Tag Archives: Investing

Rising Demand for Spec and Built-to-Suit Developments in Northern Nevada (TRIC) and Las Vegas

by: Michael Marchese

In recent years, the demand for speculative (spec) and build-to-suit developments has witnessed a significant surge in both northern Nevada, particularly the Tahoe Reno Industrial Center (TRIC), and the vibrant city of Las Vegas. The growth can be seen in the increase in professional sports teams moving and creating a franchise in the city of Las Vegas like the Las Vegas Raiders, Golden Knights, Aces, and soon to be the A’s. This growing trend can be attributed to various factors that make these regions highly attractive to businesses and investors. From a favorable business environment to strategic locations and the diversification of industries, the appeal of these areas is attracting companies seeking to establish a strong presence and capitalize on their potential for growth.

Nevada’s strategic location in the western United States makes it a prime hub for logistics, distribution, and manufacturing operations. The state’s proximity to major markets such as California, the Pacific Northwest, and the Southwest enables businesses to efficiently serve a wide customer base. This advantageous location reduces transportation costs and allows for faster and more convenient supply chain management. A key component to Nevada industrial is the Tahoe Reno Industrial Center (TRIC), located in northern Nevada. The TRIC is one of the largest industrial parks in the world. Ample land availability, and supportive business environment make it an attractive destination for businesses. TRIC’s expansion is expected to continue, attracting more companies and driving further economic growth in the region. The rapid growth of e-commerce will continue to drive the demand for industrial spaces in Nevada. As online shopping continues to become more prevalent, companies will require strategically located distribution centers and fulfillment facilities to ensure efficient last-mile delivery.

Before the recent growth and development in Nevada’s industrial sector, capital availability was relatively limited compared to the present situation. Historically, Nevada’s economy heavily relied on sectors such as gaming, tourism, and mining, with less emphasis on industrial development. As a result, industrial capital investment was not as prevalent or substantial as it is today. Unlike the past, lenders and investors see the potential for attractive returns on investment, increasingly allocating capital to support the growth and development of Nevada’s industrial landscape. Traditional banks will likely continue to be a significant source of capital for industrial projects. As the industrial sector in Nevada continues to grow, banks may become more familiar with the unique needs and potential of this market, making it easier for businesses to secure financing. Institutional investors and REITs may show greater interest in acquiring and developing industrial properties. These entities can provide substantial capital for large-scale industrial projects and offer investors opportunities to participate in the industrial market’s growth through real estate investments.

Our team at Lever has cultivated strong relationships with a diverse network of lenders, allowing us to provide access to a wide range of debt and equity partners. One of our offices is located in Las Vegas, Nevada, giving us the knowledge and experience to understand the specific financing requirements associated with these projects in the state of Nevada. Our founder, Adam Horowitz, is on the Nevada Mortgage Advisory Council, a state appointed commission advising on mortgage related issues. Whether you are seeking debt financing, equity investment, or a combination of both, we will work closely with you to identify the optimal capital terms and secure the necessary funding for your industrial project. We are ready to leverage our knowledge, experience, and network to help you secure the best financing options and support your success in the Nevada industrial market.

References:

https://www.nnbw.com/news/2022/oct/24/industrial-park-tahoe-development-at-reno-tric-nnb/ https://www.rgj.com/story/news/local/mason-valley/2020/06/04/zoning-change-approved-large-lyon-county-industrial-park/3145074001/ https://www.nnbw.com/news/2023/may/03/record-amount-of-industrial-development-underway-i/

From Crisis to Opportunity: Investing in the Rebounding Hospitality Industry

by: Ethan Ritz

The emergence of COVID-19 and the pandemic that followed created a ripple effect that impacted nearly all industries in the economy, specifically hospitality. 2020 represented the worst year in recorded history for United States hospitality with unsold rooms per night reaching an excess of one billion dollars surpassing the prior peak of 786 million during the 2009 recession ⁽¹⁾. While the economic consequences of the pandemic still linger, the hotel industry is steadily making a comeback. Three years removed from 2020, with the demand for travel increasing rapidly and a surge in hotel construction projects ensuing, hospitality investment has become a bullish investment choice.

