Pearce Commercial Agent Carl Russell Does Biggest SIOR Deal Nationwide in June

We can make big real estate news here in Greater New Haven!  Carl Russell, SIOR, CCIM, of Pearce Commercial, was featured in the most recent issue of the Society of Industrial and Office Realtors (SIOR) News. Carl sold 35,000 sf of medical office condominiums in Orange, CT.  The center is called Springbrook Commons, and it was the largest office sale reported nationally in the SIOR network for the month of June.

Carl also handled the sale of a large Family Dollar Store in the same month, showing not only his versatility, but the strength of the market across sectors.  While we have been focusing in this blog recently on warehouse and industrial properties, these two sales represented the retail and office portion of the current strong sales climate.

News sources reported last week that real estate was the only part of economy showing exceptional growth.  We all know that Connecticut is the beneficiary of New Yorkers seeking more residential space, but it's important to note that this extends to other types of space as well.  That broad performance suggests that there is somewhat general agreement that tangible property is a good investment, both for users and for investors.

This argues that we are in a seller's market, and that owners should consider listing now, even at a time of year that is normally slow (perhaps especially now, given the Northeast lull in COVID cases).  While we wouldn't have expected that our sales would boom in a pandemic, nor would we have chosen such a scenario, we are all surprised at the robust nature of the current climate for real estate.  Don't be left behind--this is your chance.

Residential Homes Statistics 2020 (Through 2nd Quarter)



Multiple Offers Come to Commercial Real Estate

Connecticut has been experiencing a lack of adequate supply in residential real estate for some time now.  It's what we call a "seller's market", meaning that there aren't enough listings to satisfy the demand.  This obviously pushes up prices and lowers time on the market.  It also leads to more than one offer at a time on certain listings, which hasn't happened with such frequency in quite a while.

Lately, we are seeing this trend in on the commercial side as well.  With certain types of real estate, especially warehouse and investment, there aren't enough properties on the market.  This is partially due to the fact that very little has been built in recent years, but changes in demand have also affected us.  

One such trend is the move out of bigger cities into smaller ones.  This has increased during the pandemic, and is leading to a resurgence for places where social distancing is easier.  Offices are less affected, because so many people are actually working from home.  Retail has been impacted by e-commerce.  Even industrial properties, though, have seen the uptick in demand.  

Location is also about proximity to larger markets, so it isn't just about where people want to live.  Our real estate is more affordable, and transportation is available to both Boston and New York. We have become very attractive to investors for these reasons, leading to an increase in multiple offers.

We expect this to continue, and we need more listings, in order to satisfy buyers.  Normally, summer would be slow, but that won't be true this summer. Fewer people are traveling, and more want to buy, rent, and sell before a possible second wave of COVID.  So think about your long-term goals, and call a commercial agent soon!

What Shape Will the Recovery Curve Take for Commercial Real Estate?

This is a somewhat misleading headline, since I am neither a professional economist, nor a seer.  The point I want to make, however, is that there is much more activity than there was after the abrupt economic debacle of 1987, or during the Great Recession of the late "Aughts".  In those two prior times, all interest in viewing real estate, or in buying or renting it, went on hold as soon as the stock market collapsed.  It took many years, in each case, to revive demand, or begin to create supply.

Right now, we are seeing strong activity in the industrial market, as well as demand in investment real estate continuing along.  Retail and traditional office buildings have clearly been harder hit, so it will take longer to see what happens in those sectors.  The fact that sales and leases are occurring, however, shows that this recovery won't be as delayed as the other two.  It may not mean that prices stay up, although we haven't seen that problem yet.  

One big factor is that some parts of the national economy, led by ecommerce, and followed closely by PPE manufacturers, have every reason to be expanding.  The pandemic part of this crisis, leaving the economic issues aside, have created opportunities for new businesses and expanded services.  Some of the current trends seem likely to persist, even if the country completely opens up by the end of the summer.  While things could certainly shift for a number of reasons, nimble entrepreneurs and corporate leaders are moving quickly to fill demand. 

The intervention of the government in the early stages may also mean that banks are more inclined to lend.  The relief provided so far gives financing firms more assurance that they will eventually get paid.  That wasn't true in the last recession, and it was recent enough that we seem to be remembering those lessons.  

Let's hope that I'm right, and that we see strong sales and leasing as restrictions lift.  Given our large role in the overall economy, that would be good news for everyone.

