But California also has a number of challenges, and housing is arguably the most pressing. About 1.3 million renter households in the state, or 22%, are classified as extremely low income, according to the National Low Income Housing Coalition. And the state has a shortage of nearly 1 million homes that are affordable and available for these people, defined as those who earn less than 50% of the area median income.

A report this past December in The Wall Street Journal delved into the regulatory maze that has stalled many affordable housing projects in California and made them more expensive to complete. In San Jose, the cost to build a single unit of low-income housing in 2022 was $983,700, up 24% from the previous year.

San Francisco granted less than half as many housing permits last year as New Braunfels, Texas, which has one-eighth the population of the City by the Bay. And in one extreme example of a project that has been delayed by political battles and financing hurdles, a 49-unit apartment building in Los Angeles is reportedly set to open later this year after the nonprofit developer acquired the land in 2007.

Gov. Gavin Newsom recently signed several pieces of legislation that are expected to benefit developers of mixed-income multifamily projects. One of these bills is designed to streamline the approval process for qualified housing developments in jurisdictions that don’t create enough new supply by removing the need for an environmental study.

California has an estimated $68 billion budget shortfall across its current three-year fiscal forecast that’s tied in part to weaker-than-expected personal income tax revenues. The 25% decline in tax collections during the 2022-2023 fiscal year was “similar to those seen during the Great Recession and dot-com bust,” state legislative analysts wrote.

Still, California’s gross domestic product grew at an annualized rate of 2.9% in third-quarter 2023, close to the U.S. average of 3.5%. As of this past August, California’s nonfarm payroll employment exceeded its pre-pandemic level by 447,600 jobs. Employment gains in sectors like logistics, technology, construction and health care have surpassed job losses in other industries.

Silicon Valley is a hotspot for data center investments. CBRE reported that all of the new data center supply delivered in Silicon Valley during the first six months of last year was preleased. With an inventory of 410.7 megawatts at midyear 2023, Silicon Valley was the nation’s third-largest market for data centers, trailing only Northern Virginia and Dallas-Fort Worth.

The Golden State’s largest office markets continue to struggle. Newmark reported that San Francisco had a vacancy rate of 27.3% and asking rents reached a six-year low point in third-quarter 2023. In Los Angeles, office-using employment dropped by 3% during the first eight months of last year and 44% of all office buildings had vacancy rates of more than 20%. ●

Nowhere has the cooldown in U.S. industrial real estate been more apparent than in California’s Inland Empire, centered around the cities of Riverside and San Bernardino. A midyear 2023 report from Colliers showed that the metro area, which is the country’s largest industrial market, posted negative quarterly net absorption for the first time in more than 13 years.

Third-quarter 2023 data from Cushman & Wakefield showed a negative absorption figure of 1.8 million square feet (msf) from July through September. But absorption during the first nine months of the year remained positive at 1.2 msf. Asking rents in the Inland Empire at the end of Q3 2023 stood at $17.96 per square foot, down from a peak of $18.85 in Q4 2022 but still well above the national average of $9.73 for industrial space.

Cushman & Wakefield also reported five industrial sales valued at more than $25 million in the area during the third quarter. The priciest deal during that time was BentallGreenOak’s $144 million purchase of nine buildings totaling 458,000 square feet in the Chino submarket.

What the Locals Say

The resort markets along the coast — including the Coachella Valley, Palm Springs and Palm Desert — have done phenomenally well. They’ve far surpassed what they were doing in 2019 and have enjoyed record top-line revenues and record net profits. We’re now seeing those markets start to taper off.

On the other end of the spectrum are the downtown hotel markets that are heavily reliant on commercial business, and that’s gone in the opposite direction as people have continued to work from home. You have fewer employees in the downtown market, so that’s definitely impacted guest stays, as well as food and beverage, at those hotels.

We publish a biannual survey, and through the first six months of 2023, individual hotel sales transactions in California were down 53% from where they were in 2022. That is a record decline. We’ve been tracking sales for over 20 years and it’s even surpassed what we saw in the first six months of 2009. And that’s just tied to a huge disconnect between the buyer and seller expectations.

Hotels have not yet seen value declines of 70% to 80% like those seen in office space. But a classic example would be two of the largest hotels in downtown San Francisco. They’re both Hilton products, and in 2016, those hotels appraised for $1.6 billion. The publicly traded REIT that owns them has given the keys back to the lender. The debt is $725 million.

3 Cities to Watch

Irvine

This Orange County city has added a whopping 100,000 residents since 2010 to reach a current population of 314,000. Irvine serves as the home base for fintech firms like Acorns and Cloudvirga, as well as a number of startups in the software, digital media and real estate sectors. Three Nobel Prize-winning researchers hail from the University of California at Irvine, which has a highly diverse group of students and faculty.

Oakland

After losing its pro football and basketball teams in recent years, Oakland received another economic blow this past November when the Athletics baseball team announced its pending relocation to Las Vegas. Affordable housing is a key issue in the East Bay hub. Brooklyn Basin, a major redevelopment project that would build 3,700 new homes on the site of a former shipping dock, is still many years away from completion.

Sacramento

From agriculture and health care to education and clean energy, the California state capital has a diverse economy that produces more than $160 billion per year in goods and services. Colliers reported that the $773 million in commercial real estate sales across the metro area in first-half 2023 was down 63% year over year. Industrial and multifamily deals accounted for a respective 39% and 24% of this six-month sales volume.

Sources: Allen Matkins, Built in LA, CalMatters, CBRE, Colliers, Cushman & Wakefield, Executech, Forbes Advisor, KQED, National Low Income Housing Coalition, Newmark, SFist, The New York Times, The Wall Street Journal, UCLA Anderson School of Management, University of California at Irvine, Visit California, Wisevoter

The post Spotlight: California appeared first on Scotsman Guide.