In the United States, hospitality performance has already exceeded the levels attained prior to the pandemic. According to the U.S. Travel Association, travel spending totaled $93 billion in February 2023 which is 5% above the levels earned in 2019 ⁽²⁾. Furthermore, since July 2021, average daily room rates surpassed comparable 2019 levels in every month but one (January 2022 missed by $0.35) ⁽³⁾. This drastic change is directly correlated to the sharp increase in the demand for travel. In a study by Destination Analysis that involved 4,000 Americans answering about their budget prioritization, domestic leisure travel took the top spot, with 35% of American travelers saying that it will be a high or extremely high priority in their household spending this year. This beat out restaurants (32%), education (24%), home improvement (21%), clothing & accessories (20%) and entertainment (18%) ⁽⁴⁾. In addition, a study by Oxford Economics stated that 89% of global business travelers wanted to add a private holiday to their business trips in the next twelve months ⁽⁵⁾. It is clear that regardless of the type of traveler, the demand for travel has significantly risen and become a priority purchase for a large portion of Americans. Due to this, current investment in the hospitality industry when prices are still low could prove bountiful.

As demand for travel continues to rise, the construction of the hotels used to host these eager travelers has also moved in a similar direction. At the end of 2022’s fourth quarter, the U.S. construction pipeline was up 14% by projects and 12% by rooms year-over-year, according to Lodging Econometrics. 2022 saw new project announcements up 35% year-over-year and construction start-ups increasing by 36% year-on-year ⁽⁶⁾. In particular, two cities, Dallas and Atlanta, which have become two of the hottest spots for investment, are leading the way in hotel construction. At the end of the fourth quarter of 2022, Dallas had 176 projects with 20,790 rooms and Atlanta had 145 projects with 18,100 rooms ⁽⁶⁾. In terms of hotel developers, the Marriott, Hilton, and Intercontinental groups were the three largest companies in the fourth quarter of 2022 in terms of projects and rooms with the Marriott constructing 1,490 projects with 180,113 rooms, the Hilton constructing 1,378 projects with 154,790 rooms, and Intercontinental constructing 789 projects with 78,951 rooms ⁽⁶⁾. Given these key performance indicators from the fourth quarter of 2022, for investors interested in the hospitality industry, equity should be considered for allocation in Dallas and Atlanta under projects managed by the Marriott, Hilton, and Intercontinental. Furthermore, hospitality construction has been thriving throughout the U.S. under a variety of developers, so any investment nationwide in this industry is likely to be successful.

However, in spite of these positive trends for hospitality investment, the industry is also facing increased speculation due to rising interest rates and the recent collapse of SVB bank. The federal funds rate currently sits at 4.83%, which is significantly higher than the rate of .33% from a year ago today ⁽⁷⁾. As the interest rate continues to rise, investors have begun focusing less on hospitality investment due to its growing costs. In addition, the recent collapse of SVB bank has caused uncertainty within the industry, as the bank was a major player in financing hotel projects with over $2.6 billion dollars worth of loans in commercial real estate ⁽⁸⁾. This has led to banks becoming warier to lend money into hospitality and to increased caution from potential investors. Unless the Fed gradually decreases its rate, there is the potential for a halt in hospitality construction. In turn, this potential halt in construction could create an undesirable market space for investors. As such, while the hospitality industry still remains an attractive option for investors, caution should also be taken given these recent events.

Investment in hospitality will always remain a high-risk, high-reward decision. The end of the pandemic represents a time period where that level of reward has never looked more appealing. Even with rising interest rates and the SVB bank collapse, due to the pent-up demand for travel and the rise in new hotel constructions, the hospitality industry is poised for a breakthrough in profitability.

