Inner SPARK February 2023
Spark Multifamily Investment Group
I help you achieve financial freedom and create the life of your dreams through passive real estate investments.
Hi?Everyone,
Happy President’s Day!
January 2023 is in the books and we are more than midway through February already.
Don’t know about you, but does time seem to move faster the older we get?
Time is our most valuable resource. How we choose to spend this time greatly impacts the quality of our lives. I continually evaluate where I am putting my time and energy and adjust as needed if the allocation gets out of balance.
What adjustments if any are you planning? Any goals for 2023?
Valentine’s Day is an excellent reminder to appreciate that special person who makes life wonderful. For me, that person is Laura. We recently celebrated our 19th anniversary at the Sanctuary on Kiawah Island - it’s a special place. My golf game is pretty bad right now so I didn’t play golf on this trip - Laura was ambivalent about this.??I’m thankful for Laura’s presence in my life. Together, we have created the life of our dreams. That’s not to say, it’s perfect but it’s really good. We are in control of our time and structure each day with a healthy dose of productivity, recreation, socializing, and rest.
I’m thankful my father, Hal, taught me the real estate business decades ago (still constantly learning). Through real estate investing, I have always had a nice work life balance and over time, I’ve created financial security and freedom.
Assisting others to do the same is a major reason I continue to “work”.
Truth be told, the personal relationships that arise from my real estate activities are precious to me. I have fun partnering with others to bring positive progress to their life. My personal and professional lives are closely connected.
What do you wish to achieve this year?
THE LATEST NEWS FROM SPARK
In January and early February, Spark focuses on completing year end accounting on all of our assets - sending this data to our CPA, reviewing the draft returns and getting final returns ready. This process has been completed and K1s for all Spark Investors will be sent to you within the next week. I never understood why it takes some operators months and months to issue K1s. I like to get my tax return done, filed and out of my hair until the next year. I suspect many of you feel the same.
All Spark investor K1s have been emailed out. If you have any questions, comments, or concerns, just let us know and we will get it figured out.
I will attend the Best Ever Real Estate Conference in early March in Salt Lake City, Utah. This is probably the number one multifamily syndication conference every year. I look forward to renewing existing connections and making a few new connections that will provide Spark investors access to more investment opportunities.
BUILD TO RENT
Unfortunately, our acquisition of newly built townhouses in Spartanburg did not come together as we had hoped. We continue to believe acquisition of new multifamily units is an excellent path for Spark long term investors.
On a positive note, we did just enter into contract with a local builder on a 32 unit townhouse community located in Greenville County. We will purchase this new build product after completion eliminating any construction risk for our investor partners. Completion is about a year from now. We are currently in our due diligence process and we finalize all construction details in the next month.
This Month’s Newsletter
Once again, we’re delighted to offer educational content about multifamily investing to you through Inner Spark. Much of this content deals with the shifting multifamily market. After several boom years, we are entering a new phase of the economic cycle.
In this edition, you’ll find:
Mega-Deals Reinforce Foreign Appetite for U.S. Real Estate
GFH Financial Organization, a Middle Eastern investment group, started in 2023 by acquiring a majority position in Big Sky Asset Management, a $2 billion U.S. healthcare real estate asset management. GFH also acquired SQ Asset Management, a student housing industry leader, in May 2022.
Another active player is the GIC of Singapore. The global investment firm and Oak Street acquired STORE Capital for $14 billion last October. GIC is also rumored to have acquired a majority stake in Griffin Realty Trust's $1.1 billion 41-property office portfolio.
Both acquisitions show that while cross-border transaction volume has dropped sharply over the past year, some foreign investors continue to make large market movements to extend their U.S. real estate holdings.
Multifamily Property Prices Again Lead Decline
MSCI Real Capital Analytics reported that multifamily property values declined 1.9 percent in December 2022.
Three Types of Apartment Markets That Could Outperform in 2023
2023 offers several questions. A four-decade supply peak, negative yearly absorption in the previous year, and brightly flashing red light recession indications may affect 2023 market performance.
In times of uncertainty, it might be hard to identify market winners. However, certain market profiles look better positioned to resist growing pressures.
With that in mind, we picked these three market profiles as likely to outperform in 2023 and beyond.
Slowing Rent Growth Hits Apartments, But Investors Have Not Lost Interest
Despite unknowns and surprises in apartment markets and the broader U.S. economy, there are still many compelling arguments in favor of buying apartment buildings.
According to Real Page, apartment net demand for the year 2022 was negative. The underlying cause was very low turnover. Most tenants did not move due to economic and price stability concerns in 2022.
RealPage reports that the monthly rate for a brand-new apartment lease dropped by 0.4% in December, making it the fourth consecutive month of decline. Since September, rentals have fallen by a total of 1.6 percent.
Having reached double digits in the first half of 2022, annual rent increase dropped to 6% in December. Read the whole article.
2023 Multifamily Outlook
Occupancy rates and rent increases in the multifamily sector are falling from historically high levels, and multifamily financing has slowed as a result of rising interest rates and capital market volatility.
Cap rate spreads have shrunk to levels substantially below their long-term average as a result of rising interest rates. The housing market will be affected by the Federal Reserve's (Fed) efforts to combat inflation by rising interest rates, which will have a chilling effect on the economy as a whole.
The relative strength of the multifamily sector will become apparent again once the economy and market recover, but this may take some time.
Moreover, by the end of 2023, the multifamily market is forecast to have grown strongly.
Build-For-Rent Is A Bet On The ‘New Normal’ Housing Market
The build-for-rent (BFR) sector of the single-family home market has grown amid a volatile housing market.
Demand for single-family rental units is driving BFR market construction as high mortgage rates and low for-sale inventories make homebuying unaffordable for many.
Given interest rate and inflation volatility, the single-family rental (SFR) market, especially BFR, has an unclear future in the next year. Both threaten capital, material, and labor costs, and home prices.
A November special analysis from Minneapolis-based Northmarq found that build-for-rent housing production continued to rise “even with the economy exhibiting symptoms of instability and capital prices increasing” through most of 2022.
Institutional Investors Eye 'Third Cities' As Migration Continues To Shift
The attraction of tertiary markets is growing.
As shifting migratory patterns continue to change how Americans live, work, and play, institutional investors are increasingly looking at so-called "third cities," tertiary marketplaces across the US with populations between 100,000 and 200,000 people and within a few hours of a major hub.
Cheyenne, Rapid City, SD, Redding, CA, Columbia, MO, Lake Havasu City, AZ, Idaho Falls, LaCrosse, WI, Pueblo, CO, Bakersfield, CA (South), and Yakima, WA are the top 10 TCMs, according to the firm's data.
Spark Investment Group continues to have great confidence in the Greenville MSA market - both for population and economic growth. Quality of life is high and housing costs are still affordable compared to many larger metro areas across the country.
Untangling BTR: Today’s Hottest Multifamily Product Is Build-To-Rent Housing
Over the past six years, built-to-rent (BTR) housing construction has been remarkable. Only around 2016 did the first BTR communities in the "modern period" develop, and since 2018, the number of BTR communities has been steadily increasing.
The asset type has become quite popular with multifamily developers, builders of single-family homes, institutional investors, and private investors.
Most significantly, renters find BTRs to be extremely appealing. They offer a lower-density housing neighborhood with single-family-like design elements while delivering the facilities and services of a traditional multifamily community. The product combines the best of both multifamily and single-family rental living, which is crucial in a time when many people are unable to become homeowners because of the high costs of for-sale housing.