We're Turning 60!

This week is Pearce Real Estate's 60th anniversary, and we're celebrating!  My father founded the company in 1958, after a 20-plus year career at the A.C. Gilbert toy company (now turned into artists' studios on Peck Street in New Haven).  Perhaps selling erector sets made him long to sell real buildings, and, early in his career, he actually sold the Gilbert building, after the company was downsized and sold.

Our original location, on State Street in North Haven, has been doubled twice, and we are still headquartered in that building today.  Over the years, we spread our territory, first to the Shoreline, and then to other commercial locations in Greater Hartford and in Milford, but we always have maintained our core principles of local independent real estate expertise and community service.  All eight offices today are filled with dedicated professionals who pride themselves on knowledge and integrity.

We'd like to think that we have indeed made Connecticut better over our 60 years in business.  In addition to providing thousands of hours of human service, and millions of dollars, to all kinds of non-profit organizations around the State, we have changed its landscape.  We have developed housing around the Greater New Haven region for most of that period.  With Don Lippincott, my father developed first an industrial park at Exit 10, and then what became in effect a regional mall at Exit 9.  The latter involved building a road and bridge, which is now called the Herbert H. Pearce and Donald B. Lippincott Commemorative Bridge, and leads to Home Depot, Target, and many other destinations.

His capstone project was New Haven's first mixed-use development, known as Whitney Grove Square.  It has shopping, office, residential, and parking at one location, with a bigger garage across the street. It was instrumental in moving people up from the Green to Whitney Avenue and Grove Street.  Buyers lined up through the night to buy the condos when they went on sale in 1986.  Many residents of the region now live in the heart of downtown New Haven, but it was unusual at the time.

We're proud of history, and of the perseverance that it has taken to survive and thrive for all of those 60 years.  We're prouder still of our associates, current and retired, who allowed us to do so.  And we are grateful most of all to the thousands of clients who have entrusted us with their sales, purchases, and rentals, for decades, and often for generations of the same families and corporations.  We look forward to the future, and know that it will be bright.

Two Recent Quick Sales

For those of you who think that it's impossible to sell an industrial building in Connecticut, we have good news!  Although it is often reported that manufacturing, and most industry, is dying in our region, industrial buildings are still desirable.  It may be that they are more often used as warehouse space, or flex space of some kind, or even converted to residential use, but they are being shown, and bought.

We have closed two buildings in the past week that went into contract within two weeks of being listed.  They were both industrial free-standing buildings, and they were in two different parts of our market, and they both attracted calls,showings, and offers right away.  They were priced correctly, and were in the "sweet spot" of 5,000-15,000 sf, with docks and overhead doors.

If you've been waiting to see what will happen, wait no more, because investors are also active in our market, and users won't want any extra competition.  Some people have needed more space for years now, and finally are pulling the trigger.  Others are opening new businesses or territories, and some are just betting on the come that prices will increase.

 It almost doesn't matter what reason you find most compelling.  It just matters that sellers know to list now, and buyers know to act now.  You'll be glad that you did.

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 SmartAssets.com 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.

Real Estate in Tokyo

It's always fun on a vacation to see what real estate is like in other places.  I recently vacationed in Japan, and got a chance to see various cities there.  The most interesting, from a real estate point of view, was to see how the 36 million people in Greater Tokyo live and work.  They have lots of very tall buildings, obviously, and they have a lot of diversity in their architecture. They even have one building that is designed to look like a beer stein, with a square lower part, and an upper part that juts out and is the color of foam!

 Another interesting point is that almost all of their hotels are at the tops of buildings, so that the lobbies are on upper floors, with offices beneath.  From a commercial real estate point of view, one would assume that the higher room rates for good views would have been outweighed by the higher rents that could be charged in leases to firms in the buildings.

The main takeaway from Tokyo is just how many people there are, yet how clean and orderly it is.  There are no public trashcans visible, and they have the highest number of vending machines in the world, per person (there are even machines on the tops of mountains and in the woods!), but there is no litter.  And the Ginza district looks like Times Square, but with bigger buildings and more upscale.

There is one intersection that has 2000 people cross every time the light changes; even so, it lacks the chaos and physical contact that crossing a NYC street entails.  People line up for everything, and wait politely for their turn. The main subway station covers at least one city block, but looks more like (and functions more like) a mall.  Departments stores have food halls and restaurants, some of which only serve one thing--and they are still crowded.

