💰 Is private equity killing CRE's hottest sector?

👋 Hello, Best Ever readers! The Fed ended 2024 with yet another rate cut of 25 bps yesterday while indicating fewer cuts ahead. We’ll see what 2025 brings!

In this week’s newsletter, private equity invades CRE’s hottest sector, depreciation eyes a comeback, and MOBs emerge as a frontrunner for 2025.

🎁 But first … a FREE gift! This holiday season, we’re offering FREE access to Ash Patel’s Invest Beyond Multifamily Underwriting Tool. Calculate key metrics, accurately project NOI, and make underwriting simple with the tool Ash and nearly 100 other investors rely on.

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Let’s CRE!

🗞 NO-FLUFF NEWS: CRE HEADLINES

💵 Rent Report: The median U.S. asking rent fell 0.7% YOY in November to $1,595, the lowest since March 2022. Meanwhile, asking rents for newly constructed apartments rose 1.5% — the biggest YOY increase in 18 months — to a median of $1,802 in Q3.

💰 Buy, Buy, Buy: Global real estate markets are showing strong signs of recovery, with 66% of 534 tracked markets entering the "Buy" cycle — the highest level since 2016 — as expected rate cuts and strengthening market fundamentals drive renewed investor confidence.

💸 Depreciation Deal: Under existing law, bonus depreciation is being reduced by 20% each year until its complete elimination in 2027. Trump's proposed tax policy could reverse this, allowing 100% bonus depreciation to be reinstated through 2025 for property placed in service after Dec. 31, 2022.

📈 Loan Mods Rising: CRE bank loan modifications surged 65 bps in the first three quarters of 2024, with smaller banks showing a 217% increase, making lenders increasingly reluctant to continue extensions, particularly for underperforming assets.

🎙️ Retail Reshuffle: The retail landscape continues to shift as convenience stores expand, shopping centers pivot to entertainment and medical uses, large restaurants struggle, and fast-casual concepts face a shakeout. Commercial brokers Pete Montgomery and Joshua Rothstein joined The Best Ever CRE Show this week to explain what’s happening.

🏆 TOP STORY: IS PRIVATE EQUITY KILLING CRE’S HOTTEST SECTOR?

Manufactured homes have been both a supplier of affordable housing and a cash cow for investors in recent years. Now, according to a recent report from Bisnow, residents and lawmakers are pushing for rent control as a wave of private equity has invaded the space, driving lot rents higher than ever.

Lot rents in manufactured housing communities jumped by 7.7% nationwide during the year leading up to Q2, marking the steepest annual rent increase recorded in the sector. It was also the third straight year in which rents grew 5% or more.

• The Problem: According to one report, private equity accounted for 23% of manufactured home purchases in 2020 and 2021, up from 13% from 2017-19.

• The Scope: An estimated 800,000 home sites — or one-fifth of manufactured housing communities — were purchased by investors between 2015 and 2023, and that number is expected to grow as the affordability crisis continues and institutional investors look to capitalize on the demand.

• The Fallout: One New Jersey community — made up mostly of seniors and fixed-income residents — reported a 40% lot rent increase over the last four years. But with the balance of power shifting from mom-and-pop owners to private equity, rent hikes haven’t equated to better living conditions for residents. Diminished amenities and poor maintenance now plague these communities while residents pay higher rents — in some cases, double what they were in recent years...