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.

Land is Getting Action

Based on the calls coming into our office, buyers are interested in buildable land.  Much of what is on the market is not to the specifications of many buyers, and they are increasingly interested in perhaps just building from scratch, and getting exactly what they want.  In addition to being able to choose size, layout, and materials, they are also benefiting from the latest in environmental technology, so that they are lowering the costs of operation.

Do you have any empty acreage, or extra land where your current facility is, that you might be willing to sell?  This is the time to thing about doing just that.  There are buyers out there, and you could be in front of them shortly.  Why not capture the value and put it to work for you elsewhere in your business?  You could even think about a long-term land lease, if you're really worried that someday you might need the property, or that the value will be lowered, if the option for more land goes away.  If you can think of a scenario that makes sense for you, we can work with that!

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!

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!

Tax Reform Heads to the President

Tax Reform Heads to the President

Lawmakers in the House and Senate passed tax reform legislation today, paving the way for the bill to go to President Donald Trump for his signature. The President has said he intends to sign the bill by Christmas.

NAR worked with members of the House-Senate conference committee to help educate them on how to improve the final bill. After the vote, President Elizabeth Mendenhall issued the following statement:

"The results are mixed. We saved the exclusion for capital gains on the sale of a home and protected the mortgage interest deduction for second homes. Many agents and brokers who earn income from personal services will also see some significant new benefits in their business.

Despite these successes, we still have some hard work ahead of us. Significant legislative initiatives often require fixes to address unintended consequences, and this bill is no exception. The new tax regime will fundamentally alter the benefits of homeownership by nullifying incentives for individuals and families while keeping those incentives in place for large institutional investors.

That should concern any middle-class family looking to claim their piece of the American Dream."

Although the final tax reform bill is far from perfect, it is significantly better for homeowners than previous versions. That’s thanks to the efforts you made. REALTORS® generated over 300,000 emails and telephone calls to members of Congress over two Calls for Action and held countless in-person meetings with legislators, all of which helped shape the final product.

Last-minute changes to the bill include the following improvements:

• Capital gains exclusion. In a huge win for current and prospective homeowners, current law is left in place on the capital gains exclusion of $250,000 for an individual and $500,000 for married couples on the sale of a home. Both the House and the Senate had sought to make it much harder to qualify for the exclusion.

• Mortgage interest deduction. The maximum mortgage amount for households deducting their mortgage interest has been decreased to $750,000 from the current $1 million limit. The House bill sought a reduction to $500,000.

• State and local tax deductions. Both property taxes and state and local income taxes remain deductible, although with a combined limit of $10,000. Both the House and Senate bills sought to eliminate the state and local income tax deduction altogether.

• Pass-through entities. The bill significantly reduces the effective rate of tax on business income earned by independent contractors and income received from pass-through entities. This change will lower the taxes of many real estate professionals.

Next steps

Enactment of the bill does not end NAR’s effort to reduce the negative impact on homeowners. “REALTORS®’ work on tax issues will continue," says Mendenhall, "and we look forward to joining members of Congress from both sides of the rotunda on that endeavor.”

Access details of the bill.

Don't Forget Not-for-Profit Sector

Sometimes, when we bemoan the condition of business expansions (few) in Connecticut these days, we overlook the fact that we have a robust non-profit sector.  This is especially true in Greater New Haven, where more than half of our largest employers are not-for-profits.  That means that there is more demand, perhaps, for real estate than we might initially think. 

Although we think of not-for-profits as not having much money, in some cases that isn't true.  Many work on essential services, and are funded by governmental sources.  Although that can be problematic these days, in some ways it isn't any different than having a for-profit business depend upon clients that may or may not purchase their goods and services within a particular time frame.  And cash flow issues are not limited to the not-for-profit world.  

In addition to the health of their organizations, not-for-profits are often more flexible about the types of space they can use, and what they can make work.  If the price is right, they may not require the same fit-up as other businesses, since their clients would not expect, and might even not enjoy, seeing fancy offices for a charitable or governmental agency.   

