Gurnet Real Estate Group

We are excited to join the Maine Affordable Housing Coalition Policy Committee. In this role, we look forward to furthering the Coalition's goal of providing more equitable and sustainable housing solutions to the good people of Maine.

We are excited to welcome Luke Weilandt to the firm as an acquisitions analyst this spring. Luke is a sophomore at Merrimack College studying finance and accounting, and he is also a member of Merrimack's Division 1 Men's Ice Hockey Program. Originally from Northbrook, IL, Luke has a passion for real estate that stems from working with his dad on some of their rental properties. In his free time, Luke enjoys hanging out with friends and family, enjoying the outdoors, reading, and cooking. "I’m really excited to work with the Gurnet team due to their experience and knowledge of the industry, as well as their track record of successful acquisitions." Welcome aboard, Luke!

Providing experiences like this to our investors is why we do what we do.

We are pleased to add two new properties and 100 apartment units to our Maine portfolio with our closing of the Hartley Apartments and Tall Pines Apartments in Lewiston, ME. Big shoutout to Noah Stebbins at The Boulos Company for putting the deal together, and also to Michael Yerxa at Bangor Savings Bank for working hard on the financing. Flawless legal execution per usual from Nathaniel Huckel-Bauer at Drummond & Drummond, LLP.

As we approach the end of 2024, the U.S. multifamily market continues to see robust demand balancing out ongoing high levels of new supply. Here is the state of play today: Rents: In Q2 2024, rents for newly built apartments saw a notable 6.2% YoY drop. The median rent now stands at $1,746, down 7.5% from its peak of $1,889 in early 2022. Supply: The U.S. multifamily market is expected to add ~575k units of supply in 2024, down slightly from 2023, but still high enough to place continued downward pressure on rents. Absorption: In Q2 2024, 180k units were delivered and 170k units were absorbed, highlighting continued strong demand for apartments despite historically high levels of supply. To that end, Q2 2024 had the smallest supply-demand gap in 11 quarters. Outliers: Cities like Austin, Dallas, and Nashville that have seen the largest influx of supply are experiencing the sharpest rent declines. Austin’s rents fell 17.6% year-over-year in August 2024 - a staggering decline. As we continue to source new opportunities, we remain especially bullish on the Northeast due to the region's strong underlying fundamentals driven by steady demand and a persistent lack of supply. Asking Rents Nationally:

With the onslaught of Class A multifamily supply and persistent demand for more moderately priced units, workforce multifamily assets are showing notable resilience compared to the broader multifamily sector in 2024. ? Per CRE Daily, mid-priced, “3-star-rated” (workforce) apartments have experienced a significant uptick in demand, with absorption rates through the first half of 2024 surpassing the total absorption in 2023. In Q2 2024, absorption rose 126% compared to the same period a year prior. Amidst this stronger absorption, Q2 2024 also marked the end of a 10-quarter increase in workforce apartment vacancy. Furthermore, while rent growth across the entire multifamily sector remains relatively muted, rent growth in the workforce apartment segment has remained comparatively strong, with 1.6% YoY growth in Q2 2024. As a record volume of Class A units continues to be delivered, we remain excited about the fundamentals in the workforce and affordable multifamily asset classes.

For the last 10 years, the average spread between the 10-year Treasury and multifamily cap rates (institutional-quality product) has been ~250 bps. Today, the spread is ~125-130 bps, the lowest since pre-GFC. If you believe in reversion to the mean, one would expect a.) the 10y UST to stabilize below where it currently sits, or b.) continued multifamily cap rate expansion. Perhaps you believe c.) we have entered a new paradigm in which the spread between Treasuries and cap rates will continue to be materially lower than the historical average. This is not an irrational conclusion, at least in the short-to-medium term, given cap rates tend to be driven by capital flows, and multifamily capital markets are still being propped up by record-breaking volumes of dry powder. The next 6-12 months will provide significant insight into whether a, b, c, or some combination of the 3 are here to stay. Thanks to JLL Research for the data.

Below are 3 debt quotes we have recently received on value-add multifamily deals between $10-$14M total deal size. In all cases, the all-in rate has been in the mid-to-high 5s (with one quote even in the low 5s a few weeks ago when the 10-year took a nosedive). Life Co. execution - Proceeds sized to 1.25x - 70% max LTV - 30-year amortization - 5-year term - 1-year I/O - +200 bps. over term treasury? - Prepayment: yield maintenance Agency execution 1 - Proceeds sized to 1.25x - 80% max LTV - 30-year amortization - 10-year term - 5 years I/O - +193 bps. over term treasury? - Prepayment: yield maintenance Agency execution 2 - Proceeds sized to 1.25x - 80% max LTV - 30-year amortization - 10-year term - 3 years I/O - +150 bps. over term treasury? - Prepayment: yield maintenance

Big news was released last week by the Federal Housing Finance Agency. New lease standards aimed at bolstering tenant protections will be rolled out in early 2025 and will apply to multifamily investors seeking Fannie Mae or Freddie Mac financing. For agency loans signed on or after February 28, 2025, these new protections will include: ? A 5-day grace period for rent payments? ? 30-day notices for rent increases and lease expirations While certain properties including manufactured housing, cooperative housing, and short-term leases are exempt, compliance will be closely monitored, with penalties for violations. These new regulations are not earth-shattering for most multifamily operators, but they are significant insofar as they are the FHFA’s first real push into enforcing specific tenant-protective measures.

With around 3 weeks until the next FOMC meeting, Fed Chairman, Jerome Powell, has adopted an increasingly dovish tone, stating: "We do not seek or welcome further cooling.” Powell’s changing stance on the economy is supported by recent macroeconomic data. Last week, the Labor Department reported that it had previously overstated job growth by 818,000 jobs in the year leading up to March 2024. Spread out over the full 12-month period, this suggests U.S. employers added about 174,000 jobs per month, a 28% decrease from the previously reported pace of about 242,000 jobs. Relative to the scale of the U.S. economy, which supports ~159M nonfarm employees, the downward revision is not that significant. It’s the difference between ~159M and ~160M jobs. That said, the revision does suggest the U.S. economy is growing at a slower pace than it had previously appeared. With unemployment climbing slowly and inflation continuing to fall, prediction markets are pointing towards a total Fed Funds rate cut of 75 bps before the end of the year. As these cuts ripple throughout the economy, they will have far-reaching implications for the CRE investing landscape heading into 2025.