📉 Evictions are down 41% in one city. Here's why.

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In this week’s newsletter, the eviction problem gets solved, renters have a new favorite market, and downtown offices are dying while the suburbs thrive.

Today’s edition is brought to you by Agora. Join us and Agora on September 12th for a FREE webinar: Understanding Limited Partnership Agreements (LPAs). In it, you’ll get to watch Agora’s innovative Waterfall solution at work.

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Off we go!

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CRE HEADLINES

💥 AI Be Booming: AI chipmaker Nvidia reported stellar Q2 results this week, with revenue doubling to $30 billion (up 122% YoY) and profits reaching $16.6 billion. Meanwhile, data center sales hit $26.3 billion, up 154% YoY, signaling continued AI-driven growth.

🐶 New Top Dog: Overland Park, Kan., unseated Minneapolis in July as the nation’s most popular city for renters, according to RentCafe. It’s the second time in 2024 that the Kansas City, Mo., suburb has topped the list, which Minneapolis has dominated for most of the year.

🏘️ State of Multifamily: Multifamily prices fell 8.4% YoY in July and 0.7% from June, an improvement over July 2023, which saw prices fall 13.5% YoY. Meanwhile, apartment sales volume dropped 11% to $7.5 billion after a second-quarter spike.

👷 Overdoing It: The multifamily sector saw a record 656,000 units completed in June, causing excess supply in key metros. Raleigh-Durham, Austin, Jacksonville (NC), Minneapolis, and Knoxville are among the most oversupplied, leading to the largest declines in effective rent revenue.

👨‍⚖️ DOJ vs. RealPage: The Department of Justice is suing RealPage, alleging the firm helped landlords inflate apartment rents and avoid market competition with its algorithm-based YieldStar tool, violating the Sherman Antitrust Act.

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EVICTIONS ARE DOWN 41% IN PHILLY. HERE’S WHY.

Over the last 12 months, landlords have filed nearly 1.1 million evictions — and that’s just in the 34 cities the Eviction Lab tracks. In the last month alone, that number is nearly 78,000. Overall, since the pandemic-induced eviction moratorium expired in 2021, evictions have surged back to pre-pandemic levels.

Philadelphia is one exception. In Philly, evictions are down 41% from pre-pandemic levels. The key driver behind this trend is the city’s eviction diversion program, which, after a trial period, became permanent in June. 

Eviction diversion requires landlords to negotiate with delinquent tenants out-of-court before being able to sue and file for eviction. Landlords are required to participate in this program, which specifies that:

• The landlord must enroll in the eviction diversion program and provide a notice of diversion rights to the tenant to begin the process.

• Both the landlord and tenant must participate in the program in reasonable good faith, as defined by the city, for no less than 30 days.

• If an agreement cannot be reached within 30 days, the landlord can move forward with the eviction process.

The impact in Philly has been evident.

Landlords in favor of eviction diversion support the program’s primary goal, especially regarding rental assistance. Philadelphia will put $34 million this year alone towards public rental assistance, which helps tenants resolve temporary payment problems, allowing landlords to recover unpaid rent that’s otherwise difficult to get back through the courts. In some cases, tenants agree to move out without having to involve the courts, simplifying the process for landlords.

Those who oppose say the program only delays the inevitable, leaving landlords back in the same eviction process, but behind schedule. Some also question the eligibility criteria, which currently include lease violations that don’t involve nonpayment of rent. Other landlords and groups also want to make it faster to evict renters who don’t hold up their end of the good-faith agreements, which cannot be legally enforced.

WHAT IT ALL MEANS

Philly isn’t the only city testing and implementing eviction diversion. Courts in Alaska, Indiana, Texas, Michigan, and other states have also experimented with it at some level. As the city of Philadelphia refines its program, should the results continue to lessen the burden of the eviction process on both landlords and the courts — all while giving qualified tenants the support they need to keep their homes — other metros will inevitably follow.

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FROM BAM CAPITAL

Passive real estate investing can be a powerful wealth-building tool, but it requires careful consideration and due diligence. As with any investment, avoiding common pitfalls can lead to more successful outcomes.

Our friends at BAM Capital have highlighted five common mistakes investors make with passive investments:

• Lack of Due Diligence: Investors should thoroughly vet sponsors, examining their track record, performance history, and ability to navigate adverse market conditions.

• Too Much Debt: Understanding the debt structure of each transaction is crucial. While leverage can boost returns, it also increases risk. Investors should assess factors like interest rates, loan-to-value ratios, and debt-service coverage ratios.

• Inadequate Market Focus: Good sponsors identify and proactively manage risks throughout the investment lifecycle. Thorough market analysis and due diligence are essential for downside protection.

• Zero Review of Audited Financials: Audited financial statements provide assurance of accuracy, build investor confidence, and promote transparency and accountability.

• Substandard Operational Experience: Investors should evaluate whether a sponsor's projected returns align with their execution risk and operational expertise.

By avoiding these common mistakes and prioritizing the best risk-adjusted returns over simply chasing the highest yields, investors can protect their wealth and invest with greater confidence. To read the full article, click the button below.

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DOWNTOWN OFFICES ARE DYING

The U.S. office market is experiencing a significant transformation, with central business districts struggling while urban and suburban core-adjacent areas show resilience. 

Downtown office property values have plummeted 52% from their peak, resulting in $557 billion in lost office property values from 2019–2023. Older downtown buildings are taking the biggest hit. In some metros, trophy properties in thriving suburbs command up to 84% higher rents than older downtown buildings.

The growing divide reflects a shift in office market dynamics, with companies and investors favoring premium spaces in safer, amenity-rich suburban and urban fringe areas over aging central business districts.

📣 “Suburban office is one of the best-kept secrets for CRE,” Best Ever Show host Ash Patel says. “Anyone that has a low-rise office building in a walkable suburb should have a waiting list of tenants.”

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ADDING $1 MILLION IN VALUE IN LESS THAN A YEAR

Wendell Butler and the team at Hammerhead Capital Inc. have added over $1 million in value to this property in 2024. Here's how they did it👇

🏢 Property Details: The 32-unit apartment complex was purchased in November of 2023. It’s located in Lancaster, South Carolina, and was considered C+ Class at the time of purchase with 100% occupancy.

💸 Finances: The property was purchased for $2,050,000 with $765,000 in capital raised for the down payment, closing costs, and cash reserves. The team secured a $1,537,000 loan with 8% interest (one year interest-only), and a five-year balloon (no pre-payment penalty).

💼 Business Plan: The team is completing interior cosmetic repairs and rent increases as units become available, which includes paint, flooring, kitchen, bathroom, and appliances. Additional renovations already completed include foundation repairs, roof repairs, electric panel upgrades, and plumbing fixes.

🍾 Projected Results: Wendell and team are targeting a six-year hold with 15% CoC, 18% IRR, and an 8% preferred return. The property is currently valued at $3.2 million. The goal is to refinance in 2024, return initial capital to investors, and continue providing cash flow, then refinance again or sell at year six.

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

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FREE DOCUMENT DOWNLOAD

5 Questions to Be Prepared to Answer Before Meeting with Investors

Before you present a deal or ask for money from anyone, you should do some prep work to be able to answer basic questions they may ask. Here are five of the most common questions to be ready for.