Even cash flow can often be worked out, if landlords or sellers are willing to take money over time, or wait for a federal or State grant to be funded.  Once it is, you might be able to, as they say, take it to the bank.  Even donated funds are now usually documented with signed pledges, and those usually come in on an annual basis.  

So don't count out a whole sector of our economy.  It's out there, and it occupies space. 

Web Traffic Patterns

We have always known that people take a few months to think about a real estate transaction, so that we need to pay more attention to visitors to our site than someone selling sneakers or office supplies, but we didn't have much empirical evidence to go by.  Now we have more.

We track all of the new and returning visitors to our site, as well as all the visitors who click on our website from a search.  Although we know that our region is education-driven, and therefore not, in many cases, the usual seasonal pattern found elsewhere, even we were surprised to learn the two-week period in which the greatest number of new visitors appeared.  Can you guess?

It was during the last two weeks in January!  That means that, despite weather and paying off tax and holiday bills, more people are starting a property search right after the first of the year than at any other time. Our greatest number of clicks from Google last year came in February and March, suggesting that the search for specific properties might be ramping up just after the new visitors started the process.  

Since all industry data suggests that most property closes in the late spring and summer, except for a surge in commercial closings at the end of the year, this would suggest that, if you are a seller who wants to have the broadest exposure for your property, you need to list it now!  Not next month, not when the days are longer or the weather improves, but now.  This is when people want to look at real estate, at least in our region, and we should be giving them what they want, when they want it.  Because that's how property gets sold!  So act quickly, for maximum results.

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. 

Positive Implications for Investment in Our City and Region

I couldn’t have said it better myself, so I’ll just reprint it here....

UP CLOSE:
New Haven, a new millennial magnet

by Jiahui Hu at Yale Daily News

Elm City Social opened last July. Since then, the bar’s wood paneling and jazz notes of modern hits have transported patrons to the pre-prohibition era. Bartenders in all black serve up craft cocktails such as The Black Widow, which combines absinthe and Sauvignon Blanc with deep cherry notes, and The Rubber Ducky, which is served to patrons complete with a yellow duck floating atop the ginbased mix.

The opening of the craft cocktail establishment — the sort of bar that might seem more at home on a side street in Manhattan than in a city 60 times smaller than New York — is not an anomaly in the Elm City. At least, not any more.

A decade ago, visitors to downtown New Haven would have encountered parking lots interspersed with boarded-up shop windows and the odd retail store or two, said Chuck Mascola, who has lived in the city since the 1980s and now runs an advertising firm. Now, in 2016, parking is impossible to find and commerce thrives on every block, Mascola said.

“It was sleepy,” Mascola said. “There were nice things, but crummy things mixed into it. Now it is hard to find eyesores or to see anything that disturbs a great urban landscape.”

“You find a city that is seamless,” he added. New Haven has quickly transformed from its 1990s reputation as a crime-ridden wasteland to a burgeoning commercial zone that is quickly attracting a flurry of new residents.

But what has been the driving force behind the city’s change of pace?

People — young people. And lots of them.

As the Millennial Generation — born of the baby boomers, between 1980 and 2000 — transition to adulthood, New Haven has seen its under-35 population increase by 45 percent. Millennials have been graduating from college and moving to cities since the turn of the century. With the net increase in young educated professionals with money to spend on luxury lofts, cocktails and restaurant options, New Haven entrepreneurs, developers and government officials have seized the opportunity for lasting economic growth beyond Yale’s gates.

WHO ARE THE MILLENNIALS?

Atlanta-native Melody Oliphant is no stranger to changes of scenery. After attending boarding school in Tennessee and college at Wesleyan, Oliphant needed to find a medical job in New Haven if she wanted to live and work alongside her girlfriend of one year, who returned from a fellowship in Rio de Janeiro with a job offer in the Elm City. Oliphant, who previously worked as a genetics researcher at New York’s Icahn School of Medicine, secured a two-year fellowship at the Yale Child Study Center. She and her girlfriend are two of the several hundred net recent college graduates that move to New Haven each year.

