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Together with
Good morning. We’re thrilled to announce our collaboration with John Burns Research and Consulting to launch the CRE industry’s first Fear and Greed Sentiment Index. We invite you to take this 3-minute survey to gauge changes in investor sentiment in commercial real estate. Your responses are 100% anonymous, and nothing will be traced back to you.
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Today’s issue is brought to you by Arrived. Buy shares of investment properties, and earn rental income and appreciation.
RIDING THE WAVE
Senior Housing Occupancy Hits 84.4% in Ninth-Straight Quarter of Growth
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The National Investment Center for Seniors Housing & Care (NIC) has reported a ninth consecutive quarter of rising senior housing occupancy. If current trends persist, occupancy might return to pre-pandemic levels by 2024.
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Senior housing occupancy rate: Bracing for the ‘silver tsunami’ of aging baby boomers, senior housing sees occupancy rates rise. With boomers nearing 78, the wave is on the horizon. Q3 rates reached 84.4% in major US markets, up from 83.6% last quarter and a significant jump from 77.8% in 2Q21. With 109,358 units vacant and another 32,722 underway, the tide is rising.
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Assisted vs. independent living: Demand is surpassing supply in both assisted living and independent living properties, but assisted living properties are recovering at a faster pace. Assisted living occupancy rates in the 31 markets improved by 0.9%, reaching 82.6% in Q3. Independent living occupancy rates also increased by 0.7%, reaching 86.1%.
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Generational shifts: Macroeconomic factors, such as the current sellers’ market and aging Baby Boomers, are influencing senior financial planning and senior housing. As the oldest Baby Boomers approach 77, their transition into different levels of care is expected to drive demand. However, the smaller generation of Gen Xers may result in a drop-off in the senior population in the coming decade.
➥ THE TAKEAWAY
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2024 outlook: Projected data from 3Q 2021 to 3Q 2023 suggests senior housing occupancy could meet or surpass early 2020 levels by 2024, driven by high demand, limited supply, and strong market dynamics. Without the pandemic’s impact, occupancy might have already been at mid-80%.
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*Past performance is not indicative of future results. This post contains sponsored content.
THESIS-DRIVEN INSIGHT
2023’s Biggest Multifamily Trend: Boosting NOI Through Centralization
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This week’s Thesis Driven deep dive explores one of the biggest shifts happening in multifamily operations today: apartment owners increasingly centralizing and offshoring operations.
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With rents softening—and rates continuing to climb—cutting operating expenses is one of the few levers real estate operators have left. Centralization and offshoring offer the biggest pull of that lever, sometimes driving on-site staffing costs down by double-digit percentages.
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In addition, new tech products have enabled more operators to move functions formerly performed on-site at assets to central back offices—whether in the US or overseas—far more easily. Improvements in funnel management, maintenance dispatch, business intelligence, and visualization technology have all played a role.
Next-generation business intelligence tools like Tableau–pictured here–make centralized teams easier to track and manage.
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Centralization skeptics would be wise to recall that one of the most important management tasks–property reporting and accounting–was moved off-site by most firms over a decade ago; it’s rare to find a multifamily building today with an on-site bookkeeper and a box of receipts in the closet. Many operators believe that other tasks such as inside sales, leasing administration, customer support, and even maintenance dispatch are the next to be moved to central back offices.
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Once centralized, functions can be moved offshore for a fraction of the cost. Companies like Frontier—used by several multifamily operators we interviewed—are leading the way in helping real estate owners scale up offshore operations by specializing in hiring overseas talent with leasing, administrative, and property accounting experience.
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Of course, centralization and offshoring have their drawbacks. One, cutting on-site headcount may hurt the tenant experience, especially for existing buildings with tenants “trained” to bring support issues to the front desk. Operators should also be careful not to give on-site property managers a convenient scapegoat; no one wins when the on-site manager blames the offshore call center for missing the leasing goal.
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Finally, it’s not yet clear that owners can get “credit” for NOI gains achieved through centralization and offshoring during the sale of a property; buyers are likely to apply their own expense assumptions to any given acquisition. Of course, once centralization gets baked into acquirers’ underwriting, it is no longer a nice upside boost to returns—it’s just the cost of doing business.
➥ THE TAKEAWAY
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In today’s tough environment, owners are seeking out any opportunity to boost NOI. This is driving them to get creative with centralizing roles previously performed on-site–and in many cases, sending those tasks to be done in India or the Philippines. You can read more about centralization and offshoring in real estate at Thesis Driven here.
🧠 CRE TRIVIA
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As of October 2023, how many vacant multifamily units are there in the Austin metropolitan area, and where does Austin rank nationally for the most multifamily units under construction?
