Watch this short video by Neal for an update on Mission 10K progress!
INDUSTRY NEWS THAT YOU NEED TO KNOW
1 big thing – America’s
new super-region
Northwest Arkansas (NWA), encompassing Bentonville, Fayetteville, Rogers, and Springdale, ranks as the U.S.’s 15th fastest-growing region. Its population is projected to nearly double, reaching 1 million by 2045, akin to Austin’s size. Bentonville stands out with its swift growth, hosting Walmart’s headquarters. It’s become a center for tech innovation and entrepreneurship, driven by Walmart’s influence and the Walton family’s investments. The Wall Street Journal labeled Bentonville the “New Capital of Cool.”
Bottom Line: NWAs unique blend of innovative commerce and lifestyle is positioning it as a competitor to Silicon Valley, amplified by the Walton Family Foundation’s investments.
NEAL'S TAKE
In my recent visit to Northwest Arkansas, I was struck by just how strong the growth is, compared to just about anywhere in the U.S. Bentonville, Rogers and Springdale have a vibrance that I have rarely seen anywhere in the U.S., even matching and exceeding larger economies like Austin in some ways. And I was delighted that land and construction costs are still very reasonable, and property taxes are extremely low, allowing for BTR projects that are more profitable, at reasonable rents.
Single-Family Permits Decrease in June 2023
Bottom line:Â There’s a significant nationwide decrease in single-family homebuilding, with few states defying this trend.
Multifamily Permit Trends:Â Nationally, multifamily permits declined by 11.6%. The Northeast experienced the largest fall, while the South had smaller decreases. Contrastingly, 19 states, led by Rhode Island, saw increases. Texas declined, but Florida and California saw slight upticks.
Bottom line:Â Overall, multifamily permits dropped, but certain states showed resilience with increases.
NEAL'S TAKE
The downward trend in both single family and multifamily starts is to be expected. It is also good news in the medium timeframe (2025 and beyond) because less starts now means less deliveries in 2025 and 2026, which should have an upward impact on rents and prices. It’s also important to note that everyone is impacted by these unforeseen increases in interest rates – every single single-family and multifamily builder is suffering.
Mortgage rates pummel homebuyers again, edge closer to 8%
Freddie Mac reports a 23-year high in mortgage rates, hitting 7.57% from last week’s 7.49%. Rates have stayed above 7% for nine weeks, a level not seen since December 2000. This is impacting homebuyers, reducing affordability, and limiting options as homeowners are cautious about selling. Prospects for rate improvement remain slow. Freddie Mac’s Chief Economist, Sam Khater, points out severe affordability challenges in the housing market, despite robust economic and income growth, resulting in a 30-year low in purchase demand.
Bottom Line: Mortgage rates have surged to a 23-year peak, impacting affordability and housing demand, with limited near-term improvements expected.
NEAL'S TAKE
Double edged sword for us. Higher mortgage rates hurt our construction loans, and also hurt valuations. But it’s critical to remember that it also locks out millions of buyers from homeownership, and many of these buyers do not want to live in apartments, so build-to-rent homes becomes the happy medium. As you can see from the article summary, this supply-demand gap is not expected to go away, giving us a long term runway for build-to-rent niche.
This is Why Multifamily Developers Have Soured on the Sunbelt
Recent trends indicate a multifamily sector shift. Sunbelt cities, once booming, now see slower rent growth, likely behind Gateway cities. CoStar projects a 1.4% rent rise in Gateway areas by year’s end, versus only 0.04% in Sunbelt markets. This change, starting in Q4 2022, led to the Sunbelt’s first drop in multifamily transactions since 2015. Joe Biasi of CoStar notes the Sunbelt still attracts investors, but investment strategies are evolving. The shift stems from rapid, cost-driven development and lenient building rules. Despite these issues, Biasi stays optimistic about the Sunbelt’s long-term prospects, despite inflation concerns.
Bottom Line:Â The Sunbelt’s multifamily market is slowing, yet its long-term outlook suggests resilience and potential for recovery.
NEAL'S TAKE
Our recent UGro-to-Mission10K presentation really emphasized the current challenges that the Sunbelt is facing, in the short term. While the long term prospects remain good (as the summary says), we feel that we can ‘make more hay’ in smaller markets in middle America for Ugro’s projects, while we continue to work to optimize and drive forward the projects we have in Texan metros. We do feel strongly (as does the article) that there will be a rebound in Sunbelt markets like Texas in the medium term, 3-5 year timeframe.
With gratitude,
Neal Bawa, Anna Myers and Jon Bursey
UGRO/Mission 10K