Taking into account the number of college graduates who leave New Haven, Elm City has seen a yearly net increase of 300 to 400 of this demographic between 2000 and 2012, said Mark Abraham, president of Data Haven — a New Haven-based data analysis nonprofit.

This demographic change is a microcosm of a larger national trend. Although college grads typically move to cities, there is a much larger cohort of 25–35-year-olds in the U.S. — who make up the majority of millennials — than there have been ever before.

The Elm City’s 45 percent boon in recent college graduates matches that of common “yuppie magnets,” such as Nashville, Tennessee; Denver, Colorado; and Austin, Texas. New Haven’s increase also exceeds that of Northeast metro areas Boston, Massachusetts and Providence, Rhode Island, where the percentage growth during the given time period was 12 and 6 percent, respectively.

In fact, Abraham said, adjusting for overall population growth, New Haven may be attracting and retaining a higher proportion of college-educated adults than Austin, Texas or Houston, Texas which are traditionally known as hubs for this cohort.

Matthew Nemerson SOM ’81, city economic development administrator, provided historical perspective on the recent trend. When baby boomers, who are the parents of the millennials, graduated from college in the mid-1980s, a large influx of young educated professionals moved to New Haven, similar to what is happening today, Nemerson said. But less than a decade later, these professionals departed for the suburbs to raise their families, he added.

Mascola and the young professionals interviewed all recounted childhood memories of living in the suburbs. But many say they are questioning the idealized model of a suburban family lifestyle, given their experience living in or near downtown New Haven.

“I wanted to move some place closer to work,” said Jenny D’Amico, who works for Yale Health Plan and moved from a Connecticut suburb to an apartment between downtown and Hamden.

D’Amico added, “The idea of being able to walk to work was really cool. It’s also a really good city for young people, especially down Chapel Street, by the [New Haven] Green and by the hospital.”

Although Oliphant and D’Amico happen to be Yale employees, many more of the city’s new influx of educated young professionals work for small tech companies and biopharma firms.

WHERE DO THEY WORK?

Last summer, Arvinas CFO Sean Cassidy considered taking his company — one of the most successful biotechs based in New Haven — out of the city. A lack of lab space almost convinced him that the company’s future was elsewhere in the Northeast.

But City Hall administrators caught wind of the rumor that Cassidy would leave New Haven and take his $300-million-deal-scoring biopharm with him.

Nemerson said the city estimated that each Arvinas employee that left the city would take 150 other jobs with them. Though Arvinas has only 30 employees, Enrico Moretti, an economics professor at the University of California, Berkeley, argues that each high-tech job creates five new jobs in the city it is based in.

Moretti’s research indicates that job markets are larger in cities with high-tech industries because employees tend to spend large proportions of their salaries on local businesses, such as housekeeping, therapy and restaurants.

In response to these predictions, the city hastened to assist Arvinas’ purchase of more lab space. By mid-October, the company had signed a deal on a 5,000 square foot lot in Science Park.

For Nemerson, the proactivity exhibited by the city to keep Arvinas must continue for the city’s job market to grow.

“The main thing right now that will determine whether we hold onto this population will be the continued introduction and evolution of modern knowledge-based jobs,” Nemerson said. “Companies like Alexion, Achillion and Arvinas become our future.”

The Elm City’s advantages lie in its low rents and wealth of available space for expansion, Nemerson said. Biotech companies looking to expand can easily purchase new space, which is not the case in the crowded real estate market of Cambridge.

In January of this year, the city regained one of its greatest success stories. Alexion Pharmaceuticals — a $2.64 billion biopharmaceutical founded in Science Park that employs roughly 1,200 people — moved into its new headquarters to 100 College St. after leaving the Elm City in 2000 due to difficulties securing enough lab space to serve its needs.

At the company’s ribbon-cutting ceremony in February, Mayor Toni Harp expressed excitement for what Alexion could do for New Haven’s economic development.

“Our economic base is growing stronger as our innovative businesses collaborate with global ones,” Harp said. “New Haven is a model of progressive urban development of national significance.”

Nemerson added that tech companies such as Prometheus Research and Square 9: Softworks also provide significant employment opportunities.

