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Together with
Good morning. Two real estate giants are eyeing a whopping $265M retail deal in Naples, Florida. As supply flirts with demand, location is king for investors. Meanwhile, Fannie Mae is rolling out a new financing program, targeting the heartbeat of middle-income rentals.
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Market Snapshot
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*Data as of 10/13/2023 market close.
DEAL OF THE DAY
Real Estate Titan Mark Hunt Set to Secure $265M Deal for Hoffmann Families’ Naples Portfolio
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Two titans in the commercial real estate industry, closely connected to Chicago, are on the verge of inking a major deal valued at approximately $265 million for a retail portfolio located in the heart of downtown Naples, Florida.
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Deal details: Mark Hunt, one of the largest landlords in Aspen, Colorado, is set to purchase the Hoffmann Families of Companies’ Naples portfolio for approximately $265 million. This deal encompasses 30 properties totaling 242,000 square feet, primarily within Naples’ downtown shopping districts along Fifth Avenue and Third Street.
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More on the table: Hoffmann Families of Companies, renowned for its extensive real estate holdings in the upscale suburb of Winnetka, Illinois, and the Avon, Colorado area, had also considered selling these assets alongside the Naples portfolio. However, they withdrew the Illinois and Colorado offerings from the market temporarily, opting to focus on the Naples deal to mitigate potential tax implications related to capital gains and other financial duties.
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Shift in focus: This sale marks a significant shift for Hoffmann Families of Companies, known for its real estate ventures, as it redirects its attention towards other sectors, particularly private equity investments in various industries such as news media, marketing, agriculture, aviation, and hospitality. The proceeds from this sale are expected to be reinvested into future acquisitions, illustrating the company’s diversification strategy. Founded by billionaire David Hoffmann, the company has transitioned its leadership to his sons, Geoff and Greg Hoffmann, who are now at the helm.
➥ THE TAKEAWAY
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Zoom out: Mark Hunt’s M Development is securing financing to buy most of the Hoffmann properties in Naples, which carry a $130 million debt. They will acquire between 24 and 26 properties, as some tenants have chosen to buy theirs. Additionally, Hunt’s company is expanding its Naples portfolio, having invested $44 million in parcels along Fifth Avenue in 2022. The Naples Hoffmann portfolio generates $14 million in annual income, while Winnetka and Avon could contribute $5.5 million and $3.5 million, respectively. The sale to M Development is set to close sometime this week.
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RENTAL TRENDS
A Look at Metro Cities Leading and Lagging in Apartment Rental Growth
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National imbalances in multifamily housing between supply and demand can influence pricing power, with certain metro areas experiencing either oversupply or undersupply. The differentiation in these areas impacts how much rents have shifted over the past year.
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National overview: As per a new report from Yardi Matrix, a straightforward indicator of these imbalances is the year-over-year change in rent prices. On a national scale, single-family rents have decreased for the second month in a row, landing at $2,104, marking a 0.4% year-over-year growth. Occupancy, however, remains steady at 95.9%, indicating strong demand.
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Leading metros for growth: Diving into metro-specific data, areas in the Northeast and Midwest showed strong growth, likely due to limited new constructions there compared to the Sun Belt and West. The top five metro areas witnessing the highest growth include New York City (5.6%), New Jersey (5.2%), Chicago (4.0%), Indianapolis (3.8%), and Kansas City (3.6%).
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Metros with declines: On the flip side, metros in the Sun Belt and West experienced a decrease in rents. The bottom five metros, based on approximated data, were led by Seattle (with an estimated decline of around -4.7% or -4.8%), followed by Atlanta, Las Vegas, Phoenix, and ending again with Seattle’s -2.5%.
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Between the lines: When dissecting the data based on lifestyle and “renter-by-necessity,” the top lifestyle regions were New York City, Kansas City, Chicago, New Jersey, and Boston. The most significant drops in this category were seen in Austin, Atlanta, Phoenix, Portland, and Nashville. In contrast, for renters-by-necessity, who typically have fewer choices, New Jersey led the growth, followed by Indianapolis, New York City, Chicago, and Miami.
➥ THE TAKEAWAY
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Big picture: The world of renting isn’t one-size-fits-all. Different cities are seeing shifting trends, and the whole picture can be complicated. While national averages provide a broader picture, dissecting the data by metro and renter type offers critical insights for investors. The pandemic’s impact, coupled with shifts in capital seeking yield, has notably influenced the balance of supply and demand, particularly in lifestyle rentals.
📊 POLL RESULTS
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Which factor do you believe has the greatest impact on the value of a commercial property?
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🟩🟩🟩🟩🟩🟩 Location (69)
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⬜️⬜️⬜️⬜️⬜️⬜️ Building condition (9)
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🟨🟨🟨⬜️⬜️⬜️ Rental income (36)
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🟨🟨🟨⬜️⬜️⬜️ Market demand (35)
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(149 Votes)
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Choosing a good location is paramount as building conditions can improve and rents can rise over time; moreover, a prime location typically sees growing market demand. Interest rates would have been also an acceptable answer 😎
WORKFORCE HOUSING
Fannie Mae Launches New Workforce Housing Program
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Fannie Mae is rolling out a fresh financing scheme focused on developing and maintaining middle-income rental housing, a move that aims to ease the persistent affordability crunch many renters face.
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The program: In a recent announcement, Fannie Mae unveiled its Sponsor-Dedicated Workforce (SDW) product, a program designed to encourage borrowers to set long-term rent restrictions. The catch? Borrowers need to ensure that at least 20% of their multifamily property units are affordable for residents earning 80% to 120% of the median income in the area. This commitment is verified yearly by specific lenders.
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Workforce housing shortage: Despite being a crucial need, workforce housing hasn’t seen enough development. Particularly in places like New York and Los Angeles, there’s a staggering deficit — to the tune of 1.25 million units. This program is Fannie Mae’s response to such gaping shortfalls. In just two months, they’ve secured five SDW loans, totaling $80.1M, supporting 867 units in Dallas, Chicago, and Washington, D.C. The most substantial single loan refinanced a property in Palos Hills, Illinois.
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The challenge is real: rents are climbing faster than incomes. Fannie Mae’s multifamily head, Michele Evans, emphasizes that the initiative isn’t just about creating affordable housing. It’s also about fostering investment opportunities that have positive social impacts.
➥ THE TAKEAWAY
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Closing the gap: Fannie Mae’s new program is more than a financial venture — it’s a lifeline for middle-income renters struggling in an imbalanced market. By tying rent caps to loans, the initiative promises to open doors for more affordable living spaces and ethical investment strategies, addressing the critical gap in workforce housing.
✍️ DAILY PICKS
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Under the weather: Rite Aid has filed for Chapter 11 bankruptcy due to debt and opioid prescription lawsuits, leading to the expected closure of many stores.
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Creeping in: Some major U.S. banks performed well in Q3 despite inflation and high interest rates. However, signs of distress are gradually appearing in the banks’ property portfolios, primarily in office lending.
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Racketeering: A Houston property owner contesting a Galleria-area office building’s foreclosure is also under federal scrutiny, accused of a scam causing over $15M in damages.
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Up for grabs: Amid scrutiny of Trump’s real estate, experts pinpoint his prime asset in Doral, touting its redevelopment potential in South Florida and citing a $1.3 billion Newmark valuation.
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Hitting the jackpot: Las Vegas defies the national office vacancy trend, with a drop to 10.9% last quarter, prompting increased investor interest, as per Las Vegas Sun and CBRE.
📈 CHART OF THE DAY
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