ARES Urbanexus Update #159
ARES Urbanexus Update #159
The American Real Estate Society (ARES) distributes this monthly selection of real estate and community development news and information. H. Pike Oliver continues to curate it, as he has since 2018.
Real estate bankruptcies in the U.S.
Late in December 2023, JER Investors Trust Inc., a mortgage REIT, filed for bankruptcy in the latest sign of distress in commercial real estate.
JER Investors manages a portfolio of mortgage-backed securities and other types of debt tied to the commercial real estate market, according to the company’s website. As interest rates climbed this year, commercial properties came under pressure, especially firms that lost tenants during the pandemic as office tower workers stayed home.
Earlier in December 2023, mall owner Pennsylvania Real Estate Investment Trust filed for bankruptcy for the second time in three years. In November 2023, the coworking behemoth WeWork Inc. filed for bankruptcy with plans to cut back a sprawling real estate portfolio spanning 39 countries.
Brookfield buys nearly $1 Bn in mortgages
An affiliate of New York-based Brookfield Properties purchased $915 million in mortgages tied to thousands of apartments in San Francisco before the close of 2023, reports Sarah Klearman at the San Francisco Business Times. Veritas Investments Inc. has owned approximately 2,165 apartments. Veritas has more than 7,500 units in California. Still, Brookfield's acquisition of the two loans may be a sign of Veritas forfeiting a significant portion of its residential portfolio, one market source told Klearman. Learn more here.
Regional and metropolitan trends
Depopulation possible in thousands of US cities
Many small and mid-sized cities could see a decline before 2100. According to findings published in Nature Cities, the populations of some 15,000 cities around the country could dwindle to mere fractions of what they are now. The losses are projected to affect cities everywhere in the U.S. except Hawaii and Washington, D.C.
The authors analyzed data collected from 2000 to 2020 by the U.S. Census and the American Community Survey, an annual demographics survey conducted by the U.S. Census Bureau. This allowed them to identify current population trends in more than 24,000 cities and to model projections of future trends for nearly 32,000. They applied the projected trends to a commonly used set of five possible future climate scenarios called the Shared Socioeconomic Pathways.
These scenarios model how demographics, society, and economics could change by 2100, depending on how much global warming the world experiences. You can learn more here.
Top U-Haul destinations in the USA
Florida destinations again dominated the U.S. growth cities list in 2023, with the Palm Bay-Melbourne market netting the largest number of movers in one-way U-Haul® equipment last year. The U-Haul Growth Index found seven Florida markets among the top 25 growth cities. It marks the seventh year in a row the Sunshine State has had the most cities represented. Florida had four markets among the top 25 in 2022 and a whopping 10 in 2021.
Ocala, the No. 1 growth city in 2022, backslides one spot in the latest rankings. The Sarasota-Bradenton market ranks fourth, just behind Charleston-North Charleston (S.C.). Austin is the fifth-ranked growth city – the first of three top-10 Texas destinations, along with the College Station-Bryan market and Dallas.
U-Haul calculates growth cities by each city’s net gain (or loss) of one-way equipment from customer transactions in a calendar year. The U-Haul Growth Index is compiled from more than 2.5 million one-way U-Haul truck, trailer, and U-Box® moving container transactions annually across the U.S. and Canada.
Climate change and sustainability
It was hot in 2023
It’s now official: 2023 was the planet’s hottest year on record (going back to 1850). According to the Copernicus Climate Change Service, which keeps track of this. It was also the “first time on record that every day within a year has exceeded 1°C above the 1850-1900 pre-industrial level.” Some days in November were even 2°C above the pre-industrial level.
ULI's global sustainability outlook
The Urban Land Institute (ULI) began publishing an annual sustainability outlook in 2021. The outlook for 2024 identifies and explores five issues shaping real estate decision-making in the months ahead and beyond.
Linking sustainability performance and financial performance.
Going back to basics to advance decarbonization.
Complying with an evolving regulatory landscape.
Prioritizing resilience as extreme weather intensifies.
Approaching sustainability holistically.
You can learn more here.
Decarbonizing commercial real estate
A 2023 report from real estate advisory and brokerage firm CBRE notes that, worldwide, buildings are responsible for 37% of carbon emissions and 34% of energy demand. Other environmental impacts of buildings include resource depletion, air, water, land pollution, and biodiversity loss.
Every real estate firm should be pursuing a proactive decarbonization plan consisting of clear strategies and roadmaps that span operations, leasing, and capital expenditure and have performance targets. A measurable plan is the only way to manage up-front costs and regulation. CBRE presents a seven-step guide for creating a real estate decarbonization strategy in their report, which may be downloaded here.
Source: EPA Greenhouse Gas Emissions
Master-planned communities
Top 50 best-selling communities
Since 1994, RCLCO has conducted a rigorous national survey identifying the top-selling Master-Planned Communities in the country. Click here to read the full rankings and report for 2023.
New home sales among the 50 Top-Selling Master-Planned Communities increased by nearly 14% in 2023 compared to 2022’s Top 50 MPCs.
The Villages active-adult community is again the top-selling community in the nation with 3,029 sales. Sarasota, Florida’s Lakewood Ranch, claimed the number two spot overall and is the top-selling multi-generational community in the country, with 2,257 sales, an impressive 22% increase over last year. Sunterra in Katy, Texas, earned the third-place rank with 1,293 sales in 2023, a whopping 63% increase over 2022. The Houston MSA was the top-performing metropolitan area, with 12 communities in the Top 50, representing nearly 8,300 sales, or 23% of all sales among top-ranked MPCs. The state of Florida represented about 40% of sales among top-ranked communities, followed by Texas at nearly 37%.
