That prompted sales and usage of RVs and boats to hit new highs in 2021. The growth in the segment led Yardi Matrix to create a database of RV/boat exclusive storage facilities as a supplement to its database of self storage properties, which is the largest in the U.S.

Yardi’s database encompasses 786 completed RV/boat exclusive storage properties in the U.S. with 6,850 acres of space and another 35 facilities that are in the development pipeline. Metros with the largest amount of RV/boat storage include Denver, San Francisco, Dallas, Houston and Phoenix. These metros have large populations and are within proximity to parks and campgrounds, RV rental facilities, waterways and large populations.

Yardi’s database finds that Denver leads metros in RV/boat exclusive storage in acreage with 596.8, followed by San Francisco (420.4), Dallas (345.7), Houston (302.9) and Phoenix (299.3). Denver also leads with 47 properties, followed by Houston (45), San Francisco (39), the Inland Empire (36) and Los Angeles (35).

Although it remains relatively small compared to other niche segments of commercial real estate, the industry registered record-high capital flow in 2021, a sign that investors are increasingly taking notice. Some $157.7 million of RV/boat exclusive facilities were sold in 2021, almost triple the previous annual high.

RV/Boat Usage on the Upswing

Data from industry trade groups demonstrates the growth in ownership and usage of RVs and boats. RV wholesale shipments reached a record 600,240 in 2021, up 39.5% over the 430,412 units shipped in 2020 and surpassing the prior record set in 2017 of 504,599 shipments, according to the Recreational Vehicle Industry Association.

Likewise, the acquisition and use of boats is growing. According to the National Marine Manufacturers Association, new powerboat retail unit sales are expected to surpass 300,000 units for the second consecutive year in 2021. Sales in 2021 are expected to be down slightly from 2020, the previous record high, but will be 7% above the five-year average. The NMMA projects 2022 sales to surpass 2021 totals by as much as 3%.

Americans have long had a love affair with RVs and boats, and the RV/boat exclusive storage segment has been around for decades. But like many other developments involving work and migration, the pandemic has created behavioral changes and exacerbated some existing trends.

Foremost among the reasons is the desire to travel and have recreational experiences without crowds. Over the last two years, many Americans avoided airplanes and other forms of public transportation in favor of ground travel.

Another driver of the growth in RV and boat sales is the healthy balance sheets of households as people stopped spending while sheltered in place and collected stimulus checks from the federal government.

Younger Americans also got into the act. The pandemic helped stoke a growing appreciation for recreation and travel to rural settings. What’s more, some found that they could work from remote locations, which means they can live in RVs and work, not just use them for travel.

Yet another development advantageous to RV/boat exclusive storage demand is the growth in Airbnb-type online apps, which enable RV owners to rent vehicles that are parked in storage facilities. The RVIA notes that median annual usage of RVs is 25 days a year, which means that many vehicles are in storage the vast majority of the year. Renting stored vehicles can generate significant income for owners.

Growing Niche

Recreational vehicles and boats are a durable part of the American experience, and economic and social trends indicate that is likely to intensify in coming years. As sales of RVs and boats increase, the demand to store the vehicles is likely to grow. Traditional self storage facilities have limited space and amenities to store RVs and boats, which means that demand for RV/boat exclusive facilities will likely grow as RV and boat sales rise.

Growth of RV/boat exclusive facilities might be constrained by the cost of land, the amount of acreage needed to house vehicles and the fact that the facilities are geared toward specific objects as opposed to general usage. At the same time, though, the growing demand from RV and boat sales combined with the limited amount of supply means the segment’s fundamentals should remain healthy, even in volatile economic times.

Read the full Matrix Bulletin-RVBoat Storage-March 2022

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However, a new study of high-yield loan performance by Michael Giliberto, a co-founder of the Giliberto-Levy mortgage indexes, has some answers. The study found that high-yield debt originated between 2010 and 2020 produced returns in line with its position in the commercial real estate capital stack.

The Giliberto study, first published in the October issue of the “Journal of Portfolio Management,” reported that high-yield debt produced a return of 8.5% during the 2010s decade, more than senior instruments such as senior fixed-rate debt (5.5%) and CMBS (5.9%) and less than equity indexes produced by the National Council of Real Estate Fiduciaries: the ODCE fund index (10.5%) and NCREIF Property Index (9.4%).

Since mezzanine mortgage debt falls between equity and senior debt in the capital stack, those results make intuitive sense and indicate that the industry is pricing risk efficiently. However, the study won’t be the last word on the topic. For one thing, the study was based on a relatively small sample, $20.9 billion of loans in the Giliberto-Levy 2 index, which is the first index to track the performance of high-yield debt.