The New Normal Seems Workable

When we have listings, we have calls, leads, and showings.  It's that simple.  It's particularly true with industrial space, where no new product has come onto the market in decades.  Docks, overhead doors, and clear span are all important, but the most necessary?  You guessed it--location, location, location.  We are within one day's drive of a third of the US population.  Ecommerce is at an all-time high.  Shipping and delivery are key success factors in that industry.

We didn't know what to expect--not as though anyone else did, either--when the pandemic set in.  We knew very little about the coronavirus, and less about the prognosis for its effect on the economy, except that we knew it wouldn't be good.  Lockdown began, and we all held our breath.

Now, as Connecticut becomes the last state in the nation (along with Massachusetts) to begin to reopen, we have a different point of view.  Although our unemployment is sky high, and our economic damage great, the real estate market is surprisingly robust.  Lack of supply is one reason, but the longer term looks good as well.  Some businesses are doing better in the telecommuting economy.  Many are bouncing back.  The outlook is far less sanguine for retail and big office buildings, but people plan to work, live, and play in the future.  The new normal, as it turns out, may not be all that different from the old normal, from a real estate point of view.  Yes, open floor plans will do a dive, many restaurants will not survive, and big buildings dependent on elevators may suffer, but other trends will emerge.  Small cities and suburbs will thrive.  Open space will raise value.  Banks will make loans.  Cash will leave the stock market, and go into real estate.  Elective surgery and medical visits will begin again.

I'm writing this on a staggeringly beautiful spring day in New England, and maybe that's making my viewpoint sunnier.  But maybe not--people are resilient, and so is America.  We can't forget the motto of the National Association of Realtors--"Under all is the land".  And it's still there.

Letter to Our Clients

Colleagues and Friends:

As many have said, these are extraordinary times. As you know, Connecticut Governor Ned Lamont has issued an Executive Order asking many businesses and organizations to suspend operations, while we battle the Coronavirus outbreak that has disrupted our health and our lives.

As of now, real estate services are exempt from the order to close due to the fact that for some people, moving may be a necessity even in this stressful environment. Some businesses critically need more space to provide for increased demand in certain industries. There are many in our community right now who are in the middle of a real estate transaction, or who find themselves needing to purchase or sell a property due to changes in their jobs or their families.

While we remain available to those who need us during this time, the Governor's order was put in place for a reason, and we are doing everything we can to respect and honor it. That means that at Pearce Real Estate, our primary concern is for the health, safety, and welfare of everyone in our community that is affected, in whatever way, by the current crisis. So, while we are still able to serve you, we will be strongly recommending doing so virtually. When in-person contact is required, we will be sure to do so safely and appropriately to respect the circumstances.

During this time, we feel one of our primary responsibilities is to listen; whether it's about a specific housing need you may have, or just about how this situation is affecting you and your family. Even if you’re not someone who needs to move right now, you may have questions. Please know that we are here to help you make the best possible decisions for your specific situation and help you safely through the process.

We will continue to communicate information we believe to be important to you as circumstances evolve. In the meantime, don't hesitate to contact us.

Thank you for the trust you have placed in us, and we intend to do everything we can to live up to it.

Together we'll get through this.

Barbara L. Pearce

CEO & Chair
Pearce Real Estate

Connecticut is Open for Business

Governor Lamont is reaching out to businesses in a variety of ways.  To begin with, he's a businessperson himself, and therefore presumably is sympathetic to the costs and travails of doing business here.  In addition,  he has a highly visible team of economic experts, including ex-CEO Indira Nooyi of Pepsi, and Jim Smith, ex-CEO of Webster Bank.  He has recruited entrepeneur Josh Geballe as CAO, who in turn has brought in developer Noel Petra to manage the State's real estate holdings.  Manufacturer Colin Cooper is putting a spotlight on CT manufacturing.

All of this goes a long way toward making the business community feel welcome.  In addition, he's talking up our assets and promoting optimism.  He's also loosened up on the State's "debt diet", although it remains to be seen which way that cuts; it could promote growth, or just increase State spending.  He seems serious about infrastructure and transportation.  What more is a Governor to do?

He needs help from the Legislature, however.  They don't always seem to share his priorities.  He can't un-elect them, so he has to work with them.  Right now, his agenda seems bogged down over tolls.  Let's hope that his broader vision prevails, and that our representatives do what they should--make Connecticut competitive.

Don't Write Off December

Although the year is drawing to a close, the real estate season isn't over.  Many people figure that holidays and vacations mean that nothing to do with property will get done, but that isn't always so.  In fact, because the end of the year is a hard deadline for some projects, professionals often rush to make sure that transactions are completed in time.  Delays are made up for by planning for them.  And lots of people in the industry wait until January to take a break.

