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January 13, 2021by adminUncategorized

Back to The Future City: How 15-Minutes Will Change the World

As you look back in time, urban sprawl in the United States had its origins in the flight to the suburbs that began in the 1950’s, and has accelerated as each decade was placed in the history books. As suburban areas developed, cities expanded in geographic size, faster than they grew in population. This trend has produced large metropolitan areas with low population densities, interconnected by roads, mass transit and other transportation arterials. But what does Urban Sprawl mean for the traditional Inner-city of America? Is the traditional city officially dead? And equally important is the contemporary question of … have the effects of the COVID-19 pandemic … with the elimination of community gathering places such as restaurants, bars, places of worship, parks and even offices … altered the shape, design and characteristics of the traditional city?

These questions, as well as the conversation that has occurred over the past couple months, has caused urban planners to reevaluate the future of some of the most vibrant, energetic and powerful cities across America. In fact, a dichotomy exists as many professionals have announced the death of modern cities, while others have not been so drastic and see change as a good thing for the citizenry of these major cities. After all, “the secret of change is to focus all of your energy not on fighting the old, but on building the new.”

While this conversation has accelerated due to the coronavirus pandemic, there is more than one reason for things to change. Whether it be health, environmental or societal change, the “15-Minute City” is the way of the future.

In this article we will look at several important reasons for the evolution of the 15-Minute City.

What is the 15-Minute City?

The “15-Minute City” idea is based on research into how city dwellers’ use of time could be reorganized to improve both living conditions and the environment. Developed by Professor Carlos Moreno at the Sorbonne in Paris, the concept of “la ville du quart d’heure” is one in which daily urban necessities are within a 15-minute reach on foot or by bike. Hence the name … “15-Minute City.” In short, work, home, shops, entertainment, education, and healthcare would all be available within the same time that a commuter might once have waited on a railway platform.

Within the 15-Minute City, the accent shifts from urban sprawl and territorial mobility to close and easy access. The strategy no longer focuses on pouring more and more concrete and opening roads more efficiently, but quite the opposite, by reducing displacements. Ideally, in a 15-Minute City, long-distance mobility is significantly reduced, and residents no longer depend on their private vehicles or public transportation such as trains or subways for daily commuting.

In the 15-Minute City, the streetscape actually becomes the spine of the community. It is the community’s core, the gathering place, the center of outdoor activities, a park and green space of sorts. Rescued from intense vehicle traffic, the streets come to life and become livable. These publicly owned and maintained pieces of concrete and asphalt welcome and invite children’s playgrounds, terraces, street art displays and shows, thereby increasing synergy and integration of the community. Put another way … this “urban space of excellence starts to reclaim its humanity.”

While the 15 Minute City has a new shiny name, it is just a step into the past. A time before people commuted up to an hour into a business center to work.

Where does it fit into the “new normal?”

While this “urban evolution” was not initially intended to help with coronavirus protocols and “stay at home” mandates, it has fallen into its new role perfectly. With a pandemic and the resulting federal, state and local requirements that necessitate people staying in or close to home, a city plan that allows for all necessities to be reached within a short distance walk is ideal. The COVID-19 pandemic has made us call into question ways in which we can improve on the idea of cities and city spaces. Cities have been hit hard by the pandemic. People have talked about a “new normal” that has been thrust upon us all. This new normal involves less travel, smaller circles and more space. These are all things that the 15-Minute City promotes.

Travel has come to a halt because of the coronavirus, and transportation may be changed forever. While the 15-Minute City cannot deal with air travel and other long-commute problems, it can greatly reduce everyday travel and short-run commutes. One of the ideas of the 15-Minute City is to make it possible to work, live, play, recreate, worship, etc. all in the same area where they live. Contrast that with a 30-minute to 1-hour drive to a city’s central business district. This, and the effects of hindsight being 20–20 when it comes to the pandemic, would help slow the spread of the pandemic by lowering the amount on new interactions with people along with less exposure to large numbers of people.

Working conditions made an abrupt shift during 2020. While most jobs were previously performed in an office environment, an entire work force was forced to work from home as a safety measure to counteract COVID-19. This seems like an easy and understandable solution, but it had some consequences. For one, there are many people who do not have the space or resources to work from home. Some people simply do not have the luxury of a spare room to set up an “in-home” office. Some do not have family nearby to help with childcare, as schools were also shut down. Some do not have reliable internet connection. Unfortunately, there are just certain factors to working from home that disenfranchise everyone’s lifestyle … especially lower income people. While people transition away from big offices in the city, small offices in the 15-Minute City is a good solution.

Everyone has heard of the “New Normal” and what that might entail. Many people will never see this new form of living as an upgrade or an improvement to their lives as it seems like a world of less freedom, less interaction and less gatherings. Yet, indoctrinating the 15-Minute City as the new normal can be easy, and actually very beneficial to those that are accepting of the new urban design characteristics. In fact, people will save money, be healthier, be more productive and rekindle a sense of community within their towns. While a post COVID-19 world certainly scares people, a world with a 15-Minute City can also be a panacea.

Environment

While it has not been the “lead story” in every newspaper during the past 4-year administration, environmental concerns are ubiquitous and are not going away. Unfortunately, in the past few decades the myriad of approaches on how to manage the environment has become very politicized. However, everybody should want cleaner water, soil and air. In short, everyone wants a cleaner world. Most of the arguments that moderate people have made evolve around the fiscal impact and the logistics related to its implementation. The 15-Minute City was designed with the very purpose of healing the environment, and in addition to alternative fuels, would be a great way to help clean the earth. As workplaces, stores and homes are brought into closer proximity, street space previously dedicated to auto congestion is freed up, thereby eliminating pollution, and making way for gardens, hike and bike lanes, sports and leisure facilities.

In current city planning, it is almost certain that most US citizens have to get in a car to get groceries, go to a restaurant, bar, movie, doctor’s appointment, grocery store, place of worship, etc. With the 15-Minute City, towns are being forced to be more sustainable, as less car travel will be necessary.

85% of Americans commute to work and many of those travel between 30-minutes and one hour to their place of employment. This is a major problem for many environmental, societal, economic and efficiency reasons, Yet this is where an opportunity opens up for the 15-Minute City to work its magic. With the COVID effect causing most people in America to work from home, many companies have learned that they do not really need the expensive downtown offices anymore. Some, like British Petroleum, have decided to completely switch to remote working throughout London, while others have the plan to reopen but with mini offices located in these 15-Minute City environments. Both strategies are helpful to the environment as a whole and could remove so much unnecessary added carbon to the atmosphere.

Overall, the 15-Minute City will help the climate as it was designed by urban planners with that goal in mind. When it comes to environmental protection, many get hung up on the fiscal costs, subsidies and required investments. But the 15-Minute City is a “supply-side” economic benefit as it saves the ultimate taxpayer money in the process. With the 15-Minute City, streets can see a major decline in automobiles and fuel consumption, thereby reducing CO2 emissions. With the alternative land use and increase of garden and green space, the resulting photosynthesis increases oxygen production. The net result of all these factors is that we have both a cleaner environment, as well as an economic stimulus package due to the supply side economic benefits and a more efficient work force. Who could ask for more?

How does this effect the community?

Ever since the exponential rise in population and the effects of urban sprawl on big cities, we have slowly lost our sense of a community. We are no longer in Maybury RFD where people used to be able to bond with a common interest over a community goal, mission or project within their town. Sometimes chaos and crisis bring a community together. Yet as we have seen this year, chaos has not brought us closer together, but further apart. Due to the pandemic induced isolation, people have only been able to communicate remotely, and have had a lot of time on their hands to let social media accelerate a divisive wedge during a highly contested election cycle.

