Location Strategy Chartbook 070624

The Treasury curve has been steepening in recent days due to resurfacing concerns about the US fiscal outlook.

The ECB is on pause this month but is expected to cut rates again in September and December.

Unemployment holds steady at 4.1%

Offices in the suburbs are outperforming city center offices. Downtown-office valuations have halved from their peak in early 2022, while for suburban offices, the drop is 18%

A nearly 3K-key 🗝️ hotel complex in San Francisco has seen its appraised value fall by more than $1B, per Kroll data cited by the SF Business Times. The complex, anchored by the city’s 2 largest hotels, Hilton San Francisco Union Square and Parc 55, was recently valued at $555M, compared to a $1.56B valuation when the $725M CMBS debt on the property was issued in ‘16. The borrower, REIT Park Hotels & Resorts, had stopped making payments last year.

The loan’s special servicer Wells Fargo has tapped Eastdil to sell the properties – the receiver has until just before Labor Day to find a buyer, or the properties go into nonjudicial foreclosure.

Not an easy task: RevPAR in SF is down more than 37% from ‘19.

Hamilton Point Investments Buys 1,174 Apartment Units Amid Soft Houston Multifamily Market for $195M or about $166,100 per unit

The real estate private equity firm bought 4 buildings all built in 2022 comprising Prose Champion in Houston, Prose Copperfield in Houston, Prose Cypress Creek in Cypress and Prose Franz in Katy.

CoStar data shows Houston-based Alliance Residential Co. was the most recent owner of all four properties.

“The submarkets were heavily overbuilt over the last couple years resulting in increased vacancy rates and decreased effective rents which, combined with interest rate spikes, led to value reductions of over 20%,” Hamilton Point Investments Co-Founder and Managing Principal Matt Sharp said in a statement. “We’re buying new construction today in Houston for around $165,000 per unit that just two years ago was priced at $210,000 per unit and would cost maybe $190,000 per unit to build today.”

Terms on about 10.5% of outstanding loans in private label CMBS have been modified, according to a JPMorgan report. That’s higher than the peak modification rate after the financial crisis.

“As of May, 24% of homeowners with mortgages now have a current interest rate of 5% or higher,” Andy Walden, vice president of ICE Research and Analysis, said in a statement. “As recently as two years ago an astonishing nine of every 10 mortgage holders were below that threshold.”

The active mortgage market is gradually shifting as people age out of their homes, retire or experience a life-changing event that compels the sale of a home with an older, lower-rate loan

Higher income earners with an annual salary of $100K or more were more likely to leverage an ARM product and most common among homebuyers under 35, indicating recent lending either just before, during, or post COVID.

14% of homeowners have adjustable mortgages, and 54% of ARM holders say they will experience an increase within the next 12 months.

10% would miss payments or default at the reset

23% will see a payment increase of over $500 a month