New Haven Industrial Real Estate--No Supply, No Demand

Perhaps we have discovered a new dynamic in the real estate market panoply--no supply and no demand.  Or, they are more likely related in a pretty simple way.  Weak demand over the past number of years for industrial property in Connecticut has led to a lack of new construction in this sector.  Many companies have left for warmer (weather-wise and tax-wise) climates, leaving a new supply of older buildings in their wake.  Fewer companies than in other places are expanding into more industrial space, so there isn't much demand to take up the supply that exists.  Therefore, rates are low, even though people looking can't find what they want and need.

That sounds awful, but it represents an opportunity.  Buildings can be converted, or constructed, and profitably, since there are buyers and tenants out there that cannot find what they want.  Sellers and landlords can continue to accept low rates of return, or they can repurpose those buildings to different types of uses (residential or flex spaces).

There is little enough around so that what is here should move, and, arguably, prices should be rising.  In order to make that happen, new players may have to enter the arena, and up everyone's game.  Let's hope for all our sakes that this occurs.  In the meantime, we would advise potential sellers to be undeterred by low rental rates, since people are looking for what's not there, and anything new could be just the ticket for a thus far unsatisfied user.

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.

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!

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?

New Assessments in New Haven

The new assessments have been mailed to New Haven taxpayers, and there has been a lot of talk about what that will mean for residential taxpayers.  What hasn't been touted as much is that the reassessment helps commercial taxpayers.  First of all, most of their building values have not gone up over the past ten years.  Secondly, commercial enterprises are taxed also on personal property.  Therefore, when real estate assessments go up, personal property taxes go down, making the commercial sector's share of overall city taxes go down.

Sometimes commercial taxpayers do get some breaks!

First Entry

Welcome to the new and improved Pearce Commercial Real Estate Website, and to my commercial blog.  While I have been blogging for a long time, this is my initial foray into exclusively commercial material.

It's always an interesting feeling to be writing in cyberspace.  You have no idea who, if anyone,  is reading what you post.  Nor do you know, unless they contact you, what they think of what you say.  That's my way of saying that I'm going to write about whatever occurs to me that I think might be useful or relevant to the potential audience, and I would be delighted to get feedback from reader about potential future topics.

By way of introduction, Pearce Commercial Real Estate covers most of Connecticut, largely excluding Litchfield and Fairfield Counties.  We do sales, leasebacks, leases, exchanges, and buyer brokerage for industrial, office, retail, and investment property.  We also have a large residential department, and joint ventures in appraisal services, insurance and mortgages.  We see the market from the "boots on the ground" level, and get enough industry material to also get the view from 10,000 feet above the ground.  I will try my best to balance those two perspectives, and hope that you will find this site useful.