Transactions are Still Happening in Commercial Real Estate

It was hard to know a month ago, when we closed our physical offices, what would happen to our sales.  We aren't saying that there isn't a big dip, but it seems to be mostly from the lack of listings, in some categories.  That is, fewer listings are coming onto the market, and therefore there is less inventory to sell.  When properties do get listed, they get looked at online, and they get seen in person, and they sell.  That's not always true, but it is notable.

One reason is that we've known for a while that many businesses were short of space, but not pulling the trigger on more.  Now, some of those decision makers have time to look, to evaluate, and to buy.  We have seen that in sectors unaffected by the pandemic.  In the case of industries at the forefront of the current situation, they can be growing rapidly.  Doesn't everyone wish that Zoom were based in Connecticut?

Another contributing factor is the knowledge that some of this change is probably permanent.  Not only will more people meet virtually, those who are buying and having the goods delivered are getting used to that way of life.  In the sphere of commercial real estate, that calls for more warehouse space.  I've written before about our location between NY and Boston, as well as our own demand, due to the relative lack of retail here, compared to other markets.  Recently, we listed a warehouse near I95, and it went under contract in three days, after several showings.  It didn't surprise us, but it may surprise some people, who may feel that the country is in a state of suspense, with no forward movement.  Actually, smart businesspeople are positioning themselves for the changes coming with reopening.

Finally, rates are low, and the stock market is volatile.  That combination often leads to a boom in real estate.  Let's hope so.

Silver Linings

We all hear a lot about the problems of Connecticut, and its economic fortunes.  A new survey shows that 47 percent of CT residents are considering leaving the state within the next 5 years, which ties an earlier record.  Not only have companies left, but we are an aging state, with many people reaching retirement age, and moving for all kinds of reasons, not just to avoid our high taxes.

On the other hand, 35 percent of those surveyed thought that they were better off financially than they were a year ago, which is also a number that has gone way up; three months ago, that number was 26%.  Some of that is national improvement, but we are seeing it here as well.

If we take those two statistics together, and apply them to real estate, what do we get?  People have more money, but they may not be staying here.  That set of facts should be overlaid on another tenet of real estate, which is that the market is always cyclical.  What goes up must come down, but what goes down always comes up at some point.  The other major tenet is location, location, location. However badly Connecticut's fortunes are lagging, we are still located on the coastline, and between two major metropolitan areas that are growing--NYC and Boston.

That leaves me thinking that investment real estate in our region will continue to prosper, and even do better.  Money goes farther here, since prices are low, and people need to invest somewhere.  The stock market is volatile, and is making investors nervous.  Even if they leave the state, they can still own property here.  Why not buy where you know the area, prices are low, and the location is good?  I'm betting on that for the future.  We've seen it in multifamilies, and apartments, and I think we will see it in individual houses and buildings as well.  Holding on to real estate here can be a very good bet, and it's worth thinking about it, while looking for a place to put money.

Reaping the Rewards?

Now that the stock market has started to rally so strongly, maybe it’s time for people to take what they’ve made, and buy real estate instead.  In our region, prices are still very low, compared to even twenty years ago.  We used to have average home prices well above the national average, so that job recruits moving here were worried about finding affordable housing comparable to their previous homes.  Now, we are very close to the national average, and we haven’t gone up, in some areas, enough to cover the declines of the last decade.  Commercial prices have been bumping along, also not moving up over time.  Some industrial buildings are at prices equal to those of years ago.  While some towns have a shortage of smaller commercial spaces, others have empty big box stores, many of which could be repurposed.  We are very short on affordable housing in our region, and the gap keeps growing, as rents continue to rise.  Even as housing prices for homes have declined, rents have doubled, and many tenants are paying a percentage of their incomes for rental units that is considered to be onerous.

