What I’m Reading
No Vacancy: Apartment vacancies hit another low in September, according to RealPage, declining to 2.7%, with rents hitting all-time highs. Globe Street
A point of interest here is lender underwriting. One thing that has kept the market (sort of) in check is that multifamily properties are typically underwritten at 95% occupancy – the historical average. This means that appraisers, lenders, and typically buyers do not give credit for any occupancy above the 95% level. It is largely thanks to the underwriting standards of the GSEs that dominate the space. But what happens if the GSEs change their underwriting standards due to the fact that the national market has been below 5% for around five years (we have seen appraisers and lenders do this already in some extremely tight industrial markets)? IMO, it would increase values in the short term by allowing for more leverage. However, it would also market risk in the longer term since eventually supply will (probably) catch up in a lot of markets and occupancy should revert to previous levels.
Out of Their Hands: The current inflationary episode that we are experiencing is largely due to supply chain issues that the Federal Reserve cannot impact with policy. Disciplined Systematic Global Macro Views
Bleak Forecast: New reports from both Drewry and MSI indicate that the supply chain crisis underpinning highly elevated freight rates across several trade lanes will likely not normalize before the end of 2022. The Loadstar
In Reverse: The global supply chain is slowing down – making backlogs worse – at the exact moment when consumers are demanding that is speed up substantially. The Atlantic
Business as Usual: The much-predicted eviction wave that so-called experts claimed was coming after the CDC moratorium ended still has yet to actually materialize. AP News
Chart of the Day
Willingness of lenders and appraisers to underwrite vacancy lower than 5%, therefore effectively allowing higher leverage, is something we need to keep a lookout for.
Source: RealPage
WTF
Sweet Tooth: A man who was arrested for stealing gummy bears from a convenience store offered to a $1.5MM bribe to a police officer in a bid to stay out of jail because Florida. Union Times
Sounds Like a Party: Police who were responding to an active fire found a man sitting in his front yard, holding a sword and chugging a handle of Capitan Morgan rum. Once arrested, the man proceeded to break the fire sprinkler in jail, causing a flood because Florida. Click Orlando
Basis Points – A candid look at the economy, real estate, and other things sometimes related.
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