First American Financial Corp. reported that U.S. home prices peaked for a seventh straight month in October 2023. Annualized price growth at that time increased to 7% after bottoming out in the first half of the year. Meanwhile, Attom reported that nearly half of residential properties with mortgages in third-quarter 2023 were considered “equity rich,” meaning the amount of debt secured by these homes didn’t exceed 50% of their estimated market values.

At a time when home purchase business remains tepid, originators who once overlooked home equity lending products might want to reconsider them. Many lenders have already jumped on the bandwagon: According to data from the Mortgage Bankers Association (MBA), home equity loan and home equity line of credit (HELOC) originations jumped by 50% from 2020 to 2022.

“We see a lot of potential in this space, especially if there are more outlets in the secondary market.”

Marina Walsh, vice president of industry analysis, Mortgage Bankers Association

Across the 20 companies that participated in the MBA’s study, the average origination volume of these loans grew by nearly $1.2 billion during the two-year period. At the end of 2022, homeowners had roughly $31 trillion in total equity, triple the levels seen in the years immediately following the Great Recession.

“We see a lot of potential in this space, especially if there are more outlets in the secondary market,” says Marina Walsh, the MBA’s vice president of industry analysis. Walsh notes that banks are concerned about any loans they’ll hold on their books — particularly after the recent failures of a few institutions — but she also says that alternative lenders are emerging in the home equity channel.

These lenders tend to be fintechs that offer speed and convenience for online applicants, making their home equity loans more competitive against personal loans and credit cards. But they’re also excelling at strong underwriting standards and borrower analytics, Walsh says.

“Unsecured lending is just an easier process for borrowers,” she says. “Some borrowers are still remembering the overleveraging from the Great Recession. A lot of education is needed to show that (an equity-based loan) makes financial sense.”

There are several reasons why these products haven’t been more popular in previous market cycles, says Anthony Stratis, senior director of lending partnerships at Figure, a nonbank HELOC lender. These include a lack of compensation for the mortgage company and originator, few options for selling the loans on the secondary market and long funding times (MBA data pegged the average closing period for a HELOC in 2022 at 41 days).

Yet another potential hurdle, Walsh notes, is the personnel tasked with managing these types of financing requests. Consumer lending divisions, rather than mortgage divisions, were responsible for the bulk of home equity loan and HELOC originations among the lenders surveyed by the MBA.

“I hear more about trying to consolidate consumer products, technology-wise, into one loan origination system, so you have more of the prominent lenders providing a home equity loan add-on,” Walsh says.

Stratis believes that the overarching movement in consumer financial services toward online speed and convenience presents an opportunity to educate both consumers and originators. The modern home equity lending process is increasingly likely to resemble that of a personal loan.

“The credit unions and banks, I think they’re very good at being able to offer these products,” Stratis says. “But the process by which they do it is traditional in the sense that you’ve got manual underwrites that take place and a lot of paperwork going back and forth. … I think that’s a big barrier to a typical consumer, and not one that they necessarily want to go through for a $40,000 or $50,000 loan.” ●

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Reuters reported that construction starts for residential and commercial properties in Germany during the first half of 2023 plummeted by 47% compared to the previous two-year average. The nation’s largest real estate investor, Vonovia, lost $2.2 billion in second-quarter 2023. And German commercial real estate transaction volume in H1 2023 finished at one-third the level of its five-year average, Bloomberg reported.

All of this goes to show that German investors are being quite cautious these days about where they place their money. A normally reliable source of capital into U.S. commercial real estate, Germany recently posted one of the largest pullbacks in a global investment market that’s full of them.

Germany was the No. 3 source of foreign capital into U.S. commercial properties in 2021 and No. 5 in 2022, according to MSCI Real Assets. For the year ending in Q2 2023, however, it dropped to No. 9. During these 12 months, German investors purchased only 14 assets on U.S. soil and their aggregate volume of $696 million was down 91% year over year.

Still, there have been a handful of noteworthy acquisitions by German investors of late. The largest of these was announced in October 2022 when Frankfurt-based Union Investment and a Seattle-based partner bought an office complex in Sunnyvale, California, for $222 million. The property features a new four-story office building that boasts LinkedIn as its main tenant.

Class A multifamily properties remain highly prized targets for overseas investors, and the BVT Group (headquartered in Munich and Atlanta) got its hands on a sprawling apartment community that’s being built in Charleston, South Carolina. The project, which is expected to be finished in the latter half of 2024, will include 336 luxury units. The deal was valued at $96.4 million, MSCI reported. BVT’s U.S. division now owns 30 multifamily assets totaling 9,200 units.

German investors closed three other deals valued at $75 million or more during the year ending this past June, MSCI reported. Hamburg-based ParkProperty Capital shelled out $91 million in July 2022 to acquire a posh multifamily community in Atlanta. The property is within walking distance of many high-paying jobs at Piedmont Hospital.

In January 2023, Munich RE (a multinational insurance group) bought a similarly pedestrian-friendly mixed-use building in downtown Durham, North Carolina. The property is a repurposed tobacco factory and warehouse that now includes 247 apartments and 20,000 square feet of retail space. The price tag was $89 million, according to MSCI. And Munich RE teamed with CBRE Investment Management this past May to nab another Class A multifamily property in Dallas for $77 million.

Although German players have stayed on the sidelines of late, it’s a reasonable bet that they’ll return to action once market conditions improve. Notably, Commerz Real (the real estate wing of Commerzbank AG, Germany’s third-largest bank) recently opened offices in New York City and Washington, D.C. The company has had an on-and-off relationship in the U.S. dating back two decades, and according to one of its fund managers, it has an expressed interest in America’s gateway cities. ●

The post International Investments: Germany appeared first on Scotsman Guide.

North Carolina (8.5%), Virginia (7.2%) and Maryland (6.5%) each eclipsed the national average of 6.1% growth during the year. West Virginia was the lone outlier in the region as its population shrank by 3.3%. It joined Illinois and Mississippi as the only states to experience a net loss last year.

The Atlantic Region also encompasses Washington, D.C. After bottoming out at the turn of the century with a population of 572,000, the nation’s capital saw a significant boom over the next 20 years. Even after a slight decline since the onset of the COVID-19 pandemic, the District of Columbia still has 672,000 residents.