The 15-Minute City calls for a return to a more local community, with a somewhat slower way of life, where commuting time is instead invested in richer relationships with those nearby. The urban planners are hopeful that the smaller geographic footprint, and the closeness that accompanies the 15-Minute City, might also bring back a since of civility that is so desperately needed. The COVID crisis show us the possibility for rediscovering proximity. Now, more than ever, we as people, need proximity. Not because of the potential vaccine, the environment, or any other issue, but for the act of human interaction and the overall humanizing of one another.

In today’s master-planned, spacious society, you would be lucky to know more that a couple of your neighbors. People are so fixated on their day-to-day lives, and do not really know who they live around anymore. The world is too fast paced for things like a neighborhood cocktail or block party. What the 15-Minute City brings to the world is a return to simplicity. We have lost sight of what it means to be a neighbor and part of a community. It will allow us to slow down, no longer rushing to work or the doctor’s office, but maybe a nice walk or bike ride to simply get groceries.

Innovation Through Regression

The idea for the 15-Minute City is nothing new. In fact, in America it began with the first Settlers on Plymouth Rock and has been replicated repeatedly, from community to community. But now, it has been repackaged, branded under a new name and is being marketed as the 15-Minute City. Same strategy and goal, yet with a new fancy name.

If you went “Back to the Future” in almost any era of US history, you would see that most communities had a “live, work, play, shop, learn, worship, recreate, etc.” environment in a close-knit community. Yes, transportation may have been by foot, horse, train, Model T or mass transit, but the effects of urban sprawl truly changed these communities … as well as society … and the effects of this change has been very far reaching.

With the 15-Minute City, we bring back some of the old ideas to revitalize our communities, improve the environment, enhance our productivity and heal our society. After all, “the secret of change is to focus all of your energy not on fighting the old, but on building the new.” While we always look for the next big thing for the future, it is sometimes best to look in the past at an idea that we left behind a long time ago.

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January 11, 2021by adminUncategorized

A 7-Part Series on What Experts Predict for Real Estate in 2021 – Part 7

Part 7— Predicted Threats and Opportunities

To understand what the real estate industry experts’ crystal ball for 2021 may predict, a strategy discussion was held with some of the most experienced and knowledgeable real estate experts. The cerebral panel covered topics such as capital markets, the economy, construction costs, development trends, effects of COVID, regulatory matters, and much more.

This article is the last in a series of 7, broken into bite-size topics, related to the all-important question of … “given the current landscape and forecasted trends related to the economic, political, banking, healthcare, and real estate sectors, many real estate investor are asking the question should they be leaning into these headwinds, or should they be retreating to the sidelines?”

Part 1 of the Series suggests that now is the time to be bullish on real estate investing. But what are the fundamentals driving that conclusion? Keep reading the entire series to uncover these fundamentals.

Here is what the experts had to say regarding …

Predicted threats and opportunities — Dr. Masaki Oishi, practicing Neurosurgeon and Co-founder and Chairman — MarketSpace Capital

A summary of the current environment’s impact on various asset classes, has already been outlined above. However, with respect to Office and retail, and the impending vacancies, rental rate compression, tenant defaults, etc., all these factors contribute to a short-term reduction in NOI … and ultimate value. Values in these asset classes will be negatively impacted and it will take some time to get past these societal, health and safety and emotional concerns. So, now may not be the time to rush out and acquire these assets yet having cash to take advantage over the next 2 to 3-years for an attractive investment basis for investors.

Relative to Industrial, Storage and Fulfillment Centers, the current environment will likely be an attractive investment as an alternative investment class. So, the demand for this asset class will likely surpass the supply in the near term which could generate some good returns.

But, with respect to investing in multifamily, massive demographic shifts are underway, which are creating an avalanche of new renters over the next decade as follows:

The effects of this last year’s unemployment, salary freezes, reduction in hours, consumer confidence, elimination of employer benefits such as healthcare, 401 K match, etc. has eroded purchasing power, creating less buyers at each price point
Millennials (who have now surpassed Baby Boomers) are still not moving into home ownership due to student debt and lifestyle flexibility
New renter households increased by roughly 10 million households over the past 10 years
Demographic data says that an estimated 500,000 new rental household units will be created annually through 2025, but only 300,000 new units were built annually in the past 3 years
Single population … which generally is a renter … grew by 15 million more “units” above married couples (which generally look to buy a home) over the past 10-years
Baby boomers (representing the 2nd largest demographic group ever) are looking to downsize to urban apartments
Immigrants have lower home ownership rate … and US immigration continues to rise
Tight construction labor market is constraining multifamily construction

Should we lean in … or retreat? — The consensus of the Panel

No matter how divided a society may be, a balance of power in government generally indicates that future policy will remain generally in line with current policies, despite overtures of change. Furthermore, population counts continue to grow. and last time we checked, no one has made more land! So well-placed real estate, like gold, is in finite supply and always a great long-term investment.

We are at a point that a savvy investor could capitalize on all markets, especially when focusing on foreclosures with solid property fundamentals (hotel, office, retail — all opportunities with quality product). Yet, to summarize — real estate is always a good play despite the stock market, president, or parliament. We will feel pain in the short term due to the pandemic, that will translate through to Commercial Real Estate, but long-term fundamentals for core locations is sound. As an investor, this is the time to pounce. As a property owner, this is the time to hold. As a property owner on the edge — this is the time to refinance and benefit from some of the historical low cost of capital.

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January 9, 2021by adminUncategorized

A 7-Part Series on What Experts Predict for Real Estate in 2021 – Part 6

Part 6 – Capital Markets and the Supply of Capital

To understand what the real estate industry experts’ crystal ball for 2021 may predict, a strategy discussion was held with some of the most experienced and knowledgeable real estate experts. The cerebral panel covered topics such as capital markets, the economy, construction costs, development trends, effects of COVID, regulatory matters, and much more.

This article is the 6th in a series of 7, broken into bite-size topics, related to the all-important question of … “given the current landscape and forecasted trends related to the economic, political, banking, healthcare, and real estate sectors, many real estate investor are asking the question should they be leaning into these headwinds, or should they be retreating to the sidelines?”

Part 1 of the Series suggests that now is the time to be bullish on real estate investing. But what are the fundamentals driving that conclusion? Keep reading the entire series to uncover these fundamentals.

Here is what the experts had to say regarding …

Capital markets and the supply of capital — Jan Sparks, Executive Managing Director Structured Finance, Transwestern Real Estate Services

Capital Markets in Real Estate are tricky due to the uncertainty in the economy, how real estate will be used and investor preference. Transactional volumes are currently significantly off for the same reasons. Capital markets remain uncertain as there is a lack of price discovery for sales and lease rates.

The news of Pfizer, Moderna, AstraZeneca, etc. and their positive coronavirus vaccine results will boost service businesses and the economy, when the vaccine helps get the pandemic under control. But better economic prospects will also cause interest rates to rise. As a result, the 10-year Treasury note’s rate will likely rise above 1% before the end of the year. If vaccines are effective, the 10-year rate will likely rise at least another half percentage point in 2021. However, if Congress fails to pass another stimulus package, then rates will likely tick down temporarily.

Mortgage interest rates have likely hit their low point and will edge slightly upward from now on. During the first week in December, the 30-year fixed rate hit its lowest point since the Freddie Mac rates survey began in 1971–2.78%. The rise in the 10-year Treasury rate means that the gap between it and mortgage rates is close to the historical norm.

The Federal Reserve at its most recent Federal Open Market Committee meeting recommitted itself to keeping short-term interest rates near zero, which likely means through 2024. The Fed is also continuing to purchase $80 billion of Treasury securities and $40 billion of mortgage-backed securities every month, adding to its balance sheet. The Fed is “all in” to do whatever it takes to support the economy. Its statement said that it will be willing to tolerate inflation levels above 2% for a time. That means that the Fed will not raise short-term rates even if inflation begins to pick up.

