Category Archives: Market News

Lead Innovation Corporation (LEIC: Pink Current) | Quarterly Report

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From obsolete to absolutely: Old office buildings get new lease on life as multifamily buildings

Property owners of old or obsolete office buildings are turning their obsolescence blues into multifamily gold.

According to a study by Newmark Knight Frank, 8% of the nation’s office inventory is obsolete, meaning building owners need to find new ways to make money off of their spaces.

Thanks to big time demand for downtown housing and an overall housing shortage, property owners saddled with a struggling office building have been able to successfully flip their defunct office properties and turn them into multifamily developments to capitalize on the demand for multifamily housing in walkable submarkets.

According to the report, this will continue to be a nice safety net for infill office properties as renters continue to show strong preference for urban product.

Baltimore’s central business district has been a strong case study for the efficacy of office-to-residential conversions.

To help pique the interest of investors, the city of Baltimore employed tax incentives for adaptive reuse projects in the CBD where there was a glut of underperforming office buildings and a lack of housing. NKF analyzed a sample of four office buildings that underwent conversions in Baltimore’s CBD and found that all four outperformed the submarket’s average multifamily housing rental rate. On average, the properties had rents 8.19% higher than the submarket average as of Q1 this year.

It is important to note that though adaptive-reuse can be a good way to revitalize returns-on-investment for a struggling building, not all office buildings are fit for residential conversion. Floor height, column spacing and slab type must all be considered in the decision to initiate an adaptive-reuse project like this.

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Multifamily investment market is getting tougher still

The Freddie Mac Apartment Investment Market Index fell 3.4% year-over-year in the first quarter, despite strong fundamentals.

The index tracks 13 markets across the nation, aggregating employment data, permitting data, net operating income data and property price data to come up with a score that captures the investment climate in the multifamily market.

According to the index breakdown, the downturn is largely due to rising property price growth, which is pushing down returns-on-investment.

Of the 13 markets, property prices rose in 10 of them. Rising interest rates are putting additional pressure on prices and also contributing to the downward pull on the multifamily market.

The countervailing forces keeping AIMI from sustaining a larger drop has been continued strong demand and a scarcity of housing that continue to support rent growth.

“While both mortgage rates and net operating income affected AIMI this quarter, the continued growth of property prices — driven by healthy demand and overall housing shortages — proved to have the most meaningful impact,” Freddie Mac Vice President of Multifamily Research and Modeling Steve Guggenmos said in a statement.

“While AIMI’s quarterly and annual results were both slightly negative due to price appreciation, it continues to reflect the strong demand for multifamily investments and illustrates the long-term strength and stability of the multifamily market,” he added.

According to the index report, the market can expect more of the same as rising interest rates and declining deal availability add difficulty to the task of finding viable investments and increase competition for deals.

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Bunk Beds