🏘️ Is the 'tiny' movement about to hit multifamily?

👋 Hello, Best Ever community!

In this week’s newsletter, micro-apartments are coming, multifamily confidence rises, and REITs tell the future.

Today’s edition is brought to you by Viking Capital, which is proud to introduce The Townhomes at Bluebonnet Trails, a luxurious 114-unit 2021 build located in the Dallas-Fort Worth Metroplex.

CRE time!

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CRE HEADLINES

📈 Multifamily Seesaw: Starts for multifamily buildings with five or more units dropped 15.7% YOY in September while developers completed an annualized 671,000 apartments, a 41.9% YOY jump and an 8.7% decrease compared to August.

💼 Coworking Milestone: The number of U.S. coworking spaces grew by 7% in Q3, surpassing the 7,500-workplace threshold for the first time ever. Nashville led all major markets in growth (24%), followed by Indianapolis (12%) and Philadelphia (9%). 

🔒 Closing Up: After news that Walgreens will close 1,200 locations, Buy Buy Baby announced this week that it will close all its stores, joining Family Dollar, 7-Eleven, CVS, and others on the growing list of struggling retailers closing a total of nearly 2,000 stores in 2024.

🛑 OZK Loan Limits: Bank OZK, a leading construction lender, has announced it will cap new loans at $500M to reduce risk and diversify its portfolio. The decision follows increased scrutiny over its CRE exposure.

🏇 Call It a Comeback?: According to Altus Group’s Q3 2024 U.S. CRE Survey, 69% of investors expect multifamily to outperform other sectors, reemerging as investors’ preferred asset class as office and others struggle.

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MICRO-APARTMENTS ARE COMING. WILL THEY WORK?

America is facing an affordability crisis. There is a shortage of more than seven million affordable homes for our nation's 10.8 million extremely low-income families. Meanwhile, CBRE predicts the national office vacancy rate will rise to around 20% by the end of 2024 as office tenants continue to reduce their space needs.

Office-to-multifamily conversations have helped both these issues in the past. But a recent proposal from the Pew Charitable Trusts and architecture-design firm Gensler hints at a new wrinkle to this trend that could be an even more viable solution: converting America’s unused office space into flexible co-living, creating affordable micro-apartments in key downtown areas.

• The Plan: Pew and Gensler’s plan specifically targets downtown office buildings in select markets like Denver, Minneapolis, and Seattle, where median rents, office vacancy, and homelessness are all higher than most major metros.

• The Rents: Developing the flexible co-living product at rents between $500 and $1,250 per bed per month, depending on the market, dramatically impacts affordability, as the monthly median rent among the three target cities is $1,733.

• The Catch: In order to be so inexpensive, the units would be between 120 and 208 square feet, about the same size as a college dorm, and meant mostly for sleeping. Rooms would be outfitted with small essential appliances, while living rooms, kitchens, bathrooms, and laundry facilities would be shared with others on the same floor.

One key viability factor is the utilization of existing plumbing stacks in the center of each floor — which is where they usually already exist in offices — rather than building them out in each unit, which saves about 25-35% on construction costs versus other office-to-residential conversions, the report says.

WHAT IT ALL MEANS

Creativity is king in the conversion space. If micro-apartment conversations can add affordable housing supply, utilize vacant office space, and help major metros with the largest homelessness/affordability issues, it could easily spark a larger trend — if the return is also there. Impact investors will certainly be watching.

💻 _{VIKING CAPITAL}
THE TOWNHOMES AT BLUEBONNET TRAILS

Viking Capital presents The Townhomes at Bluebonnet Trails, a luxurious 114-unit 2021 build located in the Dallas-Fort Worth Metroplex.

This newly developed build-to-rent community offers expansive floor plans at below-market rates, making it highly attractive to the key rental demographic in the DFW area, which tops the charts as the No. 1 city for domestic migration, growing at more than 53 times the national average.

With minimal new supply and a low-density design that combines the benefits of multifamily living with a single-family feel, The Townhomes at Bluebonnet Trails is a prime investment opportunity.

Click below to learn more about this investment opportunity and secure your spot.

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REITS PROVIDE GLIMPSE INTO THE FUTURE

Everyone wants to know where the market is going. According to CBRE, look no further than highly liquid, publicly traded REITs, which can provide a real-time outlook for where private real estate asset values are headed.

As seen in the chart above, during recent market changes, REIT cap rates didn't spike as high as in previous downturns due to strong market fundamentals (except in the office sector). While REITs adjusted quickly to higher interest rates, current expectations of falling rates and economic growth suggest lower cap rates ahead.

“In both 2003-04 and 2010, the REIT market foreshadowed a downtrend in private market cap rates,” CBRE wrote. “We expect such a foreshadowing to recur in 2025.”

👉 You can view the full chart here.

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FREE WEBINAR FOR LPS

Join us and some very special guests on Monday, October 28th for a FREE webinar — The LP Mindset: Limited Partners' Perspective on Today’s CRE Landscape.

Join Joe Fairless, Nimesh Patel, Pascal Wagner, and Trevor McGregor in this roundtable discussion all about the current state of limited partnerships and passive investing. The panel will share:

✅ The state of their current investments and what they're hearing from other LPs

✅ The key lessons they’ve learned since the end of the last cycle

✅ The most interesting and lucrative future opportunities in CRE private placements

✅ Their chief recommendations for other LPs to prosper in the year ahead

Register below to join us at 7pm EST on October 28th 👇

_{🏠 DEAL OF THE WEEK}
2X ON PROPERTY VALUE AND A 2.5X EQUITY MULTIPLE

Nic Espanet and the team at Flex Equity Group have nearly doubled the value of this property and are giving investors a 2.5X equity multiple. Here's how they did it 👇

🏢 Property Details: This 100-unit C Class asset, located in Abilene, Texas, was purchased in February 2018.

💸 Finances: The property was purchased for $3.7 million. The team raised $1.5 million in capital and secured a $2.9 million loan with a 4.93% interest rate, 10-year term, and three years interest-only.

💼 Business Plan: The team upgraded 50 units, which included new flooring, paint, fixtures, toilets, and ceiling fans. They added property-owned washers and dryers to the laundry room, remodeled the clubhouse, office, and mail room, and replaced Stab-Lok electrical panels.

🍾 Results: The property is currently under contract to close. Investors are projected to see a 2.5X equity multiple and 23.7% average annual return post-sale.

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

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FREE DOCUMENT DOWNLOAD

7 Tips to Attract Your Next $500,000 Investor Through Podcasts (Without Hosting One Yourself)

As a General Partner (GP), attracting Limited Partners (LPs) is critical to scaling your syndication business. You might already recognize the power of podcasts but have no interest in starting one of your own. This guide will show you how to leverage podcasting—without becoming a host yourself—to find your next $500,000 investor.