In this new news series, we will be taking a look at short-term rental financing news.
The Week in Short-term Rental Financing
Real estate values expected to stabilize, turning from a red-hot seller's market to a calmer, more neutral market.
After two disruptive years in the real estate market, we are all eagerly looking forward to 2023 and hoping that it will bring some much-needed respite and calmness. The good news is that experts generally agree that next year will witness a shift from the red-hot seller's market to a more neutral one. This means that property prices and mortgage rates will stop climbing at their currently steep rates.
Nonetheless, those who wish to find profitable investment opportunities in 2023 will still need to deal with the consequences of 2020-2022 trends. Specifically, home values and mortgage interest rates will remain relatively high and regional shifts will continue.
How Real Estate Investors Can Prepare for 2023 in 4 Easy Steps
It is safe to say that the Fed is hellbent on continuing to raise interest rates to combat the global inflation phenomenon. Rates have essentially doubled since the Fed began raising rates and may rise another few percentage points, which leads us to the following post from the St. Louis Fed.
Weaker GDP Growth, Inflation Uncertainty Dim U.S. Economic Outlook
The pace of economic activity has been uneven this year. After declining at annual rates of 1.6% and 0.6% in the first quarter and second quarter of 2022, respectively, U.S. real gross domestic product (GDP) increased at a stronger-than-expected 2.6% annual rate in the third quarter. Growth in the third quarter was unusually brisk because of a large contribution from real net exports—the largest in 42 years, in fact. However, the boost from net exports is likely to reverse over the near term because the Federal Reserve Board’s real broad dollar index, a trade-weighted measure of the dollar against a basket of currencies, was at a 37-year high in October, and global economic growth, particularly in Europe and China, is weakening.
Accordingly, the November Survey of Professional Forecasters (SPF) projected that real GDP will increase at a 1% annual rate in the fourth quarter of 2022. If this growth is realized, real GDP would increase by 0.8% over the four quarters ending in the fourth quarter of 2022, far below last year’s 5.7% growth rate and well under the economy’s trend growth rate of about 2%. The SPF projects that GDP growth will remain positive in 2023, but uncertainty remains above average.1 The Federal Reserve’s commitment to restore price stability, while necessary, could cause the economy to slow further next year. Indeed, a recession is not out of the question.
Weaker GDP Growth, Inflation Uncertainty Dim U.S. Economic Outlook
Key Takeaways from the St. Louis Fed
- The outlook for U.S. real GDP growth has dimmed appreciably over the past year, with the consensus prediction now calling for it to increase by 0.8% in 2023.
- Headline CPI inflation is forecast to slow, from a projected 7.7% in 2022 to 3.4% in 2023. The Fed has signaled further interest rate hikes are likely.
- The pace of job gains is expected to slow in 2023, but the strength of the current labor market stands in stark contrast to weakness in other areas of the U.S. economy.
A bridge too far?
Typically, short-term rentals financed using a bridge loan have generally been refinanced when their term expires with a lower-interest rate, longer-term loan. Often, this means getting a conventional mortgage.
This trend is abating.
Often, we are seeing bridge loans converted into other short-term debt. Borrowers are being creative in this inflationary, high interest rate climate, replacing an existing bridge loan with other short-term financing rather than locking in longer-term debt with higher rates.
Consult with one of our dedicated short-term rental consultants to learn more about bridge-to-bridge loans.
Le Collectionist Raises $63 Million for Luxury Vacation Rentals
Le Collectionist, a luxury short-term rental platform for full houses, has raised $63 million of growth funding.
It was led by Highland Europe, with participation from OLMA, XAnge, Famille C, Swiss banks Pictet and Lombard Odier, Kostogri, and Red River West, as well as angel investors Fabrice Grinda, Nathalie Le Roy, and Xavier Romatet.
The Paris-based company’s portfolio includes 1,800 properties in 30 destinations, including the French Riviera, the Balearic Islands, Portugal, Italy, the Alps, the Caribbean, Morocco, South Africa, Costa Rica, and more.
Only 3 percent of homeowners that apply each year are allowed to list their homes on the platform, the company said.
Le Collectionist has made several company acquisitions to expand its property portfolio and local activity offerings. The latest funding will help the company make more acquisitions to consolidate the fragmented market.
As part of booking through the platform, local teams create custom activity itineraries for guests through partnerships with guides, chefs, artisans, and other locals.
Since 2020, Le Collectionist said it has increased revenue by 5.5 times. Demand has quadrupled since then, and the number of active properties has multiplied by 3.5, the company said.
Le Collectionist Raises $63 Million for Luxury Vacation Rentals
reAlpha Asset Management Inc. Secures $100 Million Capital Commitment for Post IPO Funding from GEM Global Yield LLC SCS
DUBLIN, Ohio–(BUSINESS WIRE)–reAlpha, an AI-powered real estate technology and investment company with a goal to empower everyone with the ability to invest in the $1.2 trillion global short-term rental (STR) market, today announced that it has signed an agreement with GEM Global Yield LLC SCS (“GGY”), a Luxembourg-based private alternative investment group, for a $100 million capital commitment.
reAlpha Asset Management Inc. Secures $100 Million Capital Commitment for Post IPO Funding from GEM Global Yield LLC SCS
It's safe to say that the short-term rental industry is in full swing and will continue to be for the foreseeable future, even despite rising rates, higher inflation, and uncertain GDP growth.
Stay tuned for other short-term rental financing news in the coming weeks and months.