USA - ALABAMA Trends and Developments Contributed by: Adam J. Sigman, Crystal H. Walls, Nathan Stotser and Katie Sinclair, Dentons
broker fees and commissions will impact on real estate markets. Multifamily Rental demand is back on the rise, and apart - ment buildings have proven yet again to be a resilient asset, despite high construction costs. However, high interest rates remained a cause of concern throughout the year, with flatter rents and less occupancy leaving investors waiting for stabilization, and resulting in a slowdown in new construction projects. Nevertheless, Huntsville again remained a tar - get for multifamily investment, and is commonly identified as a great market for rental property. Huntsville’s population has continued to grow, driven in part by the technology and aerospace sectors attracting large employers to the state. Over the past few years, Huntsville has sur - passed Birmingham as the largest city in Ala - bama, and will continue to outpace other areas in the state. One of the many reasons for such growth is the movement of FBI employees to its new facility in the Redstone Arsenal. This, among other large projects, has created a com - petitive and fast-paced market in the Huntsville- Madison area. Throughout Alabama (and nation - ally), certain markets and sub-markets were still active in multifamily. Repurposing retail properties into multifamily and mixed-use projects continued through 2023, though this can be challenging due to construc - tion costs and many zoning laws lacking pro - visions that contemplate adaptive re-use, cou - pled with a push to prioritize multifamily housing with moderate tier rents. In addition to a spike in “workforce housing” development, there was a moderate increase in single family rental devel - opments and build-for-rent (build-to-rent) devel - opments. These redevelopments have triggered
an uptick in zoning/entitlements work, disputes (or threatened disputes) with neighbors and municipalities, and private title declarations and easement agreements. Lending The London Interbank Offered Rate (LIBOR) was phased out in 2023 as lenders transi - tioned to the Secured Overnight Financing Rate (SOFR), which seems to be the replacement rate of choice. The transition from LIBOR was facilitated by a working group of the Federal Reserve, which has promoted the SOFR index as a replacement. Being based on overnight transactions, SOFR relies entirely on transaction data, whereas LIBOR is based partially on expert estimations. Neither the amendments nor new loans using the SOFR benchmark caused any notable problems. Some bank failures occurred in 2023, causing many banks in the market to prioritize deposits over loans, and subsequently causing the volume of loans to decrease. At the same time, rates increased, also causing per - manent financing loans to decrease. Ultimately, construction loans were not paid off, and there was less desire in the market for construction loans in general. Suburbs In 2023, the seller’s market maintained its momentum, especially in the suburbs. Home prices continued to rise, with an unusual combi - nation of low supply and high demand in popular suburban areas. Mortgage rates also continued to increase, rising past 8% for the first time in 20 years; the average monthly mortgage rate reached over USD2,600, growing at a faster rate than wages. However, rates began to steady towards the end of the year and are predicted to drop by mid to late 2024.
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