Regulation A is a relatively newer exemption, and because of the extensive reporting and other regulatory requirements, Regulation A is not a heavily used exemption for retail real estate securities offerings. However, each situation is unique, and there are real estate professionals who complete their capital stack through investments received from the Regulation A exemption.” —Nic McGrue

👉 Read the full article. 

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WHAT WE’RE READING

Join Joe Fairless on Tuesday, October 31 at Noon EST 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 The Asset Mindset by Daniel Fielding.

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—Joe Fairless