The Aqueduct by Agrippa brings you a semi-weekly dose of CRE insights—just as ancient Roman aqueducts supplied water to fuel the growth of cities, we deliver exclusive resources to keep you informed.

Quick Overview

News Brief

A recent Bloomberg article unveils staggering figures shaping the commercial real estate landscape, demanding investors' immediate attention.

Key Takeaways

• Looming Maturities: $1.5 trillion in CRE debt is due by the end of 2025, with about 25% potentially difficult to refinance.

• Multifamily Vulnerability: Apartment buildings make up 40% of upcoming maturities, with $95 billion of US multifamily properties in distress or at risk.

• Funding Gap: The current funding gap is estimated to be between $200 billion to $400 billion.

• CLO Market: The $80 billion CRE collateralized loan obligation (CLO) market faces potential stress due to bundled floating-rate loans.

• Lender Activity: Despite challenges, the number of lenders submitting quotes for debt refinancings has doubled on average this year, indicating some market resilience.

Economic Insight

According to the latest report from the Commerce Department’s Census Bureau, U.S. construction spending decreased more than economists forecasted.

Construction Spending

Key Points

• Overall Decline: U.S. construction spending fell 0.3% in July, more than the 0.1% dip economists forecasted.

• Annual Growth: Despite the monthly decline, construction spending increased 6.7% year-over-year in July.

• Private Sector: Spending on private construction projects decreased 0.4%, with residential construction also falling 0.4%.

• Single-Family Impact: Outlays on new single-family construction projects plunged 1.9%, while multifamily housing spending remained unchanged.

• Public Investment: Investment in public construction projects edged up 0.1%, with federal government project outlays jumping 2.1%.

Essential Knowledge

Internal Rate of Return (IRR) is a powerful yet often misunderstood financial metric. It represents the annualized percentage return expected over an investment's lifetime, accounting for the time value of money. Technically, IRR is the discount rate that makes the net present value (NPV) of all cash flows from an investment equal to zero. In simpler terms, it's the annual rate of growth an investment is expected to generate, assuming all positive cash flows are reinvested at the IRR.

Varying Perspectives: Capital Providers view IRR differently based on their investment objectives.

• Institutional Investors: Often emphasize IRR heavily, as their own performance metrics and hurdle rates are typically IRR-based.

• Family Offices: May place less emphasis on IRR, especially those with longer investment horizons.

• Ultra-High-Net-Worth Individuals: Preferences vary widely, but many appreciate seeing both IRR and simpler metrics like Cash-on-Cash return.

Watch Out: IRR has limitations.

• Time Manipulation: IRR can be manipulated by changing time horizons or assuming optimistic near-term cash flows.

• Size Blind: It doesn't account for investment size, potentially favoring smaller projects.

• Pro Tip: Use the XIRR function in Excel instead of IRR; XIRR handles irregular cash flows and specific dates, providing more accurate return calculations.

Newsletter Recommendation

With family offices tripling since 2019, understanding their intricacies is vital for CRE professionals.

Mr. Family Office offers invaluable perspectives on these complex organizations, helping Agrippa users better navigate and leverage relationships with these increasingly important capital providers.

Preference Gauge

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Capital Provider Spotlight

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Deal Showcase

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Platform Updates

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About the Author: Blake J. Owens is the Founder & CEO of Agrippa. Previously, he closed over $600 million in transactions as the CIO of a Las Vegas based multifamily developer. Connect with Blake on LinkedIn and X for additional insights on CRE, economics, and more.