North Carolina has the region’s largest economy at $716 billion, ranking No. 11 among all states. The Tar Heel State is known for legacy industries such as textiles, tobacco and furniture making, but it’s also on the cutting edge of 21st century advances in aerospace, biotechnology and financial services.

Virginia has the nation’s 13th-largest economy at $663 billion. The Old Dominion features a diverse array of business sectors from defense and data storage to food processing and logistics. A number of key projects are underway in Virginia, including a $9.8 billion wind farm off the Atlantic coast that’s set to power 650,000 homes and businesses; a multistory Amazon warehouse that will supply 1,000 jobs in Virginia Beach; and an $87 million infusion by Wells Fargo into its existing Roanoke customer service center.

With nearly 650 residents per square mile, Maryland ranks No. 5 among all states for highest population density and has a robust economy that is the nation’s 17th largest ($480 billion). The Old Line State has some 12,500 farms and a plethora of well-known food makers and distributors such as McCormick and Co., Perdue Farms, Pompeian Inc. and Domino Sugar.

In South Carolina, population centers like Columbia, Charleston and Greenville power an economy valued at $298 billion. Due in large part to its favorable tax incentives, the Palmetto State is becoming a hub for the burgeoning electric vehicle (EV) manufacturing industry. Within the past year, EV companies have struck four major deals totaling more than $6 billion to build plants across the state.

West Virginia’s $97 billion economy ranks in the bottom quartile of all states. The aforementioned population loss isn’t helping the Mountain State’s fiscal health, but there are bright spots. A five-year forecast released last year by West Virginia University economists called for slow but steady job growth through 2027. Several key developments are underway, including the expansion of a Toyota production plant, GreenPower Motor Co.’s new factory to build clean-energy school buses, and Berkshire Hathaway’s renewable- energy microgrid that will power a 2,000-acre industrial park. ●

Zillow data shows steady and sustainable home price growth across the Atlantic Region over the past year. As of September 2023, annualized price growth was in the 2% to 3% range for most of these states, with Virginia leading the way at 4%.

The opposite trend occurred in Washington, D.C., where prices dropped 2.9% year over year. After peaking at $650,617 in June 2022, the typical home value in the nation’s capital stood at $614,146 this past September (a 5.6% decline).

According to real estate brokerage McEnearney Associates, the 5,200 sales in D.C. through the first nine months of this year were down 23% compared to the same period in 2022. Notably, however, sellers were more willing to offer concessions as the average subsidy reached $3,031, up from $2,026 during the first nine months of last year.

Personal finance website WalletHub recently ranked the North Carolina cities of Cary, Durham, Raleigh and Charlotte among the nation’s 30 best real estate markets. The analysis was based on metrics like affordability, price forecasts, the percentage of homes built since 2010, and the shares of mortgages that are delinquent or seriously underwater.

What the Locals Say

I would say that South Carolina is affordable. It’s expensive no matter where you are with inflation and things like that, but real estate taxes here are significantly less for residents. For nonresidents, it’s a different tax rate. It’s about encouraging people to make this your primary place of residence, not just using it as a vacation destination. South Carolina is also one of the most flexible states if you have a service-connected disability. If you’re a veteran with a 100% disability rating, you pay zero real estate taxes.

With mortgage rates nearing 8%, you could get sucked up into negativity quickly, like quicksand, and never get out of it. My team, we just don’t get too caught up in a lot of the noise and the negativity. We understand it. We’re watching it to be knowledgeable of the market, but we’re not feeding into it. There’s a difference. We’re not letting that control our day and our next move. I think there’s a lot of lenders that need to hear that message: Just focus on what matters and reconnect with the client for what they need.

The overall prices to build homes and get the finished product have gone up, but we’re seeing more homes that are catered to support the starter family. We’re seeing a lot of mid- to upper-level new homes but not what we would consider luxury-class or very high-end homes. These are homes for families. These are everyday, hardworking families that need a home. It’s important enough for the family to make that a priority over something else that might not be as important.

3 Cities to Watch

Charlotte

The Queen City added more than 15,000 new residents during the year ending in June 2022, census figures show, good for the fifth- largest numerical increase among U.S. cities. This growth also made Charlotte the 15th- largest city in the country with a population of nearly 900,000. With a presence in the NFL, NBA, Major League Soccer, NASCAR and the PGA Tour, Charlotte rates as the third-best city for sports business behind only Dallas and New York, according to the Sports Business Journal.

Virginia Beach

Virginia’s largest city (455,000 residents) anchors the Hampton Roads metro area and its population of 1.8 million. The area has relatively affordable housing, with a median value of $318,300 for owner-occupied units, roughly on par with the national average. Virginia Beach is a magnet for tourism: Visitor spending topped $2 billion for the first time in 2021, surpassing pre-pandemic levels by 8%. Tourism supports 31,000 jobs and generates $295 million per year in tax revenue for the city.

Wheeling

As the heart of West Virginia’s Northern Panhandle, Wheeling has a metro-area population of 136,000. It benefits from a strategic location along Interstate 70 between Pittsburgh and Columbus, Ohio. Major employers include WVU Medicine, WesBanco and professional services firm Williams Lea. Hundreds of millions of dollars are being infused into public and private projects in the city’s central core, including a $17 million rehab of a historic suspension bridge and $32 million in streetscape improvements.

Sources: City of Virginia Beach, Manufacturing Dive, McEnearney Associates, North Carolina Department of Commerce, Reuters, Sports Business Journal, U.S. Bureau of Economic Analysis, Virginia Economic Development Partnership, WalletHub, West Virginia University, Wheeling News-Register, Wisevoter, WorkForce West Virginia, World Population Review, Zillow

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The Dallas-Fort Worth metroplex led all U.S. markets at that time with nearly 73,000 apartment starts, equating to inventory growth of 8% in the North Texas hub. Apartment supply in San Antonio was also on pace to grow by 8%, although the number of units under construction there totaled only 17,000. In Austin, meanwhile, rental stock was set to soar by 15% as developers had broken ground on more than 45,000 units.

