Headlines

What’s new in the world of Real Estate

• Blackstone’s big bet on apartments

• Austin’s downturn

• A lesson from movie theaters

• Are office buildings a buy?

Plus: Unaffordable housing, the best markets for first-time buyers, Spain kills its golden visa, and more

Listing of the week: A surfer’s paradise

Performance

Market Updates

Alternative asset manager Blackstone spent $10 billion on a multi-family REIT. Already one of the top real estate investors in the world, the firm is acquiring Apartment Income REIT, also known as AIR communities, for $39.12 per share, a 25% premium to its latest trading price. While the deal will be a small percentage of Blackstone’s $586 billion real estate portfolio, this represents a sizeable bet on the multi-family apartment market, particularly in coastal markets. For the firm to spend 25% over the market price for the “the highest quality, large scale apartment portfolio [they] have ever acquired” can only be read as a bullish signal for the sector as a whole.

After a pandemic-induced boom, Austin property values are dropping. The Texas city was one of the hottest markets in the country a couple of years ago, with average home prices jumping nearly 60% from $420,000 in March 2020 to $669,000 in May 2022. Since then, however, the average sale price has dropped to $525,000, meaning that a lot of people who bought at the peak are now underwater. With fewer people moving to the city post-pandemic, and increased new construction, demand has slowed while supply increases. All told, prices there could still be inflated by as much as 35%, a costly lesson for some to be cautious about buying into a rapidly appreciating market.

Even as most retail real estate has recovered, rents for movie theaters have decreased post-pandemic. Theaters have faced challenges in the past few years, from the pandemic to the rise of streaming services, to the recent Hollywood strikes, and there has been a 12% decline in the number of theaters nationwide since 2019. However, their unique footprint has allowed them to retain the upper hand with landlords. Because it is hard to repurpose theaters into a different use, many landlords have cut rents to avoid vacancies. This presents an important lesson for would-be commercial landlords - always consider other potential uses of a space in case a tenant goes out of business.

Now could be a once-in-a-generation opportunity to buy commercial office space. With property values cratering by as much as 60-70% in cities like San Francisco and Washington DC, some developers believe that now is the time to invest in the sector. Even with high interest rates and the hybrid work trend, there will likely still be demand for high-quality office space. The key is evaluating which buildings have the best income potential and are likely to rebound in a long-term time horizon.