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Good morning — thanks for checking into DOMUS: we are the real estate newsletter, specially curated to provide you with the most important trends, news, deals, and more in practically no time. Today, we'd like to focus on specific news as well as some of the overarching trends that have been identified in New York, California, and other areas throughout the country. 

In Today's Email

• New Development in NYC: Manhattan condo sales still holding strong.

• Brookfield in Trouble: as they default on $784 million worth of loans.

• California's Resident Outflow: the state lost over 500,000 people during the pandemic.

• Yet Another Housing Bubble: are housing valuations overvalued due to flood risks?

New Development in NYC

Despite the significant cooling in the US housing market due to the increase in mortgage rates, New York City's condo market has remained fairly strong.

According to Marketproof, the number of new Manhattan condos sold in January sat around monthly average sales recorded from 2015 - 2020. Of course, compared to the incredibly high activity seen right after the start of the pandemic, overall activity has tanked in recent months.

In January, sponsors in New York put 104 units into contract, which sits around December levels, as the market continues to rebound from a low in October of 74 new contract signings.

According to Marketproof CEO Kael Goodman, high prices have left room to negotiate as the difference between asking and closing prices came in at 14.9%.

In Manhattan, median prices for new condos has risen 2% above pre-pandemic levels to $1,994 per square foot, while overall median prices has fallen about 5% to $1.99 million. In Brooklyn, median asking prices have increased 13%, but new contract signings have fallen well below pre-pandemic averages.

Brookfield in Trouble

In Downtown Los Angeles, Brookfield has defaulted on $784 million worth of loans tied to two of its trophy office towers.

Specifically, the firm defaulted on its $465 million loan package associated with the Gas Company Tower at 555 West 5th Street and a $319 million loan package associated with 777 South Figueroa Street — and according to a Brookfield subsidiary, "lenders may exercise their remedies", which include foreclosure.

As Downtown LA's office market continues to fall into distress, these latest defaults have only made things worth. Earlier this month, for instance, Oaktree foreclosed on a 48-story office tower. Considering that Brookfield is one of the largest office owners in Downtown LA, particularly with its 2006 acquisition of Trizec Properties for $4.8 billion and MPG Office Trust for $425 million in cash and $1.9 billion in debt assumption, rising vacancy rates will most likely continue to cause significant risks for the firm.

California's Resident Outflow

Throughout the pandemic, Americans migrated quite a bit, with California representing a bulk of that activity.

Specifically, over 500,000 people left California during the pandemic, with the number of residents leaving surpassing those moving in by almost 700,000 people between April of 2020 and July of 2022. California was second only to New York over this time period, which lost 15,000 more people.

The primary motivation for this population exodus came down to CA's incredibly high housing costs, with other reasons being long commutes, big crowds, and large amounts of crime and pollution. Over the two-year pandemic span, net migration from CA surpassed that of the next highest state, New York, by 43,000 people.

Although the pandemic continues to ease, experts do not anticipate reversal of this trend anytime soon, with positive growth estimates for California's population not beginning until approximately 2024. All the while, some of the nation's most populous states added to their populations over the pandemic: with Texas gaining 884,000 residents and Florida gaining 707,000 people.

Yet Another Housing Bubble

According to Bloomberg, homes in certain areas that are vulnerable to floods may be overvalued by anywhere from $120 billion to $237 billion, citing data from a report published by the Nature Climate Change Journal.

Specifically, the report analyzed the amount that homes are currently selling for and estimating the average yearly losses that homeowners would experience in the event of a flood over the course of 30 years (the typical length of a mortgage).

Of course, the largest differences in value were found in coastal areas in Florida where real estate transactions do not actually require the disclosure of flood risks. In terms of the overvaluation figure provided, the bulk came from high-value properties: with 11% of properties accounting for 80% of the overstatement. Yet the lowest-priced properties were found to potentially lose the greatest portion of their value: up to 10%, according to the report. Furthermore, a significant portion of the overvaluation is driven by properties that are not even covered by severe flood zones.

As sea level rise continues to put properties at risk, this topic will only become more prominent: but it has certainly been a topic of conversation for quite some time now. A report by Climate Central said sea levels could fully or partially flood around $34 billion worth of real estate on the country's coasts in the next 30 years.

REITs Before Market Open

Prologis (PLD) | Current Price: $125.32 | 52-Week Change: -11.98%

Public Storage (PSA) | Current Price: $299.01 | 52-Week Change: -12.67%

Simon Property Group (SPG) | Current Price: $123.66 | 52-Week Change: -10.42%

Digital Realty (DLR) | Current Price: $110.76 | 52-Week Change: -18.56%

American Tower (AMT) | Current Price: $210.26 | 52-Week Change: -7.93%

Crown Castle (CCI) | Current Price: $140.68 | 52-Week Change: -13.77%

Equinix (EQIX) | Current Price: $716.76 | 52-Week Change: +5.29%

REITs Quick Update

According to Citi, Public Storage Inc. (PSA) has some room to raise its offer for Life Storage (LSI) after it rejected PSA's bid on Thursday. Smedes Rose, analyst at Citi, stated that "we estimate [that] PSA's offer equates to a cap rate of 5.4%": Rose has a neutral rating and $126 price target on LSI.

Deal of the Day

• 100 S Cushing Avenue, Kaplan, LA | Asking $2,417,188 | 9,800 SQ FT

• Investment Triple Net Lease (Retail / CVS)

• Built in 2006 | Over Nine Years Remaining On Lease

• NOI of $193,375 | Cap Rate of 8.0%

• Check out more information here

That's All For Today

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