Failure to Extend Rent Protections in Los Angeles County

Rent cap and eviction protection are extended despite a tie vote by the supervisors.

The Los Angeles County Board of Supervisors opposed extending rent safeguards for another year and extending the provisions to unincorporated regions of the 4,083-square-mile county, an area larger than Rhode Island. The vote was tied at 2-2 with one abstention.

Resolutions to limit rent increases to 3% or the change in the Consumer Price Index over the previous year, whichever is less, were among several that fell short of a majority. According to a story in the Los Angeles Daily News, the measures would have also prolonged residential renter rights for one year throughout the county and its 88 communities.

Protecting tenants from eviction who have taken in extra occupants—including pets—during the pandemic and prohibiting landlords from evicting tenants without a reason were among the rights that were not extended.

The Board of Supervisors was encouraged by tenant and renters’ rights organizations to extend the pandemic-era rent safeguards because they think a wave of evictions is on the way that will peak when the county formally ends the COVID-19 emergency on March 31.

The tenant safeguards would have added further difficulties to landlords who are already dealing with growing prices, according to a group of roughly 20 self-described mom-and-pop landlords and numerous trade organizations that represent apartment owners.

According to the newspaper report, Fred Sutton, vice president of public affairs for the California Apartment Association, told the board that “cities can make these decisions on their own.”

Supervisor Janice Hahn, who voted against the rent protection extensions, claimed that she would have voted in favor of them a year ago, but that now that the pandemic is over and unemployment is low, Los Angeles County no longer needs “emergency regulations” and “restrictions” shouldn’t be placed on landlords in unincorporated areas.

According to Hahn, the county would provide assistance to unincorporated cities in developing their own local rent rules. The board adopted a resolution ordering the county director of consumer affairs to be available to assist localities in developing rent regulations after rejecting the renter protection extensions.

Co-author of the resolution extending renter rights, Supervisor Lindsey Horvath, made the case that the protections are crucial for reducing homelessness.

According to the newspaper story, Horvath said that a state of emergency had been established regarding homelessness. Helping those folks afford the homes they are in is the most crucial thing we can do to stop the flood of homelessness.

The SVN Vanguard team knows investors need an experienced commercial property management company by their side. Contact us for multifamily properties for sale.

Voters were promised a housing fund of $900 million; the city now expects about $672 million.

Measure ULA, the new property transfer tax on commercial and residential transactions over $5 million in Los Angeles, was approved by a lopsided margin of 58% to 42% in a state referendum in November. However, the initiative is not bringing in the kind of tax revenue that its supporters had promised would be used to support a new housing fund.

According to a recent analysis by the City Administrative Office in Los Angeles, Measure ULA may bring in up to $672 million during the fiscal year that runs from July 1 to June 30 of the following year.

On the city’s voter information pamphlet, which is the official ballot information provided to voters and explains what an initiative seeks to accomplish, supporters of Measure ULA stated that the property transfer tax would generate $900 million annually, based on the volume of real estate sales in the fiscal year that ended on June 30, 2022.

This assertion was strengthened by a UCLA study that was released in September and predicted that the transfer tax would bring in $923 million. The new property transfer tax raises the tax rate from 4% to 5.5% for sales of homes and businesses for more than $5 million and over 10%.

Both of the preceding projections made the crucial assumption that all the sales on which they were based would close, which neither of them did. That might occur during UCLA lab exercises, but Measure ULA opponents can claim, I told you so. They forewarned last autumn that rising interest rates and the approval of the transfer tax would have a deterrent effect on sales transactions.

Nonetheless, a $672 million yield for Measure ULA would result in a new fund called House LA that will provide an estimated $433 million for affordable housing initiatives in Los Angeles and $185 million for initiatives to prevent homelessness.

If that return is adequate to maintain Measure ULA in existence, voters will have another opportunity to decide:
Kilroy Realty led a petition drive for a fresh referendum on local special tax increases, and this month the California Secretary of State verified that the petition had received the required number of signatures—more than 1 million registered voters—to qualify for the state’s 2024 ballot.

The “Taxpayer Protection Act” was sponsored by real estate interests, including Kilroy and the California Business Roundtable. By not mentioning Measure ULA in the 2024 referendum, the sponsors of the legislation intend to undermine its advantage in the eyes of the general public.

Alternatively, if voters choose to approve the 2024 referendum, a new requirement for two-thirds approval of state referendums that impose any new local special tax hikes would be established, and it would grandfather the rule in so that it could be used to invalidate Measure ULA.

Any municipal special tax enacted after January 2022 but before November 2024 that received less than two-thirds of the vote (66.7% “yes”) was not implemented in compliance, according to the 2024 referendum, and will be revoked.

The Howard Jarvis Taxpayers Association and a group of landlords going by the name of the Apartment Association of Greater Los Angeles filed a lawsuit against Measure ULA in December, asserting that the state constitution forbids cities or counties from allocating real estate transfer taxes for particular purposes.