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A) 30,000 units, 10th
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B) 36,000 units, 8th
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C) 40,000 units, 5th
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D) 25,000 units, 12th
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Find your answer at the bottom of the newsletter.
EXPERIENCE ECONOMY
Concerts and Events Generate Billions in Consumer Spending
A LOT OF POTENTIAL CUSTOMERS: TAYLOR SWIFT FANS WAIT TO ENTER A RECENT CONCERT IN DENVER. (GETTY IMAGES)
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The economic impact of mega-concerts and live events has become a force to be reckoned with, rivaling that of entire countries. Artists like Taylor Swift and Beyoncé have not only generated billions of dollars in consumer spending but have also influenced markets and spurred inflation, catching the attention of the Federal Reserve.
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For instance: Taylor Swift’s Eras tour, consisting of 146 shows, resulted in approximately $10B in consumer spending, equivalent to 55 Super Bowls. The economic impact even extended to other industries, such as football economics through increased jersey sales and TV audiences.
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Measuring the impact: Retail sales and activity have restructured themselves to accommodate the post-pandemic in-person boom. Top-tier malls saw a 12% increase in traffic compared to pre-pandemic levels. Spending at bars, restaurants, and health and wellness centers also increased by more than 7% from August 2022 to 2023.
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Flexible retail spaces: To tap into the economic potential of live events, retailers and brands should consider going where the fans are. This could mean creating more flexible retail spaces at stadiums and music venues, allowing for a seamless integration of retail experiences into the event. Retail spaces should focus on innovative designs and amenities that enhance the overall experience for shoppers.
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Consumers just wanna have fun: Another example of successful event-driven consumer spending is the Barbie movie, which stimulated retail spending nationwide, with pop-up stores and branded photo opportunities attracting fans—and, of course, more in-person Barbie doll sales. The release of concert tour films in theaters also presents opportunities for cross-merchandising and special events at retail sites.
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The return of brick-and-mortar: The growth of e-commerce has plateaued, leading direct-to-consumer brands to seek physical locations for pick-up, customer acquisition, and marketing purposes. While large department stores and Class B malls have struggled, smaller high-end specialty retail stores have thrived as brands utilize events and activations to acquire customers. This shift has prompted developers and owners to adopt adaptive store layouts.
➥ THE TAKEAWAY
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Nothing like the real thing: At the end of the day, human nature is still the same. As e-commerce levels off, retail spaces must focus on providing unique experiences that surpass what online platforms can offer. But this requires adapting store layouts and creating flexible spaces that include food halls, interactive displays, and branded entertainment zones. The cost of not embracing these changes may outweigh the cost of innovation.
✍️ TOP 10 STORIES OF THE WEEK
1️⃣ Creative homeownership: 33.12% of luxury homes in the US over $1M were purchased with cash in 2Q23. But cash isn’t the only way to become a homeowner these days…
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2️⃣ Fueling success: Repeated mistakes in selling, financing, and leasing often hinder success in the CRE industry. Here are 15 crucial investing missteps that commonly result in poor deal outcomes.
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3️⃣ Banking on buyers: US banks increase incentives to attract buyers in frozen office market as property values decline.
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4️⃣ Hotels redefined: Marriott (MAR) and Hilton (HLT) are expanding the market for hotel-branded residential developments (read: not actual hotels) due to growing extended-stay demand.
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5️⃣ Thriving in turbulence: Amidst multifamily CRE challenges, professionals are innovatively navigating through peak supply and refinancing hurdles. The following highlights stories of impactful individuals and teams who have skillfully thrived in this sector over the past year.
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6️⃣ Squatter’s paradise: Legal loopholes allowed one stalwart Airbnb (ABNB) renter to stay rent-free for over 540 days, which has led to multiple, competing lawsuits.
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7️⃣ The dignity of decay: The NYC Supreme Court upholds the city’s rent stabilization laws, which make the city’s rent-controlled apartments affordable by effectively ignoring their disrepair.
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8️⃣ Beyond JVs: Institutional real estate investors are exploring new investment structures, including investing in operating businesses, to expand their relationships with operating partners.
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9️⃣ Waiting for the reset: CRE investors are holding an estimated $300B in dry powder as volumes stay low and rates remain high, with many waiting for the right time to spend their funds.
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🔟 Rising rates rattle: The 10-year US Treasury is currently at 4.79%, its highest level since June 2007, with CRE professionals taking notice.
📈 CHART OF THE DAY
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🧠 Trivia Answer: B) 36,000 units, 8th
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As of October 2023, Austin has 36,000 vacant multifamily units and ranks eighth nationally for multifamily construction. With 120,000 units in the development pipeline, the city faces high vacancy rates, indicating a potential oversupply amidst fluctuating demand in the housing market.
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