Stephen R. Laverty Jr.

The more you squeeze developers, the less housing you have. The less housing you have, the more expensive it is. Supply and demand. Loved this article. Part of a series in the NY Times that provides a very high-level overview of why it's so expensive to live in the Big Apple. Spoiler alert, it's only in small part due to cost of land. Zoning and approvals add 11-16% to the costs. Often in order to receive them, the developer has to put in benefits, like a certain number of affordable units which means the remaining market rate units have to carry the budget delta. Required Davis-Bacon wages add 30% to the costs. High property taxes add $13.53 per sqf in operations costs. The result of all of the above is a per unit costs in excess of $500,000.00 to build and $7500 per unit per annum to operate. Quick math: 100 units @ $500k = $50,000,000. Assuming the developer puts down 20%, or $10,000,000 and takes a loan for $40,000,000 you have a carry cost at 7% on a 30 year am of roughly $280k per month. Plus, another $62,500 ($7500x100 / 12) in operations costs per month. Each unit has to rent for $3,425 per month just to cover debt and operating costs. No repayment of the $10MM or buffer for stuff that breaks. Although NYC is an extreme example, many municipalities, large and small, are creating variations of these hurdles for those who would provide housing. Those costs either have to be passed on directly to the tenant, offset via public money in the form of tax credits or vouchers, or the housing does not get built. If the housing is not built rental rates will continue to increase. Vacancy rates have been sub 5% in most markets, if we don't have more supply, demand will push up prices. https://lnkd.in/e9pxcpRj

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Let's talk about compensation structures in CRE. They can be tricky to get right, but understanding which bonus model works best for your team is key. Here are 4 common structures and when they work best. 1. Discretionary Bonus This is the go-to structure at most large CRE firms. You set a target bonus range, but the actual payout depends on both personal and company performance. - Usually ranges from 20% - 100%, depending on the role. - Acquisition roles often get 50-100%, while support roles see 20-30%. - Sets clear expectations but also gives flexibility during tough times. I like this model because it balances expectations with financial stability. 2. Target Bonus + Multiplier on Performance This one’s popular in asset management. You set a target bonus, and then adjust it with a multiplier based on hitting certain metrics (like NOI vs. Budget). For example: - 90% of target if NOI is within 90% of budget. - 100% of target if NOI is within 95%. - 110% of target if NOI exceeds budget. Great for asset management, if the KPIs are crystal clear. Not ideal for every role, though. 3. Bonus for Large Capital Events You’ll often see this in smaller firms, especially for acquisitions or capital markets roles. - Bonus is tied to specific events: deal closings, fundraises, etc. - Typically adds up to bonuses equal to 100% of base salary. - Useful for firms with cash constraints—bonuses happen when cash is actually available. This structure grows with your team, but you’ve got to be careful with compliance, especially in fundraising. 4. Percentage of Promote This one’s more common for execs in smaller firms. Often, promote participation vests over time or is tied to continued employment. - Usually 1-3% of promote per exec. - Rule of thumb: No more than 10% of promote should go to the team. - Great for young companies without much cash, but tough to scale once you’re past 20 employees. This model can also get emotionally charged because the stakes are high, handle with care. At the end of the day, compensation models in commercial real estate are about aligning incentives with company goals and keeping your team happy. Knowing when to use each model can make all the difference in retaining talent and scaling effectively. Which of these models have worked best for your team? I’d love to hear your thoughts!

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State officials estimated the entire housing package would spur around 200,000 new housing units over the next decade. The package would also provide incentives for converting commercial office buildings into housing and it would remove a state density cap on residential buildings. That would allow city officials to zone for taller structures in new parts of the city. On “good-cause”: Newly constructed units would be excluded for 30 years, and the exemption would apply retroactively to units built as early as 2009. Units in small owner-occupied buildings are exempted, as are dwellings where the landlord owns 10 or fewer units across an entire portfolio. Units above a certain rent threshold would also be excluded, but the exact level was still being negotiated. #485x #421a #housing #development #nyc