References:

https://www.smartcapital.center/news/2021/05/20/is-it-worth-investing-in-the-hotel-markets-post-covid-19/ https://www.ustravel.org/research/monthly-travel-data-report https://www.pwc.com/us/en/industries/consumer-markets/hospitality-leisure/us-hospitality-directions.html https://www.destinationanalysts.com/blog-the-state-of-the-american-traveler-in-march-2023/ https://www.ahla.com/news/report-hotels-continue-moving-toward-recovery-2022#:~:text=Hotels%20lost%20a%20collective%20%24111.8,projected%20to%20represent%20just%2043.6%25 https://www.matthews.com/the-collapse-of-svb-and-its-impact-on-cre/ https://www.newyorkfed.org/markets/reference-rates/effr https://www.bdcnetwork.com/us-hotel-construction-pipeline-14-close-out-2022

The Emergence of Student Housing as a Lucrative Asset Class

by: Ori Nozar

Over the past few years, student housing has emerged as a distinct asset class, separating itself from the multi-family sector. This shift is evident in the rise of multi-billion-dollar REITs and funds devoted exclusively to investing in student housing. Just this past year, Blackstone acquired American Campus Communities, a student housing REIT, for $13 billion (1). The popularity of this asset class is due to the consistent growth in university enrollment from both domestic and international applicants since the great financial crisis (2). In 2022, student housing experienced one of the highest appreciation, with rent growth increasing by double digits, providing the groundwork for it being the most attractive investment option on a risk adjusted basis.

Due to the pandemic, the uncertainties faced by other asset classes such as retail and office have led commercial real estate investors to focus on student housing and multifamily investments as people will always require housing. Moreover, recessions often result in increased university enrollment, as laid-off employees seek further education to improve their job prospects. Student housing investments offer unique advantages such as the ability to capture current market rents through one-year lease cycles and minimizing credit losses through guarantor requirements.

The value of a student housing property is heavily influenced by its proximity to the university, the amenities it offers, and the availability of housing near the campus (3). While flagship universities continue to expand, smaller institutions in the Midwest and Northeast are struggling to maintain enrollment levels. Some state university systems are consolidating smaller campuses into larger regional ones, such as in Wisconsin and Georgia (4). Real estate investors should be cautious of public universities’ capacity to use eminent domain and increase dormitory supply, potentially decreasing market rents. Rising rates have impacted transactions in Q4 2022 across all asset classes, leading to a cap expansion and causing sellers to be reluctant to sell at the prices buyers are willing to offer (5).

Student housing deals enjoy widespread support from various capital providers including banks, credit unions, and private capital due to their resilience. In 2022, transactions reached an annualized total of $18.9 billion, nearly doubling the previous year’s high (6). Despite rising interest rates, most lenders and capital providers are likely to continue financing student housing deals in 2023. However, loan-to-value ratios across the board have decreased compared to previous years and financing for ground-up developments came to a screeching halt.

In areas with student housing supply shortages, operators can significantly raise rents and capitalize on increased appreciation and cash returns, making these investments even more attractive to investors and lenders. The unique benefits of student housing investments support their claim as the most desirable asset on a risk-adjusted basis.

Lever Capital Partners has provided capital for various student housing projects across the United States, including ground-up development, value-add remodeling, and turnkey acquisitions. We can help source debt, mezzanine debt, preferred equity, and equity to ensure no deal or opportunity is left unexplored. Furthermore, we connect clients with capital providers, fostering partnerships between them and sponsors. In these times of high inflation and interest rates, securing capital has become more challenging. Collaborating with Lever Capital Partners can alleviate the stress of sourcing capital, allowing you to focus on executing your business plan and seizing opportunities.