The SVN Vanguard team knows investors need an experienced commercial property management company by their side. Contact us for multifamily properties for sale/lease.

1. INFLATION

The Consumer Price Index (CPI) rose 0.4% month-over-month and 6.0% year-over-year on a seasonally adjusted basis through February, according to the Bureau of Labor Statistics’ March 14th release. Both the monthly and annual measures decelerated from January.
Last month’s annual inflation rate was the lowest since September 2021, while the previous two months have seen a rise in monthly inflation after slowing to 0.1% and 0.2% in the final months of 2022. Core prices have risen by 5.5% over the past 12 months, the lowest annual climb since 2021, but registered their highest monthly increase since September.
Shelter accounted for roughly 70% of monthly price increases, rising 0.8%. Food prices rose 0.4%, while energy prices fell by 0.6% month-over-month.
Eyes now turn to the Fed — with their March policy meeting on the horizon, markets have tried to telegraph their upcoming policy decision in the face of tight labor markets, recent US bank collapses, and mixed inflation data. Following Tuesday’s CPI release, futures markets coalesced around a 25 basis point forecast for next week’s policy decision.

2. SILICON VALLEY BANK CRISIS

The March 10th collapse of Silicon Valley Bank — and Signature Bank a few days later — became the largest US bank failures since the 2008 financial crisis. For the former, a requested capital raise triggered a crisis in confidence among depositors who feared a deterioration in bank liquidity, triggering a run on the bank and, eventually, government intervention.
The collapse highlights the risk posed by a rising interest rate environment on the financial system, resurfaces questions about moral hazard in banking, and complicates the Federal Reserve’s hawkish stance as it prioritizes price stability amid high inflation.
Markets initially fell in the wake of the bank failures but have rallied in the days since as federal intervention and reduced fears around contagion restore confidence in the financial system.
While regulators stepped in with depositor guarantees and public assurances to help affirm faith in the financial system, futures markets have adjusted their forecast for the upcoming FOMC rate-hike decision to reflect an expected 25 basis point hike, down from a projected 50 basis point hike that markets predicted just a few weeks ago.

3. CRE EXPOSURE TO RECENT BANK COLLAPSES

The recent closures of California’s Silicon Valley Bank (SVB) and New York’s Signature Bank could have implications for commercial real estate lending. While much of SVB’s business was concentrated in the tech sector, the bank’s 2022 financials showed that 15% of its loans were attached to residential mortgages
or commercial real estate projects.
Moreover, Signature Bank’s business focused on CRE lending. The bank’s balance sheet shows that it held $110.36 billion in assets and $88.59 billion in deposits at the close of 2022. $35.7 billion of Signature’s portfolio included loans for multifamily, commercial property, acquisition, development, construction, and home equity lines of credit.
The tech sector’s exposure to SVB could also have implications for prop-tech firms, not only due to direct exposure but due to the common thread of venture capital firms whose portfolio consisted of several businesses that lacked diversified banking relationships. Banks often typically require single-banking relationships from lending agreements with large depositors — a standard that will likely come under increased pushback in the future.
On the other hand, many analysts believe that The Federal Reserve’s backstopping of affected banks last weekend helped restore confidence among depositors at tech-focused banks. Some VC groups focused on prop-tech have stated that recent distress will not significantly impact their activity in the sector.

4. MORTGAGE RATES FALL

Mortgage rates fell to begin the week, with the 30-year fixed mortgage dipping to 6.57% on Monday, March 13th, from a recent high of 7.05% registered last Wednesday.
Movements in mortgage rates are generally concurrent with movements in US Treasuries, which saw yields fall sharply in the wake of last week’s bank collapses.
After reaching a high of 7% last September, mortgage rates declined to close 2022 and fell as low as 6% in January, prompting an 8% jump in pending home sales that month. Recent rate reduction could generate a similar jump in homebuying activity in March.
Since mortgage rates are indirectly influenced by movements in the Federal Funds rate, recent volatility around March rate hike projections is likely also contributing to the recent fall in rates.

5. MARCH RATE-HIKE PROBABILITIES

Forecasts for this month’s interest rate decision by the FOMC are somewhat split as of March 15th, 2023. According to the Chicago Mercantile Exchange’s Fed Watch Tool, markets are pricing in a 55.4% probability of a 25-basis point hike at the Fed’s March policy meeting, while 44.6% see the committee
holding rates at the current range of 450-475.
Recent US bank failures catalyzed the current split consensus and increased the likelihood of a rate-hike pause. Some investors are betting that the financial market distress will encourage the Fed to pause rate increases to provide liquidity to the market.
However, financial markets have normalized in recent days. While concerns about the banking system remain front of mind, recently released inflation numbers showed only a marginal month-over-month deceleration in price pressures. With inflation still the primary focus of ongoing Fed policy, they are likely to move forward with a 25-basis point hike.
Futures markets now anticipate a slower pace of Fed rate increases moving forward and forecasts that the committee will terminate rate hikes after the May meeting.

