Market Update with Walker & Dunlop experts Ivy Zelman, Kris Mikkelsen, and Aaron Appel
Feb 15, 2024
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Walker Webcast guests Ivy Zelman, Kris Mikkelsen, and Aaron Appel discuss the potential impacts of loan maturities, value-add vs. opportunistic strategies, trends in asset classes, outlook for 2024, challenges for banks, appraisal cap rates vs. transaction cap rates, single-family housing market outlook, negative leverage, availability of capital, and changing landscape of the financial sector.
Real-time surveys indicate decelerating rent growth, but inflationary pressure will eventually catch up.
Impending wave of debt maturities in 2024 could lead to a credit squeeze and potential devaluation of assets in certain sectors.
Investment opportunities exist below replacement cost in new build multifamily and industrial properties, despite challenges in urban markets.
Deep dives
Impact of CPI Print on Market Outlook
The recent CPI print and equity market sell-off did not change the outlook for 2024, according to Ivy Zellman. Real-time surveys indicate decelerating rent growth, especially in the multifamily space. Despite not being reflected in the CPI, Ivy believes the inflationary pressure will eventually catch up. Additionally, she highlights that the Federal Reserve is not considering real-time data in their decisions. Overall, the CPI print did not alter the previously established market thesis.
Challenges in Commercial Real Estate Refinancing
Aaron Appel discusses the impending wave of debt maturities in 2024, amounting to $930 billion. He points out that there is a significant lack of capital available from banks, CMBS, and other lenders to handle these refinancings due to their strict lending criteria. The majority of credit outstanding on assets does not meet the criteria required by lenders, creating a financial crunch. As a result, Aaron predicts a credit squeeze and potential devaluation of assets in certain sectors, particularly in the office market.
Investment Opportunities and Challenges in Urban Markets
Chris Mickelson shares insights on investment opportunities in urban markets. While there is a significant amount of dry powder allocated to value-add and opportunistic strategies, Chris highlights the challenges in the urban core due to factors like political climate and changing rent laws. However, he believes there are opportunities in investing below replacement cost, particularly in new build multifamily and industrial properties. Despite operational stress, smart capital with a long-term perspective anticipates rent growth in the future, generating value-add returns.
Impact of Capital on Real Estate Market
The podcast discusses how the influx of capital in the real estate market has impacted pricing and investment strategies. With $80 billion of dry powder in the value-add space, investors with a high level of conviction are actively pursuing assets. This has led to increased competition and higher prices in certain market segments. However, the overall development pipeline has slowed down due to uncertainties, and development economics remain challenging due to high costs and limited inventory. The podcast highlights the importance of finding assets with strong long-term potential to justify investment in the current market conditions.
Affordability Challenges and Shifts in Housing Market
The podcast explores the affordability challenges in the housing market, particularly in single-family homes. Stretched affordability, low inventory, and regulatory overlays present obstacles. The market has witnessed a transfer of wealth, with younger buyers receiving financial assistance from parents and grandparents. However, the research predicts future vacancies and potential inventory accumulation due to an aging population. Despite these challenges, new supply of single-family homes is expected to grow modestly, and opportunities for land banking are seen as a way to generate strong returns. The panelists discuss the potential impact of CMBS in the market and express concerns about the commercial banking sector's ability to meet financing needs.
On this episode of Walker Webcast, Willy was joined by Walker & Dunlop experts Ivy Zelman, Executive Vice President, Research and Securities, Kris Mikkelsen, Executive Vice President, Investment Sales, and Aaron Appel, Senior Managing Director, Capital Markets.
They covered hot topics facing the CRE industry including the potential impacts of the impending wave of loan maturities over the next three years, value-add vs. opportunistic strategies, trends they see in each of the asset classes, their outlooks for 2024, and so much more.
Watch or listen to the replay.
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