Even clients can be easier to reach.  Especially this year, when Thanksgiving was so late, the season is rushing toward us, and business travel slows down.  Weather keeps some from traveling, or even from regular appointments.  When businesspeople are in the office, they sometimes have less punishing schedules.  Things they need to get done can depend on others, who are not around. Financial chores and future planning take place onsite, in many cases, as do reviews and strategic sessions. Even shopping is now online for lots of gift givers. As a result of all this, it can be more possible to reach people at their desks, not less.  And they may be more likely to answer their own phones, due to clerical absences!

What does this mean for buyers and sellers?  Push to get things done, even in the last weeks of the  year.  Try a little harder to find common ground--expect that there may be more flexibility when time is short.  Put off that shopping list, and get down to business.  You'll be glad you did!

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.

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.

Will Jobs Follow Apartments?

New Haven and its surrounding area have seen a great deal of apartment activity over the past few years.  While housing prices have remained steady, or even declined, rents have risen by 50% or more in the central city.  The administration is banking on the continued desire of young professionals and empty nesters to live in the city, wherever they may work.

The most recent announcement, of a new apartment high rise, behind the new apartment high rise that used to be the Union Trust building, is a good example.  That site was talked about for years, as the potential spot for a new parking garage, but the selling out of the Union Trust units has led to a plan for more units directly behind it.

Once all of these luxury buildings have gone up, and professionals are living here, why wouldn't they want to work here as well?  And didn't General Electric say, on its way out of Connecticut for Boston, that its biggest concern was the recruiting and retention of talent.  Aetna made much the same argument, as it prepares to pull up stakes in Hartford and relocate to New York City.

It stands to reason that university and other startups, professional firms, and other businesses that depend upon finding educated workers would look in New Haven, if there already exists a population of people living here and working in similar jobs remotely or elsewhere.  So, doesn't it also make sense that we will see a wave of employers opening branches or firms in our city, to take advantage of what people here call the GSCIA (Greatest Small City in America)?  Let's hope so.

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.

Where are the Listings?

Our commercial real estate sector in Connecticut is short of listings!  On the sites we monitor, and in the meetings we attend, new listings are thin on the ground these days, all over the state.  Some of it is time of year--people are thinking about vacations, not real estate.  However, there are companies and investors out there looking, and there's not much new to show them.  Many of our leads these days come in from online sources, and there it's the most recent that attracts the attention.  When nothing changes in the inventory, we get fewer leads. 

What's the takeaway here?  If you've got something you have been thinking about selling, now is your chance to get the greatest response.  If you are offering something new, you'll be in very select company, and those looking will respond.  So ignore the weather, and the season, and list now.

Another Buyer Broker Story

The right of a consumer to be represented themselves by a real estate agent has been the law in Connecticut for at least a decade now, but it is still not understood by many people.  In the commercial arena, where many buyers are more sophisticated, and are used to buying and selling real estate under earlier regulations, it has been slow to take full effect. The way that the law is currently written, it requires a real estate agent to have a written representation agreement with a buyer, before s/he shows that person any listings other than his/her own company's listings, where the listing agreement with the seller would give the agent representation of at least one of the parties. A dual agency agreement must also be signed by all parties, when the agent represents both the buyer and the seller.

Why am I explaining this again?  Because so many people do not understand the law.  I got a call a couple of weeks ago from an attorney, skilled in real estate, and also licensed as a real estate agent.  He told me that he had recently bought a property, which he had previously called me about (to ask questions about the area, not to represent him on a specific property).  He said that he realized only after the deal was done that the listing broker had gotten paid to represent him, because he didn't have a buyer broker agreement.  He had thought, as many people do, that he would save money if he was not represented.  The way it works, though, is that the agent is (almost always) paid by the seller, as a result of a listing agreement, and that fee is named in that agreement, regardless of whether another agent is involved.  That means that, if there are two agents, the agreement between the two agencies (almost always) divides that commission.  If there is no selling agency, the listing agreement would still be in effect, so the listing agency would get that commission.  While that listing firm would owe certain duties to anyone, and would do the necessary work to put the transaction together, the fee wouldn't change just because the buyer chose to be unrepresented.  Brokers who do not represent a person, though, cannot give advice on value, except to state the listing price.  So that question--what's it worth?--can only be answered legally by an agent who represents you.

