MaGiC USA Real Estate Report: May 2023 Edition - Unveiling Market Insights & opportunities!

Dear Magic Investor,??

We are pleased to share with you the RE Newsletter May 2023 edition highlighting the recent? developments.??

REAL ESTATE??

Despite being well into the spring homebuying season, the housing market is still? experiencing a winter chill.??

The national average 30-year fixed mortgage rate increased by 18 basis points in May—and another 22 basis points for the week ending June 1—while pending home sales were? flat and existing home sales sagged in April.??

Though the median existing-home sales price edged lower year-over-year for the third? consecutive month—a promising sign for home shoppers—experts don’t expect? substantial, nationwide price declines anytime soon.??

Thanks to ongoing inventory issues, home prices remain stubbornly elevated,? perpetuating affordability challenges for many, especially first-time homebuyers. For one,? the nation’s housing supply remains limited—and probably will remain so for at least the? near future—due, in part, to those who purchased homes in recent years at record-low? interest rates staying put.??

Though home prices are not as high as the record prices of June 2022, data suggest that? where home prices dip or climb this year remains heavily region-specific.?

US MULTIFAMILY??

MULTIFAMILY FUNDAMENTALS BEGIN TO STABILIZE??

Vacancy rate increases to 4.9%??

The overall multifamily vacancy rate increased by 30 basis points (bps) quarter-over-quarter in Q1 to 4.9%. This was less than the 70-bp increase in Q4 2022 and the 90-bp jump in Q2 2022, indicating that supply and demand dynamics are beginning to stabilize.?

Annual Rent Growth at 4.5%??

The average monthly multifamily rent decreased by 10 basis points (bps) QoQ to $2,134. The overall multifamily vacancy rate increased by 30 basis points (bps) quarter-over-quarter in Q1 to 4.9%. This was less than the 70-bp increase in Q4 2022 and the 90-bp jump in Q2 2022, indicating that supply and demand dynamics are beginning to stabilize.

The regions with the biggest YoY rent increase in Q1 were the northeast/mid-Atlantic, followed by the Midwest. With 5.7% increase in the first quarter, the Northeast/Mid-Atlantic took the lead, followed by the Midwest with 5.4% and the Southeast with 4.9%.??

Lowest Q1 investment volume since 2014??

The amount invested in multifamily properties fell by 63.7% YoY to $24.7 billion, which was the lowest first-quarter volume since 2014 and 25% below the quarterly average from 2013 to 2019.??

The cost of debts has significantly increased due to the sharp increase in interest rates. Due to this and decreased debt availability, the average multifamily cap rate has increased since Q1 2022 by more than 1.25% points.??

Gateway markets see smallest investment decline??

With a combined $8 billion in multifamily investment volume in Q1, the six gateway markets—New York, Boston, Washington, D.C., Chicago, Los Angeles, and San Francisco—account for 32% (up from 24% in Q4 2022) of the $24.7 billion in national spending on the sector. Compared to the rest of the top 20 markets, which saw an average decline of 57%, the investment volume in the gateway market fell by 36% QoQ.??

Negative absorption eases:??

Though the first quarter witnessed a negative net absorption of 1900 units, it was an? improvement from the previous quarter's negative 14,000 units. Positive absorption is? anticipated in Q2 2023, consistent with typical summer seasonality. On a rolling four quarter basis, absorption totaled negative 110,000 units – the largest four-quarter negative? total since Q1 2002.?

The first quarter's 58,600 new construction deliveries brought the four-quarter total to 332,200, which is lower than the 2022's projected annual total of 343,300. This decrease in deliveries, if maintained in the upcoming quarters, could help strengthen the fundamentals of the market as a whole.??

US HOSPITALITY:??

US hotels continue to beat forecasts despite concerns about a recession, bank collapses, and a liquidity crisis hurting the macroeconomy. According to STR data, US hotels' Q1 2023 RevPAR levels were 13.0 percent higher than Q1 2019's (pre-pandemic) values. The main factor influencing this performance recovery is still room rates. The average daily rate (ADR) rose 17.0 percent even though occupancy in Q1 2023 was still down 2.1 points from the same period in 2019. Even though growth rates are slowing down, leisure travel is still strong, and although group and individual business travel have slowly returned, they now make up a larger portion of projected future growth.??

Consumer research shows that group business and leisure travel are still popular, and new workplace trends enable workers to travel more because they can do so from any location. Even though the transaction market is slowing down, there are still opportunities to save money while concentrating on organic growth.??

MaGiC USA Portfolio??

Multifamily??

MaGiC USA currently has investments in 20 multifamily assets through equity and? mezzanine debt. The majority of the company's real estate portfolio is located in sun belt? submarkets, such as Texas, Arizona, North Carolina, Atlanta, and Florida.??

Sponsor focus on operational efficiency continues, with the goal of increasing occupancy? rates and average rent. Property managers are working to improve tenant quality and? maximize the benefits of completed renovations and other developmental works.??

Increasing interest rates have had a subdued effect on MaGiC's portfolio due to interest rate? caps being in place, but they have led to increased debt service costs compared to initial? projections. Therefore, operational efficiency becomes even more critical in the current? market.??

Some of the assets in MaGiC USA portfolio includes:??

1. Carolina – a group of 11 assets, totaling 1,203 units, spread across 4 MSAs –? Charlotte (North Carolina), Greensboro (North Carolina), Greenville (South Carolina)? and Oklahoma City (Oklahoma). In Q1 2022, 221 new leases were signed at an? average increase of 23% per unit. 93 renewed leases were signed in Q1 at an average? increase of 10.7% per unit.??

2. Arlington – consists of two properties named Mark at 2600 and the Felix, both? Multifamily properties in Arlington, TX. Occupancy has continued to trend upward,?

reaching 91% as of May 4th. Average effective rent also increases around 10% QoQ? levels.??

3. Grove – a 282-unit multifamily community in Dallas, TX. As of April 2023, Occupancy? is at 94% and average effective rent shows a growth of around 12% from previous? quarter.??

A few investments are approaching their planned exit dates, and MaGiC's mandate, along? with its Investee partners, is to wait for the economic environment to stabilize and the cap? rates to start approaching their attractive normal so that end-of-project cash flows can be? protected (hence, the IRR).??

As previously mentioned, there are also significant rate cap maturities in the next 1.5 years.? One can avoid purchasing a replacement rate cap by refinancing the loan or selling the? underlying asset. However, lower valuations make it unviable to sell the underlying asset? because many of these real estate assets will appreciate significantly over the next 18? months. As a result, some partnerships may require additional cash to purchase a? replacement rate cap for the short term.??

These factors impact MaGiC's real estate portfolio to varying degrees. Although the net? operating income (NOI) of the projects has begun to show the economic impact of? increasing interest rates, almost all properties have been NOI positive in Q4 2022 and a? mixed-bag in 1Q23. We believe this is a short-term issue and expect NOI to return to? historical levels.??

If you have any further questions, please contact the Investor Relations team at? [email protected]?