Real Estate Recap – Nahin Khan

December Article Summaries

Topic: JP Morgan Chase Rent Software (STORY)

Articles:

Highlights:

Initiated by JPMC Commercial Banking?
“Disrupt the concept of rent Check”
Targeted at property owners and managers
“78% of rent is paid by check according to JPM”
The software will be called Story “All-in-one property management solution”
Nontraditional rent software (excel) has begun to emerge software such as Buildium and Turbotenat
The benefit of Story – Increase visibility
Gain users by providing insight to Owners/managers (How to set rent levels, where to make future investments, and assist in tenant screening).
JPMC Top lenders for multifamily property owners 95.2 billion so far in 2022 aiming to expand past the current 33k client pool
Allows tenants to automate payments, view lease, payment history
“Aim to capture 600 billion in annual rent payments”

Perspective:

Story is a digital rent payment platform by JPMC that aims to make the process of paying rent easier for tenants, while also proving property managers and holders with more data. The software aims to be able to assist Owners/managers in setting rent levels, plan future CAPEX, and screening tenants. I believe that the software is incredibly interesting and has the possibility to have transformative effects on commercial real estate as a whole.

Questions:

How does the Story software help property owners and managers set rent levels? Does it provide feedback purely on location, or does it factor in other aspects of the asset such as age or amenity offerings?
I have read about other software that aims to assist property holders and managers set rent prices (https://arstechnica.com/tech-policy/2022/10/company-that-makes-rent-setting-software-for-landlords-sued-for-collusion/?comments=1&comments-page=1) these services appear to have faced legal pushback. How do you think Story is different than these offerings?
Do you think there is a possibility of Story eventually being tied to other products offered by JPMC such as a checking account to provide additional integration and convenience?
Do you believe there is a possibility that Story may be able to help tenants build their credit scores more easily?
Do you think Story can be expanded to cover other property types such as offices in the future?
Can Story be used to assist in the underwriting process of lending? For example, do you believe Story will allow for the possibility of having better market data about vacancies or rent growth trends to have a more detailed market overview?
What is your favorite aspect of Story?

Topic: JP Morgan Chase investing in the single-family housing

Articles:

Highlights:

JPMC Asset management is partnering with haven realty capita in a join venture to create ground-up development of single-family communities
1 billion dollar plus commitment
Seeding venture in three communities located in Atlanta
Intend on acquiring 2,500 plus homes via 450 million
2020 JP partnered with Homes 4 rent to acquire build-to-rent communities
“Buying or developing whole communities — a strategy known as build-to-rent — was especially appealing, in part because the projects were seen as easier to manage than a portfolio of houses scattered across a metropolitan area”
“The partnership comes at a time when demand for new housing continues to slide (https://www.census.gov/construction/nrs/pdf/newressales.pdf)”
“The build-to-rent trend initially emerged during the Great Recession as a way for homebuilders to continue adding supply at a time when consumers were not buying homes.”
Build-to-rent became popular again with COVID-19
“Haven Realty has emerged as a national leader in the space, with a portfolio of 35 build-to-rent communities valued at more than $1.2 billion”
“Institutional investors like Fundrise as well as pension funds, and public companies have been steadily acquiring single-family homes to rent for a profit.”
“Targeting homebuilders in the Sun Belt, the partners will look at communities of 50 to 200 homes spanning 1,500 to 2,500 square feet”

Perspective:

JPMC AM is investing 1 billion in a joint venture with haven realty to create build-to-rent housing across various regions. The efforts are set to begin within Atlanta. This is the second time JPMC has invested significantly into single-family housing as they previously invested 650 million into initiatives with other firms to create single-family housing in 2020. It is a different approach than other firms such as Blackstone have taken.

Topic: JP Morgan Chase Rent Software (STORY)

Articles:

https://www.bloomberg.com/graphics/2022-remote-work-is-killing-manhattan-commercial-real-estate-market/#xj4y7vzkg

Highlights:

Initiated by JPMC Commercial Banking?

Perspective:

Topic: JPMorgan Chase’s Al Brooks Gives His 2023 CRE Outlook

Articles:

https://web.archive.org/web/20221203030836/https://commercialobserver.com/2022/12/jpmorgan-chases-al-brooks-gives-his-2023-cre-outlook/

Highlights:

Retail is at a “crossroads” office future unclear
Supply chain issues persist
Multifamily properties are continuing to perform well
Industrial remains “hot”
War in Ukraine (sanctions, supply chain bottlenecks, increases in CPI)
As of October 2022, the US inflation rate is 7.75 percent, the highest since the 80s
Rent up 7.5% YOY
“owners’ equivalent rent of residences was up 6.9% from the year before”
“rising costs not only affect affordable and workforce housing, but also market rate housing. Many tech giants, for example, are concerned that their entry-level employees can’t afford housing anywhere near Silicon Valley”
“target federal funds range is 3.75% to 4.0%—a level last seen in 2008. The Fed anticipates more increases into 2023, which could negatively impact commercial real estate owners. There may be an upside for multifamily owners and investors, as higher interest rates may cause potential homeowners to remain renters for longer”
A 2023 recession would likely be a more traditional one. Full recovery would take place over years, not months, and impact all asset classes.
Multifamily is currently the highest performing of all asset classes. “As of the third quarter of 2022, multifamily vacancies are at 4.4%—a five-year low
Demand for affordable and workforce housing far outweighs supply. Regardless of the markets and economy, commercial real estate should focus on finding creative ways to increase affordable housing, which could include: (Mixed-income properties The use of Historic Tax Credit Unique capital solutions)
E-commerce accounts for less than 20% of retail sales, so there’s room for growth.
E-commerce will likely serve as a tailwind for the logistics industry—and industrial warehouse and distribution properties—for at least 10 years
Industrial may be challenged by its longer leases, which generally only account for 2%–3% inflation.
buildings can be converted into mixed-use properties that include apartments along with restaurants, movie theaters and experiential retail locations
Retail in city centers has been slow to bounce back. “Urban retail tends to boast higher rent levels than other retail,” Calanog said. “But it has continued to be weighed down because fewer people are working in downtown offices.”
“The future of office buildings remains up in the air. It is, however, important to note that none of the regions across the U.S. have seen vacancy rates dip below their pre-pandemic Q4 2019 levels”
“Looking ahead, we are not in the ‘office is dead’ camp, but we think cash flow growth will be challenged in the office sector,” said Anthony Paolone, Senior Analyst and Co-Head of U.S. Real Estate Stock Research at JPMorgan Chase”
“Our forecasts suggest that unless the Fed changes course, 2023 will be characterized by slower GDP growth as monetary policy continues to tighten and global economies adapt to inflation,” Calanog said. “That translates to less credit and lending activity, and continued volatility for asset pricing.”
But there’s nothing new about commercial real estate’s cyclical nature

Perspective:

I think something that may be interesting that was not covered in debt within this article is the topic of refinancing existing assets, particularly office assets. I believe in an article that I read in October by trepp they found there to be 52 billion in loans within assets just found in their database that will mature over the next 24 months. If a significant amount of property holders decide to sell off their assets, that could create a challenging dynamic in terms of finding investors with sufficient capital and access to debt.