As Arvinas and Alexion employees settle into their new home in the Elm City, they — together with other members of the Millennial Generation — must think carefully about how to make New Haven their home. But where do they tend to pin down their roots?

WHERE DO THEY LIVE?

Yale postdoctoral associate Chloe Taft GRD ’14 teaches a seminar titled the History of Housing in America. She and her class took a March tour of the high-end apartment building, The Novella, which opened last year and offers studios from $1,400 and two-bedroom apartments for $3,200 at the very cheapest.

During the tour, property developers explicitly told her class they were targeting Yale graduate students and young professionals like those at Alexion.

“Downtown New Haven has become a hot site for developers seeking to cash in on a young professional demographic,” Taft told the News. “The majority of these new projects bill themselves as ‘luxury apartments’ and do not include affordable units, although Winchester Lofts does include some.”

Roger Lopez ’18, a student in the class, recounted The Novella’s extensive amenities: a gym, private movie theaters, a rooftop terrace and more. Lopez said residents pay roughly two times the average market price in New Haven for an apartment in The Novella for a sense of community — something that 30-year-olds look for when they relocate.

As Taft’s students toured the building, The Novella’s property manager added that residents were also paying to insulate themselves from the rest of New Haven, which is still perceived as unsafe.

“The tour guide said that you’re paying to not have to walk past the Green and go into the ghettos of New Haven,” Lopez said. “It’s a community in a one-block radius. Rudy’s is across the street. Miya’s is down the block and Yale is right next door.”

With vacancy rates among the lowest in the country, New Haven is also attracting developers hoping to cash in on the high demand for housing. Given the development projects currently underway, by 2017, there will be approximately 2,000 more new apartment units than at the end of 2015. Almost all will be luxury apartments like The Novella.

Other recent developments include the Winchester Lofts, which opened in Science Park in 2013. College & Crown: A Centerpiece went live for rent last year. 360 State St., which opened in 2010, was one of the earliest and also the quickest to be leased-out, Pearce Real Estate President Barbara Pearce said.

“Because of students, New Haven has one of the lowest vacancy rates in the country,” Pearce said. “Now there is a race to keep on [building]. State Street rented so quickly. Eventually like everywhere else, we will stop building once the vacancy rate goes up.”

From the rooftop terrace of The Novella, residents can spot dozens of new bars and restaurants to visit — another consequence of the Millennial Generation’s migration into the Elm City.

WHAT ARE THEY DRINKING AND EATING?

Craig Sklar grew up in New Haven before he entered the beer industry in New York City. For seven years he brewed and bottled the malted drink for Whole Foods Market and then S.K.I. Beer.

Last year, Sklar decided to open a craft beer bar of his own. He chose the Elm City because rent prices in New York City were too high, he said. This summer, his bar The Beer Collective will open on 130 Court St., which is located just three blocks from Old Campus.

Like Sklar, many entrepreneurs and restaurateurs are choosing to take a chance on New Haven due to how cheap it is to rent out a brick-and-mortar site, said Chris Nicotra, who has been an investor in New Haven real estate for the past decade and a half.

According to Nicotra, rent in the Elm City is still well-below that of Manhattan despite having risen steadily to $100 per square foot for commercial space downtown. In the past month, Nicotra has met with several investors from Boston and Providence who have taken note of New Haven’s recent growth and low rent.

“[Entrepreneurs, restaurateurs and developers] see this young demographic of the city and see how they can capture their needs,” Nicotra said. “With The Beer Collective, you’re taking this really hot beer concept and really hot New Haven. The combination is a home run.”

Other home runs — popular bars and restaurants that cater to the young — include Ordinary, Kelly’s, Cask Republic, Barcelona and BAR. In the upcoming months, the owners of Mecha Noodle Bar will open an unannounced concept restaurant that they hope will be novel, like the restaurant-arcade combination Barcade that will open in New Haven this summer.

In the past decade, this pop-up of unique restaurants has made New Haven a foodie destination, Pearce said. Although famous, places like Louis’ Lunch did not transform New Haven into a food capital of the Northeast, she said. But in recent years, restaurants are full in downtown New Haven every night of the week.