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January 7, 2021by adminUncategorized

A 7-Part Series on What Experts Predict for Real Estate in 2021 – Part 5

Part 5— Construction Innovation and Implications on Cost and Regulations

To understand what the real estate industry experts’ crystal ball for 2021 may predict, a strategy discussion was held with some of the most experienced and knowledgeable real estate experts. The cerebral panel covered topics such as capital markets, the economy, construction costs, development trends, effects of COVID, regulatory matters, and much more.

This article is the 5th in a series of 7, broken into bite-size topics, related to the all-important question of … “given the current landscape and forecasted trends related to the economic, political, banking, healthcare, and real estate sectors, many real estate investor are asking the question should they be leaning into these headwinds, or should they be retreating to the sidelines?”

Part 1 of the Series suggests that now is the time to be bullish on real estate investing. But what are the fundamentals driving that conclusion? Keep reading the entire series to uncover these fundamentals.

Here is what the experts had to say regarding …

Construction innovation and cost implications — Honorable Marty McVey, McVey & Associates and Financial Advisor to Hwami Builders

Construction costs for real estate development are generally comprised of labor, materials and general contractor profit. However, COVID-19 and other economic, immigration and trade implications have affected construction costs in many ways. Labor has been constrained because of immigration restrictions, lockdowns and other mandates affecting the free flow of labor. Tariffs, duties, impositions, and restrictions all have an impact on cost, surety and timing of materials that are sourced “off-shore.” And other economic factors relative to commodity pricing or supply and demand impacts of materials such as lumber, steel, concrete, etc. all contribute to either an increase or decrease in material costs. In short, all these factors are outside the control of the general contractor.

As a result of these factors, Houston-based Hwami Builders, a long-standing client of McVey & Associates, chose to look to process innovation, efficiencies and other controllable items in an effort to reduce costs for their customers. For example, one of the large construction cost line items is that of wood stud framing. Historically, most framers would take the architectural designs, and have labor on site to assemble and custom fit each component. Unfortunately, this results in significant waste in both labor and materials. So, Hwami created a subsidiary which takes the architectural designs into its computer system, and by using sheet roll, 70-gauge steel, they can punch out the individual metal frames, which have been pre-punched for plumbing, electrical and other assembly requirements, the wall frames are assembled off site, and then shipped on a “just in time” basis to the site.

Based on their experience, Hwami Builders is able to use this innovation to reduce the labor by over 20% and the construction materials by roughly 35%. These costs savings can be passed along to the client, but equally, the development timeline can be reduced by two months because of the innovative construction and delivery methods. And in the construction industry, time savings results in real costs savings to all concerned. Due to the ability to get the project completed sooner, the developer sees a reduction in interest and other general condition expenses, as well as generating revenue sooner as the product can be placed into service quicker.

Regulatory Implications on New Development

It is a given that law makers will always make more … not less … regulations. After all, you never hear of a politician running for office to do nothing! Some run to reduce regulations, and others run to enhance and increase regulations. In short, change and regulations are inevitable. The goal is to understand the regulations and seek out those opportunities.

For example, the regulations for development permitting in the city of Houston, is a relatively painless process. Of course, anything can be improved, but when you compare the regulatory process in Houston to New York City, Los Angeles, Seattle, etc., the regulatory process can be cut by a factor of 3. So, instead of taking 18-months in New York City, you can start construction in Houston by month 6.

In the development community there is a misconception that the development services department of a city is there to get in the way of development. However, when you look at the big picture, the city is in need of property tax revenues to fund its general fund obligations. Therefore, the faster a city can get a development started, completed and into service, the faster they can increase revenues.

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January 5, 2021by adminUncategorized

A 7-Part Series on What Experts Predict for Real Estate in 2021 – Part 4

Part 4— Federal Tax Consequences

To understand what the real estate industry experts’ crystal ball for 2021 may predict, a strategy discussion was held with some of the most experienced and knowledgeable real estate experts. The cerebral panel covered topics such as capital markets, the economy, construction costs, development trends, effects of COVID, regulatory matters, and much more.

This article is the 4th in a series of 7, broken into bite-size topics, related to the all-important question of … “given the current landscape and forecasted trends related to the economic, political, banking, healthcare, and real estate sectors, many real estate investor are asking the question should they be leaning into these headwinds, or should they be retreating to the sidelines?”

Part 1 of the Series suggests that now is the time to be bullish on real estate investing. But what are the fundamentals driving that conclusion? Keep reading the entire series to uncover these fundamentals.

Here is what the experts had to say regarding …

Federal tax consequences — Jan Sparks, Executive Managing Director Structured Finance, Transwestern Real Estate Services

Tax consequences of the election results remain unclear. The runoff election on January 5th in Georgia will determine who controls the Senate. If the Republicans maintain control, a balance of power will remain in place, and many of Biden’s proposals would be more difficult to pass as currently drafted. However, if it flips to Democrats, there will be a negative impact on capital gains, Opportunity Zones, 1031 Exchanges, etc. That said, Republicans will probably retain the Senate and uphold current policies, which favor Commercial Real Estate.

Historically it takes at least twelve to twenty-four months for a new administration to have major legislation passed, therefore regardless of whether Republicans or Democrats control the Senate, it is believed that there will not be much change for the real estate investor in 2021 due to changes in tax regulations.

Many of the proposals in Biden’s plan target taxpayers earning more than $400k in annual income. Such areas which have been targeted include the elimination of like-kind exchanges, exemption from passive loss rules, and accelerated depreciation. Nevertheless, the following are some of the more notable areas of the tax code which will be most affected by the Biden-articulated policy positions:

1031 Exchange Implications

The 1031 Exchange program allows investors to delay paying tax on Capital Gains on CRE by Reinvesting the Profits into another Real Estate Asset. Biden’s plan would limit the tax advantages in 1031 exchanges to those making $400,000 or less. This will not only impact taxpayers that make over $400,000, as the ripple effect is that there will be less 1031 Exchange activity which could cause a decrease in demand. This reduced transactional impact in the 1031 Exchange marketplace could affect overall pricing, and this impacts all parties, regardless of their income levels.

Opportunity Zones

Opportunity zones are in 8,700 locations across the U.S. The program allows investors to channel capital gains generated from the sale of assets into qualified funds that make long-term investments in these underserved communities. Taxes on some or all the capital gains that would have otherwise been paid if the funds weren’t invested in an Opportunity Zone, is deferred, with the amount of such deferral being dependent on how long the investment is held.

Some of the Biden-proposed reforms are aimed at ensuring the Opportunity Zone areas are truly in need, and that the deferred capital gains dollars are being used to create jobs and affordable housing. Biden’s “Build Back Better” platform calls for reform of opportunity zone funds to ensure they “serve black and brown communities, small businesses, and homeowners.”

Opportunity zones will likely require greater measurability of impact and additional criteria on the zones. It appears that although there will be some reporting and regulatory restrictions added during the Biden administration, opportunity zones and most of their benefits appear to remain in place. The likely result is that like-kind exchanges are at risk and capital gains tax increases will be under pressure. Opportunity zones could see more interest to delay and reduce payment of capital gains taxes.

Income Tax Rates

The current highest Marginal Tax Rates under the tax code remains at 37%. Biden has indicated that his administration will reverse the Trump and Jobs Act tax cuts for the wealthy, by restoring the 39.6% top marginal tax rate, up from the 37%.

