RealEstateNews 9.9.24

Weekly News Roundup

• Recipe for a Housing Crash
• Luxe Branded Real Estate
• Life Science Converting to Office

Recipe for a Housing Crash 

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A primary mistake that fueled the housing bubble of the Great Recession was the rush to lend money to homebuyers without regard for their ability to repay. But the evidence also shows that it would be incorrect to describe the last crisis as a “low- and moderate-income event,” said Susan Wachter at Wharton. “This was an event for risk-takers across the board…. Those market conditions also attracted borrowers who got loans for their second and third homes.” 

After 2000, there was a huge expansion in the money supply, and interest rates fell dramatically. Wall Street firms created products around borrowers who were not adequately qualified in terms of income levels and down payments on the homes they bought, as well as investors who were eager to buy.  As the mortgage finance market expanded, it attracted droves of new players with money to lend. These new players brought in money from sources that traditionally did not go towards mortgages, which drove down borrowing costs. 

“We had a trillion dollars more coming into the mortgage market in 2004, 2005 and 2006,” Wachter said. “That’s $3 trillion dollars going into mortgages that did not exist before — non-traditional mortgages, so-called NINJA mortgages (no income, no job, no assets). These were [offered] by new players, and they were funded by private-label mortgage-backed securities — a very small, niche part of the market that expanded to more than 50% of the market at the peak in 2006.” Source: Wharton

Luxe Branded Real Estate

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There is a “growing list of luxury brands hoping to use real estate to turn their cultural cachet into cold, hard cash,” said Business Insider. Italian automaker Pagani — which produces cars with multimillion-dollar price tags — recently “unveiled plans for Pagani Residences, a 70-unit condo development in Miami’s North Bay Village.” These condos, similar to their cars, will sell at around the $3 million range. Pagani is the “latest high-end car brand to lend its name to a shiny condo project along the Miami coast, joining the likes of Mercedes-Benz, Porsche, Aston Martin and Bentley,” said Business Insider. Non-auto brands venturing into the condominium market include Italian eatery Carbone, Dolce & Gabbana and Elle magazine, according to the outlet.

While other cities are seeing these types of developments, Miami seems to be a hotspot for this trend, where “no one will even build a luxury building in the city without a name brand attached to it,” said Curbed. The “traditional residential model of just building a really nice building is not enough anymore,” Peter Bazeli, a real estate development advisor, said to the outlet. A new development “has to have a brand, has to conjure up the idea of what the lifestyle can be.” Globally, there are “about 700 branded residences, with nearly the same number in development, all scheduled to launch by 2030,” said Forbes.

Beyond setting up places for people to live, luxury brands are “racing to buy properties on the world’s most famous shopping streets” because they “fear that, if they don’t buy their flagship store from the landlord, one of their rivals will do so and send them packing,” said The Wall Street Journal. Land is going quickly on New York City’s Fifth Avenue, and “Europe’s luxury brands have spent more than $9 billion buying boutiques on the world’s top shopping streets since the start of 2023.” Both Prada and luxury conglomerate LVMH are “hunting for luxury properties in New York, according to real-estate sources.” Source: The Week

Life Science Converting to Office 

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Biotech and pharmaceutical buildings became one of the hottest investments in commercial property at the start of the pandemic. Now, the glut of life-sciences properties has gotten so bad that some developers are exploring the unthinkable: marketing the space for office use. In the Boston region, for example, owners of at least 10 life-sciences locations are now offering those buildings for office space instead of lab space, according to brokers and other real-estate professionals. The building owners are willing to lease it for office use even though they can face a 30% haircut on what they had hoped to charge for life-sciences use.

As the U.S. office market downsizes and works off its surplus nationwide, owners of life-sciences buildings in such regions as Boston, San Diego and the Bay Area are also facing a glut of new life-sciences properties, a function of a fast-growing sector that was turbocharged by Covid-19. When the pandemic hit, developers moved at warp speed to develop life-sciences workspaces with climate-controlled laboratories and specialized systems for controlling tiny vibrations that could interfere with experiments, as well as for ventilation, fire safety and power.

However, demand for life-sciences space has fallen sharply from its pandemic peaks. Many biotech, pharmaceutical and other life-sciences companies have lost their appetites for rapid expansion because of high interest rates, weak venture-capital financing and an uncertain economy. Some projects that have hit the market in the past three years have seen little or no leasing. Most traditional life-sciences core locations in places such as Cambridge, Mass., South San Francisco and the northern suburbs of San Diego remain healthy. But the pain from overbuilding and faltering demand is severe in new locations the industry tried to pioneer during the boom years. Source: Wall Street Journal