🦸 The unlikely hero of the housing crisis

👋 Hello, Best Ever Community!

In this week’s newsletter, zoning reform tackles the housing crisis, separate bank accounts save landlords, and Joe Fairless helps interests align.

This week’s newsletter is brought to you by Viking Capital, a multifamily boutique with nimble investment sourcing, structuring, execution, and asset management capabilities. Learn more about Viking Capital here.

Let’s real estate!

_{🗞 NO-FLUFF NEWS}
CRE HEADLINES

🛒 Supermarkets Stay Strong: Consistent spending and foot traffic at grocery stores over the last 24 months has kept the sector strong despite challenges from discount retailers and superstores. Owners of net-leased grocery stores and supermarket-anchored centers are benefiting.

🧑‍💻 Yardi’s WeWork Takeover: WeWork's bankruptcy exit plan includes Yardi Systems becoming the majority owner with a 60% stake in exchange for a $337 million contribution. Still, exiled co-founder Adam Neumann isn’t giving up his takeover efforts.

📉 Self-Storage Still Sliding: The self-storage sector continued its steady decline in March, with rents dropping 4.5% annually. Demand has dipped so drastically that last year developers abandoned 245 self-storage projects.

📈 10-Year Yield Soars: Despite strong economic fundamentals, concerns about persistent core inflation have driven the 10-year Treasury yield to a five-month high of 4.7%, with some investors expecting it to reach 5%, potentially impacting rates and raising concerns about stagflation in the CRE sector.

😥 Delinquency Dilemma: Multifamily mortgage lenders are rapidly buying back delinquent loans packaged into CRE collateralized loan obligations as the sector faces increasing distress due to interest rate hikes and maturing debt.

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THE UNLIKELY HERO OF THE HOUSING CRISIS

America’s housing crisis is real. There is a shortage nationally of more than 7 million affordable homes for our nation's 10.8 million-plus low-income families. Half of renters pay more than a third of their salary in housing costs, while home prices have surged 39% and rents have risen 31% over the last four years. In response, state and local governments are revising zoning laws to ramp up multifamily supply.

🌊 A Wave of Change: A 2019 New York Times analysis found that in most surveyed cities and suburbs, 75% or more of residential land is zoned to allow only detached, single-family homes — no townhouses or apartments. Now, zoning reform efforts in more than 100 municipal jurisdictions including Minneapolis, Houston, Milwaukee, and New York City aim to provide more housing options. Common reforms include reducing minimum lot sizes and eliminating parking requirements, which in cities like Minneapolis have spurred housing booms that have slowed rent growth.

📝 The Minneapolis Blueprint: From 2017 to 2022, Minneapolis increased its housing stock by 12% while rents grew by just 1%. Meanwhile, the rest of Minnesota added just 4% in housing stock and saw a 14% rent increase. The formula included eliminating parking requirements, encouraging apartment development near transit and commerce, establishing building height minimums in high-density zones, and permitting duplex and triplex construction on all residential lots. These reforms — particularly those promoting apartment building construction — have helped Minneapolis substantially add to its housing supply and keep rent growth low.

🚧 Roadblocks Ahead: Many cities aim to duplicate Minneapolis’ success but have encountered setbacks due to legal challenges and lawsuits from homeowners. In some cities, judges have blocked zoning reforms or put them on hold by ordering environmental impact reviews. Still, some cities and states are fighting back. So it appears that the courts will determine the implementation and impact of zoning reform in the coming months. Despite these obstacles, if more cities can follow Minneapolis’ lead and see similar results, the impact may be difficult to ignore.

WHAT IT ALL MEANS

The national housing picture is beginning to change. With roughly half a million apartment units completed in 2023, a 36-year high, scheduled completions for 2024 total an estimated 670,000, which blows past that record volume by about 50%. As a result, rents are starting to level off, and many believe that further zoning reform is the key to meaningful progress toward solving the affordable housing crisis.

📣 “Most American cities and most American states have rules on the books that make it really, really hard to build more infill housing,” urban planner and author Nolan Gray told NPR. “So if you want a California-style housing crisis, don't do anything. But if you want to avoid the fate of states like California, learn some of the lessons of what we've been doing over the last few years and allow for more of that infill, mixed-income housing.”

_{💻 VIKING CAPITAL}
VILLAS AT SUNDANCE

Viking Capital presents Villas at Sundance, a 252-unit, first-generation multifamily asset built in 2012. This asset is located in New Braunfels, TX, in the Texas Innovation Corridor along Interstate 35 between Austin and San Antonio. New Braunfels is the “Third-Fastest Growing City in the Country,” with a population growth of nearly 40% in five years. The city’s growth is driven by new major employers, entertainment centers, and tourism. 

This deal benefits from robust tenant demand due to population growth and a low-cost basis. With minimal new supply expected, Viking Capital secured this asset at a substantial discount, positioning this property as an exceptional investment opportunity. 

Discover more about Villas at Sundance here.

_{✍️ BEST EVER BLOG}
FROM BASELANE

As you build and scale your real estate portfolio, systems and processes become paramount to streamlining your operations and preventing overwhelm, especially when it comes to tracking cash flow, capital expenditures, and rent collection. There are a variety of strategies that allow landlords to take the stress and overwhelm out of scaling, but there’s one that offers multiple benefits, yet is often overlooked: Creating separate bank accounts for each rental property.

Here are some of the key advantages of having multiple bank accounts:

🧑‍⚖️ Meet legal requirements for owning/managing multiple properties by keeping funds from each entity separate, as some state laws mandate.

🗄 Simplify bookkeeping and cash flow management by avoiding commingling of funds across properties, enabling clear tracking of income, expenses, and future projections for each entity. You can even open separate accounts for individual units to plan for future renovations.

📁 Protect the business from tax losses and individuals from audit risk by maintaining organized financial records for each property, allowing for easier tax filing, maximizing deductions, and limiting personal liability.

💸 Utilize the profit-first method for real estate, a strategy that leverages having multiple accounts to hold funds for different purposes such as real revenue, profit, tax, owner's pay, and operating expenses so investors can “pay themselves first.”

💪 Strengthen your position for acquiring new mortgages/loans by demonstrating a track record of sound financial performance with separate, comprehensive records for each current property. 

👉 Discover why landlords love Baselane here.

_{🎓 EXPERT RESOURCES}
FREE DOCUMENT DOWNLOAD

How to Create Alignment of Interests in Apartment Syndications

A strong alignment of interests will allow you to attract more experienced team members, get more out of your team members, and have more credibility in the eyes of your passive investors. 

The team member and their role in the partnership results in varying levels of alignment of interests. I break down these varying levels into five tiers, with the lowest tier bringing the least alignment of interests and the highest tier bringing the greatest alignment of interests. 

🤝 Tier 1: Simply find a qualified person to partake in the partnership. The more qualified and experienced the person is, the greater the alignment of interests. 

🤝 Tier 2: Bring on the same qualified team member and provide them with a small piece of equity in the general partnership. 

🤝 Tier 3: Bring on the same qualified team member and have them invest their own equity in the deal, making them a limited partner. 

🤝 Tier 4: The team member brings on their own passive investors to invest in the deal. 

🤝 Tier 5: The team member signs on the loan (i.e., is the loan guarantor). 

👉 Download now!

🙏 Thanks for reading!

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Have a Best Ever day!

—Joe Fairless