A tsunami of multifamily deliveries and falling prices have put landlords on the hot seat to get and retain tenants. Concessions like free rent have been growing — we’re pretty regularly hearing two or three months free in Sun Belt markets. 

The latest, greatest strategy: giving tenants rewards for paying their rent on time. 

More than 2 million renters are enrolled in some kind of rental rewards program, The Wall Street Journal reported. Getting a percentage of cash back is common, as is building up points to redeem for gift cards and goodies. Reporting payments to credit bureaus is also on the rise, although whether that strategy actually benefits renters, especially low-income ones who need the help most, is hotly debated. 

The benefit of rewards programs to tenants is obvious, and companies that run these loyalty programs for landlords say they can boost retention and push renewal rents more. They give renters a little pick-me-up every month, and they cost a lot less than traditional concessions do.

Multifamily owners need the lift. The biggest multifamily REITs largely beat expectations in Q2, but there was a thread of nervousness through their earnings calls as they saw oversupply start to spread. There were a record 460,200 units delivered in the first half of the year, and the market is on pace to reach 670,000 completions in 2024, which would exceed the previous record by 50%.

“We feel like we're in the worst of the storm right now,” Mid-America Apartment Communities CEO Eric Bolton said during the company's Q2 call Aug. 1. 

Analysts are generally in agreement that supply will impact owners’ bottom lines at least through late next year, and some landlords are planning for an even longer road: Equity Residential said it expects pain through 2027.

And while the typical thinking is that the nicest, newest properties will always do well by stealing renters from Class-B and less exciting Class-A communities, that hasn’t always been the case this time around. There is a spike in new multifamily properties falling into distress. 

— Jay Rickey, Mark F. Bonner, Kayla Carmicheal and Catie Dixon 

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On Our Radar

• 23 days until interest rate D-Day. CME’s FedWatch tool today shows a 65.5% chance of a 25-basis-point drop and a 34.5% chance of a 50-bps drop based on interest rate trader activity. Jerome Powell’s statement on Friday that “the time has come” for interest rate reductions has nudged the market toward banking on a bigger cut. 

• A reduction in residential Realtor commissions won’t mean much for U.S. GDP or the housing market writ large. An Oxford Economics report this morning says even a couple-percentage-point drop in broker commissions would barely impact the industry’s contribution to GDP growth. It also says any reduction in home sale prices because of the shift in policy won’t be enough to impact housing affordability meaningfully.

• Kroger’s monopoly hearing with the Federal Trade Commission starts today and runs through closing arguments on Sept. 13. Kroger sued the FTC last week over the agency’s attempt to block its $24.6B merger with Albertsons and also sold $10.5B worth of bonds to fund the deal. Kroger had said it would sell off some of its stores to ease antitrust concerns, but the lawsuit has some retail analysts thinking Kroger no longer intends to do so.

• Is the U.S. dollar at risk? The dollar is losing market share globally — its portion of global reserves has fallen from more than 70% in 2000 to 59% today — and there is chatter that it may lose its status as the world’s premier currency. Brookings’ takeaway: The dollar is probably fine for now, but our political instability, soaring debt-to-GDP ratio and increased use of economic sanctions may take a toll.

• Happy International Dog Day! Catie has two old lab mixes, Diogi and Ash, who are pretty unhappy she’s working on their special day when there are so many squeaky toys to be thrown. 

This Morning's News

DATA CENTERS — Determining The Value Of Data Center Sites Has Never Been Harder, Raising Risk Developers Can 'Get Burned' (Bisnow): Determining the value of data center sites has become increasingly difficult, particularly as power shortages have spread through the country. As the demand for data centers grows, so do the complexities in assessing land value, infrastructure costs and future market conditions. Learn more about what goes into data center valuations.

MULTIFAMILY – Multifamily Real Estate Faces 8.4% Price Dip (Multifamily Dive): The multifamily housing sector has seen a year-over-year pricing drop of 8.4%, according to MSCI, an improvement compared to July 2023, when prices fell 13.5%. Gain deeper insights into multifamily conditions and its future.

RETAIL — Red Lobster Announces Imminent Closure Of 23 Locations Nationwide (The Business Journals): Red Lobster is set to close 23 of its restaurants in the coming days as part of a larger restructuring effort to stabilize its financial position. These locations are where the lobster tanks are going kaput.

PERSONNEL — VineBrook Homes Trust Ushers In New Leadership Era (VineBrook): VineBrook Homes Trust has appointed a new CEO and CFO to steer the SFR REIT through its next phase of growth and operational enhancement. Learn what the executive shake-up means for VineBrook's new era.

REITs — Majority Of Largest NAV REITs Secure Positive Returns In July (The DI Wire): July saw 12 of the 15 largest net asset value REITs reporting positive returns. How REITs are stacking up.

REITs — Starwood REIT Experiences Slight NAV Decline (The DI Wire): Starwood's REIT’s net asset value decreased by 0.5% month-over-month. The REIT met 4% of stockholders' repurchase requests for the second consecutive month. Dive into the specifics of SREIT's NAV performance.