Capital Gains Tax Rates

Biden’s plan would first raise taxes on capital gains by treating them as ordinary income for those earning more than $1 million. This would dramatically change the long-term capital gains tax rate for these individuals from 20% to a maximum of 43.4%. In practice, this means that proposals to significantly raise capital gains tax rates, with no other changes, will lose federal revenues. Using research data from the Congressional Budget Office on capital gains realizations and these elasticities, it is estimated that raising the top rate to 43.4 percent (39.6 percent statutory rate plus the 3.8 percent Net Investment Income Tax) could lose about $2 billion each year in federal revenues.

However, Biden is not simply proposing to raise the top rate on capital gains. He also proposes eliminating the current regulations related to the step-up basis in capital gains. According to the Joint Committee of Taxation, not taxing gains at death results in a loss of about $40 billion each year in federal revenues. This change could temporarily increase investment sales activity for 2021 in preparation for the change in 2022.

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January 3, 2021by adminUncategorized

A 7-Part Series on What Experts Predict for Real Estate in 2021 – Part 3

Part 3— Unintended Consequences and Societal Impacts Due to COVID

To understand what the real estate industry experts’ crystal ball for 2021 may predict, a strategy discussion was held with some of the most experienced and knowledgeable real estate experts. The cerebral panel covered topics such as capital markets, the economy, construction costs, development trends, effects of COVID, regulatory matters, and much more.

This article is the 3rd in a series of 7, broken into bite-size topics, related to the all-important question of … “given the current landscape and forecasted trends related to the economic, political, banking, healthcare, and real estate sectors, many real estate investor are asking the question should they be leaning into these headwinds, or should they be retreating to the sidelines?”

Part 1 of the Series suggests that now is the time to be bullish on real estate investing. But what are the fundamentals driving that conclusion? Keep reading the entire series to uncover these fundamentals.

Here is what the experts had to say regarding …

Unintended consequences and societal impacts due to COVID — Dr. Masaki Oishi, Practicing Neurosurgeon and Co-founder and Chairman — MarketSpace Capital

As we have all learned this year, life can be very unpredictable. In fact, normal life has been flipped on its head and has tested everyone. So, from a macro-economic level, the following are the observations for various sectors in the real estate industry:

Office Space

One of the effects of the Coronavirus has been the movement out of office space, ostensibly for social distancing purposes. It is uncertain as to if this will be a short-term or more permanent impact on office buildings. As we all know, technology has advanced to enable everyone to be connected, whether they are sitting at their desk in an office or sitting at their kitchen table. As such, many folks are seeing the benefits and efficiency of zero commute time, a more efficient workforce, lower facility cost, etc.

Many major companies have already started to permanently get rid of their office space and move to remote working arrangements. British Petroleum, for example, is in the process of permanently shifting almost 50,000 employees towards remote working and flexible workplace layouts over the next 24-months. So, it seems like office space is getting ready for a shock as existing tenant leases come up for renewal over the next 12 to 24-months.

Retail

The International Council of Shopping Centers (ICSC) has historically cautioned retailers that digital technology will have an effect on the brick-and-mortar sales, but, what the ICSC did not see coming, was the large amount of tenant defaults, bankruptcies and downsizings that were as a result of the government-mandated closure of many retailers. What this means is that many 2nd or 3rd tier retailers (higher credit risks) that once never thought a certain shopping center or prime location was in their price range, now can negotiate from a position of strength with these desperate landlords that are looking to fill vacated space.

Hospitality & Entertainment

Travel and Entertainment budgets have been curtailed due to cost cutting directives from top executives, fear and ability to eliminate travel due to zoom and other technology tools which have now become the “new normal.” Additionally, many directives, recommendations and even mandates from federal, state and local authorities are dictating (or strongly recommending) no travel and entertainment

Just like the airline and cruise industries, the Hospitality and Entertainment industries have been dramatically hit as evidenced by occupancy levels at historically low levels, Average Daily Rates were slashed, 2020 Rev Pars are 48% of what they were in 2019 and even though the operators are doing their best to cut variable costs, their fixed costs of debt service, insurance and property taxes remain unchanged. In short, while their revenues have been cut by over 50%, their largest fixed costs remain the same.

Industrial, Storage & Fulfillment Space

Due to increased demand for online purchasing and growing constraints on supply chain, office flex and industrial space demand is growing. As a result of the “at-home shopping, ordering and direct delivery,” there will be increased demand for assets such as fulfillment centers, cold storage, and dry storage for online ordering. Furthermore, there seems to be upward demand for additional factories as popularity of onshoring sweeps the nation.

Multifamily

Current economic forces have had an impact on the incomes, livelihood, and savings of many citizens. Many people remain out of work and what may have been a dream to purchase their own home a short 12-months ago, many have chosen to remain in a rental category. Many multifamily assets focus on a “middle class America” tenant profile, and that sector continues to see strong lease-up, stable rental rates and an ever-increasing occupancy level for this asset class.

Months on end being stuck in the house or apartment has led people to question their current living conditions. And to go along with the shift away from offices, private designated workspaces in homes or apartments will be more important. People will be spending more time at home and as a result, spending more time inside the home. For these reasons, people are now looking for larger residential units with private office space and as much yard or common area green space as they can get. Tied to this, and another underlying impact of Covid-19, is that people have also learned to appreciate public outdoor spaces a lot more. Parks, green space, community gathering spaces … even if they social distance … and other outdoor areas have become a very important commodity.

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December 31, 2020by adminUncategorized

A 7-Part Series on Why Experts Are Bullish on Real Estate in 2021 – Part 2

Part 2— Policy Impacts on the Economy and Home Ownership

To understand what the real estate industry experts’ crystal ball for 2021 may predict, a strategy discussion was held with some of the most experienced and knowledgeable real estate experts. The cerebral panel covered topics such as capital markets, the economy, construction costs, development trends, effects of COVID, regulatory matters, and much more.

This article is the 2nd in a series of 7, broken into bite-size topics, related to the all-important question of … “given the current landscape and forecasted trends related to the economic, political, banking, healthcare, and real estate sectors, many real estate investor are asking the question should they be leaning into these headwinds, or should they be retreating to the sidelines?”

Part 1 of the Series suggests that now is the time to be bullish on real estate investing. But what are the fundamentals driving that conclusion? Keep reading the entire series to uncover these fundamentals.

Here is what the experts had to say regarding …

Policy Impacts on the Economy and Home Ownership — Sam Herskovits, Executive Vice President — Madison Commercial Real Estate Services

As we turned the page into 2020, the US economy and its fiscal and monetary policy decisions were all pointing to a robust, strong and record setting economy. However, COVID-19 was a game changer. When comparing the economic meltdown of 2008 with that of 2020, there are some emotional and economic burden similarities, yet the fundamentals are completely different. The 2008 economic crash was more of a “financial crisis,” yet 2020 can best be construed as a “service crisis.” The entire society was locked down and masked up. The ability to go to a restaurant, school, bar, grocery store, fitness center, hair salon, place of worship, etc. all became a challenge. Consumer confidence was shaken, and everyone was uncertain as there was no end in sight.

The government from both sides of the isle worked together to create policies which would help to stimulate the economy, and more importantly, help all Americans through a very tough economic situation. Stimulus dollars were funded to help keep the economy moving, yet everyone knew that at some point, these funds would run out. However, we as Americans, are extremely resilient and when we get knocked down, we bounce right back up to fight another day.

The economy remains steady being buoyed by a federal reserve which continues to pump capital into the economy, constraining interest rates to record lows and ensuring that the US does not experience run-away inflation. And the empirical data is showing that even after the stimulus dollars have been exhausted out of our bank accounts, Americans are still spending money, still investing in the equity markets and real estate, and still going about their every day lives. It is truly a testament to how amazing our society is, and will continue to be, in the future.

