📋 How the appraisal crisis could cause CRE chaos

👋 Hello, Best Ever readers! The Fed decided yesterday to hold rates steady, but there appear to be growing divisions over policy direction. The next Fed meeting is Sep. 17. 🍿

In today’s newsletter, appraisals get messy, AI does it again, multifamily demand surges, loan volumes rise, and more.

Let’s CRE!

🗞️ NO-FLUFF NEWS
CRE HEADLINES

🤖 AI to the Rescue: An AI startup has raised $9.15 million to automate multifamily utility billing, promising to eliminate manual data entry and streamline cost allocation for property managers. The technology aims to transform a traditionally messy and time-consuming process.

📈 Demand Surge: Multifamily demand reached 116,000 units absorbed in Q2 — the sixth-highest quarterly total since 2000 — while rent growth slowed to 1.7% as owners prioritized occupancy over pricing. The construction pipeline hit an eight-year low of below 500,000 units.

🏢 Price Premium: Office transaction volume fell 9.8% YoY to $8.3 billion in Q2, but average prices surged 35.6% to $213.53 PSF despite 56.6% fewer square feet sold, signaling selective investor interest in quality assets.

💰 Affordability Divide: A $1,500 rental budget delivers 1,268 square feet in Toledo but won't even cover a Manhattan studio at 216 square feet, highlighting the nation's growing affordability divide between regions as Midwest and Southern cities dominate affordability rankings.

👔 Job Squeeze: Entry-level CRE job postings have dropped 19% since 2021 as firms skip foundational roles and demand AI fluency from new hires. Recent graduate unemployment hit 5.8% while companies increasingly rely on personal connections over open postings.

🏆 TOP STORY
HOW THE APPRAISAL CRISIS COULD CAUSE CRE CHAOS

The small federal agency responsible for overseeing America's 80,000 real estate appraisers is in free fall just as CRE faces a $960 billion wall of maturing loans requiring fresh valuations. Bipartisan senators are now demanding answers about "chaos" at the Appraisal Subcommittee (ASC) that could undermine the entire real estate market's infrastructure.

A confluence of cascading failures is creating a perfect storm for CRE chaos:

• Leadership Vacuum: The ASC has operated without a permanent director for six months while its staff has shrunk 30%, leaving just 16 full-time employees to oversee the entire national appraisal system.

• Workforce Crisis: The median appraiser is 60 years old and 80% are over 50, yet the ASC just scaled back grants designed to recruit younger talent after Trump administration policy changes.

• Critical Systems Failing: The national appraiser registry website repeatedly crashes, compliance reviews have been scaled back, and IT infrastructure is described by staff as "old and going to fail."

• Geographic Gaps: More than half of North Dakota's counties lack any appraisers, with similar shortages emerging nationwide as the profession ages out.

• Perfect Storm: These failures coincide with $960 billion in commercial mortgages maturing in 2025, creating unprecedented demand for appraisal services from a shrinking workforce.

A System Under Siege: The crisis has caught the attention of Senators Catherine Cortez Masto (D-Nevada) and Mike Rounds (R-South Dakota), who sent a scathing letter to federal banking regulators demanding immediate action. Their concerns center on whether the ASC can still maintain the "stable and well-managed" appraisal system that underpins real estate financing.

Terrible Timing: As commercial property owners face the largest refinancing wave in decades, the appraisal bottleneck threatens to become a major constraint on deal flow. Some regions already require temporary waivers for appraisal requirements due to workforce shortages, and the agency's $29 million cash reserve sits untouched while critical technology upgrades and staff expansions get shelved due to federal hiring freezes.

THE BOTTOM LINE

CRE investors should prepare for appraisal delays and higher costs as the system strains under demographic pressures and regulatory chaos. Properties in markets with severe appraiser shortages may face longer financing timelines, while the overall quality and consistency of valuations could suffer. Regulators have until August 29 to answer senators’ questions, but the underlying workforce crisis will take years to resolve — assuming leadership gets restored soon.

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💰 CRE BY THE NUMBERS
LOAN VOLUME PROJECTIONS, JOBS REPORT, AND MORE

💰 $32.5 Billion 

CRE CLO issuance is projected to reach $32.5 billion in 2025, marking a staggering 274% jump from $8.7 billion in 2024. CMBS conduit volumes are expected to rise modestly to $35 billion while agency lending rebounds with Fannie Mae and Freddie Mac each projected at $65 billion.

👔 91,700 

New York led major markets with 91,700 new jobs in June, according to RealPage, with 99.9% of gains concentrated in education, health services, and government sectors. Philadelphia added 46,500 jobs while Los Angeles gained 41,700, continuing the nationwide trend of healthcare-driven employment growth.

🇯🇵 $550 Billion 

Japan will invest $550 billion into a U.S.-controlled fund targeting semiconductors, energy, and manufacturing under Trump's trade deal. The U.S. retains 90% of profits while Japan faces capped 15% tariffs instead of 25%, saving an estimated $68 billion in duties.

🏠 950% 

Washington D.C. multifamily sales surged 950% to $646.1 million in Q2 from $61.6 million in Q1, led by PSP Investments' $265.96 million Incanto acquisition. Net absorption improved by over 2,000 units while occupancy rose 40 bps to 96.2%.

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🏘️ DEAL OF THE WEEK
40% NOI INCREASE AND 2X PROPERTY VALUE IN 5 YEARS

Ian Fisher and the team at Vintage Capital invested in this property with their operating partner, who increased NOI by 40% and doubled its value in half the projected time.

Here's how they did it 👇

🏢 Property details: This manufactured housing community was purchased in June 2019. It consisted of 112 lots (107 of them with infrastructure) and is located about 30 minutes from Charlotte.

💸 Finances: The property was purchased for $3.4 million. The team raised $1,567,688 in capital and secured a $2,200,250 loan from Morgan Stanley at a 4.5% fixed interest rate and a 10-year term, interest-only.

💼 Business plan: All homes except two were tenant-owned with direct-billed utilities, so there were minimal CapEx improvements required from the start. Lot rents increased from ~$300 to $430 over five years — a roughly 35-40% increase that brought the park up to market gradually while maintaining affordability.

The park also went from 93 occupied lots in 2019 to 98 by 2024. That’s a 5% increase in paying tenants on existing infrastructure — a pure margin booster. Operating expenses remained relatively flat over the five years, even as revenue grew. They also had five delinquent tenants in the first few years, which they resolved through better screening and enforcement. In 2023, the operator also replaced the legacy onsite manager with a stronger team already proven in their portfolio. That helped solidify operations and set the stage for the refi and long-term hold strategy.

🍾 Results: Over five years, they increased NOI by ~40%, without requiring heavy CapEx or complex repositioning. They refinanced in June 2024 at a $6.6 million valuation, allowing them to return nearly all initial capital to investors well ahead of the 10-year target hold period.

Some investors chose to be bought out, locking in a 22.1% IRR and 2.33X equity multiple. Others elected to stay in for long-term yield on a nearly risk-free basis.

💪 Takeaways: "The hardest part was early-stage capital raising for a relatively unknown submarket,” said Brad Johnson of Vintage Capital. “Educating investors on the sub-market growth story (vs. Charlotte proper) required thoughtful communication, but the fundamentals played out exactly as anticipated.

“We positioned the refinance as a ‘choose-your-own-adventure’ liquidity event,” Johnson continued, “allowing different investor profiles to self-select exit or continued yield. This deal showcases the core Vintage Capital playbook: low-friction value creation, tax-efficient yield, and conservative execution with long-term upside.”

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

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