December 9th, 2024
Cautiously Optimistic Remains the Theme:
Note: See links at the bottom of this email for some interesting recent report releases from the past week.
1.. Valley National Bank has sold a $925 million portfolio of performing commercial real estate loans to Brookfield to lower its exposure to the sector. The sale was made at a 1% discount, and the bank stated it would take a small loss this quarter due to this discount. This move aligns with the bank's broader strategic goals, and the sale highlights strong demand in the commercial real estate loan market, where banks have been able to sell assets with minimal discounts.
2. Greystar has officially opened its first modular apartment community in Pennsylvania with a 312-unit garden-style development across 6 buildings. According to Andy Mest, the managing director of development for MLS (Modern Living Solutions aka the factory where they manufacture the modules, The project was built 40% faster than their traditional projects and 10% cheaper than a nearby project. It generated 90% less waste with only one third of the normal on-site workforce. McKinsey Global Institute projects that modular construction revenues globally could grow to as much as $1.1 trillion by 2040 from $180 billion in 2022.
3. Fitch, the global credit ratings agency, predicts that most commercial mortgage REITs will experience the highest levels of problem loans in early to mid-2025, as the outlook for lower interest rates becomes clearer. As we know, the consensus on the amount and size of rate cuts has decreased as concerns about inflation still remain. If rates continue their downtrend, this will help ease the burden on borrowers, stabilize commercial property values, and slow the decline in credit quality. They expect that REITs will be focused on resolving distressed assets, including foreclosures, which saw a significant rise in 2024, with the largest REITs now holding over $3 billion in problem properties—more than double the previous year.
4. Nonfarm payrolls rose by 227,000 in November, a significant increase compared to the 12,000 gain in October, and slightly above the expected 214,000, according to data from the Bureau of Labor Statistics. It benefited from the resolution of disruptions caused by storms and strikes reflected in the previous report. The unemployment rate surprisingly edged up to 4.2% from 4.1%. Average hourly earnings grew by 0.4% month-over-month, matching the October increase and slightly surpassing the 0.3% consensus forecast. On a year-over-year basis, earnings are up 4%. The labor force participation rate dropped to 62.5%, below the expected 62.7% and the previous month’s 62.6%. The number of unemployed individuals increased by 161,000, and the overall labor force shrank by 193,000.
5. Some interesting economic data to note. Retail spending in October came in at a 0.4% MOM increase along with a September revision to 0.8%. STRONG. Powell spoke on Wednesday highlighting the strength of the US economy stating that it is in "remarkably good shape. Atlanta Fed President Bostic stated, "The risks to achieving the committee’s dual mandates of maximum employment and price stability have shifted such that they are roughly in balance, so we likewise should begin shifting monetary policy towards a stance that neither stimulates nor restrains economic activity." The drop in the 10Y UST down to around 4.15% is positively impacting Fannie Mae securitizations, with $1.3B in volume during Thanksgiving week. The US Census Bureau release from December 2nd, revealed that total construction spending reached $2.174 T which is a 7.2% increase from the same period of 2023.
6. New Treasury Secretary Scott Bessent and his 3/3/3 plan.
Cutting budget deficit to 3% of GDP, which is currently at 6-7%.
3% annual growth rate, From Scott, "It would be 3% real economic growth – how do you get that? Through deregulation, more U.S. energy production, slaying inflation and forward guidance on confidence for people to make investments so that the private sector can take over from this bloated government spending."
Increasing US oil production to $3M Barrels per day.
NOTE: HUD has issued draft program changes reducing DSCR to 1.15x and increasing the LTV to 87% for market rate refinances (80% for cash out). With a 35 year fixed-term and a 35 year amortization, HUD is a great tool for multifamily refinances that are proceeds sensitive.
One Click For More Info on HUD Guidelines
News and Notable Reports