From a policy perspective, the most important issues affecting our near-term and long-term economy will be centered around substantial fiscal, tax or economic policy shifts of a new Biden administration, as well as the ability of the US Congress to pass another stimulus package. The outcome of the January 5th Senate run-off election in Georgia will be very impactful with either a consolidated government under a Democrat Party rule, or a balanced Congress with a divided House and Senate. In short, the outcome of this run off will create the blueprint for economic policy decisions for many years to come.

From a macro level, the largest single investment for most US citizens, will be their home. Consequently, many administrations have supported tax incentives for first-time home buyers to get Americans in the practice of building up equity in their homes. The Biden platform is no different, as it also involves limited tax credits for first time homebuyers.

However, given the current fundamentals in the marketplace, what a Biden Administration does or does not do will probably not be the deciding factor. The fundamentals involved in single family acquisitions are at their all time best. Interest Rates are at record lows and are not expected to rise any time soon. Inflation is at a stable rate and that is not expected to run away in the near term. Demand continues to rise for single family homes, and this trend is not expected to level off.

As previously stated, this current situation is more of a “service crisis,” as opposed to a “financial crisis.” Consequently, it appears that once the vaccine for COVID-19 is delivered, that we should have a robust and rapid recovery, and the economy will follow. This belief has been evidenced by accelerating single family closings, and this level of transactions is expected to continue in 2021 .. regardless of tax incentive for first time homebuyers.

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December 30, 2020by adminUncategorized

A 7-Part Series on Why Experts Are Bullish on Real Estate in 2021 – Part 1

Part 1— Should we be leaning into these headwinds, or should we retreat to the sidelines?

2020 has been an unforgettable year. Yes, all of us have other adjectives we can use to describe their own personal 2020 experience, but for purposes of this article … we will use the word “unforgettable!”

An economy that started the year at record-setting levels, and then saw some of the most violent shifts in unemployment, swings in revenues at both a corporate and personal level, and personal wealth. 401k’s which were tied to the US Stock market saw record highs, a rapid decline, and then one of the most dramatic recoveries ever witnessed in their lifetime.

And then, there was the 2020 election cycle from Hell that many would like to simply forget. An election which was filled with some of the most polarizing platforms, debates and campaign strategies which caused some interesting political debates at the office, around families and the never-ending news cycles of cable TV.

Well, everyone has cast their vote. All the votes have been counted. Election lawsuits are soon to be over. And just like that, the 2020 Presidential election is finally over. And with it, the unforgettable year of 2020 will be in the history books.

But what does a Biden — Harris Administration mean for the future of real estate development, construction, investing and ownership in the 4th largest city in the United States? What does a near-term roll out of a COVID-19 vaccine mean for our health, consumer confidence and ability to get back to the life that we once knew?

To understand what the industry experts’ crystal ball may predict, a strategy discussion was held with some of the most experienced and knowledgeable real estate experts in the world. The cerebral panel covered topics such as capital markets, the economy, construction costs, development trends, effects of COVID, regulatory matters, and much more.

This article is the first in a series of seven segments broken into bite-size topics and incorporate the insight of executives from MarketSpace Capital, the Structured Finance Group of Transwestern Real Estate Services, McVey & Associates and Madison Commercial Real Estate Services. In short, given the current landscape and forecasted trends related to the economic, political, banking, healthcare, and real estate sectors, many real estate investor are asking the question should they be leaning into these headwinds, or should they be retreating to the sidelines?

To find out the details, continue reading each of this 7-part series. However, here is a summary of what the experts had to say.

Should we lean in … or retreat? — The consensus of the Panel

No matter how divided a society may be, a balance of power in government generally indicates that future policy will remain in line with current policies, despite overtures of change. Furthermore, population counts continue to grow. And last time we checked, no one has made more land! So well-placed real estate, like gold, is in finite supply and always a great long-term investment.

We are at a point that a savvy investor could capitalize on all markets, especially when focusing on foreclosures with solid property fundamentals (hotel, office, retail — all opportunities with quality product). Yet, to summarize — real estate is always a good play despite the stock market, president, or parliament. We will feel pain in the short term due to the pandemic, that will translate through to Commercial Real Estate, but long-term fundamentals for core locations is sound. As an investor, this is the time to pounce. As a property owner, this is the time to hold. As a property owner on the edge — this is the time to refinance and benefit from some of the historical low cost of capital.

Panel of Experts

Sam Herskovits, Executive Vice President — Madison Commercial Real Estate Services

Honorable Marty McVey, McVey & Associates and Financial Advisor to Hwami Builders

Masaki Oishi, Co-founder and Chairman — MarketSpace Capital

Jan Sparks, Executive Managing Director Structured Finance, Transwestern Real Estate Services

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October 30, 2020by adminUncategorized

The 2020 Presidential Election: Policy Positions and the Effects on the Economy

With an election less than one week away, most citizens remain in the dark about the important policy positions of each candidate. Yes, hundreds of millions of dollars have been spent flooding the airwaves about the elections and the candidates, but most of these advertisements remain focused on the reasons NOT to vote for a candidate. Instead, many tough questions remain unanswered about the policy positions and the candidate’s beliefs. As was painfully noted in the first presidential debate, moderated by Chris Wallace in Cleveland Ohio, there was not a clear policy position that was either stated, implied or could be heard, by the audience. The second debate offered some information, yet the American citizens need details so that they can vote intelligently.

Both mainstream political parties have their position papers and party platforms on their respective websites. But even then, candidates are notorious for talking out of both sides of their mouths, and even though you may see a policy statement in writing, it is often turned on its head when the candidate starts to articulate their personal views. With so many 24-7 news outlets, and countless citizen journalists spewing rhetoric on the internet, what can you truly believe? The adage of “after all, it was on the internet” cannot and should not be sacrosanct. But what are the short-term and long-term consequences of this upcoming election? In an effort to save the time, agony and having your eyes glaze over, the following is an objective look at what policy positions each candidate brings to the election, and more importantly, examines possibilities of various outcomes.

Prefix

First and foremost, the financial markets have, long ago, analyzed, polled, and considered the effects of different election outcomes, and the consequences each might mean for the future of economic policy. So, this paper is NOT a blueprint on how to get rich in the market, as the market speculators have a monopoly on that technique. Rather, it is a high-level analysis of ECON 101 based on simple economic and geopolitical theory.

In short, a Trump or Biden win, when paired with a divided Congress, would yield little in the way of major economic policy changes, perhaps other than a slimmed down COVID-relief bill. Under this scenario, a President Trump/Biden might have to focus their efforts on making policy changes in areas where the executive branch has significant unilateral power, such as trade policy, foreign policy and appointing cabinet members, judges and regulators. Therefore, unless either party can dominate both the executive and legislative branch, neither party will screw up the economy due the institutional checks and balances!

The current political pollsters do not have a scientific crystal ball, but many political pundits DO NOT think that any one political party will sweep the House, Senate as well as the White House. However, if it were to occur, it is wise to anticipate that a “Democratic sweep” would facilitate the most far-reaching and significant changes to fiscal policy. This scenario, if it played out, could create an opening for the end of the filibuster in the Senate, and could lead to higher taxes on the wealthy and corporations, as well as major new spending initiatives on public health, infrastructure and a slew of other areas. It is also wise to believe that a Democratic sweep is also a scenario in which a significant (>$3 trillion) COVID-relief bill would have the highest probability of becoming law in an attempt to prop-up economic and financial market conditions. Betting markets are increasingly pricing in an additional fiscal stimulus, although it will probably not come before the end of 2020, and the odds of it coming at some point in the next couple of quarters are on the rise.