6. NAIOP INDUSTRIAL SPACE DEMAND

NAIOP, a commercial real estate development trade association, raised its projection for Industrial net absorption in 2023 in the latest Industrial Space Demand Forecast.
The Q1 report, released earlier this month, revised its estimate for net absorption in 2023 up to 310 million square feet, which reflects a more resilient economic start to the year than previous estimates anticipated and upwardly revised net absorption totals from 2022. NAIOP forecasts 323 square feet of Industrial net absorption in 2024.
During the final two quarters of 2022, Industrial net absorption averaged 176 million square feet, a significant drop from the 236 million square feet absorbed during the first two quarters of last year. Overall, the sector finished 2022 with a net absorption of 413 million square feet.
Despite rising interest rates and new supply coming online, the Industrial market remains a standout in CRE performance, with low vacancy rates and industry-leading transactions and price growth.

7. FEBRUARY JOBS REPORT

According to the Bureau of Labor Statistics, the US economy added 311,000 jobs in February while the unemployment rate ticked up ten basis points to 3.6%.
While US job growth declined from a 6-month high of 517,000 in January, February’s growth was still robust in a historical context, remaining well above the average job-add levels seen during the post-GFC jobs cycle.
Despite the uptick in unemployment and a recent rise in jobless claims, last month’s jobs numbers combined with February’s inflation rate of 6.0% are likely to reinforce policymakers’ conclusion that the labor market is too tight relative to price stability, prompting them to push forward with a March rate hike.
The leisure and hospitality, retail trade, government, and healthcare sectors saw the most significant employment growth. Employment declined in Information occupations, including tech, and transportation.

8. JOB OPENINGS AND UNEMPLOYMENT

Total US job openings declined in January, falling from 11.2 million in December to 10.8 million in the first month of 2023.
Total hires and separations were little changed during the month, registering 6.4 million and 5.9 million, respectively. However, breaking down the separations data, a decline in quits was offset by a rise in layoffs, a potential signal that the labor market is beginning to loosen.
Job openings per unemployed person continue to sit near record highs, holding at 1.9 available jobs per unemployed worker, unchanged from the previous month. The ratio has been persistently high since mid-2022. In January 2020, shortly before the pandemic began, the ratio stood at 1.2, which had been a post-GFC peak.
While record job openings continue to elevate the ratio, continued increases in joblessness may begin to place downward pressure on it. During the week ending on Saturday, March 4th, 211,000 people filed initial jobless claims, up from 190,000 the week before.

9. APARTMENT MARKET INVESTMENT INDEX

The Freddie Mac Multifamily Apartment Investment Market Index (AIMI), a measure of overall multifamily sector investment health that tracks asset prices, property-level incomes, and mortgage rates, fell by 7.6% during Q4 2022 and 25.8% year-over-year.
The AIMI declined in all the 25 major market tracked by Freddie Mac, and corresponds with rising mortgage rates that dampened investment demand, resulting in the index’s sharpest annual drop in its history.
Analysts generally agree that the Multifamily sector fundamentals have not, nor are they expected to, weaken significantly, but falling net operating income and property price are indicative of broader monetary constraints as borrowing costs climb and investors become more selective.

10. CONSTRUCTION COSTS

According to the latest Cost of Construction Survey by the National Association of Home Builders (NAHB), roughly 60% of sale value consisted of construction costs in 2023, based on average home sales prices.
Since NAHB began tracking construction cost-to-value ratios in 1998, the metric has only risen above 60% on three other occasions. However, the recent uptick is not a significant deviation from historical patterns. Construction costs last crossed the 60% threshold in 2019, when they contributed towards 61.1% of home values, with the other two instances in 2013 and 2015, which saw ratios of 61.7% and 61.8%, respectively.
Breaking construction costs down further, interior finishes accounted for the largest sub-share (24.0%), followed by framing (20.5%), major system rough-ins (17.9%), exterior finishes (11.8%), foundations (11.0%), site work (7.4%), final steps (5.9%), and other costs (1.5%).
Finished lot costs contributed the second highest cost at 17.8%, a decline from 2019’s 18.5%. Overhead and general expenses averaged 4.9%, unchanged from 2019, and were followed by sales commission (3.6%), financing costs (1.9%), and marketing costs (0.7%) — all of which have fallen from 2019 contribution levels.