So now I am home, enjoying the peace and quiet of our little state, but happy to have seen the vastness of another vista.

Think Ahead

I've been posting recently about the lack of listings in many parts of Connecticut, and about our need for certain types of property in particular.  What we haven't stressed is the lead time for many sales to consummate, given environmental and zoning concerns, plus financing contingencies and the usual delays and detours.  Given the demographics of our state, and some of its fiscal issues, we know that there are lots of people out there that may have property they hope to sell in the coming years.  Many of those putative sellers should be talking to us now.  We have investors who are flexible about occupancy and who might be likely to prefer a seller who wants to continue to use the property for a period of time.  We have buyers with longer lead times that would be interested in knowing what would be available at a point in the foreseeable future.  We have tenants in leases that are not yet up, but who are looking to move at the end of their terms.

All of this is to say that there is no time like the present to think about the future!  Call us today to see what your property is worth, and to strategize about the best time to market it for best results.  The answers could surprise you.

Appraisals

We are starting to see properties "not appraising out" lately.  That's an early indicator that prices may be increasing, at least in submarkets or areas where supply is limited.  What we mean by that term is that the appraisal number is lower than the amount on the sales contract.  If the buyer needs a mortgage, it's an issue, because he/she may not be able to borrow the full amount that they expected.  In other cases, where the buyer is paying cash, it is not uncommon for the buyer to put in a clause that the sales price cannot exceed the appraised value. 

There are two ways to look at this issue, as with so many things.  One is that the buyer should be willing to pay what a property is worth to him/her, regardless of the appraisal.  The other side of the coin is that the practical value of a property--what it would resell for, and what you could borrow against it--is dependent upon the appraisals.

Appraisals tend to lag the market, because an appraiser can only use comps from within a narrow range of closing dates, and within a very small area around the subject property.  It can be very hard sometimes to find good comps, and adjustments must be made from properties that might not be exactly the same in quality or type.  Since the comps come from recent sales, those prices could be lower, in an increasing market, than the sales prices on contracts that haven't yet closed. 

What advice do I have after all of this discussion?  Appraisal is as much an art as it is a science, and both buyers and sellers should be reasonably skeptical about exactitude.  Given the restrictions on bank lending these days, it is harder for a bank to take the same attitude, so just be prepared to make an independent decision in any given instance.

Big Data

We live in the age of Big Data, and many people make their livings seeking out trends and truisms.  We do a lot of that in real estate, and most clients begin a search for property by trolling the internet for information.  There are many services that compile data (perhaps not surprisingly, many of them are owned by the same parent company).  Some choose to look at the listings themselves.  Others seek out recent sales in a given market, or compare rental rates or vacancies across metropolitan areas. 

Of course, when you Google a property, what comes up may be old, or outdated, or even wrong.  Area averages may not apply in certain cases, for any number of reasons.  That's where agents come in.  At the end of the day, or the transaction, we are still in a people business.  Clients are buying our negotiating expertise and local market knowledge.  Whatever the issue that arises, we've probably seen it before.  If not, we know where to seek the answers.  If you need the help of other professionals, we know them, and can refer you out.  Perhaps the day will come, although I doubt it, when entire transactions will be done on line, with no parties ever laying eyes on each other, but we are certainly not there yet.  So take advantage of what's available on the internet, and then call a Realtor.  We're here to provide the rest of what you need!

New Haven is a Great Place to Retire

I was scrolling, or trolling, on Facebook today, and I noticed a post about New Haven being third on a list of places that are attracting retirees.  New Orleans was first, but we don't have its weather!  However, when you factor in healthcare, culture, free events, and walkability, New Haven stacks up very well.  We have been selling houses in the suburbs to couples who downsize into apartments downtown.  We have also relocated people from out of the area, many with connections to Yale, who come here for their golden years.

What does this mean for commercial real estate?  Providing services in the center city has become more important than ever, not only for retirees who want to be (mostly) car-free, but for busy millennials, as well as for professionals who may live here during the week, or people who just work in the city.  Food places that deliver seem to be more and more popular, as well as places that offer dining options like takeout and/or prepared foods.  There also seems to be no end to the number of restaurants that are prospering in every corner of downtown, and in every ethnic possibility. 