A Look at Policy

It is important to keep this backdrop of political, economic and market opinion in mind while looking at each candidate’s policy. It helps to give a more holistic look at the election, showing that the presidency alone cannot change the fiscal dynamics of the country. Nevertheless, the following is a snapshot at some of the key issues in this election and where the candidates line up.

Economy

A Candidate’s ideas and views on economic policy are of paramount importance in any election cycle. However, the policy position is even more important given the Coronavirus pandemic induced recession.

The first thing that either of these candidates must deal with, after their induction, would be their plan to reopen the economy. President Trump has spent the last few months pushing and campaigning for an aggressive and full economic reopening. He wants the states to open as soon as possible to help accelerate the recovery process. Under a Trump administration a push for opening would be highly likely, along with a predictable and continuing spike in Covid-19 cases. Former Vice President Biden, on the other hand, has a much more cautious plan for reopening of the economy. Lockdowns would most likely continue for a couple extra months under a Biden presidency. Mr. Biden has often said that he will follow the science and would put the health and safety of the American people over economic recovery. Under a Biden administration, lockdowns and a slow opening would be highly likely.

Since the COVID-19 outbreak, President Trump has signed legislation to flush the economy with trillions of dollars in onetime aid to businesses, individuals, and local governments. He has also supported further stimulus measures, including payroll tax cuts. Former Vice President Biden has proposed trillions in spending to create new jobs in clean energy, manufacturing, caregiving, and in programs to ease racial economic inequality. Mr. Biden wants to offer states more support in paying for unemployment benefits and says that households, as well as local governments, need more support to get through the shutdown.

Taxes have been a point of serious disagreement between these two candidates throughout all of the election. President Trump’s 2017 tax cuts have served as his shining achievement. He has proclaimed those “supply-side theory” cuts as an example of his approach to stimulating economic growth. Trump’s tax platform for this election has been one based on the cutting of taxes, such as payroll. The Trump campaign has said that cutting payroll taxes puts more money in people’s pockets, and therefore stimulate the economy by boosting “net paychecks” of most working Americans. A Biden tax plan seems to be the antithesis of this policy. The former Vice President has openly criticized the same tax plan that the President boasts. Biden has said that the 2017 tax cuts are responsible for the growing a wealth gap in America and generally apply only to the wealthy, and do not do enough for middle class America. Biden’s plan would be a partial reversal of these tax cuts, with a raise in the marginal tax rate on the highest income earners back to 39.6%, from 37%.

The Trump campaign is attacking the policy of raising taxes while the economy struggles to recover. He has also said that a raising of the minimum wage would stifle small business recovery. Biden, on the other hand, supports raising the national minimum wage to $15 an hour from $7.25, and expanding some tax credits for lower-income workers, as his economic advisors feel that it will promote the “rising tide lifts all boats” theory.

Trade is most certainly an important issue in this election. A trade war with China, a controversial North American Trade Agreement, and other topics have become hot button issues in recent years. In a return to a core issue of his 2016 presidential campaign, Trump is telling voters he wants to boost domestic manufacturing. He says America’s difficulties in procuring medical supplies internationally during the pandemic are a national security reason to encourage U.S. companies to avoid offshoring. Trump has not shied away from instituting tariffs on other countries and has clearly entered a trade war with China. Biden has proposed his own made-in-America manufacturing plan in July. He pledged to spend $700 billion on American-made products and industrial research, which he said would give at least 5 million more people a paycheck during a job-killing pandemic. Biden criticizes Trump’s tariff war with China as “bad for US consumers and farmers.”

Investment, research and innovation in green technology has become increasingly important during this election as the climate and new technology has become ever more prevalent. The president’s green investment has been very conservative and been one based on deregulation. He has not introduced any major plans or subsidies. He Advocates more spending on infrastructure such as U.S. roads, bridges, and airports., and he also has sung his praises for electric cars. But, with all of his singing, has not yet introduced any policy or other initiatives to boost the industry. This is a stark contrast when compared to Mr. Biden’s green investment plan. There was confusion over whether he was in support of the “Green New Deal,” which has support from many in the Democrat side of the isle. While a majority of Biden’s plan, which is said to cost $2 trillion over the next 4 years, looks very similar to the Green New Deal, universal jobs and free healthcare are absent from the former Vice President’s plan. Nevertheless, the investment and incentives associated with green technology are a centerpiece for Mr. Biden.

Big Tech

Big tech will most certainly see scrutiny during the next couple of years. Both sides of the political spectrum, while they might have different reasons, have a bone to pick with the major social media companies, such as Facebook, Twitter, Google and YouTube. It has become clear to many that there is something wrong with the way that social media platforms are being handled. From censorship, the cancel culture, false narratives of the citizen journalist to the lack of decency contained in the Telecommunications Decency Act, these platforms have turned against the American people.

In a second term, Mr. Trump and his appointees likely would maintain, and possibly accelerate, the broad-scale regulatory scrutiny of technology companies that marked his first term. That effort has included allegations of anticonservative bias online, antitrust investigations of internet giants such as Alphabet Inc.’s Google and Facebook Inc., and actions against Chinese-owned apps such as TikTok and WeChat. Mr. Biden, the Democratic nominee, has also been critical of Big Tech’s market power. He and running mate Sen. Kamala Harris say they would support stricter antitrust oversight and online privacy rules. But the Biden camp has emphasized forcing social-media companies to better police their sites against false information, instead of unilaterally taking government action.

Sadly, the idea of a hands-off approach, when it comes to social media, is no longer a viable option. With these platforms being so important to the framework of American society, both sides have agreed that they cannot be treated the same as other private sector companies.

If you do not currently care about the issue of big tech, you should. It is extremely important to the promotion of our First Amendment Rights. Whether you are left, center or right leaning in your political views, this is an extremely important issue that can affect our democracy and our protected freedoms.

Immigration

While immigration was the ever-present topic of discussion in the 2016 election, it seems like it will be an issue that will continue to be present during the next 4 years. The topic of immigration has seen less screen or talk time in the last few years, but it is still an important economic and social issue. The President’s previous campaign and policies were heavily based on immigration, while his challenger, Mr. Biden continues to be critical of these policies.

While his dealing with the pandemic, overall, have been more relaxed, the President has taken a stern stance on immigration throughout the events due to Covid-19. Mr. Trump dramatically curtailed immigration and travel into the United States during the coronavirus pandemic, arguing the steps were needed for health reasons and to protect jobs for U.S. workers. The former Vice President, in contrast, has been very critical of Trump’s Covid-19 immigration policy. Mr. Biden is against the cutting of new immigrant numbers and those seeking green cards and asylum. In fact, the former Vice President has said that he would put a pause on deportations for the first 100 days of his presidency.

The President has been adamant throughout his presidency that he would like to end the DACA program. Mr. Trump has seen very little support from the Supreme Court on this issue and lost a fight on the issue in 2017. Mr. Biden, however, opposes Trump’s actions and calls it “a cruel decision to terminate the DACA program.” Mr. Biden has stated that he would make Dreamers eligible for federal student aid for college, and would back legislation that provides for an amnesty path to citizenship for all of the estimated 11 million immigrants living in the country illegally, including those who did not arrive as children.

Student Loans

In the past few years, the ever-increasing debt levels and cost of student loans have become a major talking point. The amount of student debt in the country has exceeded $1.6 trillion and effects tens of millions of Americans. Although every American knows that the debt is an issue, however, President Trump and Joe Biden disagree on how much of the $1.6 trillion in federal student debt owed by 43 million Americans should be forgiven, and equally, how to finance college going forward through a public option.

