REI INK

Corporate Housing

Corporate Housing is Essential to Welcome New Businesses and Residents By Angela Healy The spring housing market tends to be the real estate industry’s peak season, and this year looks to be no different. In an already booming market, the ongoing increase in consumer behavior patterns such as relocation, remote work, and inventory availability add even more impact. Key consumer trends driving the real estate market will continue to do so and have led to a demand in corporate housing, making it a great time to invest in this growing industry. Specifically, investing in single family homes presents a prime opportunity to capitalize on the increase in demand for corporate housing as Americans move to smaller and more affordable markets. Real Estate Market Drives Up Corporate Housing Demand  Last year, home prices soared nearly 20% and 70% of homes were in bidding wars. The wide acceptance of remote work has allowed Americans to sell their homes in some of the country’s most expensive cities and move to up-and-coming ones, such as Nashville, Charlotte and Salt Lake City, giving them a bigger budget than locals. In some of the hottest markets, transplants have up to 30% more to spend on homes than local buyers. This trend gives insight into ever increasing home prices, but also further high-lights the mounting pressure on some of the country’s most competitive cities for housing availability – particularly single-family homes. Inventory is significantly lower now in comparison to recent years. Among over 300 housing markets across the country analyzed by Zillow, 254 of them have inventory levels that are down by more than 30%. That being said, a record one-third of Americans are still looking to relocate. Many, especially families, are moving to smaller markets where they can have more opportunities, lower cost of living, and escape high urban areas as mortgage rates and increasing rent prices make affordable metros more attractive than ever. As a result, the demand for corporate housing, especially fully-furnished, single-family residences, is on the rise without signs of slowing down. Many Americans are choosing to sell their homes and move into rentals to ensure they can make non-contingent offers on new properties and utilize corporate housing as an interim stay until finding their permanent home. Given the limited inventory numbers, buyers are needing to wait longer to find their ideal buy, so a corporate housing option becomes that much more valuable. In today’s real estate environment where housing inventory remains at record lows and prices continuously surge, temporary housing is critical for city growth. Behind the Trend Individuals and families are not the only ones making a move. Businesses relocating to smaller-sized cities are scooping up corporate rentals for transitioning executives and employees, and families conducting full home remodels are leveraging these temporary stays as well. It is also projected that traditional, unfurnished rental housing will see vacancy rates go up as rental prices rise. If demand amongst tenants is to decrease, landlords and property managers may take advantage of the opportunity to get into the corporate housing market. In addition to remote work and individuals moving by choice, business office relocations are also proving to be a key driving factor in demand for corporate housing for single family homes. When a company seeks out a corporate relocation to a new city or is ready to expand to a new geographic location, there are several critical factors that are essential for consideration, whether moving within the current state or to another region of the country. Employee retention and recruitment is one of those important considerations. Companies are recognizing the long-term importance of remote work for retaining their workforce and the shift in preferences for employees to live and work closer to their homes and families. Additionally, factors such as quality of life, cost of living, and education opportunities are increasingly carrying significant weight as part of businesses’ decisions on where to locate their operations. As a result, smaller and medium sized cities are positioned for ongoing growth and economic development. However, to truly realize the benefits of these transformational business shifts, economic planners must recognize the importance of supporting relocating employees in the process. Corporate housing has proven to be a key component of the equation. Investing in Single-Family, Corporate Housing In addition to corporate relocation housing needs, this model is an attractive and needed option for families and individuals in a range of situations such as traveling for medical reasons, those on government or military assignments, or those moving to a new area before securing long term housing. Single family, fully-furnished properties are essential to enable urban growth and should not be overlooked by investors looking to capitalize on the demand for corporate housing. Corporate housing is significantly different from short-term housing, and essential for cities poised to welcome new businesses and residents following the COVID-19 pandemic. According to data from the Corporate Housing Providers Association’s (CHPA) Annual Report, both the international and U.S. corporate housing markets experienced significant increases in demand and revenue during Q3 and Q4 2021, with the U.S. market in particular skyrocketing and representing a large part of revenue during those quarters. Additionally, the vast majority of residences that make up the current industry and are most in demand are one and two-bedroom residences. The corporate housing market segment continues to grow year after year, even outpacing the hotel market and traditional short-term residences. It is evident that there is a significant opportunity for investors to get involved with an industry that is well positioned for significant growth along with the already red-hot real estate market, especially as businesses keep accepting remote work and Americans continue to relocate for various reasons. The ongoing growth of the corporate housing industry and the importance of maintaining this inventory in smaller cities and growing markets to welcome population growth make investing in single family homes in particular an optimal way to capitalize on investing in the corporate housing industry.

