🥶 The phenomenon that's cooling rents

👋 Hello, Best Ever Community!

In today’s newsletter, a rare phenomenon cools rents, we reveal the best questions to ask your mentor, and Viking Capital shares how they increased one property’s value by $10 million.

Plus, join us at 2 p.m. EST today for a free webinar — Priority & Profit: The Power of Preferred Equity — hosted by Darin Davis of Club Capital. We’ll discuss the advantages of preferred equity and how it can be a Trojan horse in the capital stack for smarter investment decisions. Register now!

Onward!

_{🗞 NO-FLUFF NEWS}
CRE HEADLINES

⛰️ Self-Storage Boom Set to Peak: A recent report from Yardi Matrix predicts a surge in supply for 2024 and ’25, followed by a decline in later years, signaling a major shift in what’s become an attractive asset class for investors.

🛑 FTC Blocks Mega-Merger: The Federal Trade Commission has sued to block the largest proposed supermarket merger in U.S. history — Kroger’s $24.6 billion acquisition of Albertsons — alleging that the deal is anti-competitive.

🛏️ IKEA Wants to Save U.S. Malls: Ingka, the operator of most Ikea stores, is actively looking to buy and develop more mall locations, including in the U.S., diversifying them with coworking spaces, kids’ play areas, and Nordic-style food halls.

💵 Stake in NYC Building Sells for $1: Canada's largest pension fund sold its 29% stake in 360 Park Avenue South in New York City for $1 amid escalating office concerns.

🧐 ‘Cause for Optimism’ in NNN?: Triple-net lease average closing cap rates declined in January while inventory dropped for a second consecutive month, two signs that Chris Lomuto of Northmarq says could be “cause for optimism.”

_{⭐️ TOP STORY}
THE PHENOMENON THAT’S COOLING RENTS

There are 12 U.S. markets where Class C rents are falling at least 6% year-over-year, and the common denominator is supply. All 12 of those markets have supply expansion rates above the U.S. average, and it’s new “luxury” Class A supply that’s putting downward pressure on rents at all price points — even in the lowest-priced Class C rentals. Jay Parsons, rental housing economist at RealPage, joined the Best Ever Show this week to discuss the trend.

💡The “Filtering” Phenomenon: According to Parsons, the process academics call “filtering” happens when higher-income renters in Class B apartments move up into new, higher-priced Class A units. This causes a vacancy increase in Class B units, so operators cut rents to lure up Class C renters — and down the line it goes. Filtering works best when supply is high, so in some high-supply, high-demand markets, it’s been a perfect storm.

​​🌎 Where It’s Happening: Florida has been a supply magnet because of its strong demand, and it has three markets — Fort Myers, Sarasota, and Daytona Beach — seeing Class C rent cuts around 10%–12%. Other key markets include the ultra-high-supplied big markets like Austin, Phoenix, Salt Lake City, Atlanta, and Raleigh/Durham, which are experiencing rent cuts of at least 6%.

🛑 It’s Not Happening Everywhere: Class C rent growth topped 5% in 18 of the nation's 150 largest metro areas, and nearly all of them have limited new apartment supply. Many of them are small- to mid-size markets, but Cincinnati and Chicago, obviously larger markets, both saw Class C rent growth near 4% — and, of course, both ranked below the U.S. average for new supply. “It's important to note that [filtering] is only happening in very high-supply areas,” Parsons said. “It's not happening where supply isn't going, which is why we know this is really all about supply.”

 ​​📣 A Warning for Investors: “I'm a big believer in just following the people,” Parsons said. “There's opportunities everywhere. Real estate is local, local, local … But I do think that this last cycle is teaching us to be careful about these big value-add strategies, just because right now we're seeing a lot of people who bought these Class C properties thinking they could turn them into A's — put a lot of CapEx into it, increase the rents. It's not that it can't work, but that's going to work less and less and less going forward.”

🎧 Want to Hear More? For more about this trend, the metrics Jay is watching most closely, the questions he’s getting more from investors, and so much more, listen to the full episode here.

_{💻 VIKING CAPITAL}
HIGH YIELD RESILIENCE OPPORTUNITY FUND

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Viking’s strong and transparent underwriting allows them to identify low-risk opportunities to preserve investor capital and maximize long-term growth potential. With…

💸 $800 million in assets acquired,
💸 More than $230 million in equity raised,
💸 And over 5,000 units under management…

Viking Capital is your path to early retirement.

👉 Learn about Viking Capital’s latest investment opportunity today!

_{✍️ BEST EVER BLOG}
FROM JOE FAIRLESS

If you want to thrive in the competitive and constantly evolving real estate investing world, you must enlist the help of a real estate mentor. Here's a rundown of good questions to ask a mentor early on to put yourself in the best position to succeed in the real estate investing business.

🏠 What drew you to real estate investing, and how experienced are you? Just as a hiring manager may want to know how seasoned a job candidate is, you should find out how experienced your real estate mentor is right away. Also, ask how many real estate properties they own in total.

😅 What mistakes did you make as a new investor? Your first year will probably be your hardest one. However, you can save yourself a lot of confusion and heartache by finding out what costly mistakes your real estate mentor made starting out, and how to avoid these mistakes.

💸 Which investment strategy approach has worked best for you? It’s a good idea to choose a real estate mentor whose investing strategy mirrors yours. The best mentor is one who has extensive experience in using the strategies you’re aiming to use.

💰 How are you financing properties? The answer to this question will help you to choose the right property financing avenue for your needs. Your real estate mentor can tell you the pros and cons of each approach and share with you what has worked best in their situation.

👉 View the full list of questions here.

_{🏠 DEAL BREAKDOWN}
$76M PURCHASE IN 2021 ➡️ $86M VALUATION IN 2023

Viking Capital purchased this 400-unit multifamily property in September of 2021 for $76 million. Let's break down the deal. 👇

🏢 Property Details: Class B+ property purchased in a Class A neighborhood in Indiana at 94% occupancy.

💸 Finances: $65.1 million borrowed and $19.6 million raised. 86% LTV with a 3.5% interest rate and a $7.5 million CapEx budget.

💼 Business Plan: Adding value by updating hardware, appliances, lighting, bar height, flooring, quartz countertops, and cabinetry. Continue renovating unit interiors to achieve rent premiums, increase NOI, and add more value. The target hold period is five years.

🍾 Results: A 2023 valuation of $86 million.

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

_{🌎 BEST EVER CONFERENCE 2024}
5 REASONS TO SECURE YOUR SEAT TODAY

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1. Prices go up this Saturday, March 1.

2. You want to be in the room with 1,000+ CRE titans shaking hands, sharing insights, and partying like a rockstar.

3. You’d like to meet Joe Fairless in person and catch his keynote (plus 30+ other sessions and speakers).

4. You’re a forward-thinker, a doer, and someone who doesn’t feel content sitting on the sidelines.

5. You are READY TO ACCELERATE your investing — today. 

👉 Don’t miss this opportunity to invest in your future. Coupon code BESTEVER24 saves you 20%. REGISTER TODAY!

_{🏆 REFERRAL PROGRAM}
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Hope you have a Best Ever rest of your week!

—Joe Fairless