How Multifamily Pros Will Act When Rates Go Down
By Erik Sherman | GlobeST | September 16, 2024
With a rate cut a virtual lock-in for Wednesday, markets facing the weekend have guessed 55% to 45% chance that it will be a quarter point over a half point, according to CME FedWatch. Even last Thursday, the odds were stacked more heavily toward the 25-basis-point possibility.
Nothing major had changed. It might be that investors are getting anxious or excited, anticipating a change. In multifamily CRE, though, it's unclear what the practical implications will be. New construction has been on a tear, hitting historical levels in both 2023 and 2024. The activity has pushed down rent growth and pushed vacancy rates up in some areas, particularly in the Sun Belt — a matter of excess supply in some places where others have excess demand.
Those that have seen more building and increasing supply are being wary. "I think for 99% of all of us out there, a 25bps rate cut won't make much difference at all except for a few acquisitions of existing properties," Jeff Klotz, CEO for the Klotz Group of Companies, which focuses on Florida, Georgia, and the Carolinas, told GlobeSt.com. "There are a lot of multifamily developers sitting on land that are ready to break ground, including myself, and we need a whole lot more than just a 25bps rate cut to move the needle much at all, much less make the deals underwrite."
What might be happening is an emotional lift "because it signals the beginning of a reversal of two plus years of rate hikes and that gives people hope," Klotz said.
Kristi Nootens, co-head of U.S. real estate investment manager CP Capital, has seen a similar emotional reaction. "For me and my business, I'm excited about it," she told GlobeSt.com. "I'm just excited to get even 25 basis points now and 50 for the year or 25 for the year. We've been saying 'in the next six months' for two years now. But I really feel like we're finally here and things are lining up for a nice new cycle in the coming months."
Nootens said that while there has been a high run of multifamily construction, it still isn't enough with an estimated shortage of 4.5 million housing units. "Even with interest rates coming down, it's not that renters will be able to afford a home." As many have told GlobeSt.com over the last two years, the lack of sales has meant no price discovery. "What I want to see is the interest rates come down which will bring buyers of deals like mine back in the market,"
Nootens says. "It's really a cap rate black hole that should be fixed by a decrease in rates. It's going to take a while to trickle in. We're going to need some buyers to get back in the market."
Phillips 66 Taps Developers to Plan L.A. Refinery Redo
By Jack Rogers | October 25, 2024 | GlobeST
Phillips 66 has hired two firms with experience solving complex redevelopment challenges to plan new uses for its Los Angeles Refinery complex.
The sprawling, century-old refinery, which sits on 650 acres straddling Carson and Wilmington in proximity to the Port of Los Angeles, is scheduled to close by the end of next year.
Phillips has tapped Catellus Development and Deca to envision a new future for the complex, which encompasses two connected facilities.
Oakland-based Catellus redeveloped the 200-acre East Bay site of the former Pacific Refinery Co. into a residential community of 926 homes known as Victoria by the Bay in 2003. The project involved remediation of the site, which produced 55K barrels of oil daily until it was shut down in the mid-1990s, including the removal of contaminants.
Deca, based in San Francisco, converted a Class C warehouse at 800 Cesar Chavez St. in the city into an electric vehicle charging and maintenance facility. The project involved an extensive power upgrade, delivering more than five MW of power to the 130K SF site.
"These firms bring strong track records of solving complex redevelopment challenges," Nancy Perez, a spokesperson for Houston-based Phillips 66 said, in a statement emailed to the Daily Breeze.
Phillips 66 has hired two firms with experience solving complex redevelopment challenges to plan new uses for its Los Angeles Refinery complex.
The sprawling, century-old refinery, which sits on 650 acres straddling Carson and Wilmington in proximity to the Port of Los Angeles, is scheduled to close by the end of next year.
Phillips has tapped Catellus Development and Deca to envision a new future for the complex, which encompasses two connected facilities.
Oakland-based Catellus redeveloped the 200-acre East Bay site of the former Pacific Refinery Co. into a residential community of 926 homes known as Victoria by the Bay in 2003. The project involved remediation of the site, which produced 55K barrels of oil daily until it was shut down in the mid-1990s, including the removal of contaminants.