We already knew that many entrepreneurs want to open businesses in the hub of the region, but we expect that trend both to continue and to accelerate.  We know that convenience is important, and that people will pay for it.  We know that time is at a premium, and that walking or biking have become top of mind reasons to live and work in certain communities.  If you have space that could work for someone to open a business, either stand alone or as part of another enterprise (think of the fast-food chains that team up together in urban and suburban locations), give us a call.  And, if you want to become part of the great wave of small business owners, here's your chance.  We're ready to help.

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!

The Multifamily Category is Still Hot

When I look at the LoopNet list of the most-often viewed properties in Connecticut each week, I am struck by how many are multifamily properties  (and also about how few are ever industrial, where there is a big supply).  Week after week, thousands of people view residential investment rental properties.  Why the appeal, and why is it not waning?

I think that the appeal is like all of real estate--a tangible investment in a time of uncertain returns in many investment categories.  It also is the type of investment where those who are handy, or have some free time, can improve properties or cut expenses, and raise returns, something that cannot be done with stocks and bonds.

But won't the supply exceed the demand?  People don't think so, and that's coming from two ends of the age spectrum--millennials and seniors.  Millennials, with little desire for home chores or fixed commitments, and with a lot of educational debt, are renting in bigger numbers and for longer.  And downsizing older adults are no longer finding a stigma in rentals, so they are often selling big homes and renting in urban areas especially.  Since Connecticut has a very high average age, we have a lot of those people.  Also, professionals who move here to take jobs are renting much more often.  They are renting more everywhere, for the reasons above, but our state has a very high percentage of people who want to avoid what they see as an illiquid investment--an owned house--and high estate taxes, so they consider buying somewhere else, or keeping the house they had elsewhere, and renting here.

Will this continue?  It seems to be holding up for the present, even in New Haven, which has loads of new product coming on line.  It may well be that, at some point, those who are slumlords, or who have not reinvested in their properties, will be forced to lower rents or make improvements, in order to compete with the newer buildings, but even that hasn't quite happened yet.  So the interest in the segment continues. 

Services for City Dwellers

"Walkability" is near the top of the list of attributes for residential housing these days.  Everybody wants to be able to walk--to work, to restaurants, to public spaces, and to culture.  Even towns now advertise when something is walking distance from whatever town center is closest.  New Haven is enjoying a boom in high-rise living, with prices headed up and supply being absorbed ahead of anyone's predictions.  What does that mean for our commercial sector?

In prior days, retail meant big box stores that could be accessed with little driving time, and abundant free parking on site. That's still true if  you are big enough--IKEA comes to mind.  For almost everyone else, retail now means the old-time corner store, the local market, the neighborhood bar or restaurant, and farmers' markets nearby.  With all the new housing downtown, there are still services needed locally--in this case, hyperlocally.  What about pets?  Drugstores? Grocery stores? Even gift shops?  We've got something for everyone, but there's room for more.  Tenants and downtown homeowners expect to pay more for convenience, and they will.  More boutiques and pop-up stores are in our future, as our more of the ever-expanding restaurant and bar scene, which already draws from around the state.  It will continue to do so, and visitors will complement the city natives who patronize those places. 

For investors or developers, there is money to be made.  Property now seems reasonably priced for commercial, and it can easily be made into space for the uses that walkability-minded folks require.  Think about it--but not for too long, or the window will close!

Supply and Demand

Nationally, the residential real estate market is out of whack in the supply and demand, with many fewer listings than buyers, and that's the main thing holding down sales in some markets.  That is usually not the issue in commercial real estate, since there are so many different types of properties, and they aren't often fungible.  There is a problem, however, in that we see many buyers and tenants who cannot find the kind of properties that they are seeking; that is a different variant of supply and demand.


We seem to see more of that issue now.  Why would that be?  First of all, it's much easier for buyers to see what's on the market by searching on-line themselves.  So, when they get to us, they have seen what's there, and they are looking for what's not there.  Secondly, it seems as though there are more Section 1031 tax-free exchanges, where buyers may be more constrained in what they need to buy, and in more of a hurry.  Thirdly, the lingering effects of a bad market have caused many sellers not to list.


What are the lessons here for buyers and tenants, sellers and owners?  If you are a buyer/tenant, it's more important than ever to make sure that you have a real estate agent who knows the local market, since you may be looking for that proverbial needle in a haystack.  We are doing more and more searches for what isn't available, and you can find those things, but you have to know where to look.  For sellers/lessors, the lesson is simpler:  List now.

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.