SUMMARY OF SOURCES

(1) https://www.bls.gov/news.release/cpi.nr0.htm
(2) https://en.wikipedia.org/wiki/Collapse_of_Silicon_Valley_Bank
(3) https://www.globest.com/2023/03/14/%E2%80%8Bbanks-collapse-affecting-mortgage-rates-vcproptech/
(6) https://www.naiop.org/research-and-publications/research-reports/reports/industrial-spacedemand-forecast-1q23/
(7) https://www.bls.gov/news.release/empsit.nr0.htm
(8) https://www.bls.gov/news.release/jolts.nr0.htm
(9) https://freddiemac.gcs-web.com/news-releases/news-release-details/freddie-macmultifamily-apartment-investment-market-index-0?_ga=2.226689373.1581823799.1678995759-1965643130.1605283640
(10) https://www.nahb.org/blog/2023/03/60-percent-of-home-sales-price-goes-to-construction-costs

In response to the recent approval of a set of eviction and rent safeguards for renters around the city, multifamily landlords in Los Angeles are taking legal action.

The Greater Los Angeles Apartment Association (AAGLA) filed a lawsuit against the city to overturn and prohibit the execution of the new ordinances that make it more difficult to remove tenants as well as penalize landlords for raising rent.

One of the ordinances in dispute demands that at least one month’s worth of rent be unpaid before starting the eviction process. The other requires landlords to cover relocation costs if a tenant is displaced as a result of a rent increase of at least 10% or by 5% above the rate of inflation, whichever is lower. That entails paying $1,411 in moving expenses in addition to three times the unit’s fair market rent.

The office of City Attorney Hydee Feldstein Soto stated that it is reviewing the case but would not provide any further information.

Cheryl Turner, head of the AAGLA board of directors, declared that the new ordinances are “clearly illegal” under the state’s Costa-Hawkins Rental Housing Act, a 28-year-old statute that exempts some properties from rent-control regulations.

Rental units like newer construction, single-family homes, and condominiums are exempt from price controls like rent stabilization ordinances, but [the city’s new ordinance] potentially imposes severe financial penalties on any owner that increases rent above specified limits on a rental unit that is exempt from rent control, should the renter then decide to move, Turner said in a statement.

The policy, according to Turner, flies in the face of state law, which enables owners to issue three-day notices and commence legal processes, as it needs a minimum amount of past-due rent to trigger evictions.

Renters may now continue to live in their homes in violation of their lease agreements without facing consequences because owners may now have to wait months or even years to collect past-due rent, according to Turner. According to the city’s ordinance, renters, not property owners, can now effectively determine the amount of rent they desire to pay.

Unscrupulous tenants can simply stretch out legally owed rent payments for months or even years by “short-paying” rent in increments of $50, $100, or more per month, according to Daniel Yukelson, executive director of AAGLA, and rental property owners will be left with little to no remedy.

To make matters worse, there are very few remedies under state law to collect the aged, compounded rental obligation after any amount of delinquent rent is past due for more than 12 months, Yukelson added.

The SVN Vanguard team knows investors need an experienced commercial property management company by their side. Contact us for multifamily properties for sale/lease.

The five-month YoY monthly pattern of rent declines was broken by rent growth in February.

According to Apartment List’s March 2023 Rent Report, following five consecutive months of month-over-month reductions, rent growth turned positive again in February, albeit by just 0.3 percent countrywide.

Notwithstanding that small accomplishment, the underlying picture for landlords in the near future is less than favorable.

According to the survey, this year may be the first time since the early days of the epidemic that landlords are vying for tenants rather than the other way around.

The report states that there are more multifamily units being built right now than there have ever been since 1970.

In contrast to the previous two years, when renters had to compete for a finite amount of available inventory, as this new inventory enters the market throughout the course of the year, property owners may be competing for tenants to fill their units.

The demonstrated rental growth resembles that of February before the outbreak. Rent growth is slowing year over year and has reached its lowest point since April 2021, at 3%. According to Apartment List, it is projected to “fall more” in the upcoming months.

Vacancies now stand at 6.4%, and supply is decreasing. In February, rents rose in 62 of the top 100 cities in the country.

The research states that supply limitations will continue to ease because a record number of multifamily housing units are now being built.

No major metro region in the nation has had positive rent growth during the past six months.

With a 1.5 percent increase, Boston experienced the fastest rent growth in the country.

Although it continues to be one of the nation’s slowest rental markets when assessed over the course of the pandemic as a whole, the Boston metro area ranks among the top 10 for quickest year-to-year rent growth, according to the research.

According to Apartment List, the vacancy rate might even go above that pre-pandemic level for the remaining months of 2023.

According to the study, new apartment development has resumed after experiencing delays due to pandemics in recent years.

The SVN Vanguard team knows investors need an experienced commercial property management company by their side. Contact us for multifamily properties for sale.