“There’s been an explosion beyond what it was before,” Pearce said. “Before it was just pizza and Italian. Young professionals now will spend a greater percentage of their income on food than people did before.”

As investors succeed in the Elm City, opening restaurants and leisure venues such as Karaoke Heroes, their young professional patrons have built a community around their products.

“In the past, I would have said that I would have moved into the suburbs and bought a house,” Josh Levinson, a 35-year-old software engineer, said. “But the more that I am here, I love it and love being a part of the community.”

Bars and restaurants such as Olea, Zinc and Elm City Social receive paragraphs-long reviews on Yelp by the site’s active contributors. Levinson, who is among those that rave about New Haven’s food scene, also operates a blog “Between Two Rocks” where he publicizes his reviews of bars, restaurants and the best pizza in New Haven.

With these new high-rise apartment buildings, five-star restaurants and swanky bars, New Haven is well on the way to transforming its past reputation.

WHAT IS THE CITY’S NEW REPUTATION?

Mascola, born in 1958, did not leave his native New Haven until he turned 18 and moved to Ohio for college. Upon graduating from Dayton University, Mascola worked on Madison Avenue before returning to the Elm City to found the Mascola Group advertising agency. His firm serves companies far and wide, including many based overseas. But one of his most loyal customers is right across from the Green: City Hall.

For the past four years, Mascola has been helping the New Haven Parking Authority promote the new meter system downtown, which he described as the “welcome mats” to New Haven. He added that well-advertised parking meters should convince visitors that downtown is a place to not only play, but also live and work.

He said his dream project would be to create a marketing plan for the city of New Haven. The city should tout its vibrant arts culture, rental prices, economic growth and other attractions for both the young and elderly across the region.

“New Haven has the product and delivers on the experience for younger people and older people,” Mascola said. “What we’re not really doing is packaging and selling that, even though it’s happening without us putting it into a marketing component and giving it a great position line.”

But what is New Haven’s product?

Fun, cosmopolitan and cultured living for a fraction of the cost of New York City living expenses, Nemerson said.

At the forefront of this new reputation is the city’s recent acclaim as a food destination. Levinson added that the city’s recent expansion of bike lanes and sophisticated new apartment buildings have contributed to the city’s new visage as a destination for young adults looking for a modern lifestyle.

Over the past 10 years, the atmosphere downtown on a Friday night has also changed to mirror the sophistication of Manhattan, manager partner of Elm City Social Ryan Howard said.

“The scene in New Haven is really transcending toward a more refined craft era,” Howard said. “It’s in a less clubby stage with more of your craft cocktail and beer elegance, if you will.”

To Nemerson, New Haven’s reputation is a key factor in the city’s retention of jobs. One of the most important considerations for biotech companies deciding on whether to stay in the city for the long haul is the quality of life that the city would provide for their employees, Nemerson said.

To prevent the city’s leading high-tech companies from leaving, Nemerson said he needed to not only facilitate the growth of a high-tech hub in the city, but also show the company’s employees that they would lead an exciting life in the Elm City. The city demonstrates it is an appealing place to live as well as work, he said, with arts, culture and rental prices that are almost 60 percent lower than those in Cambridge or New York City.

“If you have enough people who say that this is a cool place to hang out and spend time, then the software and biotech jobs will come and say we want to hire you and we want you to stay here and have you be happy,’” Nemerson said.

In addition to the growth of high-tech jobs, city officials also hope to persuade New York commuters to live in the Elm City, where rent is lower and the quality of life is comparable to cities such as Stamford, White Plains and New Rochelle.

Taft reaffirmed that all the private housing and business developments — many of which have been publicly supported by the city — fit into city officials’ plans to “rebrand” New Haven and attract a creative class of young professionals including graduate students, researchers, entrepreneurs and artists.

When asked how he would market the city, New Haven native Mascola responded in glowing terms.

New Haven, Mascola said, deserves a brand that is much more illustrious than the city’s current reputation. The combination of creativity outside of Yale’s walls as well as the presence of the University would create a convincing message that the Elm City is, indeed, an attractive place to live.