The Republican Trump administration has sought to limit opportunities for Americans to have their debt forgiven. Education Secretary Betsy DeVos has said that the government must address borrowers’ needs while guarding against taxpayer waste. But the administration has improved access to data showing how much students can expect to pay in tuition and how much they are likely to earn after graduation, treating higher education as a marketplace driven by consumer choice. Students and their families would continue to pay the growing cost of a college education, though low-income students have been given more flexibility on the use of so-called Pell Grants. Mr. Biden, the Democratic challenger, proposes having the government forgive hundreds of billions of dollars in student debt owed by poor and middle-income households. He says that would help to reduce income and wealth inequality. Mr. Biden also says that students from low and moderate-income households should not have to pay for a public college education.

Health Care

When it comes to health care, there is one … and only one … major fight taking place. It is over the Affordable Care Act, a plan introduced by former President Obama. Judging from the number of political ads that have the ACA, pre-existing conditions, single-payor options, etc. as the primary talking point, it is clear that this is an issue that moves the needle from a voter’s perspective.

President Trump has been openly critical of the ACA and has made it his mission to end it. He has given some limited information on his own plan, and has succeeded in lowering drug prices, yet he has not yet released a comprehensive, replacement plan. Biden, on the other hand, has made it one of his main priorities to protect the ACA plan which was created under his term of vice president.

So, what does all of this mean for the future of our economy?

For those of us who have watched the hit Broadway Musical Alexander Hamilton, the creators not only wanted to entertain the audience, but also to educate the masses. Remember the scene when both Jefferson and Hamilton tried to convince President Washington that their political views represented the greater public opinion? What began as a personal dispute over a centralized and decentralized government and federal banking system, evolved into the formation of primitive political parties. Both Jefferson’s and Hamilton’s political views represented public opinion. Jeffersonians shared the belief in a strict interpretation of the Constitution, while Hamiltonians accepted a broad interpretation. And thus, the two-party political system was created.

It is this two-party system which has lived through two hundred years …. which has survived wars … has survived famine, depression, and pandemics … has survived civil unrest and political strife … and it will prevail for the next two hundred years.

The framers of our constitution and the early creators of our republic wanted to make sure that no one single party … one president … one legislative or judicial branch … could dramatically alter our economy, social fabric, and overall direction of America. In short, they built in enough “political frustration” to ensure that we could stay moving in one general direction, and not be entirely subject to the far right or far left, and their political agendas.

So, the differences, similarities, number of tweets, attack ads, debate interruptions, and political rhetoric of both President Trump and former Vice President Biden, should not dramatically effect the near term for the US economy, as this “political frustration” will take months, if not years, for the policy pendulum to swing in one direction or another. Therefore, the 2020 election will be largely symbolic and more of an election that will call for Democrat reform, or a continuation of Republican policies, as nothing will change quickly in Washington.

Now it is up to you

The ability to vote is something that many Americans take for granted. As an American citizen, you must be engaged, have your voice be heard and make an impact on the direction of American policy. Your vote does matter as it is your statement as to the direction you choose for America. It is integral to the American democratic system and it is your civic duty. So, with an election that has already witnessed a historical turn out, you should become educated and go vote.

Talking you off the cliff

If you have watched any news channel, seen any talk show, or just looked at Twitter or Instagram, you probably have heard something along the lines of “this being the most important election in the history of the free world!” From the left, you here that Trump will bring COVID death to hundreds of thousands more people. From the right, you here that Biden will bring us to civil war and unrest and take away your rights under the 2^nd Amendment.

But rest assured, none of that will happen. Every presidential election is important, but for the American people, this election is no more important that the last. People fear the worst in most circumstances. It is natural for humans to “pile on” and reach conclusions that “the world is going to end,” rather than not much will change.

As stated before, unless a unified government is established with all branches of government under one political party, not much ever happens. There is a reason why presidents do not accomplish everything on their agenda in their presidential term. It is called checks and balances … and bureaucracy. While most often the speed of government and lack of effectiveness is seen as a bad thing, this process was created to keep quick, unilateral and radical changes from occurring.

Sure, some of the policies outlined in this article will get enacted during the next presidential term. But even if they do, it will not occur on the first day. In fact, it will probably not occur within the first two years.

Therefore, if you are on the edge of the cliff due to the attack adds, the negativity and the spin … take a step back. Everything is going to be fine. The effects of this election, whether you approve or disapprove, will not materially change your life. The economy will stay relatively stable … you and your loved ones will stay alive … and the world will continue to spin in the same manner it has for thousands of years. Again, everything is going to be fine and our democracy will prevail!

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October 15, 2020by adminUncategorized

A Texan Gold Mine: Why Everyone is Heading to Texas

Are you looking for gold, friend? Well, come to Texas and look around. A new gold rush is occurring deep in the heart of Texas. Whether it is the “new gold” in oil shale reserves, new technologies, Bitcoin, or many other industrial advancements, or simply the search for a lower cost of living, no state income tax, less regulations, tort reform and reasonable property values, there is gold in them there hills. And this modern-day Gold Rush is causing most real estate investors to smile from ear to ear and generate very attractive investment returns.

With a population of 29.9 million, the population density in Texas is 108 people for every square mile, which puts the state at the mid-range for density rankings. Median household income for Texans is $57,000, which is also a mid-range value according to national data from the U.S. Census Bureau. So, if Texas is in the mid-range on these benchmarks, then why does everyone want to come to the Lone Star State?

The Texas economy is valued at $1.6 trillion, which places it at a close second to California. Annual job growth was measured at 2.2 percent as of 2017, spurred, in part, by lower business costs and less regulations. The state has earned the following accolades from Forbes Magazine:

Ranks first in the nation for favorable economic climate due to solid growth in employment and gross state product over the last five years
Considered among the top states for business startups
Ranks second in the list of Best States for Business
Ranks second in the list of Best Growth Prospects
Ranks third in the list of Best States for Business Costs
Ranks ninth for availability of qualified labor
Ranks 21st for Best Regulatory Environments for Business

A Great Migration

Texas, as we all know, is big. After all … “everything is bigger in Texas.” But in terms of population, Texas is only getting bigger. The state has the second highest population at 29.9 million people, as of 2020, and has a high growth rate to match. Texas is growing at a rate of 1,000 people per day and has many of the fastest growing cities in the nation. In fact, five of the top 10 fastest growing large cities in the United States are in Texas: San Antonio, Dallas, Fort Worth, Frisco, and Austin. When you expand the survey, this Texas growth trend continues, as out of the 15 fastest growing American cities, by percentage, Texas houses 7, including New Braunfels, Frisco, McKinney, Georgetown, Rowlett, Midland and Round Rock.

What does this mean? As George Strait put it … it means that “Texas is the place I’d really love to be.” It is the land of opportunities. It is “wide open for business.” And many people are flocking to Texas in search of new careers, greater value in real estate and lower cost of living. And it bears repeating …. No state income tax! When you follow the money, the prudent people … and their money … are all flocking to Texas.

Relatively speaking, the job market in Texas is strong, and its only getting better. Since many corporate headquarters are relocating to the Lone Star State, it means that there is a tremendous demand for qualified workers in many fields. On top of that, residential housing costs are relatively low. Whether you are in the C-suite, or hold a middle market job, when you look at the house that you get for the relative dollar in terms of salary, many areas in Texas offer a great value for growing families.

Along with the low housing cost, Texas has a reputation for low taxes. The state has no state income tax, and according to the fiscally conservative policy makers in Austin, they never will. In fact, a state income tax is against the Texas state constitution. Some say that the state’s revenues must therefore be generated by larger than average property taxes. But, in reality, these property taxes are about half of what you would pay in a city like Chicago. As the state is known for its libertarianism, taxes are a sort of “state sin.”