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Update: Russian Invasion of Ukraine

What it Might Mean for Real Estate in 2022 By Carole Vansickle Ellis This content contains updated information about the Russian invasion of Ukraine that began on February 24, 2022. Since the beginning of the invasion, both sides have sustained thousands of casualties and the United States and its allies have imposed a vast array of political and financial sanctions on Russia while delivering arms and information to Ukraine. This update discusses the possible economic impacts on the United States and specifically the real estate industry. For more background and historical context for the conflict, visit www.REI-INK.com. What Does It All Mean for Real Estate? The United States and its allies continue to impose sanctions on Russia and Russian oligarchs, with the U.S. Treasury Department playing a key role in the design and implementation of what New York Times economic policy reporter Alan Rappeport described in April as “the most expansive financial restrictions that the United States has ever imposed on a major economic power.” Janet Yellen, Treasury secretary, expressed ongoing concern that sanctions will “amplify inflation” in the United States and noted that sanctions on Russia have already led to higher prices for gasoline and could “bring spikes in food and car prices” globally due to the disruption of Russian and Ukrainian wheat and mineral exports. Last month, we took particular note of inflation, supply chain issues, stock market volatility, and renewable energy. Since then, inflation, oil prices, and supply chain issues have moved to the forefront as primary factors affecting the U.S. housing market and national economy. In the United States, oil prices seem to be leveling off at about 22% higher than they were days before the Russian invasion of Ukraine. Starting in April, the Biden administration announced it would release 1 million barrels of oil each day from the U.S. Strategic Petroleum Reserve (SPR) in hopes of keeping prices down over the summer. At the time of writing, the European Union had banned Russian coal (with a four-month lead time) and was drafting plans for a similar embargo on Russian oil. However, the E.U. said it would not enact an embargo until after the final round of elections in France on April 24, 2022, since rising prices at the pump could directly affect the outcome. Rising oil prices traditionally have affected real estate in areas where people are reliant on personal transportation in order to make work-related commutes, but, as Motley Fool contributor and real estate investor Liz Brumer-Smith noted in her observations, remote work could mean that “long commutes are not as big of an issue in the recent past.” She predicted, “It is more likely that we will see a direct correlation between high gas prices and lower demand for housing” as would-be homebuyers use savings set aside for a future home purchase to “float temporarily until inflation and…fuel costs come down.” Brumer-Smith warned this decreased spending could also “negatively impact hotels, short-term vacation rentals, and entertainment venues.” So far, however, the “belt-tightening” measures typically associated with rising gas prices and inflation have not been in evidence when it comes to consumer behaviors. This could ultimately mean that rising inflation and oil prices have an outsized effect on housing and a smaller impact on assets delivering returns based on short-term spending. According to first-quarter reports from big banks like JPMorgan Chase & Co., Wells Fargo, Citigroup, and Bank of America, Americans are pessimistic about the economy but are still spending on credit. In fact, this activity was up more than 30% year-over-year during Q1 2022. Much of this spending appears to be “revenge” spending associated with wanting to “get dressed up to go out to dinner again in a restaurant,” as Citigroup CEO Jane Fraser put it. Consumer determination to spend on travel paired with supply-chain issues has led to a jump in food prices and airplane fares, but, so far, American consumers are using their credit cards to make up the difference and continue to spend. Americans are not paying down their balances as quickly as they had been; according to the banks, running balances have risen as much as 15% since this time last year. This could indicate people are exhausting the savings they built up during the pandemic. JPMorgan Chase CEO Jamie Dimon said his bank is not yet worried, however. “Charge-offs are…way better than they should be,” he said. This short-term spending behavior means the housing market is likely one of the first places investors will see evidence of economic cooling or leveling off, and many analysts say this is already happening in the hottest U.S. markets. Boise, Idaho, is the first of the country’s top 100 housing markets to post “falling” prices, which essentially means in post-COVID lingo that home values in Boise rose only about 0.4% in March rather than more than 4%, as the market posted in June 2021. Nevertheless, Boise prices remain about 70% higher than what median households in the city can afford, which continues to contribute to the slow leveling-off of sales prices in the middle and lower tiers of the housing market in that city. Even with supply chain stress increasing and affecting the rate of new construction while financial stress and rising interest rates diminish the buying power of would-be homeowners in 2022, it appears unlikely that prices will actually cool in the near term simply because there is such a dearth of supply. Today’s housing market has only 1.7 months of supply (6 months is considered “healthy” and “balanced”), so investors should continue to expect high home prices, although perhaps a slight cooling in terms of competition for properties, in the near future. What We Hear From the Experts “We have never seen a time where mortgage rates have risen as quickly as they have and the market has not cooled off. I do not expect the [housing] market to collapse by any means, but certainly it is going to go from a gangbuster market to one that hopefully looks

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