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.

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!