Exploring the Trends Behind Our Short Note Portfolio

Connect Invest is a new real estate investing platform, offering real estate investing opportunities to both beginner and seasoned investors, designed to generate monthly passive income. In this article, we delve into the current trends shaping the real estate market, influencing the selection of projects featured in our Short Note Portfolio.

Get ready to explore booming construction in several markets throughout the US, identify lucrative opportunities in the commercial real estate sector, and discover rebounding trends post-pandemic.

Real Estate Rebounding After the Pandemic

The COVID-19 pandemic disrupted nearly every aspect of our daily lives, leading to lockdowns, supply chain disruptions, and feelings of isolation from loved ones, colleagues, and classmates. Post COVID-19, the real estate market has been significantly disrupted - from inflated construction supply and labor costs, increased interest and mortgage rates, a severely limited inventory of available homes, and soaring house prices.

Emerging from the pandemic, many of us feel weary, especially when considering real estate. Many are wondering if it’s a smart time to invest their money into a sector that has experienced so much volatility in the past few years. However, this article aims to uplift your spirits and reignite your interest by demonstrating that real estate remains a wise and valuable investment option.

Residential and commercial construction valuations are rebounding following the decline caused by COVID-19-related supply chain disruptions, interest rate volatility, and lockdowns. This recovery is visually evident in the following two graphs:

Source: The Bureau of Economic Analysis

Source: The Bureau of Economic Analysis

While taking a look at these graphs, it’s important to keep in mind that price and value are two separate, distinct concepts. While price represents the monetary amount paid for something, value refers to the worth or utility derived from it. It’s crucial to recognize that high prices don’t necessarily automatically equate to high value.

In the real estate market, prices continue to rise due to demand surpassing supply, but this doesn’t necessarily mean that the value of the properties is proportionally increasing. Despite these trends, the housing market’s stability is maintained by the principle of supply and demand, with a higher demand ensuring that the market remains resilient. Therefore, this represents an opportune moment for investors to consider diversifying their portfolios with real estate.

Construction Booms in Markets Across the U.S.

Recent real estate trends in 2024 reveal significant developments. In February, single-family housing starts (a measure of new residential construction) rose to a rate of 1,129,000, according to the U.S. Census Bureau and the Department of Housing and Urban Development. 

“Houses are in, and apartments are out. That's the gist of the February housing starts data,” said Holden Lewis, a real estate expert at NerdWallet. “Home builders began building 35% more single-family houses than the same month a year earlier while commencing construction on 36% fewer apartments. They're wrapping up an apartment construction boom that was in response to rapidly rising rents during the pandemic. As that boom ends, we're seeing a surge in construction of single-family houses. Builders are responding to strong demand for affordably priced houses at today's mortgage rates.”

The number of active developments is expected to remain high until 2025, when further economic headwinds are projected to begin affecting construction.

Connect Invest has projects underway in several states experiencing ongoing real estate construction booms, including Utah, Colorado, and Arizona. Specifically, the projects within our Short Note Portfolio include:

• Provo-Orem, UT: An approximately 2.885-acre site to be entitled to allow the construction of a 454-unit, seven-story apartment complex that will consist of studios, one-bedroom, and two-bedroom units. 

Provo-Orem ranks as the second-highest mid-size market nationwide leading in single-family unit construction. In 2022, statistics revealed authorization for 40.3 new housing units per 1,000 existing homes, totaling 8,287 newly authorized housing units.

• Colorado Springs, CO: An approximately 2.885-acre site to be entitled to allow for the construction of a 454-unit, seven-story apartment complex featuring studio, one-bedroom, and two-bedroom units.

Colorado Springs ranks as the 10th highest mid-size market nationwide leading in single-family unit construction. In 2022, statistics indicated authorization for 28.6 new housing units per 1,000 existing homes, totaling 8,844 newly authorized housing units.

• Phoenix-Mesa-Chandler, AZ: The collateral for this project’s loan is roughly 7.4 acres of multi-family zoned land in Phoenix. The current owner is working with the local government to get site approval for a 112-unit attached residential community. The whole project is anticipated to be completed in approximately 24 months.

