💼 The newest must-have apartment amenity

👋 Hello, Best Ever community! Hurricane Milton ripped through Florida Wednesday and is still making its way across the state. If you’re in Florida, please stay safe 🙏

In this week’s newsletter, coworking comes home, office distress peaks, and industrial construction declines.

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.

Off we go!

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CRE HEADLINES

🌀 Damage Control: Hurricane Milton tore across Florida Wednesday and into Thursday, potentially causing $50 billion or more in damage and possibly leaving behind devastation approaching $175 billion or more in a worst-case scenario.

💰 Insurance Impact: Hurricanes Helene and Milton have highlighted the vulnerability of properties across the Southeast, contributing to an already complicated commercial property insurance landscape that has seen premiums spike by as much as 50% in storm-prone areas.

🧢 Caps Keep Rising: The average cap rate for single-tenant net lease properties increased by three basis points in Q3 from the previous quarter, reaching 6.73% compared to 6.7% in Q2, indicating a minor downward adjustment in property prices — a trend that shows no signs of slowing. 

📈 Office Distress Triples: Office distress has nearly tripled in the last 18 months, reaching its new peak at 14.8%, according to CRED iQ’s most recent report. The peak represents a 156% increase from 18 months ago when distress rates were only 5.8%.

📍 Living Large: Portland, ME, took the top spot on RentCafe’s list of the most livable places in the U.S. in 2024. Lincoln, NE; Des Moines, IA; Minneapolis, MN; and Ann Arbor, MI, rounded out the top five.

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THE NEWEST MUST-HAVE APARTMENT AMENITY

Remote work is under attack. There have been reports that remote work is dying, that remote workers are less productive than their in-office counterparts, and even that working from home can be career suicide.

The Truth Is: Remote work isn’t going anywhere. Around 22 million employed adults in the U.S. work from home full-time, equal to roughly 14% of all employed adults. That doesn’t include the 41% of workers eligible for remote work who do so part-time as a hybrid setup. Yet still, it’s estimated that around five million people will work from coworking spaces by the end of 2024. So apartment operators are looking to exploit that gap to attract residents.

• Some apartments, like Austin’s Flatiron Domain, enlist boutique coffee shops like Craftwork Coffee Co. to turn unused amenity space into membership-based specialty coffee shops designed for remote workers. Others, like Two Light in Kansas City, partner with third-party companies to offer 15,000 sqft of coworking space while offering residents living/working lease promotions.

• Then there’s The Set in New York City’s Hudson Yards, which offers a 44th-floor coworking space with sweeping views of the Hudson River, including conference rooms, private phone booths, and indoor and outdoor workstations. It also has a residents-only restaurant and a “director of experience” who acts as a personal assistant, setting up business lunches and conference calls.

O.K., that last one’s a little excessive. But while these examples represent creative ways to integrate coworking space, they are all new developments, which lend themselves to this creativity. If you’re working on a value-add project, by all means, use those developments and spaces as inspiration. But if you’re looking to add-on or adapt current spaces into coworking for your residents, here are a few must-haves to keep in mind:

• Thoughtful Design: You’re not designing a standard common area. You’re building a functional, professional space. Without adequate seating, lighting, desk space, conference rooms, and private call booths, tenants are unlikely to spend enough time in the space to make it worthwhile. Desks should be spacious, electrical outlets should be easy to find, and lighting and seating should be abundant.

• Access Control: Access to the working space should be controlled, especially if you wish to monetize this amenity by inviting non-residents. Investing in smart locks or keypads will ensure that only registered members can access the space.

• Privacy: Privacy is an underrated aspect of communal working. Workers want to go about their work day without someone looking over their shoulder or eavesdropping on their conversations. A private space to take meetings and work undisturbed is a must.

• Internet Connectivity: It should go without saying, but we’ll say it anyway. Few things are more frustrating than not being able to conduct a meeting because someone’s internet connection isn’t strong enough. Spring for the high-speed WiFi.

• Zoning Compliance: Lastly, you’ll need to understand zoning laws in your area that dictate what you can and cannot do with your property, especially if you aim to monetize it with non-resident members. The last thing you want is a legal issue before you even open the doors.

WHAT IT ALL MEANS

Amenities win (and keep) tenants. Residents want places where they can comfortably live, work, and play. Traditionally, apartment complexes have provided two of the three. Social amenities like coworking spaces can help residents feel at home and create a stronger sense of community in an increasingly remote work world, all while helping operators check that third crucial box in the live-work-play equation.

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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.

Learn more about this investment opportunity in a free webinar with Viking Capital on Wednesday, October 16th, at 7 p.m. ET.

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INDUSTRIAL CONSTRUCTION DOWN 43%

The industrial sector is experiencing a major shift. 

The Trend: Industrial square footage under construction in Q3 fell by 43% from last year, the steepest decline since the 2008 recession. The vacancy rate, meanwhile, rose to 6.4% in Q3, up from 4.6% in the same period a year earlier to the highest quarterly level since the end of 2014.

The Cause: As e-commerce demand wanes and companies don’t need as much space to store inventory, the number of storage and distribution jobs has fallen by 171,600 from a pandemic-era high of 1.94 million in May 2022.

The Effect: Declining demand and rising vacancy mean tenants are gaining leverage for the first time since before the pandemic boom. Some developers are pivoting to specialized data centers to meet AI-driven demand, demonstrating the industry's adaptability to market changes and technological trends, but experts still anticipate a potential supply-demand balance in the coming year as the current pipeline completes and new starts slow.

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ADDING $30 MILLION IN VALUE IN JUST 3 YEARS

Jonah Bamberger and the team at Aulder Capital added $30 million in value to this multifamily property in just three years. Here's how they did it 👇

🏢 Property Details: This 248-unit Class B multifamily property located in Yardley, PA, was purchased in 2019

💸 Finances: The property was purchased for $52 million and the team raised $24 million in capital. They were able to secure a loan for $40.19 million at a 3.96% blended interest rate.

💼 Business Plan: The team renovated 139 of the units to a luxury scope and managed to increase rents by more than 20%. They also leveraged Aulder’s vertically integrated operating platform to improve operations and streamline the renovation process. This included replacing the existing property management with Aulder’s in-house team.

🍾 Results: The property sold for $82 million in June of 2022. Investors realized a 21.3% IRR and an equity multiple of 1.76x.

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

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FREE DOCUMENT DOWNLOAD

Potential Benefits and Drawbacks of Interest-Only Commercial Loans

Interest-only loans are best when you are implementing a value-add business plan. But, as always, there are some pros and cons that every GP and LP should be aware of when evaluating the financing on a deal.