IPA forecast a “sharp decline in future delivery volumes beginning in 2025,” but analysts also noted that a recent cooldown in rent growth for these metros is likely to be temporary. Investors seeking opportunities in the Texas multifamily sector could be attracted by an anticipated rise in rent growth in 2024, while appreciation “above the long-term norm seems likely to return in early 2025.”

The Lone Star State’s economy is outperforming the nation as a whole. Data from the U.S. Bureau of Economic Analysis showed annualized gross domestic product growth of 3% for Texas in first-quarter 2023, compared with 2% national growth. Meanwhile, the Federal Reserve Bank of Dallas reported that the seasonally adjusted annual rate of job growth in Texas (3.2%) exceeded the U.S. average (2.2%) during the first six months of this year. Employment growth in the energy, information, construction and financial services sectors were especially strong for Texas compared to the rest of the nation.

Dallas Fed analysts also reported that the major office markets in Texas are continuing to expand. In terms of square footage under construction, Texas had three of the top 20 markets in the country as of June 2023: Austin (No. 5), Dallas (No. 8) and Houston (No. 14). Additionally, Austin ranked first among all U.S. office markets for new construction as a percentage of existing stock (6.2 million square feet, or 6.9% of current stock in June).

Although much of the growth in Texas is centered on the aforementioned metros, other portions of the Lone Star State are thriving too. In the Permian Basin region of West Texas, for instance, the populations in and around the cities of Midland and Odessa are expected to triple from 2010 to 2050. The regional economy is heavily dependent on oil and natural gas extraction, and these industries currently appear to be embracing steady growth rather than chasing the high production volumes that sparked previous boom-and-bust cycles.

Further to the west, El Paso and the surrounding Borderplex region are home to 2.5 million people, including a large bilingual workforce. The metro area accounts for 17% of all trade activity between the U.S. and Mexico, and it’s the fifth-largest manufacturing hub in North America with some 320,000 workers. ●

During the two-year period ending in June 2023, asking rents for industrial properties in the San Antonio metro area grew by 25% to reach $8.15 per square foot, Cushman & Wakefield reported. Vacancy rates, meanwhile, fluctuated quite a bit during the same time frame and nearly doubled after bottoming out at 3.9% in third-quarter 2022.

This past September, private equity firm Harbor Capital acquired a vacant distribution and manufacturing center in the southwest suburb of Von Ormy. The Class A facility encompasses 198,000 square feet and sits in close proximity to two interstate highways. And the metro area’s largest industrial sale of Q2 2023 involved a two-building portfolio totaling 648,000 square feet in northeast San Antonio.

In May 2023, the Koontz Corp. announced plans to develop a 188-acre “industrial megasite” on the city’s southwest side. The project is expected to take at least six years to be finished and involves “the largest developable infill site left in San Antonio that is receptive to industrial and manufacturing,” according to a sales and leasing partner. Last year, NorthPoint Development broke ground on a $230 million industrial park in the eastern suburb of China Grove, with the first phase reportedly set to be delivered in Q3 2023.

What the Locals Say

Austin definitely has a high profile. It’s one of those markets that continually performs. There are some issues with overbuilding, but we’re mostly on track and things are as vibrant as they’ve ever been. We’ve definitely noticed increased activity from institutional investors.

The demand for rental housing is still very strong. In terms of the banks, lenders have pulled back a little bit, but we have so many debt funds that have come out with construction money. I’m working on two multifamily construction loans right now. The biggest thing I tell borrowers is, “Let’s go to your existing banks where you have deposits and use that as value.” A lot of people don’t put as much value onto existing relationships at banks these days.

I don’t think Texas is any different than the rest of the nation in terms of what’s happening with refinancing maturing debt. We don’t have so much of a problem with the maturing notes that are on long-term fixed debt. It’s the short-term maturities — somebody who did a two- or three-year loan a couple years ago. They bought a rate cap and now they’re having to fund that again. They never thought the rates would go to 8.5% and they’re just having a little bit of sticker shock.

Sometimes they do have to come to the table with money, or we can structure some kind of creative debt stack. We’ll say, “Here’s your first lien, and we can put some preferred equity on top so we can get you out of your maturing debt and you don’t have to write a check at closing.”

3 Cities to Watch

Austin

The Texas capital continues to grow at a remarkable rate. According to 2022 census figures, Austin became the 10th-largest U.S. city with 975,000 residents and was the nation’s fastest-growing large metro area for a 12th straight year. Business Facilities recently ranked Austin as the No. 2 best business climate among large metros, an accolade propelled by the city’s life sciences and technology sectors. The office vacancy rate jumped to 25% in Q2 2023, Cushman & Wakefield reported.

Corpus Christi

This Gulf Coast city (population 317,000) is the eighth largest in Texas. Corpus Christi is the largest U.S. port for crude-oil and liquefied natural gas exports, and area community colleges are partnering with the energy sector to meet demand for skilled workers. The local naval air station directly employs 8,400 people and generates $3.3 billion per year in economic output. The USS Lexington (aka “The Blue Ghost”), a retired aircraft carrier turned museum, has resided in the city since 1992.

Lubbock

The home of Texas Tech University, Lubbock has grown by 15% since 2010 to include 263,000 residents. Along with education, the local economy is powered by agribusiness, food processing, health care and IT firms. Hundreds of millions of dollars have been invested in downtown Lubbock in recent years, including the repurposing of a former bank building to house municipal services. A private developer is building a Class A student housing complex with 730 beds that is slated to open in 2025.

Sources: Business Facilities, City of Austin, City of El Paso, Commercial Property Executive, Connect CRE, Cushman & Wakefield, Federal Reserve Bank of Dallas, Institutional Property Advisors, Lubbock Economic Development Alliance, NPR, San Antonio Express-News, Texas Comptroller of Public Accounts, Texas Demographic Center, Texas Economic Development Corp., Texas Tech University, USS Lexington Museum, World Population Review

The post Commercial Spotlight: Texas appeared first on Scotsman Guide.

