Monday, February 19, 2018

Urgency at Last

Forget the calendar.  We've been smoking hot for the past few months in the Commercial Division.  Beginning in the fourth quarter of 2017, we finally started to see the uptick we've been waiting for over the past few seasons.  December 2017 saw gross commissions that were ten times that of December 2016.  January kept up that trend, with commissions five times over the January of the previous year.  February is also running way ahead.

Even better, we are seeing immediate activity on the kinds of listings we said would move quickly if we could get listings of that type.  For instance, there has long been a shortage of industrial buildings under 20,000 square feet for sale.  The listing we recently posted in East Haven was shown over and over again in the first week, and went under contract almost at once. 

All of this is despite January weather that was much worse than what we saw last year.  It was cold, it snowed and was icy a lot, schools were cancelled, and spirits lagged.  Yet real estate moved briskly.  I guess we can officially forget about the old pattern, where sales follow weather patterns. 

Now that the stock market has begun to hiccup, we expect even more demand for other investment vehicles.  We have already seen investors coming from NYC and other places, looking to place cash into something safer, or at least cheaper.  That out-of-state interest has, in turn, caused local developers and investors to take another look, and also to bid higher, on such properties.  Mulifamilies are still in great demand, and we think that will spill over into other types of buildings, and into communities outside of downtown New Haven. 

If this is our market when it's dark and cold outside, we can't wait for spring!

Thursday, February 8, 2018

Rentals Rule

With the recent news that three of New Haven's newest and fanciest apartment complexes have changed hands at eye-popping prices, it's clear that New Haven has a presence on the national scene for investment potential.  Investors from other places, mainly those priced out of the NY market, have entered our arena with enthusiasm.  Most are institutional investors, who are in it for the long haul, and that shows a confidence in our market that should help us all.

New Haven has, for several years, been at or near the bottom of national lists of rental vacancies, getting as low at one point as 1.5%.  The current situation is not all that different--less than 2% overall, with slightly over 3% vacancy rates at the upper end. Almost every high-end unit that has come onto the market in the past few years is occupied, something that many people doubted would happen.

The really interesting aspect, however, is that the units existing before are still full, and in demand.  In addition, the traditional graduate student housing on Orange Street and environs was expected to fall off in value, as more attractive options lured away those with money, but we haven't seen that occur.  There is still very strong demand for multifamily units in the East Rock neighborhood, as well as in other parts of the city.  Finally, despite all the rental interest, there are not enough condo units to satisfy the demand.  Part of that is because lenders are shying away from financing condominium projects, and that decreases new supply, but, whatever the reason, certain complexes are still in constant demand.

What all of this means is that the number of renters continues to grow.  Some are coming from increasing population, although New Haven is still far from its 1940s peak population.  Student demand is also growing, even as Yale continues to add to its own supply of housing.  We do have a large immigrant influx, and they may be pushing former renters into new areas and developments.  It also appears that New Haven may be achieving its goal of attracting young workers from around the State, who live here for the nightlife and cultural aspects, then commute by train or car to other environs for work.

There is also a heavy influence of baby boomer renters, those who previously owned large homes in the suburbs here or elsewhere, and are downsizing to rentals with amenities.  The traditional stigma against renting, when you could afford to buy, seems to be rapidly disappearing, and the convenience and portability of lifestyle is more important than the tax deduction to many.  We could easily see more of this group if their McMansions in the suburbs would sell more quickly, allowing them to move into the urban core.  While most experts believe that those with young children will eventually choose suburban venues, it does appear that walkability scores may continue to keep those families in cities longer.

What to tell investors?  It's a seller's market for multifamilies and developments, as well as for shovel-ready projects, although there are still opportunities for local people to guess the paths of gentrification, and use them to advantage.  But what about what usually follows?  We haven't yet seen the office and retail that so often accompanies housing, or even precedes it.  While office is years from recovery, and may never reach the pre-telecommuting heights, retail should still be in the wings as a growth opportunity.

And all of this is cause for New Haveners, and those in the region it supports, to rejoice!

Friday, January 19, 2018

New Haven Class A Market Will Face Challenges in 2018

Article is from the Connecticut and New Haven Business News

The biggest factor in the New Haven real estate market was the decision by Alexion Pharmaceuticals [NYSE: Alxn] to move its headquarters to Boston

Alexion has placed 280,000 square feet of office space on the market for sublease with a term ending in 2030. For the time being the company plans to keep its research personnel in approximately 220,000 square feet of lab space in the building.

Alexon’s ability to save the estimated $250 million dollars per year that its “reorganization” expects may well be challenged by the cost to move however, as conditions in Boston get more expensive. The Boston real estate market continues to tighten, likely presenting Alexion with square footage more than double what the company pays in New Haven.

Anecdotal reports from the Boston market is that hiring in the “tech space” has grown more difficult as competition for tech workers and the costs of living for employees in the city continue to escalate..

According to a financial services data website an Alexion employee will have to be paid $128,000 annually to live comfortably in Beantown. The median income in greater New Haven is approximately $68,000.

Considering the 30% Class A vacancy rate and the premium costs associated with the new construction of Alexion’s headquarters at 100 College Street the ability for the company to recoup its real estate costs through the sublease market may be in doubt.

