Multifamily News Roundup – Q3 2019

Three of the Biggest Real Estate Stories of Q3 2019

The third quarter of 2019 suffered no shortage of news stories in the commercial real estate and multifamily world. Below are three of the most important takeaways and stories from the past quarter.

Trouble for WeWork 

WeWork (officially “The We Company”) has dominated the real estate and financial press for the last month. During the underwriting process for what originally might have constituted 2019’s second largest IPO, the ambitious, fast-growing startup has—expectedly, or not, depending on who you ask—seen some $30 billion shaved from the $47 billion valuation it received earlier this year. 

For those who have not followed the story, the sudden streak of bad luck might seem like a shock. After all, WeWork has become as ubiquitous as Uber or Airbnb. Many credit it with the rise of co–working as a viable alternative to more conventional office spaces. The company boasts a presence in more than thirty countries. It has a residential division, WeLive, and a private school, WeGrow.  

It also owes an astonishing $47 billion in future rent payments, continues to burn through cash, and has long dealt with the antics of (now replaced) founder/CEO, Adam Neumann. Though he presided over an era of fast growth, Neumann’s focus on a party culture and his history of strange or outright questionable financial dealings with the company has cost the organization some of its credibility and a considerable amount of money.

The two new co-CEOs, Sebastian Gunningham and Artie Minson, may oversee a second attempt at an IPO in early 2020. Before that happens, the pair must secure fresh financing, likely in the form of a loan, to supplement the cash the company hemorrhages each month. Keep refreshing Bloomberg to see if The We Company will transition into relative stability or become another startup in the dustbin of history. 

Recession Watch 

Signs remain mixed about when a recession might strike. In the United States, a downturn in manufacturing indicates a coming contraction and difficulties for employees with jeopardized jobs and corporations with potentially lower profits. Driving this decline are the ongoing GM strike and the ongoing Boeing 737 Max controversy, although macroeconomic factors such as the Trump administration’s ongoing instigation of a trade war with China have also made matters worse. To further add to the list of difficulties, the agricultural sector has seen sluggish sales and lowered horizons. These two factors could combine to create a slowdown in the American Midwest and South, two areas that have never fully recovered from the Great Recession. This slowdown could then spread to the rest of the country.  

To date, no serious indications exist to suggest that this period of hardship will disproportionately impact real estate owners. For those in the multifamily space, strategies exist to soften the blows that will accompany a recession, so keep them in mind as the broader economic situation evolves.  

Looking to 2020 

With only a few months between us and 2020, some have begun looking ahead to what next year has in store. Curbed has published its first forward-looking article about the challenges and trends that will confront the real estate industry in the coming year. Of course, the site includes a potential recession as a fear. Beyond that, Curbed predicts several trends with impacts specific to the multifamily industry. Co-living will persist and grow as a real estate vertical going forward due to expansion efforts by companies such as Common. Housing affordability and availability issues will continue, despite efforts by activists, tech companies, and others to combat the problem. As these prices stay high, some may flee urban centers for cheaper suburbs. Conventional multifamily owners should continue to consider competition from less conventional housing providers and safeguard their portfolios by diversifying their assets and expanding geographically.