The Small Balance Intersection Update - July 2, 2024

Fact of the Day

In 2023, small multifamily completions jumped by 36.4%, marking the most significant single-year increase since 1995.

Word of the Day

A single-tenant net lease (STNL) property is a type of commercial real estate where a single tenant occupies the entire property and is responsible for paying the base rent as well as some or all of the property expenses. These expenses can include real estate taxes, insurance, and maintenance costs.

Did You Know?

The National Federation of Independent Business (NFIB) is a leading advocacy organization representing small and independent businesses in the United States. Founded in 1943, the NFIB focuses on influencing public policy and promoting the interests of small business owners at the federal and state levels.

Construction Zone

Construction Spending Set to Downshift

In May 2024, construction spending decreased by 0.1%, the first decline in 18 months, with both residential and nonresidential sectors experiencing drops. Residential spending fell 0.2%, driven by a 0.7% decrease in private single-family construction. Nonresidential spending also decreased by 0.1%, with private outlays declining for four consecutive months despite a 4.1% year-over-year increase. Manufacturing project outlays rose 1.3% due to federal initiatives, while public construction spending improved by 0.5%. The Architecture Billings Index (ABI) fell to 42.4, the lowest since August 2020, indicating further weakening ahead. Home improvement spending increased by 2.8% year-over-year. Tight monetary policy and higher financing costs continue to challenge the construction market. This decline in construction spending signals potential challenges for small balance professionals, as tighter monetary conditions and decreased demand could impact financing opportunities and project feasibility.

For more detailed information, please refer to the full report on the Wells Fargo Economics page .

Construction Zone II

Trends in Multifamily Construction: Rising Demand for Small Multifamily and Affordable Units

The multifamily construction market is undergoing significant changes, with small multifamily completions rising by 36.4% in 2023, driven by the demand for affordable housing in suburban areas. Large multifamily construction increased by 12.0%, indicating robust activity. Studios and one-bedroom apartments now make up over half of all multifamily units, a shift from 2005 when larger units dominated. Despite peaking in 2018, large multifamily properties continue high completion rates. The need for affordability is leading to a surge in sub-1,000-square-foot units, growing by double digits over the past three years. This trend underscores a focus on affordable housing solutions to meet diverse population needs. Small multifamily production is gaining momentum to address national housing demands. The evolution of the market highlights the importance of adapting to changing demographics and economic conditions.

For more details, visit the full article .

In partnership with Arbor Realty Trust, Chandan Economics develops original research about the multifamily, single-family rental, and affordable housing markets.

Small Business Legislative Corridor

Supreme Court Protects Ability of Small Business Owners to Challenge Regulations

The U.S. Supreme Court has ruled in favor of small business owners in the case of Corner Post, Inc. v. Board of Governors of the Federal Reserve System, clarifying the timeline for challenging agency regulations under the Administrative Procedure Act (APA). The decision allows businesses to contest regulations when they become operationally affected, not just from the rule's publication. This ruling addresses concerns over unreasonable government regulations, a significant issue for small businesses. The National Federation of Independent Business (NFIB) applauds the decision, emphasizing its importance for protecting small business rights.

For more details, please visit the full article .

SBA Certification Way

SBA Is Upgrading Its Certification System: What Small Business Government Contractors Need to Know

The U.S. Small Business Administration (SBA) is upgrading its certification system starting August 1, 2024, affecting programs such as WOSB, EDWOSB, the 8(a) Program, VOSB, SDVOSB, and HUBZone. The upgrade will cause the system to be offline from August 1 through early September 2024, during which no new applications will be accepted. Firms with pending applications will still be processed, but new submissions must wait until the system is operational. Businesses needing certification renewals are advised to act quickly and seek guidance from their procurement center representative. Responding promptly to SBA inquiries is crucial to avoid application denials. The new system aims to streamline the certification process, improve efficiency, and better support small business contractors. The SBA's update is part of ongoing efforts to enhance the user experience and ensure smoother interactions between the agency and small businesses.

For more details, please refer to the full article by Holland & Knight here .

NNN Market Insights Boulevard

Net Lease Cap Rates Post Ninth Consecutive Quarterly Rise

Net lease cap rates have risen for the ninth consecutive quarter, highlighting significant market adjustments due to rising interest rates and economic uncertainty. The Boulder Group's Q2 2024 Net Lease Research Report reveals substantial cap rate growth in single-tenant net lease (STNL) properties, especially within the retail sector. Investor demand for stability amid fluctuating financial conditions has driven this increase. Additionally, the report notes the varying impacts on different property types, with some sectors experiencing more pronounced cap rate changes. Both reports stress the importance for investors to stay informed about these dynamics to navigate the evolving market effectively. These trends reflect broader economic shifts and the strategic responses of investors seeking reliable returns.

For detailed insights, read the reports on ConnectCRE and Boulder Group .al for success.