1. JANUARY JOBS REPORT

According to the Bureau of Labor Statistics, the US economy added 517,000 jobs in January while the unemployment rate was little changed at 3.4%. The number of unemployed persons was also little changed at 5.7 million.
On the surface, the January report registered way above most industry expectations, with some observers concerned that the Federal Reserve may need to continue rate increases for longer than markets are anticipating. However, January’s total is likely to be significantly revised downward following adjustments, as is historically common during January.
Notably, January’s significant payroll increase followed the announcement of massive layoffs by several tech giants, including Google and Microsoft — while corporate America also frets about the risk of a looming US debt ceiling limit.

2. FOMC INTEREST RATE DECISION

On February 1st, the Federal Reserve’s policy-setting committee raised their target Federal Funds Rate (FFR) range by 25 basis points to 4.50%-4.75%, slowing their speed of rate increases after four consecutive 75 basis point hikes and one 50 basis point hike in December.
The FOMC’s policy decision arrives after weeks of falling leading inflation indicators. However, several macroeconomic indicators remain far from recession territory, convincing many officials to stay committed to additional increases and holding rates higher for longer if needed.
Based on data from the Chicago Mercantile Exchange’s Fed Watch tool, most market watchers anticipate another 25 basis point hike at the FOMC’s next meeting in March.

3. JEROME POWELL STATEMENTS

In his first public press conference since January’s 25 basis-point hike, Federal Reserve Chair Jerome Powell claimed that the Fed still has a “significant road ahead” to bring down inflation, despite the FOMC recently slowing their pace of rate hikes.
Powell’s comments came just a few days after the release of the January jobs report, which showed higher-than-expected payroll growth and an unemployment rate pushed to its lowest level since 1969.
Powell suggested that several more rate increases are likely on the horizon, though he did not indicate what the pace of the increases may be. He also states that the longer-run Fed Funds rate will likely end up higher than where markets are currently pricing.

4. HOUSING AFFORDABILITY INDEX

According to the latest Housing Affordability Index by the National Association of Realtors, housing affordability rose in December for the second consecutive month, following consecutive declines in September and October.
The index reflects how much a “typical” family can afford a “typical” home, defined as a family earning the median family income and an existing single-family home at the national median price, respectively. The median-priced existing single-family home has declined for seven consecutive months, while the median family income has risen for 12 straight months.
Regionally, housing affordability is highest in the Midwest, followed by the Northeast, while the South and West were less affordable. All regions have seen affordability rates fall precipitously over the last year.

5. FREDDIE MAC MORTGAGE MARKET INDEX

According to Freddie Mac, mortgage rates rose slightly during the week ending on February 9th.
The 30-year fixed-rate mortgage ticked up to an average of 6.12% as of February 9th, up three basis points from last week. The 15-year fixed rate mortgage averaged 5.25%, up from 5.14% the week before.
Mortgage rates remain well above their levels from a year ago as the Federal Reserve continues its monetary tightening actions in an effort to calm US inflation. In recent weeks, mortgage applications have risen significantly as rates began to dampen slightly in January. The recent uptick may be a boon to homebuying markets as consumer interest grows right in time for the busy spring season.

6. LOGISTICS MANAGERS INDEX

The Logistics Managers’ Index (LMI), a diffusion index where above 50 signals expansion in transportation and warehousing activity and below 50 is a contraction, increased to 57.6 in January, up from 54.6 the month before and is the index’s second consecutive monthly increase.
The consecutive increases follow seven declines in the LMI over the past eight months. According to the report, the uptick was primarily driven by the transfer of overstocked inventories away from upstream wholesalers toward downstream retailers.
Notably, a temporary increase in the LMI in September 2022 came amid supply chains that were newly flushed with high inventory. Such fundamentals at the time signaled that goods were merely moving from place to place, and during the previous two LMI increases, inventories were much lower. The consistency may be showing the beginning of a trend toward sector growth.
According to the report, another critical development for global warehousing and transporting activity is the reopening of China’s economy. Over the past several years, supply chains had to account for the “start-stop” nature of Chinese manufacturers. However, an economic surge in January after an end to the nation’s “zero-COVID” policies is sparking new life and certainty in logistics markets.

7. CMBS DELINQUENCIES FALL IN JANUARY

According to data from Trepp, the CMBS delinquency rate declined in January 2023, following several months of only tepid increases despite anticipated trouble arising from rapidly rising interest rates.
The Trepp CMBS delinquency rate fell ten basis points in January to 2.94, the second-lowest reading since the pandemic began. Annually, delinquencies are down by 124 basis points.
Tracking delinquencies by sector, Industrial maintains the lowest rate of 0.40%, falling slightly monthover- month. Multifamily follows with a delinquency rate of 1.56% in January, down from 2.17% in December. Office registered a 1.83% delinquency rate in January, a 30 basis points increase and the only sector outside of lodging that saw a month-over-month increase. Lodging delinquencies stand at 4.44%, up from 4.40% in December. Meanwhile, Retail maintains the highest delinquency rate by sector at 6.58% but is down nearly 40 basis points from the month before.