Still, finding ways to shorten the lending process is a worthwhile endeavor that benefits the borrower, broker and lender. One of these paths is through greater understanding and adoption of blockchain technology, an advanced digital database that can be shared by all stakeholders in a real estate transaction. When Fannie Mae polled hundreds of senior mortgage executives in late 2021, it found that only 25% of respondents were at least “somewhat familiar” with blockchain and 68% had yet to consider using it in their organization.

“Technology is only as good as your ability to fully implement it and embrace it.”

– Devin Caster, principal of product solutions, CoreLogic

“Many mortgage operating models still grapple with elevated costs and long cycle times,” according to a December 2021 report from McKinsey & Co. The consulting firm estimated that the typical processor and underwriter close 10 to 14 loans per month, numbers low enough that the average time for an individual loan to make it from application to close remained at more than 45 days.

These slow-moving processes are costing lenders in multiple ways. Production expenses soared to a record high of $13,171 per loan in first-quarter 2023, according to the Mortgage Bankers Association (MBA). Even after receding to $11,044 per loan by midyear, this figure was still well above the long-term average of $7,236. The McKinsey report, meanwhile, revealed that customer satisfaction scores across the mortgage industry are up to 40% lower compared to “best-in class industries” and up to 30% lower when comparing banks to fintech-enabled lenders.

The Mortgage Industry Standards Maintenance Organization (MISMO), an MBA subsidiary, released a white paper this past June that discusses the potential uses and benefits of blockchain technology. Along with increasing transparency and trust in loan servicing and securitization efforts, the group outlined ways to make the origination process more efficient.

MISMO estimates that blockchain’s ability to serve as a “single source of truth” could reduce closing times by at least 30% and cut costs by at least 25%. The technology is designed to reduce the time spent validating information in a loan origination system, since data such as credit scores, collateral values and underwriting requirements reside on a secure and immutable chain.

Devin Caster, a former underwriter who now serves as principal of product solutions at CoreLogic, says that he used to be able to churn through 10 to 12 loan files each day. These numbers began to decline after the passage of the Dodd-Frank Act in 2010 and were further hampered after integrated disclosure rules were enacted in 2015. But Caster, a co-chair of MISMO’s blockchain community of practice, thinks that loan processing timelines should be faster despite today’s regulatory hurdles.

“To me, human nature should dictate that somewhere along the line, you keep repeating patterns over and over again, you start getting better and faster at them,” he says. “And it’s just not happening in that particular space.”

Shawn Jobe, vice president and head of business development at Informative Research, also co-chairs the MISMO blockchain community. The group’s current “exploration phase,” he says, is designed to identify ways for blockchain to solve real-world mortgage banking challenges. MISMO plans to eventually leverage its own work products (including a data standard, a business process model and advanced programming interface tools) to study connections between various blockchain systems.

“We are still an industry that is heavily dependent on that philosophy of, ‘You’ve got to check the checkers,’” Jobe says. “The technologies and the capabilities that come within blockchain directly meet that need.”

Caster believes that efforts to integrate blockchain, like other types of technology, are likely to be bumpy and slow-moving. He says that tools such as digital asset verification, employment verification and income calculators have faced opposition from originators and underwriters.

“If they don’t trust it, they’re not going to rely on it,” Caster says. “With blockchain, if you’re able to bring in a lot of smart-contract type of automation, but they’re unable to change the processes and put trust in the processes, then they’re not going to gain the efficiencies. Technology is only as good as your ability to fully implement it and embrace it.”

Although blockchain has yet to earn widespread adoption in the industry, there are some prime examples of successful integrations. Figure Technologies has utilized blockchain to originate more than $6 billion in home equity lines of credit and recently began partnering with four major independent mortgage banks on proprietary HELOC products with a 100% digital application process. Last year, Redwood Trust subsidiary CoreVest securitized $313 million in single-family rental loans, with blockchain provider Liquid Mortgage providing the ability to track daily loan-level payment activity.

Jobe cautions that the technology has limitations. For example, he’s unaware of anyone using it to directly reduce the time to close, although that’s likely to change eventually. And blockchain can’t force consumers to engage, which can negatively impact closing times even if a mortgage company is 100% digital. “There’s just a multitude of factors that are going to potentially influence that,” Jobe says. “Blockchain is not a magic wand. It’s not the silver bullet. It’s going to help with very specific pieces.” ●

The post Blockchain technology merits further exploration appeared first on Scotsman Guide.

Singaporean investors are important players in the global economy. With a total outlay of more than $1.75 trillion, the nation has the world’s sixth-largest state-owned investment system (which includes central banks, sovereign wealth funds and public pension funds).

Worries about a global recession, however, appear to be prompting a recent pullback in certain sectors. For instance, among the top 25 countries for capital placed into U.S. commercial real estate, Singapore had the largest drop-off in dollar volume from 2021 to 2022. Singaporean investors purchased 80 properties last year for a total volume of nearly $1.8 billion, but that was 89% below the level they posted a year earlier, according to MSCI Real Assets.

The attrition can be tied in large part to the disappearance of Mapletree Investments, which holds some $77 billion in global real estate assets. Mapletree and one of its subsidiaries placed more than $5 billion into U.S. properties in 2021, but neither entity was listed on MSCI’s 2022 ranking of the top cross-border buyers.

The bulk of recent business from Singapore to America has been done by GIC, a global investor with diversified stakes in bonds, equities and real estate. GIC was the fourth-largest cross-border buyer of U.S. properties last year, MSCI reported.

In August 2022, GIC partnered with Florida-based Workspace Property Trust to acquire a majority stake in 53 suburban office buildings — many of them in the Atlanta, Dallas and San Francisco metro areas. The deal was valued at $1.1 billion. The Wall Street Journal reported that “Workforce and GIC are betting that demand will rise for higher-end, modern suburban offices in good locations as more companies seek out areas closer to where their employees live.”

