Multifamily News Roundup – January 2020

Flooding in the Sunshine State

As flooding risks worsen in Florida, real estate values could see a number of adverse impacts. The McKinsey Global Institute, a research-focused division of McKinsey & Company, released a report in mid-January indicating that homes in the Sunshine State could lose anywhere between 15% and 35% of their value between 2020 and 2050. This reduction would stem from a history of inaction from Florida’s government, as well as an increase in the frequency and intensity of hurricanes and flooding.

However, some good news has emerged. Former Florida Governor Rick Scott actively discouraged the discussion and mitigation of climate change and flooding, but current Governor Ron DeSantis pledged in late January to create an Office of Resiliency. Environmentalists hope that the new resilience officer at the head of the organization will begin to take steps to fight the impacts of flooding and environmental change—sparing residents, investors, and tourists the financial and emotional turmoil that accompany both nuisance flooding and “100-year”-type events.

Opportunity Zones Finalized

In mid-December, regulations to structure and guide the federal Opportunity Zones program were released for the third (and likely final) time. The Treasury Department hopes that the modified rules will allow investors to pour money into under served areas, providing infrastructure, housing, and jobs. Final tweaks to the program benefit potential venture capital investors, rather than real estate developers or investors, by allowing them to demonstrate growth using a more favorable metric than initially allowed. During the program’s history, lawmakers such as Cory Booker have expressed their concerns about opportunity zones. Concerns focus on the worry that the program lacks any mechanism to guarantee the funds directed into the zones actually help residents living in the zones.

Despite these critiques, this final set of rules has provoked interest and investment. Fifth Third Bank, Chicago mayor Lori Lightfoot, and Illinois governor J. B. Pritzker have announced new investments in zones that fall in Chicago. Approximately $20 million in private and public money will contribute to enhancing portions of western and southern Chicago.

WeWork’s Decline and Impact

After WeWork’s financial and executive-related debacles, the company suspended its IPO, fired employees, and began to offload subsidiaries. Time has passed and the company’s story has gone from a fixation for the industry and Wall Street to a lesson for other startups in the real estate space with similarly aggressive goals.

In the wake of WeWork’s restructuring, other companies have begun to make changes of their own. Tech-powered brokerage Compass has terminated some 40 employees. The cuts come from the broker’s technology, marketing, and M&A teams. Earlier in its history, Compass grew through acquiring smaller firms in cities where it sought to expand its presence. After WeWork’s debacle, executives have stopped examining deals, ending the need for an internal team dedicated to deal selection and review. Other companies, including office leasing company Knotel and Airbnb rival Oyo have also fired employees and expressed that their growth will continue to slow going forward.

As of late January, WeWork continues to announce cost-cutting measures, such as the sale of subsidiaries like Managed by Q and the removal of free beer and alcohol. Time will tell if layoffs, dispositions, and reduced spending on snacks and beverages will translate into a second attempt at an IPO later this year.

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