Gregory Wong’s Post

Navigating Challenges in the Apartment Development Market The recent apartment construction boom is slowing as developers grapple with rising costs and tighter financial conditions. This trend reflects broader industry challenges today. Key Takeaways: Rising Costs: Higher interest rates and construction costs have made many projects financially unfeasible, pushing many plans back to the drawing board. Extended Delays: The average time between construction authorization and project start has increased by 45% since 2019, now nearing 500 days. This delay can be attributed to the complexities of securing financing and the rising costs associated with materials and labor. Decrease in New Projects: Multifamily building starts fell to an annual rate of 322,000 units in April, the lowest April rate since 2020. Some decline was inevitable, given that about half a million new apartments opened in 2023, the most in 40 years. Analysts expect a similar number to be completed in 2024. Financing Hurdles: Banks are hesitant to lend due to existing commercial real estate loan issues, forcing developers to seek more investor funding. Investor Caution: With flattening rent growth and higher costs, investors are less inclined to fund new projects, slowing development. Investors are becoming more selective, looking for projects that can guarantee returns in a less favorable economic environment. Unfinished Constructions: Some projects have halted mid-construction due to financial shortfalls, leading to contractor claims for unpaid work, and impacting local economies. Despite the hurdles, the real estate market continues to offer the potential for growth and innovation. Developers who can adapt to the changing landscape, embrace new opportunities, and manage risks effectively will be well-positioned to thrive as the market evolves. #wsj #multifamily #newconstruction #economy #cre #cref #constructionloans https://lnkd.in/etqgB6PA

"Record numbers of new multi-family units coming online this year" is a headline I read almost every day. As an owner of almost 40,000 units, should we be concerned about new supply de-valuing our portfolio? Is now a bad time to invest in multi-family? As long term holders, not only are we not concerned. We're excited about the opportunities we see right now. Now is a great time to buy multi-family real estate! Our thoughts: new supply will be quickly absorbed by the market due to a lack of new construction starts this year and next. Why? New multi-family construction starts hit lowest level since April 2020! High interest rates for developers leads to delayed project starts. Plus debt is harder to find with fewer banks offering real estate financing. According to Yardi there is a 490 day gap between permitting and construction starts, up about 45% since 2019. High construction costs allow us to buy existing product for less than it can be built today. As new supply gets absorbed in the coming years we're likely to see occupancy growth, leading to rent growth, and ultimately NOI growth. Plus, the opportunity to sell a few years down in a (potentially) more favorable cap rate and interest rate environment. Don't miss the opportunity to invest. We invest through all cycles, do you?

As apartment construction slows across the U.S., big investors are betting on higher rents as a result. With fewer new buildings coming to market, the supply of apartments is shrinking, leading experts to anticipate a boost in rent growth and property values. Developers are halting projects due to rising interest rates and tighter financing, leaving investment firms to seize opportunities in existing properties. Will the slowdown continue, and how will it affect rental markets nationwide? Continue reading The Wall Street Journal article to find out more about the changing landscape in multifamily real estate.

🏗️ Struggling Apartment Developers Face Delays Amidst Booming Construction Market 🏢 🔍 Read the full article: https://lnkd.in/e9Wp_Jif 📈 Apartment builders nationwide are grappling with delays and financial hurdles. Rising interest rates, escalating construction costs, and stagnant rents have rendered many projects unviable. From Worcester to Boise, developers are reevaluating strategies and seeking new partnerships to move forward. But why is this happening, and what's next for the apartment construction market? Let's dive in! 💡 🤔 Why the Delay? - Interest Rates Surge: With banks tightening commercial real estate (CRE) lending, securing funding has become a challenge. Investors, wary of changing market dynamics, are adopting a risk-averse approach. - Supply Surge: Almost 500,000 new apartments flooded the market in 2023—the highest figure in 40 years. Analysts expect a similar influx this year, flooding the market with fresh supply. - Profit Margins Squeeze: Higher interest rates and construction expenses mean that, in many cases, waiting makes more sense than proceeding. 🌟 Creative Solutions: To salvage stalled projects, developers are exploring alternative funding sources and repurposing developments for affordable housing. Their adaptability will shape the future of apartment construction. 👉 What's your outlook for the apartment construction market in the next 12 months? Share your thoughts! 🏗️📆 #RealEstate #ConstructionBoom #AffordableHousing #MarketTrends

Trending In Rentals- As #ApartmentRenters in many cities have been getting some relief from price increases because of the enormous amount of new supply being delivered by developers, new constructions are beginning to slow down as many apartment developers are experiencing difficulties in attaining financing & are stepping on the brakes! As new supply is likely to tapper off in 2025, existing landlords are already anticipating rent increases. Good Read: https://lnkd.in/e9iWS6wA Douglas Elliman Real Estate