GIC made headlines again in February 2023 when it joined with Oak Street in a $15 billion purchase of STORE Capital Corp., an Arizona-based real estate investment trust that specializes in single-tenant net-lease properties. The REIT reportedly owns about 3,000 assets across the U.S. and might be best known for its relationship with Warren Buffett, who purchased 10% of its stock in 2017. This past June, GIC continued its spree in the REIT space with an $868 million joint-venture acquisition of Indus Realty Trust. GIC and Centerbridge Partners took control of 44 industrial buildings in East Coast states.

A newly emerging participant from Singapore is GLP Capital Partners, which has some $125 billion in global assets under management. Earlier this year, it announced two separate acquisitions of Class A industrial properties in California’s Inland Empire. Late last year, GLP also finalized a $1.5 billion value-add opportunity fund for self-storage facilities. The fund’s largest transaction to date occurred in August 2022 when it nabbed 11 properties in California, Oregon and Texas.

Another Singaporean funding source, CapitaLand, owns 79 U.S. properties in markets such as Chicago, Kansas City and Raleigh. Its industrial REIT affiliate announced a $40 million deal last year to convert a San Diego office property into life-sciences space for Crinetics Pharmaceuticals. ●

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The surge has continued in more recent times. For the year ending in July 2022, Idaho was the second fastest-growing state behind Florida. The Gem State added nearly 35,000 new residents for 1.8% growth during these 12 months. Montana gained 16,000 new residents, good for 1.5% growth and the sixth-fastest rate in the nation.

The birth rates in the Mountain Region states are mostly in line with the rest of the country, meaning that above-average population growth is closely tied to an influx of residents from other states. In 2022, relocation services website MoveBuddha found that Montana ranked No. 4 among all states with 2.04 new residents for each one that moved out. Wyoming was No. 10 with a ratio of 1.58, while Colorado and Idaho had positive ratios of 1.34 and 1.32, respectively. Each of these states has had positive in-migration since 2020.

Missoula, Montana, ranked No. 10 among the fastest-growing cities in the analysis with an in-to-out ratio of 2.35. And among cities with at least 1,000 search queries, Colorado Springs and Denver each ranked in the top 10 with in-to-out ratios of nearly 1.5.

Denver, the most populous city in the Mountain Region, had one of the hottest housing markets in the U.S. during the post-pandemic surge. Recent gains have largely negated a significant cooldown as the median single-family home price of $660,000 in May 2023 was down only 1.2% year over year, The Denver Post reported.

A report this past May from listing service RealtyHop found that Denver ranked No. 22 among the nation’s 100 largest cities for the highest per-square-foot price of a home. Based on a median U.S. home price of $375,000, buyers in Denver get 1,067 square feet of space and pay about $368 per square foot. In contrast, buyers in cities such as San Francisco, New York and Boston get less than 550 square feet at the national median price point.

U.S. gross domestic product (GDP) rose by 2% during the year ending in March 2023. Montana’s GDP growth was a robust 6%, tied with Kansas for the fourth-largest jump among all states. Idaho finished the year with GDP growth of 3.8%, followed by Wyoming (2.5%) and Colorado (1.9%).

Colorado and Montana are among the 23 states that have legalized cannabis for recreational use. Colorado was the first state with legal recreational sales and generated some $305 million in sales tax revenues last year, fifth among all states. Montana brought in nearly $42 million in cannabis taxes in 2022, its first year with a legal retail market. ●

The influx of new residents into the Mountain Region states during the early stages of the COVID-19 pandemic led to a mammoth surge in home prices. During the two-year period ending in June 2022, Zillow reported that typical home prices rose anywhere from 23% in Wyoming to 55% in Idaho.

Appreciation has returned to earth in the past year. Colorado’s typical home price dropped by 4% year over year in June 2023 while Idaho’s was down 8%, Zillow reported. Price growth cooled but remained in positive territory in Wyoming (up 5.2%) and Montana (up 1.1%) during the same time frame. According to Windermere Real Estate, the number of homes sold in the major markets across this region plummeted by double-digit percentages between the first quarters of 2022 and 2023. In Montana, the annualized decline reached nearly 30% and topped 60% in two counties. Transactions in Colorado and Idaho dropped by 23.9% and 19.5%, respectively.

Real estate marketplace Point2 found that 32 states issued fewer new home permits from 2021 to 2022. Colorado and Montana ranked near the bottom of this list with year-over-year declines of 13.3% and 12.5%, respectively. Conversely, Wyoming posted the fifth-highest growth rate among all states as it increased the number of permits by 12%.

What the Locals Say

Get this: In 2021, there were 745 homes sold in Gallatin County, Montana. The average sales price was $798,000. This year, we’re tracking about 550 to 580 homes that are going to be sold. The average sales price has moved up to $907,000. So, is the market down? Yeah, it’s down a little bit, but it isn’t as bad as what people think. People are still moving here from California. There are so many remote workers.

The second home and investment property transactions have really slowed down. People with money are holding onto it and not making those big purchases, and if they are, they’re paying in cash. They’re not willing to pay a 7% rate for a second home. And unless you’re putting 50% to 60% down, investment properties don’t cash flow.

Land is super expensive here. There are very few subdivisions being developed, and even when they start preliminary plats, it sometimes takes one to two years to get it passed. You couple that with trying to build a spec home, and taking out a loan at 9% or 10% to build it just doesn’t pencil out.

We have a lot of high-tech firms coming in. The CEO and CFO of Snowflake live in Bozeman. We have Oracle, Next Frontier Capital, Foundant Technologies, Workiva, Schedulicity. A lot of these big executives, they wanted to get the heck out of the city. It seems like every other application I take, people just keep their jobs as remote workers and they move their families here. It’s a safe place to live.