A much bigger caveat is that there was no property market downturn during the period in which the study took place. That means the study doesn’t cover the impact on mezzanine debt during down markets—such as the early 1990s or 1998, or after the global financial crisis of 2008-10—when high-yield loans experienced a wave of defaults.

G-L index co-founder John Levy said there was no attempt to avoid downturns. The study was made possible by the formation of the G-L 2 high-yield debt index in 2017, which helped the firm to obtain data on loans dated back to 2010. Whatever its limitations, the study provides valuable information on the high-yield commercial mortgage market.

Growth of Mezzanine Market

High-yield debt encompasses different forms of debt that are junior in the capital stack to a senior mortgage. A simple and common form of high-yield debt is a second mortgage/mezzanine loan. Another form of high-yield debt is a B-note, in which a lender originates one high-leverage loan and splits it into senior and junior classes. The originator can then sell or retain either tranche depending on its strategy.

Subordinate debt has long been used in commercial real estate, although before the securitization era, high-yield debt was mostly in the form of a second mortgage. An explosion of high-yield debt was produced in the early 2000s when new structures were employed, and it became common to finance properties with debt totaling upwards of 90% of property value. In some large deals, lenders created layers of high-yield debt—sometimes dozens in large deals—that were sold to debt funds.

The 2000s saw growth of new structures of high-yield debt such as B-notes and resecuritizations of junior CMBS. The financial crisis led to defaults on a large amount of high-yield debt, particularly deals with numerous tranches of highly leveraged loans. After the financial crisis, the high-yield debt market shrank considerably, as many of the investors suffered losses and exited the business, and financing for high-yield debt became scarce.

As the financial crisis gets further into the rearview mirror, however, the high-yield debt market is once again growing. Levy said that the number of investors in the high-yield debt market has grown from less than 50 pre-financial crisis to about 170 today. One driver is the overall success of commercial real estate. Property income and values in most segments continue to reach new highs, leading to a huge inflow of capital into the sector. The strong fundamental performance means that loan defaults in post-GFC loans have been extremely low.

Another driver of capital into high-yield debt is the search for yield. Yields of senior fixed-income bonds and sovereign debt have reached all-time lows in recent years and seem unlikely to increase much. Many senior commercial mortgages have coupons in the 3% range. Investors searching for more return are turning to high-yield commercial property debt, which has less risk than an equity position and can include an option to take over the collateral in the event of a default.

Lessons About Leverage

If there is a lesson in the study, it might be that high-risk strategies pay off during times of favorable capital market forces, when the market is performing well, if originators exercise proper judgment in underwriting the loans. Aggressive lending has doomed high-yield debt funds during market downturns. Highly leveraged loans leave less room for error in the event property income declines or collateral assets—for example, poorly located malls—become obsolete.

Get the full Matrix Bulletin-Mezzanine Debt-November 2021

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The gateway rebound comes amid record-setting demand nationally, as multifamily established a new annual high in absorption in only nine months. Through the first three quarters in 2021, 475,000 apartment units were absorbed in the U.S., already topping 2018’s single-year high of 370,000 recorded by Matrix. At least 100,000 units have been absorbed in each of the last four quarters, which is also a first.

The absorption numbers explain the industry’s recent extraordinary rent performance. Asking rents nationally were up 11.4 percent year-over-year through September, while the occupancy rate of stabilized properties rose 110 basis points year-over-year to 95.9 percent as of August, per Matrix data on 144 markets.

Absorption as % of Stock by Market Size

Robust multifamily absorption is driven by a confluence of factors, including robust economic growth, the decline in unemployment, pent-up demand coming out of the pandemic, and strong household savings. Plus, there remains a long-term shortage of housing supply, as new construction was stifled for several years coming out of the Great Recession, and single-family home prices have soared.

Arguably, the most notable part of the 2021 landscape is the rebound in gateway markets, which are on the verge of a “worst-to-first” turnaround. Gateway metros (which Yardi defines as New York City, Boston, Washington, D.C., Miami, Chicago, Los Angeles and San Francisco) combined posted negative (-7,000) absorption in 2020.

Through three quarters in 2021, gateway metros have absorbed some 108,000 units. As a percentage of stock, that amounts to 3.8%, which is the highest rate among metros ranked by market size. Secondary markets absorbed 3.7% of stock, while tertiary metros trailed at 2.2% of stock. In 2020, gateway metro absorption was -0.3%, compared to 1.9% for the entire U.S.