8. VTS OFFICE DEMAND INDEX

Office demand finished 2022 down 20.7% year-over-year, according to the latest Office Demand Index by VTS (VODI).
Notable upticks in office demand occurred during the Spring and Fall of 2022; however, it was not enough to offset other seasonal declines.
According to VTS, office demand has strongly correlated with average job postings over the past year. Washington DC exemplified this, with the local VODI increasing 21.4% year-over-year through December 2022 as the metro’s concentration of government, nonprofit, and professional services employment helped keep demand high.
Remote work remains the most significant challenge to office sector growth, though its prevalence has declined. Work-from-home prevalence has reduced from roughly 5% to 30% during the early days of the pandemic to a current range of 40 to 60%. The variation in the frequency of occupations using remote work has narrowed while remote work rates have stabilized at current levels.

9. MSCI 2023 TRENDS TO WATCH

A new report by MSCI summarizes several key trends in Real Estate that the authors believe will be pertinent in 2023, including the importance of price expectations for market liquidity and a more critical role for market fundamentals.
Higher interest rates are creating repricing opportunities for many commercial real estate assets sold during the previous decade’s low-yield environment. As a result, there is a growing gap in price expectations between buyers and sellers, accelerating the slowdown in transaction volume. How this gap shifts will be vital in evaluating likely 2023 outcomes.
Similarly, as the Fed tightens interest rates, yield performance is no longer accelerating market returns, forcing managers to focus on retaining tenants and operating efficiently.

10. ECONOMIC OPTIMISM

Economic optimism in the US increased to a ten-month high in February, according to an Index developed by Investor’s Business Daily and Technometrica Market Intelligence.
The index is based on a nationwide survey of 900 adults and measures the six-month forward-looking economic outlook, where a reading above 50 indicated optimism and one below 50 indicated pessimism.
February’s Economic Optimism Index ticked up to 45.1 from 42.3 in January. Though the index remains in “pessimistic” territory, the percentage of consumers who believe that the US is currently in recession or that their personal finances are at risk saw month-over-month declines.
Other key items included climate risk, which has proven difficult for investors to price, but rising evidence shows that buildings that meet specific sustainability standards sell at high premiums. Down-market resilience and due diligence in using data were also important developments to keep an eye on.

SUMMARY OF SOURCES

(1) https://www.bls.gov/news.release/empsit.nr0.htm
(2) https://www.federalreserve.gov/newsevents/pressreleases/monetary20230201a.htm
(3) https://thehill.com/finance/3847680-heres-why-the-strong-january-jobs-report-will-push-interestrates-higher/
(4) https://www.nar.realtor/research-and-statistics/housing-statistics/housing-affordability-index/methodology
(5) https://freddiemac.gcs-web.com/news-releases/news-release-details/mortgage-rates-increaseslightly-1
(6) https://www.the-lmi.com/
(7) https://www.trepp.com/instantly-access-delinquency-report-january-2023?utm_
campaign=Delinquency%20Report&utm_medium=email&_hsenc=p2ANqtz-8Z7gFrQUDi9GPmrvVWBjUKEiUBV0HOrlsUTxQu-
aXkawu8O8iVUn0ETjXmHKmL8HlHbVaC1-_sDt9Cf0ve3_W_wiE2Q&_
hsmi=244332373&utm_content=244332373&utm_source=hs_email&hsCtaTracking=633d8656-b8ab-
4cee-aa48-48c94fb2d86d%7C3d1edecf-80f8-4c7a-83e6-cf60e3259855
(8) https://www.vts.com/
(9) https://www.msci.com/research-and-insights/2023-trends-to-watch-in-real-assets?utm_source=onemsci&utm_medium=email&utm_campaign=msci-weekly-2023-2-9
(10) https://www.bloomberg.com/press-releases/2023-02-07/february-s-ibd-tipp-poll-showseconomic-optimism-on-the-rise

The Los Angeles City Council adopted important renter safeguards on Friday, including one that establishes nationwide just-cause eviction provisions. As a result, the city’s apartment stock is now the second-largest collection of regulated housing in the nation.

February 1st, 2023 | Los Angeles, CA

The hearings over the last week have revealed that renters have more council allies than ever before and that this group is prepared to take action.

Two of the suggested safeguards have not yet been put to a formal vote, but one significant safeguard for tenants has. There are now only roughly 14 grounds for eviction of a tenant due to the development of just-cause safeguards for renters. These laws shall be applicable to all rentals in the City of Los Angeles, including single-family residences and newly constructed apartments, as indicated by the term “universal.” The new rule is now in effect because it was passed with an urgency clause.

These safeguards are comparable to those that presently apply to the estimated 650,000 rent-stabilized homes in the city, but according to the city’s housing authority, these new regulations will also apply to an additional 400,000 units. A housing department official informed the council on Friday that the city will have the largest inventory of controlled housing in the nation, excluding New York City, with more than 1 million units.