 

What does all this mean for buyers?  Real estate is, and always has been, cyclical to some extent.  Through the boom  years, we would say that what goes up, must come down.  Now it seems that the opposite should also be true:  What went down, will come back up.  There is still an opportunity in our area, which isn’t true in much of the country—especially the coasts—to get normal appreciation on purchases, given the current state of prices.  We know that investors have been increasingly drawn to our state, because of the high prices in Boston and NY.  Why would locals not invest as well?  While we’ve been reading about the woes of Connecticut, others have been coming from out of state and out of the country, and buying and buying.  With our deeper knowledge of the local market, we should be able to do better than they could.  So let’s make a resolution in 2019:  Buy local!

Think Broadly About Investment Property

If you own property that you are using, but would like to free up the cash you have invested in it, consider the potential for selling and leasing back.  We are seeing many investors in our market, looking for places to put stock market gains, proceeds from other real estate sales, or just extra liquidity.  They are perfectly willing to buy commercial rental property, but they want it filled. If you are willing to sign at least a five-year lease to stay where you are, you have a good chance of finding an owner for your building.  That will allow you to expand, deploy the funds elsewhere, or just diversify your own portfolio.  Even if you buy another property elsewhere, or of a different type, you have spread your risk farther.

We have seen many downsizing baby boomers who are willing to sell their big homes and rent apartments, often in cities.  Now that the stigma of being in a rental property has all but gone away in the housing market, why not use the same theory in the commercial sector?

Stock Market Gains Turning to Real Estate

It appears that some of the money captured by investors in the especially bullish 2017 stock market may be redeployed into real estate in the near future.  Many people believe that we are near the end of this market cycle on Wall Street, and those who have the discipline to remove gains from stocks are seeking alternative investments.  Real estate is an obvious use for that, since cash has been returning virtually nothing over the past few years, and bonds have been lackluster in many cases as well. 

We are therefore seeing heavy demand for investment properties of all stripes, and are having trouble finding enough to fulfill the interest generated.  Our hope is that baby boomers who are often selling, relocating, or retiring, will put new buildings and parcels onto the market in the coming months, as it is more likely now that such offerings will sell.  Even users are more inclined to purchase, as they too are looking for a safer return.

The message here?  It's a great time to consider liquidating an underutilized or unwanted real property, and maybe a last chance to get into a new property at somewhat lower prices.

Multifamily Still Strong

Despite talk in the NY area that prices for residential property are overheated, and although Connecticut is considered to be one of the places where buying makes more sense than renting, both have more multifamily properties in the LoopNet weekly report of the most viewed properties.  In the NYC region, 7 out of 10 of the listings mentioned were multifamily, and 8 of the 10 in CT were in the same category.

What this suggests is that it may be less about demand for the end product, and more about demand for investment properties for mostly smaller investors, at least in Connecticut.  By that, I mean that REITs may be looking at other things, but that much of what would be considered "affordable" purchases for individuals are now falling into the multifamily basket.  It could also mean that sellers are beginning to put those investments up for sale, either to reap the profits to reinvest, or to lock in gains before there is an oversupply.  Or that the stock market is getting the proceeds from any sales.

Under any scenario, it's clear that the action lately is strongest in the investment realm.  Since LoopNet is telling us that buyers are looking largely at those types of listings, it makes it a good time to list. 

The Crystal Ball is Hard to Read

If we all knew what was going to happen in the economy before it happened, we'd all be very wealthy.  As it is, people are wondering what will happen in the Trump Era.  For real estate, it should be a good thing, since he is, after all, a real estate developer himself.  We know that he's planning to cut taxes in certain ways, and he hopes to speed up the construction of infrastructure.  Against that, there is the possibility that he will eliminate or cut down the interest deduction for mortgages, or that his social policies will affect places like New Haven, which is a sanctuary city. On the whole, however, we should see some benefits for those who own and invest in real estate.

The stock market has already weighed in.  After an initial downturn, it went zooming back up, and clearly is behaving as though Trump will be good for business.  If so, real estate should have begun rising.  We can't tell what's under contract, but the lag time for closings in the commercial sector, and the length of time that a transaction takes, means that we haven't seen anything yet.   But we probably will.

Assuming that's true, the race will go to the swift.  Those that buy near the beginning of the rise will profit the most.  So, what are you waiting for?

Election Pause?