“New Haven is a brilliant city,” Mascola said. “It is America’s brilliant city. It shines.”

While downtown New Haven glitters on, the sparkle is less brilliant for New Haven’s poorer population, many of whom can no longer afford to live, eat and play in the downtown area.

WHO ARE MILLENNIALS REPLACING?

Last October, West Haven native Kiana Marie Hernandez ’18 sat down with the News.

She and her mother had just spent a year searching the Elm City for an apartment to call home. As they traveled from apartment to apartment, debates about prices —not amenities or decorating styles —lengthened their search.

Hernandez and her mother are not alone.

With the scheduled demolition of Church Street South — a 300-unit affordable housing complex condemned by the city last fall — at least several hundred families in New Haven must enter a housing market that is both tight and high-priced.

Edward Mattison LAW ’68, a member of the mayor’s City Plan Committee, recounted a visit to a homeless shelter for families. Every single family in the shelter possessed federal housing vouchers to subsidize rent. But none of them had been able to find vacant units of affordable housing to spend their vouchers on.

Mattison and Hernandez are not the only ones who have spoken out about New Haven’s alarming shortage of housing for low-income families. Since the federal Department of Housing and Urban development began to relocate families last fall from the complex, it has discovered that it is particularly difficult to keep these families in New Haven because of the city’s dearth of affordable housing units.

Taft, who completed her doctoral thesis on urban planning, said the question that remains is how New Haven residents who face high poverty levels and a severe shortage of affordable housing units will benefit from the city’s economic growth.

“Can some of the investment going to downtown go to address inequalities in other parts of New Haven?” Taft said. “And is the city getting a good return on investment with the incentives it offers developers downtown, or are those profits mostly going to the developers?”

The mayor, Nemerson said, hopes to ensure that downtown New Haven is an integrated community in terms of income and race. According to Nemerson, the city’s new housing developments benefit all demographics of the city’s population by adding supply to the housing market to lower prices. Former Downtown Alder Abigail Roth ’90 LAW ’94 added that the new housing developments will provide revenue to the city to subsidize affordable housing.

But the plight of the city’s poor can be difficult to remember amidst the luxury amenities of The Novella and the hip, dim lighting in New Haven’s newest bars.

Oliphant said she has noticed that New Haven is highly segregated with strict geographical boundaries of race and class. She added that issues of segregation, though not unique to New Haven, are particularly noticeable because of the city’s small size and wealth contrasts in East Rock, Wooster Square and downtown.

“[In New Haven], I often find myself disheartened by the way people, especially so-called progressive people, talk about low- and middle-income neighborhoods that are populated predominantly by people of color,” Oliphant said. “And while the problems in New Haven may not be entirely unique, I do think there’s tremendous potential in locally powered solutions that could prove unique to the communities they’re intended to serve.”

If Nemerson and Roth are correct and the city’s new gentrification will benefit all, how long will that process last?

ON TO BETTER THINGS?

D’Amico said she will not stay in the Elm City forever.

Many young professionals choose to begin a family in residential neighborhoods such as East Rock and Wooster Square that are still reasonably close to downtown, D’Amico said. But New Haven’s reputation as a city with a high crime rate lingers on in D’Amico’s mind. She said the noise of sirens, gunshots and ambulance trucks prevent her from beginning a family anywhere in the city.

“There’s a lot of stuff that I wouldn’t want my kids to be exposed to at a very young age,” D’Amico said. “There’s a lot of poverty. While this is important for everybody to realize, it’s hard to deal with that kind of thing as a child.”

D’Amico’s reluctance to remaining in the city is exactly what Nemerson and other economic development officials in the city dread. They hope that the young professionals currently flooding into New Haven will either move from downtown to streets in the city with stand-alone houses and grassy front lawns. By remaining in New Haven, this demographic will continue to attract businesses, developers and more like-minded professionals to the Elm City.

In a good omen for city officials, key indicators suggest New Haven’s cohort of millennials will not abandon the city, at least, not any time soon.