The lifting of the eviction moratorium has brought comfort to many landlords, albeit short-lived with this introduction of new limitations on how they can conduct business.

Aaron Cohen, Chief Operating Officer of CGI+ Real Estate Strategies, expressed excitement about the conclusion of the eviction moratorium at the end of January.

But according to Cohen, these additional renter protections that aim to mimic the impact of the eviction moratorium will put a cost on landlords that they shouldn’t have to bear.

“It was never the right solution to me, to say ‘Let’s force landlords to take the burden of this,’” Cohen said. “It doesn’t make any sense to me. ” He vehemently disagrees that landlords should be forced to arbitrarily bear this responsibility at random.

Cohen pointed out that even after the moratorium on evictions expires, tenants can only be evicted for failing to pay their current rent, not for any rent they owe during the time between 2020 and the end of the moratorium. Tenants have 12 months to make those payments.

Landlord Joyce Mitchell called into the council’s housing and homelessness committee meeting on Wednesday and stated, “We feel we have no representation with this city council.” She claims that small-property owners of color, like herself, stand to lose everything as a result of the eviction moratorium and additional laws since they have invested their retirement funds in their homes.

According to Mitchell, it’s past time to stop holding mom-and-pop apartment owners accountable for the fact that the city and county elected authorities have done nothing about the homeless epidemic in this community. Mitchell added, “We will be the next wave of homelessness in this city if you continue to treat us this way.”

Research demonstrates that eviction safeguards helped keep people housed throughout the crucial period of the pandemic, according to tenant advocates and renters. These supporters contend that maintaining renters in their housing shouldn’t end with the pandemic’s emergency phase in a city where a sizable portion of the population is homeless.

Nithya Raman, a council member whose district includes Encino, Silverlake, and Los Feliz, described the additional safeguards as the most significant since the establishment of the Rent Stabilization Ordinance in a tweet on Friday.

Before the end of this week, the council is expected to hear from the two last components of the renter safety net. The other would establish a minimum amount of time that would need to pass before tenants could be removed for nonpayment. The first would mandate that landlords provide basic relocation assistance for tenants who move out because they have experienced a rent rise of 10% or more.

Sasha Harnden, the public policy advocate with the Inner City Law Center, said, “We must put the two remaining permanent protections in place so that we can have a really full safety net of protections and make sure that we do not see a rise in evictions and homelessness.”

According to Harnden, only those two safety net components can effectively address rent and renters in the future. In the event that they are put into effect, “we will have the strongest protections for non-payment evictions in the county of Los Angeles, maybe in the entire nation,” he claimed.

In a way that we haven’t seen in a while, according to Harden, the council’s five new members have demonstrated genuine leadership and real engagement with these issues.

Although Cohen said he doesn’t expect these new laws to have a significant impact on his firm, he does claim that they raise the cost of doing business in the city, which is counterproductive in a city where more affordable housing is desperately needed.

In contrast to essentially forcing landlords to accept the loss, Cohen urged municipal authorities to really go the route of figuring out ways that charitable organizations pay for unpaid rent in order to help property owners pay these outstanding debts.

The SVN Vanguard team knows investors need an experienced commercial property management company by their side. Contact us for multifamily properties for sale/lease.

Given the ongoing uncertainty, the sentiment gauge is still in the negative zone.

The quarterly sentiment index published by the CRE Finance Council shows a significant increase in Q4 2022. This marks the first sentiment increase since 2021.

The report, which includes balance sheet and securitized lenders, loan and bond investors, private equity companies, debt funds, servicers, and rating agencies, found that overall sentiment climbed to 68.6 last quarter. From 61.4 in the third quarter, which was the lowest level since the survey’s start in 2017. The jump represents an increase of 12%.

Despite progress in the right direction, the index is still in the negative due to the ongoing anxiety surrounding inflation, rising interest rates, and an impending recession, according to analysts with the CRE Financial Council. In addition, lenders and investors may have more difficulties in the upcoming year due to the uncertainties surrounding property valuation.Individual survey response rates were flat to somewhat better, with the biggest gains in the following areas: investor demand for assets, borrower demand for capital, and market liquidity in the CRE debt capital markets.

According to Raj Aidasani, Senior Director of Research at CREFC, members’ expectations for improved liquidity conditions increased by 18% in the fourth quarter of 2022. In Q3, 62% of respondents predicted a decrease in liquidity, while only 8% predicted an increase. However, in Q4, 18% predict better conditions while 47% predict a decline.In addition, the rising rate environment continues to weigh heavily, with 84% of respondents anticipating rates will have a negative impact on the industry in the current quarter, compared to 98% in the prior quarter, according to Aidasani.