During the pandemic, gateway markets lost Millennial renters with children looking for housing with more space and/or better schools, renters who work remotely looking for lower-cost housing and those seeking a more suburban or rural lifestyle. Now units are being backfilled, largely by young workers seeking the experience of city life and downsizing retirees.

Regionally, the Southeast continues to attract the most renters, with 155,000 units absorbed year-to-date through the third quarter, or 3.7% of stock. Metros in the West (101,000, 3.3% of stock) and Southwest (98,000, 3.5% of stock) also are attracting a high number of households. The Northeast (60,000, 2.7% of stock) and Midwest (59,000, 2.5% of stock) trail in total absorption.

Multifamily has benefited from a confluence of factors to produce outstanding fundamental performance in 2021. Some of those factors, such as the stimulus-fueled GDP growth and pent-up demand after a year spent in quarantine, are not sustainable. Other factors that involve evolving social and demographic forces are likely to drive demand for years to come.

Read the full Matrix Bulletin-Absorption Paper-October 2021

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SANTA BARBARA, Calif., July 22, 2021 – Institutional players are expanding their investment in the single family rental sector, reports Yardi® Matrix in a new special report.

Traditionally an afterthought for investors, interest and development of build-to-rent homes has burgeoned due to the pandemic, report Matrix analysts. Families are looking for more space, fewer shared walls and personal HVAC systems, all features offered in single family rentals.

Single-family rentals have long been a major subsection of the housing market, representing about one-third of the 46 million rental homes in the U.S. However, nearly 98% of single-family rentals are operated by private owners. Institutions did not enter the segment until after the 2008 recession and remain a small slice of the market, according to the report.

“Both the institutional single-family rental and build-to-suit segments gained momentum as a result of the pandemic, which created ideal conditions,” say analysts. “Families wanted more space and the privacy of a detached home, but without the inherent limitations of a mortgage and homeownership.”

Increasingly, institutions are growing their presence in the sector by building communities from the ground up. More than $10 billion has been allocated to the sector by institutions over the last few years. And around 12% of new single-family construction in 2021 is dedicated to future rentals, according to John Burns Real Estate Consulting.

Learn more about the expanded institutional presence in build-to-rent and single family rental homes.

Yardi Matrix offers the industry’s most comprehensive market intelligence tool for investment professionals, equity investors, lenders and property managers who underwrite and manage investments in commercial real estate. Yardi Matrix covers multifamily, student housing, industrial, office and self storage property types. Email matrix@yardi.com, call (480) 663-1149 or visit yardimatrix.com to learn more.

About Yardi

Yardi® develops and supports industry-leading investment and property management software for all types and sizes of real estate companies. Established in 1984, Yardi is based in Santa Barbara, Calif., and serves clients worldwide. For more information on how Yardi is Energized for Tomorrow, visit yardi.com.

The post Institutional Investment in Build-to-Rent Single Family Expands appeared first on Yardi Matrix Blog.

SANTA BARBARA, Calif., June 29 2021 – A new bulletin from Yardi® Matrix analyzes how high office vacancy rates may climb as the US redefines what office-based employment will look like post-pandemic.

As of May, the total U.S. vacancy rate hit 15.5%, up 240 basis points from spring 2020. Additionally, the amount of space available for sublease more than doubled over the last year, to 118.8 million square feet.

Matrix analyzed space per foot by office workers, occupancy rates, and the potential drop in demand based on surveys of office-using employers. If office usage drops by 10% and companies reduce space needs by a corresponding amount, vacancy rates could rise by 7 to 9 percentage points. If that happens, vacancy rates could rise to 25-30% in many metros.

Further complicating matters, 161 million square feet of office space is under construction and slated to add 2.5% to total stock over the next several years. Higher vacancy rates will limit rent growth and erode property values, especially on lower quality properties, which may be converted to other uses.

“While details remain fuzzy, offices face many challenges in coming years that involve a re-thinking of the nature of work and how to design workspaces in the future,” states the report.

Yardi Matrix offers the industry’s most comprehensive market intelligence tool for investment professionals, equity investors, lenders and property managers who underwrite and manage investments in commercial real estate. Yardi Matrix covers multifamily, student housing, industrial, office and self storage property types. Email matrix@yardi.com, call (480) 663-1149 or visit yardimatrix.com to learn more.

About Yardi

Yardi® develops and supports industry-leading investment and property management software for all types and sizes of real estate companies. Established in 1984, Yardi is based in Santa Barbara, Calif., and serves clients worldwide. For more information on how Yardi is Energized for Tomorrow, visit yardi.com.