3 Cities to Watch

Boise

The Idaho capital might not be booming anymore, but it now has more than 800,000 metro-area residents. A report released this past February by the Brookings Institution found that Boise was one of the most resilient metros in the nation for “inclusive growth,” which was determined by data such as economic output, average wages, relative poverty rates and racial employment gaps. Across the 192 metros in the study, Boise ranked No. 2 prior to the pandemic and No. 7 in the post-pandemic period.

Fort Collins

Located along Interstate 25 between Denver and Cheyenne, this northern Colorado city has a population of about 170,000. Its historic Old Town district inspired the design of Disneyland’s Main Street USA. Fort Collins has a popular bike-share program and more than 280 miles of trails. It also has more than 20 breweries and produces 70% of the state’s craft beer. The main campus of Colorado State University generates more than $36 million per year in local tax revenues and supports 17,300 jobs.

Jackson

This western Wyoming town of 10,000 people is an outdoors haven that sits on the edge of Grand Teton and Yellowstone national parks. Since 1981, the annual Jackson Hole Economic Symposium has hosted global banking leaders, policymakers and academics. Only 3% of the land in Teton County is privately owned, which has placed heavy pressure on the real estate market. Last year, the average sales price for a single-family home topped $5 million and only two homes sold for less than $1 million.

Sources: BoiseDev, Brookings Institution, CNBC, Colorado State University, Engel & Volkers, Insider, Investopedia, Live Water Properties, Marijuana Moment, MoveBuddha, Point2, RealtyHop, Reuters, The Denver Post, U.S. Bureau of Economic Analysis, Visit Fort Collins, Windermere Real Estate, Wisevoter, Zillow

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This trend accelerated after the arrival of the COVID-19 pandemic as the Sunshine State had relatively few public health restrictions. Labor statistics show that Miami, Fort Lauderdale, West Palm Beach and their suburbs added nearly 32,000 jobs in professional, business and financial services from 2021 to 2022.

The formerly sleepy city of West Palm Beach has added 20,000 new residents since 2010. It’s been transformed by the presence of New York City restaurateurs who offer haute cuisine, premier health care providers that have popped up to serve an affluent population, and luxury apartments that are being sold for up to $25 million.

Florida is home to many thriving industries. Anchored by the Kennedy Space Center, the Cape Canaveral Space Force Station, 130 public airports and 20 commercial airports, the aviation and aerospace sector pays out more than $10 billion in wages per year for 118,000 employees across the state.

IBM built the first personal computer in Boca Raton and the state’s IT sector now employs 311,000 people. Florida’s life sciences industry spans more than 1,400 companies, including household names such as Johnson & Johnson, Bausch + Lomb, and Bristol Myers Squibb. Logistics and distribution companies are prospering in a state with the nation’s second-largest foreign trade zone network and strategic access to markets in Latin America and the Caribbean.

The Sunshine State has the nation’s third-largest population (trailing only California and Texas) and was the fastest-growing state in 2022. Nearly one in seven Florida residents, or about 3.1 million people, have arrived since 2012. This growth alone is about the same size as the total population of Arkansas or Nevada.

A Tampa Bay Times analysis of Florida’s population growth found that more than half of these new residents have settled in only nine of the state’s 67 counties. Tampa, which is now the 18th-largest metro area in the U.S., was the epicenter of the surge as Hillsborough, Lee and Polk counties added some 583,000 people from 2012 to 2022.

More people has meant more opportunity for commercial property developers and investors. This year’s Emerging Trends in Real Estate report from the Urban Land Institute and PwC ranked Tampa-St. Petersburg, Miami and Orlando among the nation’s top 13 markets for overall real estate prospects, while Fort Lauderdale, West Palm Beach and Jacksonville all rated above average.

The report gauged investor sentiment across major property types, with Miami placing No. 2 among the hottest U.S. industrial markets. Nearly three-quarters of survey respondents recommended that investors there buy rather than hold or sell. West Palm Beach slotted in at No. 7 for multifamily investment prospects with a 66% buy share.  And even in the relatively cold retail and office sectors, Florida’s major markets generally saw higher shares of respondents who endorsed a purchase instead of a sale. ●

The Port of Jacksonville connects shipping companies to 140 ports in 70-plus countries. It’s one of the nation’s busiest ports for vehicle handling, moving more than 553,000 automobiles last year. And nearly 100 million people live within a day’s drive of the port, making it a key location for refrigerating fresh and frozen foods.

In turn, the metro area’s industrial real estate sector has shown strong fundamentals in recent years. As of first-quarter 2023, Cushman & Wakefield reported that the overall vacancy rate had dropped 90 basis points during the past year to reach 2.7%, while the average asking rent of $6.35 per square foot had grown by a modest 2.1%.

Westside Industrial Park is the largest facility of its kind in northeast Florida, encompassing 1,600 acres and hosting tenants such as BMW, Volvo, Amazon, Grainger and Kraft Heinz. It’s also adjacent to a regional distribution center for UPS, which received a $196 million investment a few years ago and now processes more than 80,000 packages per hour. A UPS executive recently indicated that Jacksonville will remain a focal point as “the center of logistics for the state of Florida.”

What the Locals Say

I’m located in the Orlando office of Avison Young. My main specialty I would categorize as owner-user types of sales, with some investment sales sprinkled in. The bread and butter is office buildings, warehouses and flex spaces for owner users at a price point of $1 million to $10 million.

They always say sellers are the last ones to catch on and hear the news. A property may have been worth $1 million a year and a half ago. Part of it was because the owner borrowed money at 4%, 4.25%. Today, it’s 6.5% or 7.5%. That million-dollar number just doesn’t work if your debt service is 50% higher than it was 18 months ago.

Buyers are having to live in the trenches and they see the massive difference in debt service. Because of it, the price from two years ago can’t be the same today. The same can be said about cap rates. Let’s use a very simple example: For a single-tenant retail investment sale, two years ago the cap rate was 5.75% to 6%. Your debt on it was in the 4% range.

That same deal today, your debt is going to be in the 6% range. Is the cap rate also going to increase by 200 basis points? No. I don’t think they’re selling for a 7.75% cap rate today, so therefore the sale doesn’t happen. That’s one of the biggest takeaways right now: You’re not seeing the sales because of the seller versus buyer expectations.