So why don't buyers want to sign buyer broker agreements?  Sometimes, they want the right to buy something without the agent, or with another agent.  Sometimes that's fair, although sometimes it isn't, depending upon the amount of ground work that has already been, or is being, done.  Sometimes they aren't authorized to sign, which is a problem that the CT Legislature plans to take up this year--it can be fixed by having a commercial buyer broker agreement signed later in the process.  In some cases, they are dealing with more than one agent in different areas, a problem that can be fixed with the proper documentation.  Many times, though, it's just a knee-jerk reaction against signing anything.  But when's the last time you saw a doctor?  If you declined to sign the HIPAA form, I bet that you didn't get in.  (And, actually, I'd put my money on a bet that you signed it, and never even read it.)  Why should real estate not have paperwork also?  It's good business, and good practice. And, it's the law.

Central Location

We have seen a surge in the popularity of old industrial buildings this year.  Some of them are being used for residential repurposing, but many are put to use as warehouses.  Despite the complaints about our highways, Connecticut is located in a region where most places are accessible easily by truck, and rail goes through the state in more than one direction.  While we have become positioned as an unattractive place to do business, storing and shipping from here seems to be the exception.  Fewer jobs, especially fewer high-end jobs, are created with warehouses, but there is also less risk for the buyers or tenants.  In addition, some of those old industrial facilities have environmental problems, which are less of an issue when they are being used as warehouses, as opposed to living spaces.

Will our resurgence on the warehouse front lead to other development, or further investment in Connecticut?  It's too soon to tell, but it's good  news for those who have owned--and often sat on--those buildings for years now.  We're happy to advise you, if you are such an owner.

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!

Just a Reminder: We Consult Also

We are finding that more and more of our clients have the need for comprehensive real estate services that involve looking at an overview of strategy, current holdings, and future plans.  We are happy to provide those services, by the hour or otherwise, and to fill in other needed providers (appraisers, environmental consultants, construction experts) when required.  Commercial space owners and renters should not assume that they should wait to call an agent until they know what they want to do.  Just as with medical issues, "do nothing" is always an option, and often must be weighed against different alternatives, using information which may or may not be readily available.  That's where we come in, and we can do our best work when we are as familiar as possible with the mission, strengths, and resources of the organization.  So, please call us when you begin the process of evaluating space needs and inventory, and let us help you gather what you should consider, and add expertise that you don't have internally.  We are here to assist in any way!

Recent Statistics for Connecticut Commercial Real Estate



Quantifying the Qualitative

We spent time this morning in a sales meeting, talking about how to help buyers and sellers evaluate multiple bids or properties.  We are beginning to develop spreadsheets, which we can use to list all the factors important in choosing a property, as a way to help buyers decide when and on what property to make an offer.  There are obvious factors that matter in all real estate decisions, like location.  


So, here's the rub.  Location, which we would weigh very heavily in any purchase decision, is not a black and white criterion, as, say, town/city sewers would be.  It's influenced by a buyer's own opinion about what he/she would like to be near--open space, public transportation, good schools, or other factors.  Then why is it still useful, when someone is using opinion to come up with a weighted number for location?


Because it helps us, and ultimately the buyer, to begin to narrow his/her list of important considerations.  He/she may come in asking for something at a certain price, but decide that, in order to get other benefits, the price range has to increase.  Or, for instance, square footage could matter less than how that square footage is laid out.  Sometimes we even see cases where people end up choosing the exact opposite of what they came in saying that they wanted to buy.  Those people may just have a gut reaction (which is admittedly very hard to pin a number on), which is both persistent and consistent, and that may end up being the tiebreaker.


And what does the agent add to the process?  It ends up being very useful to have seen this played out many, many times.  We begin to develop a sense of what will ultimately prevail, and often long before the buyer sees it.  Also, in the same way that teaching something is the best way to learn it, it's helpful for the buyer to have to explain to us what he/she is thinking, and that explanation frequently crystallizes his/her thinking.  


Where are we going with this?  We're still working on templates for both residential and commercial buyers, plus ones for sellers in multi-offer situations.  Like as not, it will always be a work in process, but will become a valuable timesaving, clarifying tool for our clients.

Current Absorption Rates

Explanation of absorption rate: The rate at which available homes are sold in a specific real estate market during a given time period. If you look at the number for Middletown you can say “If market conditions do not change and if no new listings come on the market it will take 7.4 months for the current inventory to sell at the current pace of the market. A balanced market’s absorption rate is typically between 5 – 7 months.”