September 30th – Misleading

I’m back!  Spent the last week RV camping on California’s Central Coast.  It was a lot of fun but good to be back in the saddle.

What I’m Reading

Misleading Metrics: The article from my interview with Globe Street’s Erika Morphy about sponsor overreliance on cash on cash returns as a multifamily investment metric was published while I was on a family camping trip last week.  TL;DR: stabilized, un-trended yield on cost is the one thing that sponsors and investors should be laser focused on but you often have to read several pages into an OM to find it – if its even mentioned. Globe Street

Taking the Plunge: Evidence emerging in the commercial mortgage-backed securities (CMBS) market from recent appraisals is raising questions over the value of the collateral backing commercial mortgages throughout the financial system.  New appraisals, triggered by defaults that led to transfer to a special servicer indicate that the value of these distressed properties has decreased by an average of 27%, putting pressure on CMBS portfolio LTV ratios.  It should be noted that there is extremely high concentration of such distress in hospitality and retail properties so far – of the 116 loans covered by the Wells Fargo analysis referenced above, 75 were backed by hotels and 26 were backed by retail properties.  That being said, I expect to see more office assets creeping into this category in the coming quarters.  Financial Times

Compression: Cap rates are falling on high quality logistics assets.  National Real Estate Investor

Pace Yourself: Home builders are holding back starts and restraining sales in an effort to not burn through their lot inventory and not lock into lower sale prices in an appreciating market. Yahoo Finance

Long Road Back: Cushman and Wakefield doesn’t see the office market getting back to pre-COVID levels until 2025.  CNBC See Also: Fifteen million square feet of total office sublease space was added to the market in the US in the first two quarters, accounting for an increase of 21.8%. Globe Street

Stocking Up: Grocers are building up so-called ‘pandemic pallets’ as a hedge against another outbreak.  This is bullish for both the cold storage and warehouse markets as additional space will be required to accommodate increased inventory. Wall Street Journal

Chart of the Day

These charts are a great illustration of why today’s housing market bears little resemblance to that of 2006-2008.

Chart showing US mortgage debt outstanding and homeowner equity in $ trillions

Source: Leonard Keifer

WTF

Reduce, Reuse, Recycle: Police in Vietnam busted a crime ring selling used condoms and confiscated an estimated 345,000 of the prophylactics which had been cleaned and resold as new.  Reuters

Spirit Animals: A group of African gray parrots who were quarantined together at a UK safari park had to be removed after teaching each other to swear and then laughing about it.  (h/t Stacey Straw).  I’ve never related to a group of animals so much in my life. Insider

Basis Points – A candid look at the economy, real estate, and other things sometimes related.

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