The CREFC Board of Governors’ prediction for the Fed’s benchmark policy rate received a 5% median response when asked about it in the survey. 24% predict the rate will be higher than 5%, while 29% predict it will fall between 4.75% and 5.00%.

The SVN Vanguard team knows investors need an experienced commercial property management company by their side. Contact us for commercial properties for sale/lease.

You need to know where to duck and move when situations change, possibly quickly.

Knowing when and where to pivot is critical in 2023 as unpredictability and market rebalancing is to be expected.

According to a new Hines study, each cycle has its own peculiarities, so investors, owners, and operators shouldn’t totally rely on what happened in the past.
The firm wrote: “Recognizing what is different and what may at least rhyme with previous cycles can provide insight into how to navigate what is both challenging, with regard to existing holdings, and opportunistic, with regard to the potential to deploy capital in a more sober and attractive pricing environment.”

The “shortage of broader seller capitulation thus far,” which GlobeSt.com has also referred to as a lack of current price discovery, and the rising pricing pressure of financing (if it is even available at all) are two elements at play. Defensively maintaining capital and hunting for possibilities will differ by global area.
Although the industrial and multifamily markets’ bidding pools are narrower than they were at the beginning of 2022, they are still healthy. “Commodity Class A office is fairly illiquid at the end of the year” in the United States.

According to Hines, there are two main signs to pay attention to. The change volume of transactions usually always comes first. “We can observe the historical association between volume and price rise with a longer time series of transaction volume in the U.S. spanning numerous cycles,” they stated. Unfortunately, the link occurs at the same time rather than before, but the stabilization of transaction volume and ensuing increase during previous cycles has been a solid sign that prices hit a bottom and should start to rise if volume continues to return, says the author.

According to information obtained by GlobeSt.com from a number of sources, there is already an expectation that transaction volumes may start to change shortly because there is a lot of capital sitting on the sidelines ready for deployment. However, just like markets, that will probably differ greatly by region. Focusing on regional transaction numbers is more likely to indicate whether certain markets are likely to present an opportunity than sticking with keeping an eye on national transaction volumes.

The second indicator is an increase in traditional debt availability. According to the Federal Reserve’s Loan Officer Survey conducted in the third quarter, “57.6% of respondents reported tighter underwriting standards for commercial real estate loans, including loans for construction and land development; 52.9% for non-farm, non-residential loans; and 39.7% for multifamily properties.” When banks reported lowering their requirements in the second half of 2021, all three categories registered a significant increase from a year ago.

The SVN Vanguard team knows investors need an experienced commercial property management company by their side. Contact us for commercial properties for sale and lease.

This may be the most advantageous method of obtaining capital in the current economic climate.

With inflation being chased by interest rate increases from the Federal Reserve, the present economic situation has been challenging. The Fed has indicated that additional rate rises are still expected, even though some of the pressures may have passed their peak. Lenders to corporations are taking the risk-averse approach, tightening their requirements and reducing the available leverage.

According to the managing director and head of net lease real estate at Angelo Gordon, Gordon J. Whiting, a mortgage lender will typically give 75% to 80% of the loan-to-value of the property. Whiting adds, “In today’s macroeconomic conditions, it’s much harder to get access to capital, it’s harder to get a loan, and you’re only getting 60%.”

Capital is still readily accessible for sale-leaseback transactions at very competitive rates despite the fact that the corporate loan market today is less liquid and more costly. While we’ve seen somewhat of a decline in property values, the return to a corporation is still higher.

Renting Can be Beneficial for a Business
While rent is a costly expense, it is entirely deductible as an operating expense, unlike a loan’s interest. Additionally, the seller often has the chance to negotiate control for 20 years with extensions. Whiting continues, “The rental will be lower than what they’d have to pay in financing.” On top of that, a longer lease period provides better value to both the buyer and the seller, making that aspect easier to negotiate.

There is added benefit in securing a strategy with certainty, especially given the uncertain nature of the future and the possibility of rising interest rates. Many would agree, doing a sale-leaseback and paying off some of the more expensive or adjustable-rate debt is preferable. The more liquidity you have on hand, the simpler it is to deal with unforeseen events.Working Capital is Paramount Today

Sale-leasebacks are an excellent source of purchase financing, especially given the current state of the market, which in some cases is conducive to strategic add-on acquisition prospects. Profits from sale-leaseback transactions can be used by businesses to support new acquisitions or platform expansion. The money from a sale-leaseback that was completed at the time of acquisition might be used by sponsors to reduce their capital costs for the transaction.

Whiting believes that the market uncertainty and potential for future rate hikes are additional sources of risk and that a sale-leaseback should be considered as soon as possible. He adds that we are in a situation where you’ll wish you had done it the day before rather than the day after.

The SVN Vanguard team knows investors need an experienced commercial property management company by their side. Contact us for multifamily properties for sale/lease.