2019 Market Outlook – U.S. Real Estate

Market Update – December 2018
This paper examines real estate market fundamentals and key themes to watch in 2019.

Stabilized top tier office most exposed to a potential slowdown in Manhattan

Commentary – October 2018
  o Manhattan and surrounding New York City metro employment is growing and office absorption has been positive – but at a weaker pace than a few years back
  o Shifting trends in co-working are reducing office space needed per employee and potentially increasing risk to the market
  o Significant supply on the horizon with the addition of Hudson Yards and other projects may exceed demand
  o Rents are showing signs of recent declines, and concessions are increasing
  o With tight cap rates, and less steady demand, equity investments in stabilized top tier office is exposed to a potential slowdown

Home prices growing slowly in high tax East Coast cities - is tax reform to blame?

Commentary – July 2018
  o The 2018 Tax Reform Act passed in Dec 2017 included a cap on the State and Local Income Tax (SALT) deduction of $10k while raising the standard deduction.
  o This SALT deduction limit marginally disincentives buying-versus-renting for high-priced homes in areas with high taxes as homeowners are less likely to benefit from deducting local property taxes.

National single-family home prices maintain solid growth: Las Vegas is heating up, while Dallas is cooling down

Commentary – June 2018
  o US housing market grew at a solid 5.3% Y-o-Y in April 2018 according to Amherst Home Price Index.
  o Overall, US single family price growth has significantly lagged the post-crisis recoveries witnessed in equities and commercial real estate. The pace of new single family housing construction remains anemic by historical norms even as we expect greater demand from more millennials entering family formation ages in the coming years. We remain optimistic on the US home price growth for the foreseeable future.

Rising rates unlikely to be the death knell for commercial real estate growth

Commentary – May 2018
  o Despite a steadily growing economy, commercial real estate (“CRE”) investors cannot ignore rising interest rates and their effect on CRE
  o Higher interest rates not only increase borrowing costs and return hurdles, but could potentially also reduce property values
  o Historically however, rising rate environments have coincided with higher economic growth and less restrictive lending conditions and therefore higher CRE prices
  o In addition, capitalization rate (“cap-rate”) spreads have room to compress in some markets, and net-operating income (“NOI”) growth can offset the effects of rising cap- rates on CRE prices
  o Long-term leased, stabilized property valuations are most exposed to rising rates, particularly in expensive regions
  o Rising rates may also slow equity returns, but we believe senior debt should be protected as long as steady growth continues concurrently. In particular, senior debt backed by transitional properties may hold up better in a rising rent and rate environment
  o While higher rates may slow returns, particularly for CRE equity investors, a change in underlying market fundamentals would be a greater concern for the overall market

BNY Mellon and Texas Treasury Safekeeping Trust Company to Exchange Ownership Stakes in Amherst Capital for Minority Interest in Amherst Holdings

NEW YORK and AUSTIN, Texas – May 14, 2018 – BNY Mellon Investment Management (“BNY Mellon”), and Amherst Holdings, LLC (“Amherst Holdings”), today announced an agreement through which BNY Mellon will exchange its majority equity interest in Amherst Capital Management LLC (“Amherst Capital”), an investment manager specializing in U.S. real estate, for a minority equity stake in Amherst Holdings. Concurrently, Texas Treasury Safekeeping Trust Company (“TTSTC”), a founding seed investor1 in Amherst Capital, will swap its current economic interest in Amherst Capital for an interest in Amherst Holdings. Following the completion of the transaction, Amherst Capital will be a wholly owned subsidiary of Amherst Holdings.

An update on institutional single-family rental activity – 2017/2018 U.S. market trends support long-term growth & opportunity

Video – April 2018

Update on institutional activity in single-family rental (2017/2018) from Amherst Capital on Vimeo.

An update on institutional single-family rental activity – 2017/2018 U.S. market trends support long-term growth & opportunity

Commentary – April 2018
In 2017, the single-family rental (“SFR”) asset class made further progress towards being widely-recognized as an institutional investment – some of the key takeaways and market trends addressed in our commentary article include:
  o Increasing capital flows
  o Consolidation across large institutional owners
  o GSEs launch pilot deals backing SFR

‘Retail Apocalypse’ wreaking havoc on shopping mall across the U.S. – but which malls fail is no surprise

Commentary - March 2018
Retail malls have seen significant distress from store closures as part of the ‘Retail Apocalypse.’ However, which malls fail is not random – in this article, we examine the viability of malls nationwide. When evaluating U.S. cities with more than 10 retail malls, we found that San Francisco, Chicago, New York City, Seattle and Dallas to be the “strongest” cities for malls. The weakest cities: Orlando, Las Vegas, Charlotte, Tampa and San Bernardino.

Single-family housing supply tightest in 20 years, expected to get worse

Commentary - February 2018
Single-family housing shortage has led to the tightest months supply since 1999. Adding to the shortage, new construction has failed to rebound post GFC. In this article, we find that demographic trends based on stages of life among millennials who are living longer and likely to downsize later, will likely worsen this shortage in the coming years.