Tejon Ranch dives into multifamily housing
Taking its next step toward becoming a fully integrated real estate development company, Tejon Ranch Co. has plans to provide multifamily housing in the company’s Tejon Ranch Commerce Center (TRCC) north of the Los Angeles basin. Terra Vista at Tejon, the company’s first multifamily apartment community, will be adjacent to the Outlets at Tejon. The development begins Tejon’s transition of TRCC to become a mixed-use master plan. The ranch could eventually become home to more than 35,000 single-family and multifamily residences. Learn more here.
Residential
Sekisui House buys M.D.C. Holdings for $4.9 billion
Sekisui House and M.D.C. Holdings—No. 11 on the 2023 Builder 100—announced a definitive agreement in which the wholly-owned subsidiary of Sekisui House will acquire MDC for $4.9 billion.
Sekisui House will become the fifth largest home builder in the U.S., based on the number of houses closed in 2022, and expand its presence to 15,067 combined home closings across 16 states. The acquisition also helps Sekisui House to achieve its target of supplying 10,000 homes outside of Japan by 2025, sooner than anticipated.
MDC shareholders will receive $63 per share in cash, which represents an approximately 19% premium to MDC's closing stock price on Jan. 17, the last trading day before announcing the transaction, and an approximately 41% premium to MDC's 90-day volume-weighted average trading price. You'll be able to learn more here.
Blackstone taking Tricon private for $3.5 billion
Blackstone Real Estate announced an arrangement agreement to acquire Tricon Residential, taking the company private. As part of the agreement, Blackstone Real Estate Partners X and Blackstone Real Estate Income Trust will acquire all outstanding common shares of Tricon for $11.25 per share. You can learn more here.
Tricon provides rental homes and apartments in high-growth markets, including Atlanta, Charlotte, North Carolina, Dallas, Phoenix, Tampa, Florida, and Toronto. Under Blackstone’s ownership, Tricon plans to complete its $1 billion development pipeline of new single-family rental homes in the United States and $2.5 billion of new apartments in Canada.
Cost-burdened households in the US
The number of cost-burdened households in the US rose dramatically during the pandemic, and 2022 reached levels not seen since 2011, according to our analysis of recently released data from the US Census Bureau. In total, 42.0 million households were cost-burdened in 2022, paying more than one-third of their income for housing. This is an increase of 1.5 million households from 2021 and 4.9 million since 2019, the year before the pandemic started. As a result, nearly one-third of all households in the US are now cost-burdened, the highest rate since 2015.
The increases, driven by several years of surging rents and unprecedented growth in home prices, occurred among both renter and homeowner households. The number of cost-burdened renter households rose to 22.4 million, up from 21.6 million in 2021 and 20.4 million in 2019 (Figure 1). Nearly 80 percent of the increase since 2019 was concentrated in renter households that were severely cost-burdened, spending more than 50 percent of their income on housing. Learn more here.
Why affordable housing is expensive in the USA
Costs are driven by the byzantine rules of the federal tax credit system that require builders to assemble a "capital stack" of funders, each with sets of fees and requirements. On top of that comes ever more rigorous government standards for accessibility, sustainability, and design. Developers and their architects win points from public agencies awarding the projects by striving for net zero carbon emissions using materials such as solar panels, triple-pane windows, and upgraded insulation. You'll be able to learn more here.
The '“builder’s remedy” in California
The state of California has a law that says if a local jurisdiction has not adopted a housing blueprint (called a housing element) in compliance with state law, the local government can't reject a housing development in which at least 20% of units are reserved for low-income households or 100% are reserved for moderate-income households. That rule, known as a "builder's remedy," is increasingly being seen as a backdoor to pushing forward projects that may otherwise have been hung up during the approval process. You'll be able to learn more here.
Around the world
China’s real estate crisis has yet to reach bottom
The forced liquidation of China Evergrande epitomizes the sector’s struggles: Nationwide, sales are down, and millions of homes have been paid for but not delivered.
This sharp loss of faith in property, the main store of wealth for many Chinese families, is a growing problem for Chinese policymakers who are pulling out all the stops to revive the ailing industry — to very little effect. The troubles of the country’s real estate sector were laid bare on Monday when a Hong Kong court ordered China Evergrande to wind up operations and liquidate the company, which is saddled with over $300 billion in debt.
But the downturn, already the longest on record, is not only dragging on — it is accelerating. Learn more here.
The world’s most expensive cities
New York lost its top spot as the world’s most expensive city in 2023, though it kept the crown for the priciest place in North America as rated by the Economist. Their latest Worldwide Cost of Living survey confirms that inflation remains high worldwide: the prices of 200 products and services it tracks rose by an average of 7.4% over the past year. This is down slightly from 8.1% in 2022 but remains well above the average of 2.9% over the previous five years. Our map and chart below reveal which cities are the most expensive. Learn more here.
Oddly iconic real estate
The Sphere in Las Vegas
As reported by Citylab, the $2.3 billion entertainment venue in Las Vegas is 2023’s greatest architectural spectacle and a giant artifact of our screen-obsessed age.
Speed past the Venetian hotel on Sands Avenue in Las Vegas, and it comes into view suddenly, a celestial body that eclipses the sky. Turn up Howard Hughes Parkway, and it gradually emerges, a great dome rising from the desert. No matter where you come from in the city, your eyes manage to find it. In the daytime, it is a giant mauve marble, a totem-like pyramid, or a ziggurat; at night, it is a globe of pure information.
Sphere — no “the,” only Sphere — tilted Las Vegas’s axis this year. Its location just east of the Strip shifted the epicenter of tourism in the city, while its design upended the trajectory of Vegas architecture. You may learn more here.