Need New Listings for New Leads

It's slightly unusual to be saying this in January, but we are getting more leads than we have listings to satisfy.  It's a nice problem to have!  For whatever reason, we went roaring into the end of the year, and it hasn't stopped, despite ice and snow. 

Listings tend to expire at the end of the calendar year, so there are typically fewer listings on the market in January every year.  Many owners wait until spring to put their properties on the market.  This year, you shouldn't wait.  We can't predict the weather, but we do know that the calls are coming in, often on the signs we have on currently listed buildings, so waiting wouldn't be the right strategy this year.  Give those buyers and tenants something new to look at--you'll be happy that you did!

Moving Chess Pieces

What do restaurants and technology/biotech companies seemingly have in common?  They both seem to abruptly change status.  Restaurants, for obvious reasons, don't ever seem to give a lot of notice about closings, and so closures come as a surprise.  Tech and biotech companies, which are clearly hot properties, merge or move on a dime.  Buildings which have just finished fit-up, or undergone extensive renovations, may suddenly find themselves empty again. The rent cost doesn't amount to enough to factor in heavily to other synergies of moving. 


Lately, we've seen both phenomena in our market.  Long-term, established restaurants have closed, and new lab and office space has re-entered the market.  The latter, particularly, could represent opportunity for investors and users to pick up square footage at a relatively low cost.


Nothing is constant except change!

What Do Millennials Mean for Commercial Real Estate?

We've been reading a lot recently about millennials, and what their preferences and the size of their cohort will mean for residential real estate over the next few years.  They aren't buying homes as soon as their predecessors did, nor do they seem as wedded to the concept of home ownership as earlier generations were.  In addition, they don't seem inclined to tackle "fixer uppers", and they are very clear about their expectations in housing.


I was at a meeting recently, where someone was bemoaning the fact that there were so few millennials, and that they weren't forming households quickly enough, or having children soon enough, to improve the sales of homes in the short run.  Someone else at the meeting commented that this new generation might never buy as many homes, but added that it didn't matter, as long as we turned our attention to investors.  Investors know that everyone has to live somewhere, so they are out scouring markets for property that can be rented to the millennial group.  Given their desires, those properties may well have to be gutted, or at least retrofitted, in order to provide the amenities necessary to attract renters. 


People always say that fortunes are made by finding products that fulfill a hole in whatever market is being discussed.  Well, here's one.  Investment real estate, anyone?

Are Snow Days Different with the Internet?

We read all the time about how many people begin their searches for properties online.  In fact, we know that the vast majority do so.  This is in marked contrast to the way things were not so many years ago.  Then, people drove around, called in on signs, and looked at properties with their agent first.


Snow then was a big deal, at least snow on today's level.  When driving was a problem, or prohibited, no real estate got seen.  I even taught my kids, who, like all children, loved snow days, to understand that the sound of a ringing phone in a storm was the sound of clients cancelling their real estate appointments!


 Today's pattern could be very different.  We know, for instance, that hits to our website have risen dramatically since the holidays.  This is despite snow and bitter cold.  After all, it's always the same temperature at your computer.  On days like today, busy professionals have a chance to go back to their To Do lists, and start working on those projects that get bumped every day by urgent business issues.  How many of them are searching for needed or desired properties?  Let's hope that many of them are!

Current Absorption Rates

Click on the image to expand data

Happy Holidays

All of us at Pearce Commercial wish our clients and associates the happiest of holiday seasons, and a new year filled with prosperity, good health, and good cheer.  We are very grateful for the trust you have placed in us over the past decades, and look forward to continuing to serve you throughout the coming year.  We are proud to showcase our region and our State, and will endeavor to help to promote growth and good will for all.

It's Never Too Soon to Think about Next Year's Tax Bill

By mid-December, lawyers and accountants, as well as their clients, will be frantically trying to lower 2013 tax bills, by spending down profits, acquiring extra depreciation, or putting new equipment in place by year end.  We're all busy at this time of year, but it's worth starting a month ahead of then, to evaluate your space needs going forward.  If  you have an outstanding offer on space you don't use, have you factored in the benefits of taking an offer this calendar year, before dismissing it?  If you have expansion needs, can the costs of fitting up space be put partially or fully into this tax period?

It's hard to juggle long-term decisions with short-term crises and issues, but there could be a big payoff later, for thinking about April in the chill of November.  You'll thank me later, if this prompts you to act now and save next spring!