FINANCE — Market Speculates On Future Rate Cuts After Powell's Remarks (Bloomberg): The financial markets are abuzz with speculation regarding the potential size and trajectory of upcoming interest rate cuts after remarks from Federal Reserve Chairman Jerome Powell last week. See what industry players are saying.

PERSONNEL — Newmark Bulks Up Multifamily Valuation Team (Newmark): Newmark has bolstered its multifamily Valuation & Advisory services practice with several new hires. Senior Managing Director and Multifamily Specialty Practice Leader Bryan Beel joined the firm in May to oversee the expansion. Learn who Newmark brought on board.

OFFICE — NYC Mayor Directs Agencies To Cut City’s 556-Property Office Footprint (Bisnow): The city is the largest landlord in New York City’s five boroughs, owning or leasing more than 17,000 properties, but the mayor has established a high-priority task force to evaluate and reduce its use of space. Dive deeper into the mayor's plan and what it means for NYC.

SFR — Growth In Single Family Rents Continues Despite Economic Pressures (CoreLogic): Single family rents have risen by 2.9% year-over-year. Eight of the top 20 CBSA that CoreLogic tracks posted gains above 4%. Get the latest data about the single-family rental market.

HOUSING — Redfin Conducts Layoffs (The Business Journals): Redfin went through a round of layoffs last week, mostly in its concierge service. It said less than 100 people were let go, none brokers. How Redfin is adjusting its game plan.

ECONOMY — U.S. International Travel Expected To Rebound In 2025 (CoStar): International travel to the U.S. is expected to recover in 2025, relieving a major drag factor in the recovery of overall U.S. hotel demand. Inbound international travel is one of the last segments to normalize since 2020. Take a look at the latest data on hotel demand.

HOUSING — Philadelphia's Unique Approach Curbs Eviction Surge (WSJ): Landlords in Philadelphia must negotiate with tenants out of court prior to suing to have them removed. Learn what's different about Philly.

INDUSTRIAL — Industrial Real Estate Faces Vacancy And Rent Challenges Despite Low Loan Maturity Rates (Newmark): The industrial real estate sector is seeing a rise in vacancies and a slowdown in rent growth, but maintains the lowest share of maturing loans among property types. Preleased deliveries have driven over 100M SF of new occupancies this year, while buildings developed prior to 2000 have seen move-outs of 41M SF. Here's the current state of the industrial market.

INDUSTRIAL — Site Centers Divests Open-Air Shopping Center Portfolio For $138M (CoStar): Site Centers has sold a portfolio of open-air shopping centers to CTO Realty Growth for $138M. Site has now sold nearly $1B in shopping centers this year as it plans a Q4 spinoff of its convenience retail and strip malls into a new company called Curbline Properties. Learn more about the portfolio and Site Centers' future plans.

HOUSING — Starter Homes Gain Popularity As Mortgage Rates Hit 15-Month Low (Redfin): With mortgage rates at a 15-month low, pending sales of starter homes climbed 10.2% year over year in July and reached the highest level since October 2022. Access more housing data in Redfin's report.

REITs — Real Estate Stocks Thrive Amid Interest Rate Fluctuations (Seeking Alpha): The Down Jones Equity All REIT Total Return Index outperformed the broader market, rising 3.58%. The Nareit All Equity REITs did even better — 3.84% weekly growth. The S&P 500 Index added 1.45%. Dig into the numbers.

HEALTHCARE — McKesson Invests $2.5B In Florida Cancer Clinic Chain (Bloomberg): McKesson Corp. has acquired a 70% stake in Florida Cancer Specialists, a cancer clinic chain with around 100 locations, for about $2.5B. Get more background about the chain.

CO-LIVING —Co-Living's Gradual Comeback In Philadelphia (Bisnow): Co-living arrangements are making a cautious return to Philadelphia, though not with the same vigor seen in other major cities. The resurgence can be attributed to a growing interest in flexible and communal living options, notably among younger renters. However, market uncertainties and regional challenges temper the speed of this comeback. Discover more dynamics of Philly's co-living market.

ECONOMY — Biden/Harris Manufacturing Growth (Bloomberg): Manufacturing construction tripled under President Joe Biden. Discover more about the impact of these investments.

HOTELS — Hotel Loyalty Programs Tighten, Frustrating Travelers (WSJ): It's not as easy as it once was for frequent travelers to score a free night, room upgrade or other amenity as hotel guests are facing a notable devaluation in loyalty rewards. Has your go-to loyalty program switched up lately?

RETAIL — Sky Zone Targets Vacant Retail Spaces For Expansion (CoStar): Trampoline park company Sky Zone is leveraging vacant retail stores — typically around 30K SF — for its next phase of expansion. The Provo, Utah-based company, which caters to kids under 12, owns, operates and franchises over 270 parks. Find out where Sky Zone is jumping to next.

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The First Draft is produced by Director of Newsletters Jay Rickey, Managing Editor Catie Dixon, Editor-in-Chief Mark F. Bonner and Deputy Newsletter Editor Kayla Carmicheal, with an assist from ChatGPT. We’d love your feedback! Email us at firstdraft@bisnow.com.