The post With Office Vacancies Climbing, Yardi Matrix Analyzes the Market appeared first on Yardi Matrix Blog.

Gauging the potential for distress, however, requires a property-level examination. To that end, we analyzed more than 78,000 properties in the Yardi Matrix database to determine how many had occupancy rates decrease by 5% or 10% or more in the 12 months following the start of the pandemic. Then we compared results to our metro rent forecasts to determine how long it may take to recover lost revenue.

The results found a large bifurcation in market performance and recovery period. Roughly one out of every 14 multifamily properties (7.3%) in the U.S. have seen occupancy rates drop by 5% or more over the 12 months ending February 2021 while roughly one in 40 (1.8%) saw occupancy rates drop by 10% or more.

The impact is overwhelmingly concentrated in a handful of urban submarkets – particularly Manhattan, San Francisco, Chicago, and Los Angeles – that could take years to get back to pre-COVID rent levels. New York City had by far the most properties with serious occupancy decreases. Some 857 multifamily properties (32.6% of the total in the city) saw occupancy decrease by 5% while 251 properties (9.8% of the total) saw occupancies decline by 10% or more.

Other metros with substantial property-level issues include: San Jose, where 182 properties (25.1% of the total) saw a 5% or more drop in occupancy and 54 properties (7.4%) a drop of 10% or more; Los Angeles, with 485 properties (21.8%) with a 5% or more drop and 92 (4.2%) with 10% or more; Chicago, which had 396 properties (20.9%) with a 5% or more drop and 112 properties (5.9%) with 10% or more; and San Francisco, which had 360 properties (19.4%) with a 5% or more decline and 125 properties (6.7%) with 10% or more.

Even the metro-level numbers fail to do justice to the concentration of the problem. Within each of these metros, urban submarkets had substantially worse performance. In New York City, for example, occupancy decreases were largely confined to Manhattan, where a whopping 830 properties, or 47.8% of all apartment buildings, experienced a 5% or more decline in occupancy rates and 13.6% declined by 10% or more. Meanwhile, only 4.4% of properties in Queens and 2.0% of properties in Brooklyn saw occupancy rates drop as much as 5%.

The story was similar, if not as dire, in other Gateway metros. In the San Francisco Peninsula, 35.1% of properties had a 5% decrease in occupancy rates compared to only 6.5% in the East Bay. Some 34.5% of properties in Urban Chicago saw occupancy rates increase by 5%, while the rate was 2.5% in Suburban Chicago. 32.5% of properties in Urban Los Angeles had an occupancy rate increase of 5% or more compared to only 2.6% in the Eastern County.

While the data demonstrates the troubles facing some segments of the market, the industry can take solace in the finding that the poor performance in demand and occupancy is limited. The results show that the amount of distress anticipated by some is likely to remain limited, and whatever does occur will almost certainly be concentrated in high-cost Gateway centers that will have a much bigger hill to climb to get back to pre-pandemic revenue levels when normality returns.

Read the full Matrix Bulletin-Occupancy Paper-April 2021

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The number of units absorbed in 2020 was only 12.0% less than the 286,300 units absorbed the prior year, and not too far off the average during the last cycle. Considering the economic and social calamity that befell the U.S., in many respects due to COVID-19, the fact that demand held up as well as it did is a relief for the apartment industry.

The positive multifamily absorption—which counts the net change in occupied units—was broadly distributed. Net absorption was in the black in 25 of the 30 largest metros, led by Dallas, Atlanta, Denver and Phoenix. Those top 25 metros accounted for 158,300 units absorbed, more than 60% of total U.S. net absorption.

Negative absorption was mostly limited to a handful of large markets, with the worst performance in the Bay Area and New York City, which combined for -22,100 units absorbed in 2020. By metro size, high-cost gateway metros had the worst performance, with net absorption of -0.3% (-7,600 units). Demand was much better in secondary (154,100 units, or 2.3% of total stock) and tertiary (96,200 units, or 2.0% of stock) markets.

On a regional level, renters continued to flock to the Southeast (96,700 units absorbed, or 2.4% of total stock), the Southwest (56,800 units, 2.1% of stock) and the West (57,100 units, 1.9% of stock). Meanwhile, demand was slightly positive in the Midwest (27,100 units, 1.1% of stock) and the Northeast (4,900 units, 0.2% of stock).

