🏗 How San Francisco is tackling its housing crisis

Hello, Best Ever Community!

In today’s newsletter, San Francisco takes on a major transformation, property management gets streamlined, and a multifamily investor exposes how he doubled his property value in two years. 

This week’s newsletter is brought to you by BV Capital, a Texas-based real estate private equity company that specializes in ground-up multifamily construction deals in the state of Texas. Learn more about BV Capital here.

Here we go!

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TOP HEADLINES

🌊 A $352B Maturity Wave: According to a Trepp analysis of the Fed Flow of Funds data, an estimated $351.8 billion in multifamily bank loans will mature between 2023 and 2027, mostly from regional banks.

🎶 Music City Migration: Nashville has crashed the list of top migration destinations in the U.S. for the first time since 2021, with people mostly looking to leave Los Angeles to relocate to the Music City.

📊 Rents Remain Flat: Rents inched up from 0.08% growth to 0.16% YoY in November, basically staying flat. Economist Jay Parsons expects them to remain flat for a while, as new supply volumes are set to spike (and likely peak) in 2024.

⛅ Rent Growth Forecast: RealPage projects Richmond, VA, and San Jose, CA, to lead rent growth in 2024, each rising at a 4% clip. West Palm Beach, Anaheim, and Pittsburgh round out the top five.

🔮 Multifamily Trends to Watch in 2024: Multifamily broker and CRE expert Reid Bennett joined the Best Ever Show this week to provide his outlook on 2024, including how back taxes coming due — along with insurance premiums — will continue to crush CRE investors, and why 2024 could be the year of distressed deals.

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SAN FRANCISCO BUILDING TO BRING RESIDENTS BACK

Presented by:

San Francisco is undergoing a major transformation in its approach to housing development. This shift involves easing regulations and repurposing spaces in response to its affordability crisis and the effects of the pandemic.

Expanding Residential: A notable example in this transformation is Bayhill Ventures' announcement of a 71-story rental tower in the city's financial district, representing San Francisco's most ambitious residential project in years. Additionally, plans for converting 10 office buildings into residential spaces are underway, potentially adding over 1,250 units to the city's housing stock. These initiatives are a response to the government's efforts to lower construction costs and streamline the building process.

Policy Shift: San Francisco and California officials are modifying existing policies to encourage housing development. Recent changes include relaxing rules for building market-rate apartments and reducing requirements for environmental and other reviews for multifamily projects. While these changes have caused some concern among affordable housing advocates, they recognize the necessity to stimulate the broader housing market. A proposed $300 million housing ballot measure aims to compensate for potential losses in affordable housing resources.

From Offices to Resi: San Francisco faces a significant surplus of office space, with vacancy rates reaching 25% in November, a stark increase from around 5% in the last quarter of 2019, as per CoStar's data. Meanwhile, the city's attention is shifting more towards residential development, as the rental apartment sector shows a stronger recovery than other commercial real estate areas. This shift is evident as apartment vacancies decreased to 7% in November, down from a peak of 12% in 2020 during the height of the pandemic.

➥ THE TAKEAWAY

Optimistic Outlook: San Francisco's approach marks a pivotal shift in urban development, prioritizing residential projects over commercial properties to revitalize the city's core. The proposed Bayhill tower and other projects symbolize a new era for San Francisco, where flexibility in urban planning and a focus on residential needs are key to addressing the housing crisis and economic recovery.

👉 Want more content like this? Subscribe to CRE Daily. 

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TAKE ADVANTAGE OF UPCOMING SUPPLY & DEMAND IMBALANCE IN TEXAS

Did you know that over half a million people have moved to Texas since the summer of 2021 — yet multifamily construction starts are down more than 70% across the state in 2023? This will create a supply and demand imbalance that to us, as investors, can mean only one thing: opportunity.

BV Capital is a real estate private equity company that specializes in ground-up multifamily construction deals in the state of Texas. A vertically integrated company, utilizing BV’s in-house construction team has allowed for historical returns beyond those of traditional value-add investments.

If you are an accredited investor and want to learn more about multifamily development opportunities in Texas, one of the nation’s fastest-growing states, visit bvcapitaltx.com. 