3 Cities to Watch

Fort Lauderdale

Officially incorporated in 1911, Fort Lauderdale was named for Maj. William Lauderdale, who led a faction of U.S. troops during the Second Seminole War in the 1830s. Today, the city has 183,000 residents and is known as the “Venice of America” due to its extensive network of canals. Major local employers include AutoNation, Nova Southeastern University and American Express. Officials recently approved construction of a new 47-story tower that includes 830 apartments, adding to the city’s rising skyline.

Port St. Lucie

Situated at the heart of the Treasure Coast region about halfway between Miami and Orlando, Port St. Lucie (population 232,000) is Florida’s sixth-largest city. The three-county metro-area economy is centered on manufacturing, logistics, agriculture and tourism. Local officials tout a number of newly built Class A industrial facilities and a 54-bed hospital that is set to open in late 2024. The Treasure Coast International Airport hosts a range of tenants across the aviation and corporate travel spectrum.

Tampa

Tampa’s apartment market soared early in the COVID-19 pandemic as Florida attracted migrants from other states. Yardi Matrix reported that annualized multifamily rent growth in the metro area (population 3.2 million) reached an astounding 22.6% in September 2021 before receding drastically to 1% this past May. Tampa’s unemployment rate sank to 2.3% in April even as yearly job growth fell to 3.9%. Local construction firms were easily eclipsing the latter figure with 6.8% job growth.

Sources: City of Fort Lauderdale, Cushman & Wakefield, Economic Development Council of St. Lucie County, Enterprise Florida, Florida Times-Union, Greater Fort Lauderdale Alliance, Jacksonville Business Journal, Jacksonville Port Authority, Middle Market Growth, New York Post, PwC, Sun Sentinel, Tampa Bay Times, Urban Land Institute, Westside Industrial Park, World Population Review, Yardi Matrix

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Science fiction pioneers H.G. Wells, Jules Verne and Mary Shelley might have smiled wryly if they were here to see it. These scenarios would’ve been pure fantasy to most people in the 19th century, but here in the 21st century, they’re actually happening.

“I think that you’re going to see these solutions make their way into the industry, albeit I think it’s going to be at a measured pace.”

– Adam Carmel, CEO, Polly

Late last year, McDonald’s opened its first automated restaurant in North Texas, where artificial intelligence (AI) takes and delivers orders. A Seattle-area pizza chain recently announced plans to use AI-powered drones as part of its delivery service. And this past January, a survey of 1,000 U.S. college students found that 30% had used AI tool ChatGPT to help write assignments (despite the fact that most believe it to be a form of cheating).

Mortgage lenders, too, are in the early stages of sorting out AI’s potential benefits and ramifications. Already, some lenders have rolled out proprietary next-generation technologies, such as an AI-driven personal assistant designed to streamline communications tasks for real estate partners. But experts like Adam Carmel, CEO of mortgage fintech provider Polly, caution that there is much to consider before AI goes mainstream.

“Historically, it’s harder to implement new technology solutions in heavily regulated industries like the mortgage industry,” Carmel says. “So, I think that you’re going to see these solutions make their way into the industry, albeit I think it’s going to be at a measured pace.”

McKinsey & Co. has conducted a global survey on AI in each of the past five years. At the end of 2022, the company reported that 50% of respondents were using some form of AI, up from 20% in 2017. But the adoption rate has leveled off since reaching a high point of 58% in 2019. Among the corporations that have AI capabilities embedded in at least one of their business functions today, the most commonly used forms of the technology are robotic process automation, computer vision (the interpretation of images and videos), natural-language text processing and virtual agents.

AI, of course, is not free from detractors or potential dangers. The late physicist Stephen Hawking warned that “the development of artificial intelligence could spell the end of the human race.” Beyond this rhetoric, there are emerging real-world consequences such as job losses, social media manipulation and socioeconomic inequality.

Candice Nonas, managing consultant for professional services firm RGP, cites research showing that AI tools are prone to programmer bias. Among these studies is a 2022 report from the National Institute of Standards and Technology in which the group argues that human and systemic bias are largely responsible for bias in AI. And the Consumer Financial Protection Bureau has stated its intention to stamp out “digital redlining,” in which companies that make AI-driven credit decisions are held responsible for discriminatory actions.

“While AI can be a helper to us, a supporter to us, I don’t think it’s at a place today where we can confidently turn over certain human judgments — especially as they relate to protection that we get under the federal government — to make wholesale decisions for us,” Nonas says.

She points to a recent report from the Federal Deposit Insurance Corp.’s Office of Inspector General, in which cybersecurity and data privacy were listed among the top challenges for the U.S. bank regulator. Ransomware attacks at banks, for example, more than doubled from 2020 to 2021, reaching an aggregate dollar volume of $886 million. Because these large institutions lack agility, Nonas says security needs to be shored up — particularly with third-party vendors — before becoming heavily dependent on AI technologies.

She also says that mortgage companies must think holistically about the three lines of defense to strengthen their risk-management programs. This is often a challenge because executives tend to implement tech solutions for the profit-generating first line (operations personnel) while overlooking the cost-generating second and third lines (compliance and audit personnel).

“When we talk to bank CEOs, they’re very proud of the AI and the technology that they’re using on the front end,” Nonas says. “But when it comes to managing risk, auditing, rolling up information in order to do regulatory reporting, that’s still very much manual and error prone. In order for AI and technology to be most powerful, you need to have it in all lines of defense.”

Carmel believes that automation-driven job losses should be of minimal concern to mortgage professionals at the moment. Historically speaking, he says, these advancements make people much more efficient. As AI-based lending tools are further developed, much of the attention should be placed on a system of checks and balances that will alleviate compliance concerns and build consumer trust.

“Loan officers, I’ve always said, are the ultimate entrepreneurs,” Carmel says. “They’re going to receive the most amount of new technology — as they should. They’re the revenue generators in the mortgage industry.” ●

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