References:

https://www.blackstone.com/news/press/blackstone-funds-complete-13-billion-acquisition-of-american-campus-communities/ https://research.com/education/student-housing-trends https://www.multihousingnews.com/what-experts-expect-for-student-housing-in-2023/ https://www.forbes.com/sites/michaelhorn/2018/12/13/will-half-of-all-colleges-really-close-in-the-next-decade/?sh=23f09c2a52e5 https://www.wealthmanagement.com/student-housing/student-housing-investment-sales-activity-grinds-halt https://www.us.jll.com/en/newsroom/student-housing-sees-record-transaction-volume#:~:text=Jenna%20Sharp&text=CHICAGO%2C%20Jan.,of%20%2411.5%20billion%20in%202021.

The Rise of Luxury Apartments: A Flight-to-Quality Trend

by: Will Lin

The COVID-19 pandemic has had a profound impact on the real estate market, with demand decreasing in the hospitality industry and among many others. However, in the luxury apartments sector, many tenants elected to hop on the trend of paying more for less and valuing quality over quantity; as a result, the demand for luxury apartments has increased significantly. According to JLL, overall leasing volume in luxury property types has increased 24% over 2021 activity and a record number of leases have been signed ⁽¹⁾. This activity illustrates the resiliency and relevancy of luxury properties within the real estate market which proves to be valuable information for investors and developers who would like to capitalize on this market.

One of the major driving factors for the increase in demand for the luxury apartment sector is the increased growth of the U.S. population. In 2022, the U.S. Census data revealed that there was a 0.4% increase, or 1,256,003, to 333,287,557 in the U.S. resident population as well as an influx of 1,010,923 immigrating to the U.S. ⁽²⁾. With the continued population growth, the demand for housing will continue to increase and that proves to be true, especially in the luxury apartments sector. Furthermore, Mike Cobb Jr, director of analytics at the CoStar Group states that the increasing costs of construction and materials make it challenging to construct profitable multifamily properties of lower quality rather than higher quality ⁽³⁾. Not only are developers and investors flocking towards the high-end and profitable luxury apartment market, but consumers are also gravitating towards these properties that boast premium features and access to luxury amenities. This flight-to-quality trend is especially prevalent among young affluent professionals who are looking for places to live that provide access to a variety of high-end amenities within a short walking distance.

With the current economic conditions it is essential to take into account the impact of the Federal Reserve’s interest rate increases and how this can influence the luxury apartments market. At first glance, rising interest rates can pose a potential threat to investors of luxury apartments as they need to pull out money from their portfolios to purchase these types of real estate ⁽⁴⁾; however, higher interest rates can deter buyers from taking out mortgages to purchase homes which can drive up rental prices and potentially lead to higher profits for luxury apartment owners and investors. For example, JLL reveals in their 2022 end-of-year recap that tenants have signed a historic number of leases for premium rental spaces in Manhattan, with 190 leases starting at $100 or more per square foot and covering a total of 6.1 million square feet. This leasing volume is twice as much as the previous record set in 2021, which was three million square feet for premium rentals.

The flight-to-quality in the multifamily apartment sector is a trend that is continuing to grow in the post-COVID world. Here at Lever Capital Partners, we pride ourselves on our ability to finance all types of multifamily deals including your next luxury apartment project. Our expertise in financing luxury apartment projects in various stages is diverse and extensive and we are able to get you the most accretive financing options catered specifically to your strategy and business plan. We believe that understanding the availability of different capital structures is the foundation for curating the most efficient capital stack for our client’s projects. Our ability to promptly evaluate creative alternatives allows us to direct any project towards the most optimal capitalization structure given the current market conditions and our client’s strategy and goals.

