Zeitgeist – Sign of the Times

Commercial Real Estate Acquisitions Poised to Rise in 2016

Several pension funds and other large institutions have recently increased their portfolios’ real estate allocation creating more sources of capital for commercial real estate in the U.S. Many public pension funds have increased their real estate targets from 5% in 2011 to approximately 10% today. Additionally, foreign investors continue to look to U.S. real estate as a safe haven – in 2015, foreign investment in U.S. commercial real estate totaled $93 billion, almost double the 2007 level of $48 billion.

According to CBRE Capital Markets, U.S. real estate investors are bullish about increasing their acquisitions in 2016. CBRE’s Americas Investor Intentions Survey 2016 revealed that 81% of investors surveyed intend to maintain or increase their purchases in 2016. Playing to Pathfinder’s strategy, major western markets L.A., Seattle and Denver are among the ten most attractive markets and multifamily continues to be the preferred product type for investors.

The Millennial Hamlet: “To Rent or to Buy – that is the Question”

Buy Vs RentThe Census Bureau just released its 2015 household data and the results speak to a continuation of the urbanization trend. As millennials take jobs and seek lifestyles in urban centers while grappling with student debt, the percentage of renters continues to grow. Many single-family housing developers are wondering when millennials will stop renting urban apartments and buy a home in the suburbs.

While the overall homeownership rate remained steady at 63.6%, the millennial homeownership rate was only 34.7% – well below the pre-recession high of 43.6% in 2004. The Census data also suggests that this trend is not limited to millennials – individuals in their mid-30’s and 40’s are more likely to be renting than they were ten years ago with homeownership declining within this demographic from 67% in 2007 to 58% in 2015. While traditional homebuilders are lamenting the lackluster homeownership data, apartment developers are embracing the good news and there are cranes in the sky for the many new multifamily projects in major cities throughout the U.S.

China’s Down Payment Lending Rings a Bell

It’s been nearly a decade since the U.S.’s subprime bubble burst sending shock waves throughout the global economy. Memories can be short and it’s not a huge shock that we’re starting to see similar risky lending practices already. This time, however, it’s in China.

Recently, the Chinese government has started to crack down on the Middle Kingdom’s version of sub-prime lending, dubbed “down payment lending”. Typical home mortgages in China require a 30% down payment – compared with just 10%-20% in the U.S. A growing number of Chinese specialty lenders are now willing to finance the down-payment, allowing potential buyers to borrow up to 100% of a home’s purchase price. In January 2016, these lenders made $143 million ($1.7 billion on an annual basis) in down payment loans – more than three times the amount made in July 2015.

Price IncreaseThis conundrum presents a vicious cycle: with down payment financing easily available, demand for homes has jumped which drives up home prices which exacerbates the need for down payment financing. Because of this, home prices are on the rise in some of China’s hottest markets including a staggering 57% year-over-year home price increase in 2015 in Shenzhen.