Phoenix-Mesa-Chandler ranks as the 10th highest large metro market in the nation for leading single-family unit construction. In 2022, there were 23.3 new housing units authorized per 1,000 existing homes, totaling 47,267 newly authorized housing units.

Commercial Real Estate Isn’t Just Office Space

When discussing commercial real estate trends, there’s a tendency to focus solely on office space, but this definition is far too limited. Commercial real estate is not just office space - it encompasses various sectors, including industrial, health services, hospitality, multifamily, and retail. Connect Invest’s Short Note investment model provides investors with the opportunity to invest into a diversified portfolio of active real estate projects, including retail, industrial, and healthcare projects.

Retail commercial space has seen notable success in recent years. According to the real estate analytics group CoStar, high demand and limited supply have driven retail vacancy rates down to 4.6% by the end of 2023. This marks the lowest vacancy rate recorded since CoStar began tracking retail commercial space in 2007, presenting a promising trend for investors.

Running a successful retail business poses significant challenges, with intense competition to attract and retain customers. Emerging trends in the real estate market highlight that prospective retail tenants now demand more than just any available space - they seek specific locations with tailored designs in high-value areas that cater to their brand.

Furthermore, commercial real estate trends indicate a resurgence of interest from major investment firms in retail properties, signaling a positive shift in the market. These firms are targeting recession-resistant spaces including grocery stores and pharmacies.

Notably, Blue Owl Capital, a New York-based investment management firm, emerged as a prominent investor in retail spaces in 2023. They acquired a large amount of various resilient retail assets, including free-standing grocery stores, gas stations, convenience stores, and auto-parts retailers, reflecting their confidence in this sector, amidst the rise of online shopping and other economic uncertainties. 

Lucrative industrial real estate investments play a vital role in supporting local commerce within communities and neighborhoods. Industrial real estate primarily includes distribution centers, warehouses, and other logistics hubs, all of which perform exceptionally well due to the enduring popularity of online shopping, especially so in the post-pandemic era.

The U.S. Census Bureau data indicates that the growth of e-commerce shows no signs of slowing down. By the end of the third quarter of 2023, e-commerce retail sales had surged to $271 billion, marking a notable 31.5% increase from the same period in 2020.

During the third quarter of 2022, e-commerce had accounted for 14.1% of all U.S. retail sales, a figure that has since risen to 15.6%. While the pandemic undoubtedly accelerated the growth of online shopping, it has now become an integral part of consumer spending habits, with no foreseeable change in this trend.

Connect Invest is actively investing in several commercial projects. Investors who have diversified their portfolios with Short Notes are reaping the benefits of real estate investing through monthly passive income payments. Some of the projects within our Short Note Portfolio include:

• Nampa, ID: The collateral for this loan is an approximately 107,000-square-foot building that is part of the District 208 Shopping Center. Since acquiring the nearly 400,000-square-foot mall in 2019, the borrower demolished about 25% of the space, added out parcels, and turned the excess parking into apartment buildings. The apartments are almost complete, and a tenant has signed a new lease. The new lease will commence after the apartments and tenant improvements have been completed.

• Hobbs, NM: The collateral for this loan is an 80,000+ square foot commercial retail property—the site of a former K-Mart. The borrower has leased 87% of the property to national brands, which will open for business once tenant improvement work is completed.

• Kent, WA: The borrower is acquiring a 66,000-square-foot shopping center that is part of a larger complex. Two of three tenants should be open and fully operational in 2023, while one tenant will open in early 2024. The proceeds will be put towards the acquisition of the property and the repositioning of the asset.

Parting Thoughts

Connect Invest, in partnership with our loan originator servicer Ignite Funding, remains vigilant in monitoring the latest real estate trends nationwide. Ignite’s rigorous underwriting process ensures our portfolio is resilient and our projects are located in thriving markets.

Whether you’re new to real estate investing or have years of experience under your belt, our Short Notes are a smart addition to anyone’s personal investment portfolio. With rates as high as 9% APY, enjoy a passive, fixed-rate monthly income. Signing up is quick and easy, with no fees, and you can begin with a minimum of just $500. Our dedicated team is ready to address any inquiries you may have - call us, email us, or schedule a virtual meeting with us at your convenience.