The startup and small business nature of New Haven’s biotech and general business community illustrates the problems in filling the Alexion space at its current costs. The region’s premier Class A office building 555 Long Wharf has 68,685 square feet available for sublease from Medtronic [NYSE:MDT, formerly Covidien] at an advertised rate of under $20 per square foot.

Biohaven [NYSE:BHVN] recently raised more than $168 million in a public offering and chose to purchase the former Liberty Bank location a Class B building on Church Street for its headquarters in a purchase last August 2017. The opening in February [2018] of the 107,000-square foot District Tech space will also be an additional competitor for the sublease space.[ see New Haven's New Tech District is Right Around The Corner]

The Alexion relocation announcement has had a major impact on the city’s vacancy numbers, office vacancy citywide jumped from 14.1 to 19.3%.

Class A vacancy increased from 19.1% to 30.3%. Vacancy in the New Haven Central Business District rose from 8 to 16.1 %.

Most of the increase in the numbers is a result of the Alexion move, but the Class A vacancy rates also increased as Medtronic increased its offering of sublease space at 555 Long Wharf Drive from 37,265 to 68,865 square feet [see above]. The new sublease space resulted in a jump in non-CBD vacancy [a category that was unaffected by Alexion] from 21.7 to 22.9%.

In 2014 Winstanley sold a partnership interest in 100 College Street [Alexion building] and the nearby 300 George Street to Wexford Science and Technology, a division of BioMed Realty Trust of San Diego. The deal valued the two properties, which have a total just more than 1 million square feet, at $308 million.

Winstanley retained an equity interest and responsibility for management of the properties. Wexford has since been bought by Ventas Inc., based in Chicago.

Tuesday, January 2, 2018

Set a New Deadline

We are just coming off of what turned out to be a very busy December.  There were lots of changes, of course, with the new Federal tax bill, but it was--and still is--very unclear as to whether some things should have been done last year, or will be more advantageous to do in 2018,  Nowhere is that more true than in the real estate realm.

So, while uncertainty generally slows a process down, last month it sped up.  When I tried to think of why that would be, I realized that the end of a calendar year is a powerful and motivating deadline.  All sorts of people rush to finish projects and clear off their to-do lists before a year ends.  This year, despite all the potential changes, was no different, and even busier.

It made me conscious of the fact that the real estate market has been slowed down by people feeling that there was no pressure to make decisions.  Instead, they thought that properties would continue to be available, maybe even for less, into the foreseeable future.  Our job as agents was to try to create urgency.  That was often hard.

Therefore, our hope for next year is that all potential and current clients have a self-imposed deadline of some sort.  Whether their hope is to move, sell, or redeploy assets, everyone needs a finish line to cross.  Uncertainty can be problematic, but, if it lasts too long, more is lost by waiting than by simply moving on.

Greater New Haven, or Connecticut as a whole, residential, commercial, or investment, buy, sell, or rent--all are choices.  Just make one, and you will feel accomplished and relieved.

Thursday, December 21, 2017

What Will 2018 Bring?

The latest Federal tax bill is only hours old, but pundits have been debating various proposals and exclusions for months.  People are frantically trying to figure out what it means for real estate, and what to do before the end of the year.  Unlike making a charitable contribution, it isn't quite so easy to implement changes in the next ten days.  However, we can see that some are trying.

It's unusual for us to still be getting offers and selling at this season, when thoughts often turn to shopping and partying.  This year, the phones are ringing more, and more transactions are coming together.  There aren't too many of those buyers and sellers who expect to close instantly, so it's a sign of something else, and we hope that it's a sign that people are moving on with their lives.

They hesitated during the presidential election, they hesitated during the first few months of Trump's term, but they finally seem to be inclined toward action.  Whether that's just life, or it's in reaction to the various proposals is hard to know, but I'd bet on the former.  I think we all know that mortgage rates are heading up, and that, in the end, that makes more difference to buyers than almost anything else in a purchase.

There hasn't been enough time for digestion of all of the parts of the tax bill, so we aren't even sure what 2018 will bring.  However, it is the time of the year for predictions, so here goes:  Connecticut is going to be hurt under the bill, and more people will leave the State in 2018.  Since not all of them will be able to sell their houses, they will reduce prices on big, expensive homes.  At some point, those properties will seem like a bargain to those who have lived elsewhere, or in times past, and they will start to move.  Some of them will be sold as second homes, since those mortgage deductions were preserved in the final bill.  Buying real estate will seem prudent compared to betting that the stock market will keep going up.

Millennials will be a major force.  They may need help, and we may see more sellers taking back money, as used to happen in different cycles of the market.  Big employers may turn to housing allowances, in order to attract employees from out of the area.

On the commercial side, we will see more and more 1031 tax-deferred exchanges, as those were preserved as well.  Investment real estate will be strong in Greater New Haven, where properties seem inexpensive compared to Boston and New York.  The State Legislature may actually listen to the new commission on fiscal health, and make changes that will cause business to expand or relocate here.

And our New Year's resolution here in Connecticut?  We will continue to do our best to sell our beautiful State and region, in little pieces.  Happy New Year to all!