Recently apartment tenants have seen rent relief across the country in some of the biggest cities due to “the enormous amount of new supply being delivered by developers.” Despite this period of relief, we shouldn’t expect it to last too long. Apartment construction is beginning to slow due to a rise in interest rates and inflation, pushing construction costs up. That means supply will start to decline while demand is expected to slowly increase (exacerbated by higher home prices). Economic theory teaches us to expect a rise in rent again. #Apartments #PropertyManagers

We've been saying for a while that those who can push projects across the finish line will be delivering into a supply-constrained market, and here's why: Nationwide Delays: Apartment construction faces delays and financial hurdles across the U.S. due to rising interest rates and funding shortages. Market Impact: Cities like Worcester and Boise, which experienced surges in housing demand, are now seeing multiple developments on hold. Building Challenges: With an average delay of nearly 500 days from authorization to groundbreaking, developers are rethinking their strategies to adapt. Financial Navigation: Developers are seeking alternative funding sources and restructuring projects to cope with tightened CRE lending and changing market conditions. This trend highlights the need for strategic patience and adaptability in today's real estate market. #Colliers #Pittsburgh #MoreIn24 #ThriveIn25 #ClosersCoffee #ColliersCapitalMarkets https://lnkd.in/eb6uBQgc

Great points Adam Dunn! The sharp decline in Boston and Cambridge highlights the need for adaptable strategies, while the relative resilience of the suburbs points to some emerging opportunities. For developers: Watch for potential interest rate cuts, staying flexible and proactive will be key in navigating these shifts and capitalizing on new growth areas. The evolving landscape is creating a more nuanced market – one where agility will be a major asset. #BostonRealEstate #ApartmentConstruction #HousingMarket #RealEstateTrends #MultifamilyDevelopment

Every apartment developer/owner in America is probably sharing this article with their investors. "Look, like we've been telling you..." And they're not wrong. The dramatic slowdown in new apartment starts is likely central to any investment this for investing in new development today. So if everyone rallies around the same thesis, could the collective bullishness reverse the course of supply -- substantially pushing back up the number of starts? I don't think so. But before we get into that, let's review where we are: -- Year-to-date multifamily starts are at the lowest levels since 2013. -- Multifamily permits are down 30%-80% off cycle peaks in most major markets. -- CoStar and RealPage are both forecasting that 2026 completions fall below 300k for the first time in more than a decade. And of that total, a larger share is likely to be subsidized affordable and attainable housing -- as such deals (often with tax benefits or other expense reductions) are more likely to pencil out than traditional market-rate. Those stats help buttress the argument for new projects completing in 2026-27 -- particularly in growth markets (assuming no recession) where demand catches up to the current supply wave in 2025-26, creating a more favorable lease-up environment. But back to the question earlier: Now that this view is becoming consensus, could a contrarian strategy become a mainstream one? I doubt it (at least to significant scale) just because there's a big difference between believing in a strategy and having the ability to pull it off. Construction costs have been sticky, while rents are flat/falling -- which means even if interest rates come down a bit, it won't be enough for most deals to pencil out ... and most investors will probably balk at the assumed rent numbers needed. Additionally, developers need to raise more equity today because lenders are typically requiring lower loan-to-cost ratios. And that's tough to do when projects (at least for today) cost more to build than they're worth to a buyer, so most investors would naturally rather buy than build. (Build-and-hold investors have more flexibility on that piece, but they still have investors to win over.) Developers will try to get costs down to help more pencil out, but only the bigger players with real scale will likely be able to pull that off ... and yet apartment construction is primarily dominated by smaller, local developers. To get starts meaningfully back up, we'd likely need to see not only rate cuts but also rebounding occupancy, rent growth and asset values. Even then, I doubt we'll see an environment as fertile to new starts as we saw in 2021. Bottom line: It's just super tough to build right now, even if you have firm conviction around favorable supply/demand dynamics returning over the next couple years. #apartments #multifamily #construction

Over the past two years, the U.S. multifamily market has seen unprecedented levels of new apartment construction, outpacing demand and raising the national vacancy rate from a low of 4.8% in 2021 to 7.9% in mid-2023. Despite the addition of 1.5 million rental units, only 820,000 absorbed, the market is not overly saturated compared to pre-pandemic levels. To return to a 6.6% vacancy rate seen in late 2019, approximately 280,000 units need to be absorbed. While markets like Austin and Dallas-Fort Worth have notable excess supply, other cities like Chicago, Orange County, and San Jose have managed their supply more effectively, with vacancy rates below pre-pandemic levels due to more conservative construction practices.