Housing Starts Fall, But Apartments Fare Well: September Multifamily News Roundup
The Biggest September 2020 Real Estate News
We have summarized the three biggest multifamily and real estate stories to emerge in September. A huge apartment transaction in Northern Virginia has indicated confidence in the multifamily market, as have capital raises by companies such as JPMorgan. However, housing starts have fallen after several strong months.
CIM Makes a Blockbuster Acquisition
Early September saw what was to-date the largest multifamily transaction in 2020. Snell Properties and Caruthers Properties, owners of the Southern Towers complex in Alexandria, Virginia, sold the six-building asset to California-based CIM Group. CIM Group is perhaps best known for its involvement in developing 432 Park Avenue, one of the tallest residential buildings in the world, though the organization’s portfolio spans most real estate classes.
CBRE brokered the deal, which cost CIM approximately $500 million. CIM’s decision to purchase the property indicates continued confidence in the multifamily market. It also indicates value-add acquisitions still have merit even during the uncertainty caused by the pandemic.
JPMorgan Offers an Alternative to Coastal Cities
JPMorgan hopes to pump more capital into developing housing through the Sun Belt. The bank’s asset management arm aims to raise some $700 million to construct multifamily and single-family properties, both as rentals. This JPMorgan fund is one of several Wall Street efforts to develop single-family rental residences, some of which predate the pandemic. The company hopes to draw funds from real estate owners in cities where rents have declined due to the pandemic.
Not all investors see a need to diversify geographically. Some hedge funds have bet on publicly traded companies with exposure to urban markets impacted by the virus, with positive results. Many apartment-focused REITs have recovered from lows reached earlier this year. The next few years may have more hurdles in store,but funds and asset managers with skin in the game may see future obstacles as buying opportunities.
Housing Starts Fall and Construction Costs Rise
Numbers released in September by the Commerce Department indicate that housing starts fell month-over-month in August. The decline may not present a reason to worry: the months preceding August were particularly strong, and low interest rates will buoy the housing market for the foreseeable future.
However, one issue has presented challenges for builders and developers: high material costs. Though not likely to dent demand as families consider moving to suburban or exurban neighborhoods,lumber prices have soared during the pandemic. They have begun declining, but anyone involved in development will have to pay more for materials than a year ago.
- Some companies have begun to seriously weigh cost-saving measures such as breaking their office leases as work from home continues.
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