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Interesting article in PERE today.   At the recent PERE Network America Forum, private real estate executives are expressed renewed optimism about the retail sector, and highlighted opportunities in retail, especially in grocery-anchored and standalone retail properties, as more favorable investments compared to traditional malls.   This is a trend that we have been ahead of for many years at DLC. Across, three white papers since 2020, we’ve shouted this from the mountaintop. In the last 12 months alone we have grown with five new partners and launched a major pipeline of transactions. All of our new partners, including Temerity and Cohen and Steers have done multiple transactions this year and are actively looking to do more as we continue to play offense.   We’re excited about this shift in mindset – and look forward to continuing our record growth.   Let’s do some deals!   Read the full article here. Subscription needed: https://bit.ly/4hWZ5wG   #CRE #RetailRealEstate

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Demand for #multifamily has pushed absorption to one of its highest points in 24 years. In the first and second quarters of 2024 alone, 257,000 units were absorbed – "essentially in line with the all-time high set in the pandemic-era demand swell which saw about 270,000 units absorbed in the first half of 2021," according to a recent report from RealPage Market Analytics. Click here to read more from GlobeSt.com: https://lnkd.in/gvXHxwUg

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The NYC office market is showing signs of recovery, with Manhattan leasing surpassing 30 million square feet for the first time since 2019. Tenant demand is driven by industries like legal, finance, consulting, and tech, focusing on high-end properties with modern amenities - such as those owned by SL Green (leading to a significant increase in their stock price). However, older, "commodity" buildings face rising vacancies, as nationwide office vacancy rates hit a record 13.9%. With additional companies expected to downsize as leases expire, challenges remain. For owners of older properties, full modernization may not be practical. The focus should be on identifying the unique value these buildings can offer and targeting tenants whose needs align with those strengths. Strategic improvements and thoughtful positioning—whether emphasizing location, cost efficiency, or niche appeal—can help these properties compete in a challenging market. There are clearly challenges, but a clear understanding of tenant demands and a well-executed strategy can create opportunities to remain relevant and add value.  #CREInsights #OfficeMarket #RealEstateTrends #RealEstate #NYC https://lnkd.in/exx7zCSc

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Here's our U.S. real estate team's update to the proposed changes to zoning regulations in New York City that are intended to spur the production of affordable housing, commonly referred to as "City of Yes". It's a quick and easy read: https://lnkd.in/eZMmiWhS #RealEstate #Zoning #AffordableHousing #Investment #Development #Regulation

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Building on yesterday's reporting, CRE Daily expands on how certain political party platforms aim to impact #RealEstate. #Project2025 takes a stance which prioritizes #SingleFamily zoning, constraining #AffordableHousing choice vouchers and eliminating federal transit subsidies. These positions are antithetical to what changes need to be implemented to address the nation's 7.2 million (and growing) #housing shortage. In a situation where density is needed to adequately build the units we need to house our people, prioritizing single-family zoning is not the right move. Municipalities which have transitioned single-family into low density (or allowing higher density) are not only empowering their constituencies to build wealth by building more, they are also seeing higher inventory and subsequently, lower rents.... all being accomplished at market-rates. Meanwhile, housing choice vouchers and federal transit subsidies are some of the most successful housing/financing programs in existence which #investors and #developers leverage to preserve, provide or build affordable units. Whomever drafted this policy platform, one thing is clear, they have not spent any time in areas of housing scarcity, like #Chicago's south or west sides. #CommercialRealEstate #CRE #Finance

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The abundance of vacant office space that sprouted from the post COVID era, mixed with the affordable housing crisis plaguing NYC, has provided a growing necessity for Office-to-Residential conversions. At first, it was believed that this wouldn’t completely pan out for a number of reasons, including the physical inappropriateness of older office building windows and floor plates for residential, and various zoning obstacles. Thanks to government programs, such as the Accelerator Program, and deeply discounted assets, conversions were made more feasible for developers, resulting in a drastic increase of conversion projects in the pipeline.

