End of Supply Glut Brightens REIT Outlook for 2025
Apartment REITs are betting big on a market rebound as supply pressures ease — and 2025 could be their comeback year.
Jordan B. & Han-Gwon Lung
November 04, 2024
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Good morning. Apartment REITs are betting big on a market rebound as supply pressures ease — and 2025 could be their comeback year.
Today's issue is sponsored by InvestNext—learn how top fund managers are securing new capital commitments in a hyper-competitive market.
🎙️ Tune in to the No Cap season finale! Hosts Jack Stone and Alex Gornik chat with Richard Byrne, President of Benefit Street Partners, to dive deep into his remarkable career and discuss today’s market landscape, plus insights on direct lending, distressed opportunities, and real estate debt.
Market Snapshot
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*Data as of 11/1/2024 market close.
Apartment REITs
End of Supply Glut Brightens REIT Outlook for 2025
With new supply stabilizing, major apartment REITs are increasing investments, signaling confidence in multifamily poised for recovery by mid-2025.
Renewed confidence: Apartment real estate investment trusts, including Mid-America Apartment Communities (MAA), Equity Residential, and UDR, are ramping up acquisitions and developments as signs of a stabilization of new supply, reports CoStar.
MAA's Sun Belt focus: MAA, which has a significant presence in the Sun Belt, is leading the charge with a $1 billion development pipeline. In the third quarter alone, MAA invested $167 million into ongoing projects and spent over $270 million acquiring properties such as a 310-unit complex in Orlando, Florida, and a 386-unit property near Dallas. CEO Eric Bolton expressed optimism, predicting that favorable leasing conditions will start emerging as early as spring 2025, driving revenue opportunities.
Equity Residential's aggressive acquisitions: Equity Residential made a striking comeback in its acquisition strategy, spending $1.26 billion on 14 properties after a sluggish first half of 2024. A major highlight was the $964 million purchase of 11 properties from Blackstone, bolstering Equity’s foothold in high-supply areas like Denver, Dallas, and Atlanta. However, COO Michael Maelis emphasized the need to monitor the market's capacity to absorb current inventory before making rental growth forecasts.
UDR's perspective: The REIT reported a 2% dip in rental growth for renewals and new leases and a 1.5% drop in revenue during Q3. Nonetheless, absorption of new supply has been strong, allowing UDR to maintain occupancy levels despite concessions. UDR expects stabilization in cities such as Tampa, Orlando, Denver, and Dallas by mid-2025 but remains more cautious for markets with severe supply pressures like Austin and Nashville, projecting price rebounds to start around 2026.
➥ THE TAKEAWAY
Why it matters: The optimistic outlook is underpinned by several factors: a resilient job market, persistently high homeownership costs pushing more people towards renting, and the growth of technology hubs across the South. These trends are expected to sustain rental demand as the market works through its current inventory.
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✍️ Editor’s Picks
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Pay it up: A Manhattan judge has ruled that Cooper Union can take over rent collection and management of the Chrysler Building due to $21M in unpaid ground rent by RFR Holding.
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Rebounding: MetLife's $4.5B real estate funds posted a 1.1% return in Q3 2024, signaling a positive rebound despite office sector challenges.
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Private credit: Ares Management's Q3 earnings saw a 17% AUM increase to $464B, driven by private credit demand and moves like acquiring Crescent Point Capital, boosting revenue by 68% to $1.1 billion.
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‘Mini Monaco’: A $2B overhaul could turn Fort Lauderdale’s largest marina, Bahia Mar, into a ‘Mini Monaco’ with a St. Regis hotel, luxury condo towers, and 88 KSF of commercial space.
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Rejected: Whitestone REIT turned down a $1.45B buyout offer from MCB Real Estate, citing undervaluation despite a 14.5% premium.
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Lifeline: New Jersey's CarePoint Health filed for Chapter 11, citing rising costs and funding issues, with $67M secured to keep hospitals running.
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Security review: The U.S. is expanding Cfius' authority to review real estate deals near military bases, prompted by concerns over Chinese land purchases and national security risks.
🏘️ MULTIFAMILY
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Underserved markets: Pinnacle Partners and Trilogy Investment Company launched a new BTR Opportunity Zone Fund to capitalize three shovel-ready communities in Decatur, GA, Augusta, GA, and Huntsville, AL. (sponsored)
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Multifamily momentum: A new CBRE report highlights that after the Fed's rate cut, both core and value-add multifamily metrics improved.
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Koreatown conversion: Jamison, a major LA apartment landlord, is leveraging high multifamily housing demand by transforming a Koreatown office tower into residential units.
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Loan book: Arbor Realty cut delinquencies by $45 million in Q3 2024 but saw $225 million in new ones, boosting foreclosures.
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Rezoning: Mayor Eric Adams' administration plans to rezone Midtown South to allow larger residential buildings, aiming to boost housing supply.
🏭 Industrial
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Setting up shop: SHIFT will open its first Atlanta location at 575 Wharton Drive SW on November 19, offering over 100,000 square feet of flexible warehouse space.
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Making a deal: Karney Properties has acquired a 400,000-square-foot industrial facility in Phoenix, fully leased to The Home Depot as a return center.
🏬 RETAIL
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ShopTalk: Blackstone is in advanced talks to acquire Retail Opportunity Investments Corp., a U.S. shopping center owner, potentially finalizing a deal in the coming weeks, according to Reuters.
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Ready to expand: Chipotle expects 300+ new locations in 2024 and 2025, approaching pre-pandemic growth rates with an annual increase of 8%.
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Retail acquisition: Longpoint Realty Partners has acquired the 96,486-square-foot Mason Village Shopping Center in Katy, Texas, from DNA Partners.
🏢 OFFICE
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Leasing struggles: Brooklyn’s swanky converted Domino Sugar Factory remains mostly vacant, highlighting post-pandemic challenges in filling office spaces.
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Office renovation: Rubenstein Partners is investing $20 million to renovate PepsiCo’s former Plano office campus, supported by $1.9 million from the city to attract new corporate tenants.
📈 CHART OF THE DAY
CBRE: Divergence in Absorption Trends Likely to Persist
Figure 1: Four-Quarter Sum of Net Absorption / Stock (%)
According to CBRE, diverging net absorption trends persist across property types post-pandemic, with multifamily leading due to limited homeownership options. The office sector struggles but shows signs of stabilization.
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