Read the full Matrix Bulletin-Absorption Paper-March 2021

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Similar to other commercial property types, uncertainty caused self storage investment activity to stall in the second quarter. The disruption to sales activity appears to have been short-lived, as storage transactions began picking up again in the second half of the year. In addition, as the self storage industry continued to show its resilience in the second half, investors such as the Blackstone Group started to take notice of and show greater interest in the industry. Specifically, Blackstone Group’s Blackstone Real Estate Income Trust entered into an agreement to acquire Simply Storage Management LLC, d/b/a Simply Self Storage, from Brookfield Asset Management Inc. for roughly $1.2 billion in the final quarter of 2020. Simply Self Storage is a private owner and operator with an 8 million-square-foot a portfolio across the United States.

Read the full Matrix Self Storage Bulletin-January 2021

The post Resilient Nature Positions Self Storage for Recovery In Transaction Activity appeared first on Yardi Matrix Blog.

• Multifamily transaction activity has fallen sharply in 2020 due to the fallout from COVID-19. Through three quarters in 2020, $50.6 billion of multifamily property sales were completed in the U.S., down 41.7% from $86.5 billion through the same period a year ago, according to Yardi Matrix. There’s little hope full-year volume will get close to 2019’s record high of $127.8 billion.
• The impact has been uneven across metros, regions and property types. Gateway and coastal metros have generally seen a larger decline in deal flow than secondary and tertiary markets in the Sun Belt and Southwest.
• Much of the change could be described as a “filtering” effect: investors moving from urban cores to inner-ring suburbs, from primary to secondary metros and from secondary to tertiary metros. This phenomenon results from several factors, including owners putting fewer properties on the market, disagreement between buyers and sellers about prices, the composition of buyers, and the competition for assets.
• Sales recovered in the third quarter after hitting a trough in 2Q20, but like so much about the economy, a return to “normal” transaction activity is hard to predict. Until the pandemic recedes and people can return to daily activities with the help of an effective vaccine, uncertainty will linger.
• Despite worrying economic signals—U.S. unemployment numbers remain high, gateway market occupancy rates and rents have plummeted, and December rent payment data shows more tenants not making payments—multifamily fundamentals have held up better than other commercial property segments and loan delinquencies remain low.
• Capital availability is strong due to lack of better alternatives, optimism about future demand for housing, and the stability afforded by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. Acquisition yields have barely budged despite the pandemic.

Read the full Matrix Bulletin-Multifamily Transactions-December 2020

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SANTA BARBARA, Calif., Dec. 01, 2020 – The COVID-19 pandemic has been inconsistent in the way it has affected the U.S. employment market, creating a wide disparity between metro and job segments. This is the main conclusion of the latest special employment report from Yardi® Matrix. Leisure and hospitality was by far the biggest employment sector loser, with 3.8 million jobs lost. In contrast, only 1.8% of the jobs in financial services have been lost since the start of the pandemic.

However, the overall impact varied greatly depending on the city. Metros with the best job performance include those with relatively small leisure and hospitality industries and those that have lost relatively few jobs in the segment (Indianapolis, for example, lost only 6.5%). One outlier, Austin, has added 8,200 professional and business services jobs and 7,300 financial services jobs since February.

While the size of a metro’s leisure and hospitality segment is a key in the extent of job losses, a more significant factor is how thoroughly the metro shut down to stop the spread of COVID. Few of the top 10 metros in the percentage of jobs lost since February are among the leaders in leisure and hospitality jobs, but all are at or above the average proportion of jobs lost in the segment. New York City, for example, has a relatively small leisure and hospitality segment (9.8% of all jobs), but a whopping 42.3% of those jobs disappeared.

“The data does show hope for the future for the gateway metros that have been hard hit, because the core industries in those metros, such as finance and professional services, remain viable,” states the report. “Once a vaccine is available and people feel safe going back to entertainment venues, restaurants and the like, gateway cities (like New York, San Francisco, Boston and Los Angeles) will have the ability to rebound.” Gain all the insight of the national analysis in this special report from industry data leader Yardi Matrix.

Yardi Matrix offers the industry’s most comprehensive market intelligence tool for investment professionals, equity investors, lenders and property managers who underwrite and manage investments in commercial real estate. Yardi Matrix covers multifamily, student housing, industrial, office and self storage property types. Email matrix@yardi.com, call (480) 663-1149 or visit yardimatrix.com to learn more.

About Yardi

Yardi® develops and supports industry-leading investment and property management software for all types and sizes of real estate companies. Established in 1984, Yardi is based in Santa Barbara, Calif., and serves clients worldwide. For more information on how Yardi is Energized for Tomorrow, visit yardi.com.

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