👉 Learn more about what's open now and what’s coming next for BV Investors. 

Sold to accredited investors via a private placement memorandum and past results do not guarantee future returns.

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FROM RENTEC DIRECT

💻 Whether you’re a multifamily syndicator, a small mom-and-pop investor, a property manager, or a [insert real estate job title here], having the right software tools to run your business is essential. If you aren’t already using software for property management, you likely should be.

If you are using one, you’re probably wishing it did more. 

A lot of property management software tools have the same features like accounting, rent collection, and tenant screening. But here are some unique features that should catch your eye and that could help you manage your portfolio more effectively and make life easier for you, regardless of your job description.

🤖 AI Listing Generator: AI is suddenly everywhere. So why doesn’t your property management software have it? AI listing generators allow property managers to instantly create compelling rental listings. Using technology like OpenAI (ChatGPT), the AI takes a property's basic details and generates a descriptive ad in seconds, saving the average user as much as 30 minutes per listing.

📁 Unlimited Storage & Accounts: Top software solutions allow managers to upload as many documents as needed to a centralized, secure database. From signed leases to maintenance records and invoices, everything remains easily accessible in one place. Robust permission settings also enable file access based on user type.

💬 Real-Time Support: Have we already mentioned that customer service is king? Can’t say it enough. A lot goes into providing a great customer service experience, but you’re busy and your time is valuable. Getting questions answered and issues resolved quickly means you can get back to doing what you do best: running your business. So you need reliable, real-time support.

👉 Read the full article for more. 

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DOUBLE THE PROPERTY VALUE IN TWO YEARS

Arn Cenedella doubled the value of this property in two years and is paying out 9%–10% cash-on-cash in quarterly distributions. Here's how he did it. 👇

🏢 Property Details: 43-unit building built in 2006, purchased in South Carolina at 91% occupancy. Class B asset in a Class C workforce location, minutes to downtown. All units are 1 bed/1 bath and 610 sq. ft. 

💸 Finances: Purchase price was $2,795,000 with $1.5 million in capital raised. $1,961,000 loan with 3.86% interest, seven-year term, one-year interest-only step-down prepayment penalty.

💼 Business Plan: Light value-add — new flooring, paint, fixtures, countertops, washer/dryers, improved landscaping, new dog park, new picnic tables, and gazebos. Replaced third-party property management and brought it in-house. The local GP team handles property management and renovation project management. $156,000 in CapEx spent.

🍾 Results: Currently at 9% cash-on-cash return with a projected 17%–18% IRR. 6% pref has been paid on time, every time, in full. Increased NOI from $164,529 at purchase to $303,895. Current value is $5 million at a 6% cap. 

The plan is to continue to increase the rent roll and NOI. When the loan matures in five years, Arn's team will consider a refinance to return all capital to LPs and continue a long-term hold.

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

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THE 2024 VERIVEST BEST EVER PITCH SLAM

For the second year in a row, the Best Ever Conference is teaming up with Verivest to host the biggest CRE Pitch competition of 2024: the 2024 Verivest Best Ever Pitch Slam.  And it’s all going down in Salt Lake City, April 10–12.

If you’re an operator (or aspiring one), it’s an opportunity for you to pitch your opportunity or business (deal is not required) to the Best Ever Conference audience LIVE on the main stage and in front of CRE experts including Joe Fairless and Matt Burk. Two winners will walk away with hundreds of thousands in prize money and bragging rights for life. Get your application in today! 

If you’re an investor, attending BEC and the Pitch Slam is a unique chance to learn about deals you won’t find anywhere else. 

Bonus: We’ll be releasing a digital directory of all applicants (as well as our sponsors and any operators in attendance) before the conference so attendees can be prepared before they arrive and operators can showcase their unique proposition.

👉 Apply to compete in the Pitch Slam here.
👉 Get your BEC ticket here.

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FREE DOCUMENT DOWNLOAD

🏆 50/50 Goals: The New Way to Set Goals

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🙏 Thanks for reading!

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Hope you have a Best Ever rest of your week!

—Joe Fairless