Many real estate professionals claim that there is always a hiccup in the market before an election, as people try to figure out what will happen in either scenario. It's not clear to me that it's happening this time, although you couldn't have a starker contrast between two candidates than we are being presented with this time!

One thing that is clear is that interest rates are never lower than before an election, especially in a presidential election year.  This time is certainly no exception, and that should spur action under any vision of the future.  Over the long run, it matters more what your interest rate is than what you pay for the property, within a certain range. 

Besides, how do we even know which candidate Wall Street will favor?  Hillary has most of their contributions, and Trump is a businessman, like most of those running big companies.  Either one should have their fair share of support, meaning that the stock market should not react wildly to either outcome. 

Well, here's one time when I'm clearly on the line, since we only have two weeks to go, before we find out what happens.  In the meantime, go forth and buy or sell--you should be fine, in any event!

Investment Fever

The recent travails of the stock market have proven to be a boon for investment real estate.  The appeal of being able to see what you own, and touch it, is proving irresistible to investors from here and abroad.  We are seeing feeding frenzies for apartments, where buyers are making offers sight unseen, and office buildings, where we are surprised at the final sales prices.

Investors are being priced out of NYC and Boston, and are turning to us to look for available product.  We are happy to oblige, and are getting used to learning the nuances of moving money from country to country.  It's nice to know that the United States is still the place where people feel that their money is well spent.

If you are a buyer, you have new competition from overseas.  If you are a seller, you have new buyers.  This may be the time to cash out, and it may not matter whether you own apartments, retail, industrial, or commercial real estate.

Market Volatility

When the stock market is at its most volatile, people become concerned--sometimes obsessed--with the value of their portfolios.  Some check the numbers every day, and talk about changing allocations.  Yet shouldn't those same people look at the value of their real estate holdings?  While they don't jump up and down in price in the same way, sometimes we don't check the values until we are thinking about selling.  Assessing real estate value should be a part of any portfolio analysis.


When financial instruments change in value, the percentage of your holdings in real estate can change at the same time, either up or down.  Many people think about buying more real estate when they feel less confident in the markets for other types of investments, but sometimes just the passage of time will move the needle on those percentages.  Could it be time for you to call your agent, and see what your properties are worth today?

Investment Real Estate in Greater New Haven

To make money in New Haven real estate, a person needs to know that it is, at heart, a university town.  The growth is in education and health care (the latter being here in some large part because of Yale's medical school), as well as biotech (ditto the sentence above). We are disproportionately employed in the arts, again in part because of schools, and also because our highly educated workforce values the arts greatly in evaluating quality of life issues.

These factors tend to produce a population in some parts of the region that can be quite transient - students, graduate students, residents, artists, and "hired gun" executives.  At the other end of the spectrum, we have a very poor inner city area, with high rates of unemployment. Those two groups combine to produce a high need for rental properties at every price point, and contribute to New Haven having the lowest apartment vacancy rate in the country (about 1 and ½ percent).

If you've read the two preceding paragraphs, you're probably already in the market for residential investment property.  Join the club!  We have a great demand for those types of listings, and are always on the lookout for more.  New Haven now has rentals that exceed $5,000 per month for an apartment, as well as Section 8 housing (in one instance, in the same building).  Investors have a choice, therefore, about the segment of the market where they feel most comfortable.  There is also a shortage of houses for rent, and we are starting to see activity in that sector as well as the strong demand for multifamily homes that has existed, particularly near the colleges and universities.

Of course, where there are students there is also a need for restaurants, bars, retail, and health facilities, so investment property does exist in other sectors as well.  Greater New Haven is considered to be significantly "under-retailed", and 06511 is reported to be one of the nation's hottest mail-order zip codes, the theory being that the people in that part of New Haven have high incomes and not enough retail outlets to satisfy their consumption preferences.

So, whether you'd like to be a landlord, a franchisee, or simply a holder of a potentially valuable future income stream, we can find what you'd like in Greater New Haven, at any time that you think that you've had enough of entrusting your wealth to the increasingly volatile stock market.