References:

https://rew-online.com/record-number-of-100-plus-leases-signed-in-2022-as-tenants-seek-premium-space/ https://www.census.gov/newsroom/press-releases/2022/2022-population-estimates.html https://www.virginiabusiness.com/article/flight-to-quality/ https://www.wsj.com/articles/new-york-citys-luxury-apartment-market-under-pressure-in-2023-11673742970

A Hot Market For Medical Office Buildings

by: Ethan Newman

Are you aware medical office buildings (MOBs) are arguably the safest asset to invest in? Since the pandemic, vacancy rates skyrocketed for traditional offices. The Sage Group reported office space vacancy rates in 2022 in downtown Los Angeles and Long Beach, California were 18% and 26% respectively ⁽¹⁾. Despite MOBs being a subset of traditional offices, the demand for medical office space stayed resilient throughout the pandemic even with the rise of telemedicine ⁽²⁾. The Connected Real Estate Magazine shared how 2022 vacancy rates for MOBs nationally were only 8% ⁽³⁾. With MOBs outperforming traditional offices, what has contributed to MOBs becoming a reliable investment?

Because of the rise of the aging United States population, the demand for medical office space is increasing. Although there is strong demand, supply is relatively low for MOBs mainly due to construction obstacles that have in turn made existing healthcare properties more valuable.

One of the reasons for this noticeable demand for medical office space has to do with the aging population in the United States. U.S. data census estimates one in five Americans will be 65 and older by 2030 and one in four Americans will be 65 and up by 2060. Because of the aging population, medical-related office visits are becoming more frequent which leads to practices demanding more space. For example, RPC reported that the average amount of current office space per person is around 5.3 square feet, but this number is estimated to increase to 11.2 square feet per person in order to accommodate the higher aging population ⁽⁴⁾.

Although there is an increased demand for MOBs, new supply is lagging. The San Diego Business Journal claimed supply of MOBs in 2022 does not meet demand ⁽⁵⁾. Alliance reported that the average price per square foot for MOBs is $498 where retail is $245/per square foot and normal offices are $315/per square foot. Because MOBs are costly and require complex construction standards compared to other assets, there is less activity in the construction pipeline which results in a lower supply. To put this in perspective, there is only 1% of the amount of space under construction for MOBs compared to the existing stock available ⁽⁶⁾.

Due to the recent pandemic and the realization that there is a significant shortage, MOBs have become a very desirable investment. From the second quarter of 2021 to the second quarter of 2022, the average price per square foot of MOBs increased by 20%. As a result, the limited supply makes existing properties more and more valuable ⁽⁷⁾. With property values increasing, the average cap rate for MOBs dropped to an all-time low of 5.5% in 2022. Aside from rapidly increasing values, investing in MOBs allows capital providers to diversify their overall portfolios by tailoring their tenant mix in each MOB that they own. This can be done because of the variety of medical tenants in need of the same type of space.

The escalating demand for MOBs presents a momentous prospect for investors seeking steady cash flow and low-risk investment opportunities. As medical practices continue to expand and require more space, the construction of new buildings is anticipated to persist. Capital providers nationwide have expressed keen interest in financing the development and acquisition of such assets, and Lever Capital Partners collaborates closely with these entities, which actively disburse senior and mezzanine debt, preferred equity, and joint venture equity for the acquisition, development, and recapitalization of medical office assets across the country. By optimizing our clients’ capital structures, we enable them to concentrate on operations, construction, and asset management, while ensuring that the capital we procure establishes each project for success, regardless of the prevailing market conditions.

https://www.sageregroup.com/did-remote-work-collapse-the-southern-california-commercial-office-space-market/embed/#?secret=CXTEGUhD3k

https://risingrp.com/insights/medical-office-building-investment/embed/#?secret=sUOUafpZDH

https://connectedremag.com/uncategorized/medical-office-cre-shows-strong-signs-of-improvement/embed/

https://www.rpcpropertytax.com/archives/aging-u-s-population-expected-to-drive-demand-for-medical-office-space/embed/

https://www.sdbj.com/news/enews/medical-office-space-high-demand-low-supply/embed/#?secret=m6Qb5MBUoN

https://alliancecgc.com/education/medical-office-building-market-trends-past-and-present/embed/#?secret=6iXjSMUCeY

https://www.commercialsearch.com/news/medical-office-sector-resists-adversity/