Unlike their parents, the Millennial Generation is choosing to begin families later in their lives. Young educated professionals in New Haven will continue pursuing the single-life — with high-rise apartments and regular revelry at Elm City Social — for longer than their parents did. Levinson confirmed that he and many of his friends are enjoying their historically lengthy youth.

“[A lot of people I know in New Haven] don’t have kids or want to buy a house — the path that a traditional lifestyle would lead them to,” Levinson said. “A lot of people are delaying buying a house and having a family. They’re pushing it out further and they are enjoying being young.”

The recent influx of the forever young millennials has also been accompanied by their parents’ move into the city.

Hundreds of empty nesters in nearby suburbs have sold their homes to buy apartments downtown, a trend completely new to the Elm City, Pearce said, adding that apartments on 360 State St. or 100 York St. are particularly popular options.

Pearce added that only in New York City have retired adults moved back downtown after raising children in the suburbs. They did so to avoid having to drive, Pearce said.

She conjectured that in New Haven, the recent boom in construction and desire to be close to children has convinced the elderly to trade their grassy lawns for a downtown loft.

“My father moved from his big house in [Greater] New Haven to Whitney Grove Square,” Pearce said. “That was unusual. Now it is very common for people to do stuff like that. If you just took one building at 100 York you would find it astonishing how many people who live elsewhere in Greater New Haven now live there.”

This and the Millennial Generation’s decision to begin families later in life will combine to make the current demographic wave longer and larger, Nemerson said.

Mascola said that signs from his market research suggest many millennials will remain in the city, whether they decide to move into residential neighborhoods or defy their suburban upbringing by raising children downtown.

Mascola learned from his firm’s marketing campaign for the Union, an apartment building on 205 Church St., that the majority of people moving into the building were young adults with children. They wanted to raise their children in the vibrant arts culture that can only be found downtown, Mascola said.

“The new generation came up and wanted to do a different thing,” Mascola said. “They don’t want to go to a mall in a suburban town. They want to go downtown.”

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.

New Discussion of Business Taxes

Governor Malloy has announced that he's going to meet on the budget and taxes, and that everything is on the table except tax increases.  Even the fact that he's framed it this way should help our business climate.  For too long, people have been pointing to Connecticut as the state that wants to drive corporations and jobs out.  The legislature has often called for business to pay more, even though we are already more expensive than many other states.  Now, finally, maybe thanks to GE threatening (or intending, many posit) to move its headquarters, we're getting somewhere.  Hey guys, we are important to you--you should be nice to us!

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?

Hartford Being Sold to Out of Town Investors?

Big Hartford office buildings are now such a good deal, per square foot, that they are attracting buyers from out of state, many of whom may have been priced out, or have priced themselves out, of the NYC market.  Since most real estate markets are cyclical, and since office space can obviously be leased for less if it is bought for less, it seems reasonable to think that these investors will realize gains in the medium and long run. 

Will other markets in Connecticut follow?  It also seems sensible to think that, the closer to NYC something is, the more it will eventually be worth.  There is a clear correlation with housing prices, based solely on distance from Manhattan, and it likely holds true for commercial buildings as well.  So will New Haven also see a boom in out-of -town buyers?  That seems already to be happening, and will probably continue.

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.”

#GSCIA

New Haven is finally getting traction in the PR wars.  Last Friday, we saw a front-page article (above the fold!) in the Wall Street Journal, about community-based policing here, and how it has reduced crime, particularly homicides.  Last month, we heard that New Haven, alone among the cities of Connecticut, has regained all of its jobs lost in the recession.  Everywhere you drive downtown, you see construction, cranes on buildings and barriers on highways. 


Most of all, though, it's encouraging to see the hashtag #GSCIA (Greatest Small City in America), posted, tweeted, and repeated.  It's everywhere, and it's very positive.  If it is true that a journey begins with a single step, this might be ours.  How can we convince others, until we believe it ourselves?  And it appears that we finally do!

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 Wallingford you can say “If market conditions do not change and if no new listings come on the market it will take 7.2 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.”

Click on table to zoom in

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!

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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.