Deca, based in San Francisco, converted a Class C warehouse at 800 Cesar Chavez St. in the city into an electric vehicle charging and maintenance facility. The project involved an extensive power upgrade, delivering more than five MW of power to the 130K SF site.
"These firms bring strong track records of solving complex redevelopment challenges," Nancy Perez, a spokesperson for Houston-based Phillips 66 said, in a statement emailed to the Daily Breeze.
"We intend to redevelop the property in a manner that benefits the regional economy," Perez said. "We intend to work closely with our redevelopment firms and the local community to determine the best future use of this land that is appropriate given the site's history."
Phillips has processed oil at the refinery complex since the early 1900s. The front end of the refinery, located at 1520 E. Sepulveda Blvd. in Carson, processes crude oil. The Wilmington facility, at 1660 W. Anaheim St., upgrades oil into finished products including fuel-grade petroleum coke.
The Carson facility, five miles north of the Port of Los Angeles, is adjacent to port container yards, making it a likely candidate for redevelopment as an industrial site. Whether housing can be built at the Phillips 66 refinery complex will largely be determined by how much remediation is needed at the site.
"Remediation is not easy. It is not a cakewalk," Najmed Meshkati, a professor of civil and environmental engineering at USC, told the Daily Breeze. "The older a plant is, the biggest challenge will be restoration of the soil. This could take years to remediate."
Last month, the Huntington Beach City Council unanimously approved a housing and hotel project for a 29-acre site known locally as the Magnolia Tank Farm, for the giant oil storage tanks that once stood there.
The beachfront site was remediated in recent years to clear its soil of contamination. The state Department of Toxic Substances Control has issued a clean closure letter allowing homes to be built there, according to a report in the Orange County Register.
L.A. MTA Approves Largest Transit-Oriented Development
By Jack Rogers | October 11, 2024 | GlobeST
The Los Angeles County Metropolitan Transportation Authority has entered a joint development agreement for District NoHo, its largest residential project to date.
The transit agency, known as Metro, has approved an agreement with NOHO Development Associates LLC, an affiliate of Trammell Crow and High Street Residential, on a transit-oriented mixed-use project that envisions building more than 1,400 apartments above Metro's North Hollywood Station.
The 12-acre project will combine low-income housing, retail, office and open space, according to a report in LA Business First.
The District NoHo project will be built in up to nine phases, with the first one including 570 mixed-income apartments, and at least 311 of those reserved for renters earning less than 60% of the median income in Los Angeles County. The development, which aligns with Metro's Vision 2028 Strategic Plan, will include more than two acres of publicly accessible space.
The Strategic Plan's Joint Development Program is aiming to expand Metro's housing portfolio to 10,000 units by 2031, half of which will be reserved at affordable rents for lower and moderate-income households.
"We have to get creative if we're going to build the housing we need in L.A. County, and District NoHo is an ambitious model of how we can maximize the space around our stations," said Janice Hahn, an L.A. County Supervisor who is the Metro Board chair, at this month's board meeting approving the District NoHo project.
"Metro has a strong interest in ensuring the people who ride public transportation can afford to live near it. By directly linking Metro's network to housing, employment, retail and commercial opportunities, Metro expects to continue to grow transit ridership," said company CEO Stephanie Wiggins.
According to plans approved last year by the Los Angeles City Planning Commission, District NoHo will rise on Metro-owned land near the intersection of Lankershim and Chandler Boulevards, most of which is now vacant or serves as a park-and-ride lot.
The plans approved last year subdivided the property into nine different blocks that would be filled with 1,481 apartments; 60K SF of retail and restaurant space; up to 450K SF of office space; and 87K SF of parking, with 750 spaces reserved for Metro bus and rail passengers. The District NoHo plans to envision two residential towers and an office tower.
The two acres of publicly accessible open space will include three different plazas, a new entrance to the B Line subway on the west side of Lankershim and improvements to the G Line busway terminus.