Alternatively, a state like California has no problem taxing people, especially small business owners, to death. For those businesses that are still alive, they are looking for greener pastures. Greener pastures that all exist in the great state of Texas, This, along with other factors, encouraged 86,164 California residents to move to Texas in 2018 alone, which is the largest crowd, by far, from one state to another. This trend continues in 2019 and throughout 2020. People from states like California, Illinois and New York are moving to Texas by the tens of thousands each year, in search of a better life, and better economic prosperity, than anywhere else in the country.

A Booming Economy

Contrary to popular belief, Texas is more than just cowboys, ranching, rodeos and oil. Texas is the energy capital of the world, has the largest medical center in the world, and is home to Space City Houston, which is the space exploration capital of the world. Texas makes up 9% of the United States economy. But if you look at Texas as its own country, it would have the tenth largest economy in the world, beating out countries such as Canada and South Korea.

As we all know, everything is bigger … and more economically diverse … in Texas. One of those “bigger things” is the Texan manufacturing industry. Back in 2017, total manufacturing output from the Lone Star State was $226.16 billion, or about 10 percent of total U.S. manufacturing goods, according to the Federal Reserve Bank of Dallas. The industry supports more than 1,241,379 jobs in Texas, or about 10.2 percent of its workforce. The average annual compensation for manufacturing was $82,544, which is one of the highest in the nation, and helps boost the state’s gross domestic product. Finally, at a time when global manufacturing expansion is slowing, this sector in Texas continues to grow at a healthy pace.

Texas is also the king of American exports. In 2018, Texas exported a record $315.9 billion of “Made-in-America” goods to the world. Texas is the largest state exporter of goods. While their exports are led by crude oil, Texas has a diverse number of exports ranging from technology to rocket parts.

Texas citizens also see the fastest income growth of any state in the union. Due to the fact that it is one of only four states without a corporate income tax, Texas residents enjoy the fastest personal income growth of any state. People in Texas not only get to keep more out of their income, but they get more money faster too. The data shows that Texas has the largest increase in personal income of any state, at 7.5 percent. In comparison, a state like California has an income growth of 4.8 percent.

Furthermore, the Texas real estate market is strong. The housing economy remains rock-solid despite the shock and awe of the pandemic. A long period of record-low mortgage rates has opened the floodgates for a refinancing boom that is likely to last for several years. In addition, after a momentary COVID-19-induced blip, home buying demand has picked up, driven by low rates and enthusiastic millennial and investor buyers. Spurred by strong demand and record-low mortgage rates, expect to see more home building in 2021 and beyond, which should help support a healthy housing market for years to come.

Texas Real Estate Investment

Texas is also gold mine for Real Estate investment. The housing market has performed exceptionally well since the post-recession years. Home sales in the state have grown, and will continue to do so, at a good rate for years to come. While the market did see a small decline at the beginning of the pandemic, like almost every industry, it was hit much less severely than other states, and for the most part has already rebounded.

Population growth drives interest and profitability of real estate investing ventures. The housing sector and multifamily development will continue to be under pressure due to high demand for residential units as this population grows.

Let’s take a look at some of the best markets in Texas.

Dallas– Dallas has seen substantial population growth in recent years. It has become one of the wealthiest cities in the country and its real estate markets has become a strip mine for earnings. Dallas will continue to be one of the bright spots for real estate activity in the state and nationwide. The National Association of Realtors predicts strong residential sales, especially in the mid-price to luxury-price range. The North Dallas cities of Frisco, Allen, Richardson, Carrollton and McKinney are among the nation’s hottest small-to-midsize housing markets and are constantly mined for tracts of land for multifamily development opportunities. These markets have generated, and continue to promise, a higher yield on real estate investments. Many of the jobs in this area are in the high-compensation sectors of technology, consultancy and finance.

Houston– The Houston real estate market is becoming one of the favorite destinations for those looking for a beautiful and spacious home, or to generally invest in residential assets. This city is one of the golden examples of a booming housing market. Houston has everything: the people, cultural diversity, business climate, world renowned energy, medicine, health care, space exploration and manufacturing. So, if you are an investor looking to invest, Houston is a great place to shop. The Houston market offers plenty of investment choices, amazing value for properties, and it is simply a good time to invest in Houston.

Austin– The capital of Texas is another strong choice for investment. The Austin economy continues to be based on technology, health care and higher education. Austin has made its way to the top of many “best of the best” lists, including the best city for job growth. In 2019, Austin experienced an unemployment rate of 2.7% which is lower than the state average of 4.0%. Millennials, born 1981-1996, have the highest percentage of relocating to Austin. With a large segment of the millennial population preferring to rent, this represents a favorable condition for investor capital. A growing population means housing and multifamily demand. Austin is among the fastest-growing metro areas in the U.S., and the population is expected to continue its exponential growth throughout 2035. During the last decade, the Austin MSA has grown by an average of 55,500 people per year and is just another one of the strong pillars that supports the powerful Texas market.

San Antonio– Also on our list is, of course, San Antonio. The San Antonio real estate market continues to remain strong, healthy and vibrant. An important measure of a healthy real estate market is “underwater mortgages.” If you are unfamiliar with this term, it refers to a situation where a homeowner’s mortgage balance exceeds the property value of the home itself. This, sadly, happens all too often in the United States, but San Antonio has one of the lowest rates in the country, at 9.08%. Surprisingly, San Antonio also has the lowest down payment percentage out of any city in the nation. With an average down payment of 13%, buyers do not need to have a huge savings account to buy a home. In fact, most buyers are spending less than 10% on a down payment in the famous Riverwalk City. San Antonio not only has a job growth rate and median income trending upwards, but it is also located to nearby Austin, Texas and has the benefit of offering more affordable housing for commuters to the Capitol city. Additionally, San Antonio is home to Lackland Airforce Base which employs over 25,000 people and continues to be a steady driver of the local economy.

This, along with a fast selling market, makes San Antonio another one of the great choices in Texas.

By no means is this a comprehensive list. Yet it should be viewed as more of a glimpse into the Texas submarkets. The markets listed are some of the best in the country, if not the world, but there is a plethora of other Texas markets to be discovered.

Covid’s Impact

Like everything else in the world, Texas was hit by the corona virus. Texas may not be immune to a pandemic, but they are not far from it. First, to be clear, Covid-19 hit Texas hard, and in some ways, caused damage that will take substantial time to heal. But, in other ways, the Texan resilience, whether it be from Hurricane Harvey, which was the worst storm in the history of Houston, or the pandemic, Texans work together, rebuild and bounce back on their feet faster than anywhere else in the world.

The overall Texas real estate market experienced a noticeable dip at the beginning of the pandemic. As anyone would expect, a national shut down paired with an unknown pandemic, are not the best ingredients to promote a thriving economy. People were scared and locked inside. Throughout the country, recovery has been slow, and in some places, has not yet even begun as lock-downs continue. Texas, on the other hand, was one of the first states to begin to open. At first, many “nay-sayers” saw it as a bad move, as a spike in positive cases ensued. But soon, the spike flattened, positivity rates declined, and the state began to recover. Almost immediately, jobs returned, houses began to sell, and people began to rally together to help struggling businesses. The residential housing market is doing better than ever and has a trajectory to move in a positive direction for years to come.

The Land of Gold

Texas is a new land of opportunity. Life is good in Texas … and its only getting better. Thriving business, massive migration of capital and human resources, and a booming real estate market are strengthening the state’s foundation. Texas is the place to live, work, play …. and invest. The “city of gold” has been a dream and a quest of explorers throughout history. From the early European explorers, to Indiana Jones, people have searched the new world and beyond, for this golden city. It just so happens that we have finally found it, and when you get there, you will be greeted with a friendly “Howdy!”

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