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What Rate Cuts Mean for Commercial Real Estate in 2024 As the market eagerly anticipates the Federal Reserve’s upcoming rate cut, investors are focused not just on when the cuts will happen but also on how they will impact the commercial real estate sector. The Fed is expected to begin reducing interest rates as early as mid-September, a move that could lower borrowing costs and stimulate economic activity, including commercial real estate. However, the impact on asset values is complex; while lower rates generally make financing more affordable, the extent to which this will drive up property prices remains uncertain, especially given the Fed’s cautious approach to inflation. Investors should recognize that while borrowing costs might decrease, cap rates—the ratio of a property’s net operating income to its market value— do not adjust immediately; in fact, the correction roughly takes 6-9 months. This creates a brief window of opportunity where higher cap rates combined with lower borrowing costs could offer attractive investments. Yet, it’s essential to understand that waiting for rates to drop to previous lows, such as those seen in 2021, may be unrealistic, as the current economic environment and the Fed’s strategy differ from past crises. Savvy investors who act now, before cap rates tighten in response to lower borrowing costs, could secure better yields, positioning themselves advantageously for the future.   As Jerome Powell signaled potential rate cuts at the recent Jackson Hole Symposium, the market has already reacted, with Treasury yields dipping slightly. The uncertainty surrounding the exact size and timing of these cuts adds to market volatility but underscores the importance of strategic planning. Investors who stay informed and act decisively in this evolving landscape can navigate the challenges and seize opportunities in the commercial real estate market before the window closes. Please call (818-288-0697 ) or email (avinarang@brcadvisors.com) for any questions. 

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Colliers' Manhattan Office Market stats featured in a recent article where Michael Cohen and I spoke about the nearly 7M SF of space removed from the available inventory over the last few years due to planned conversions. If it weren't for these planned conversions, Manhattan's total availability would've been ~100M SF! Please read more about the state of the Manhattan Office Market in the Q3 2024 Colliers report here: https://lnkd.in/dxxCPSEQ #nycofficemarket #colliers #nyceconomy #nycofficeleasing https://lnkd.in/dTpETabT

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A surge in #multifamily construction pushed U.S. housing starts up 3% in June to a seasonally adjusted annual rate of 1.35 million units, the U.S. Department of Housing and Urban Development and the U.S. Census Bureau said earlier this week. New construction in the multifamily sector rose 19.6%, while single-family starts were down 2.2% for the month. The rise in multifamily construction could lead to more financing opportunities for lenders specializing in #construction #loans and permanent financing for multifamily properties. More insight from Connect CRE below: https://lnkd.in/gVkxigpG

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A surge in #multifamily construction pushed U.S. housing starts up 3% in June to a seasonally adjusted annual rate of 1.35 million units, the U.S. Department of Housing and Urban Development and the U.S. Census Bureau said earlier this week. New construction in the multifamily sector rose 19.6%, while single-family starts were down 2.2% for the month. The rise in multifamily construction could lead to more financing opportunities for lenders specializing in #construction #loans and permanent financing for multifamily properties. More insight from Connect CRE below: https://bit.ly/3Y6oP1R

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A surge in #multifamily construction pushed U.S. housing starts up 3% in June to a seasonally adjusted annual rate of 1.35 million units, the U.S. Department of Housing and Urban Development and the U.S. Census Bureau said earlier this week. New construction in the multifamily sector rose 19.6%, while single-family starts were down 2.2% for the month. The rise in multifamily construction could lead to more financing opportunities for lenders specializing in #construction #loans and permanent financing for multifamily properties. More insight from Connect CRE below: https://bit.ly/3Y6oP1R

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Unfounded concern? This CoStar News article discusses non-traded REIT performance with a focus on Blackstone. It also raises criticism for lack of disclosure of NOI growth rates. I would argue NOI growth rate is not a valuation input, but a product of all other cash flow assumptions considered in conjunction with each other. While I do look at NOI growth as a metric, you have to have access to a whole host of other key assumptions to understand if the NOI growth makes sense. You can't glean this from financial statement disclosure. Even more convoluted when reporting on a portfolio basis rather than at the individual property level. Please know there is plenty of scrutiny on valuations from all the work Revantage, A Blackstone Portfolio Company (Blackstone's professional services co.) performs, their their-party valuation providers, valuation committee, and their external auditors. #RealEstateValuation #NAV #BDO https://lnkd.in/gDBhMa_7

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