Thoughts on Albuquerque?

Question

I’ve been spending a lot of time visiting and researching the Albuquerque market.  I’m curious to hear others thoughts on the market.

My take is that it went through a lost decade and still to this day hasn’t recovered from the financial crisis.  It was experience 1-2% annual population growth since the 1950s but 0.3% annually since the GFC.  Budget cuts led to the police force being reduced and as a result crime spiked.

However, I’ve seen very promising signs over the past couple years.  They’re aggressively hiring police officers, attracting businesses, and signing up projects left and right to revitalize downtown, old town, and the university district.  With prices skyrocketing in Phoenix and Denver, cost of living in Albuquerque must be able to draw people and the weather seems pretty nice.  These are all good signs but turning around a metropolitan area is a slow process and takes a lot of work.

That’s just my ramble on the market, I’m interested in how other people see the market.

Bill S. · Answer

Account Closed so no first hand experience with actual money in Albuquerque but my father and step mother have owned property there along with my siblings. My sister in law and her husband live there as well. I seriously looked at investing there when my family started investing. I worked for a company that had an office there as well and my father was stationed there when he was in the army years ago. I have a friend from High School and college that lives there and works on the base as a scientist. So lots of 2nd hand info, some current and some past.

First of all, the weather. It seems like it would be a nice place to live as it is in the South part of the country so should be generally warmer. My take is that it's relatively high in elevation 5,300 ft which makes it the worst of both worlds. Uncomfortably cold in the winter and blazing hot in the summer. My in-laws stayed there for a month in January helping out my sister-in-law, thinking they were going to escaping the cold of Wyoming and were sadly disappointed. It froze most nights they were there, rarely got above 50 and the sun didn't come out much. The wind blows too. The Crest acts like a dam and often holds the clouds over the city. It also contributes to the wind. Every time I have visited there in the winter, it's been windy. It's definitely not Phoenix in winter. It has many days over 100 in the summer so unlivable without central AC.

The political landscape is has been much different that the rest of the Western US aside from the West Coast. In my opinion that is the reason the they lacked the turnaround from the Great Recession. From a business standpoint it is very parochial. The company I worked for had to open an office there and "teamed" with a local company that offered no technical contribution to the work just to get a contract with the City government. In the end, the company decided the effort wasn't worth it, closed the office and didn't pursue any more work in the area. I think if you look at the track record of City contracts, you will see a similar pattern.

If you follow the local politics, the City focuses on social programs, which are needed, but it doesn't seem to make changes that would attract and foster small business. In my estimation the approach is to go after the whale like Netflix, rather than fostering an environment that creates a Netflix and the hundreds of ancillary business.

There are areas where the wealthy of the area live but you don't see much outside of those walled communities that inspires investment and redevelopment in my opinion.

It seems like a City treading water at best. I was not inspired to spend my investment dollars there and don't regret it.

Hope Hatton · Answer

Bobby, I just invested in ABQ this past December. I am not an expert there, but I can give you my impressions. The return is OK but not great, but the multifamily home prices are (relatively)cheap, and the rents can easily turn a positive cash flow. The rents here are pretty low, but if you buy at the right price, the tenants can still afford the rent and there isn't too much COVID-related non-payment.

New Mexico's overall COVID numbers are really low and business is getting back on its feet... however, big events in ABQ, such as the state fair and the Balloon Fiesta, have been cancelled, so that's going to affect the coming year's local economy. ABQ also made a lot of deals to attract Netflix to make its headquarters here... but now nothing is being filmed. Who knows what that is going to cost the town? Amazon announced in late May that they would be building a fulfillment center in west ABQ.... but I haven't heard anything since then so I don't know if that deal is delayed, or dead.

Positive: there's a military base so there's always rentals needed there. Negative: the college area might not be such a great investment any more, since we don't know if colleges will ever fully open in the near future. Positive: most of the businesses and tourist areas (Old Town, Biopark) are open again and AirBnB is legal here. Negative: water bills are billed to each property as a single lot; so if you own a multifamily, you cannot get separate water meters at each apartment (but-water is relatively cheap here- I pay the same amount for my fourplex-12to16 people-  as I pay for my water bill in my own single family home in Hawaii).

Most of the fourplexes I have looked at have owners who bought only about 10-15 years ago ago for about $30K and are now able to sell at $200K. They are taking advantage of the hot sellers market. I think the market may be topping out soon, and it might go down over the next year or so.

As far as crime... they really talk about it all the time, but I haven't seen it. Not any. I stay in one of the "so-so areas" of town (near Old Town), but in the "southwest" quarter. It seems to have a negative reputation, but it's fine to me. I don't live here year round though, only a couple months this past year. The fourplex I own is in the "northeast" quarter, in a bad section, I wouldn't want to live there, but its still not horrible and most of the tenants and the people I meet there seem decent enough. I think the reputation of the crime has gotten overblown since the popularity of "Breaking Bad".... if you have ever lived in a large city, it really isn't any different.

Summary- ABQ was on its way up, and still seems to be, as far as real estate market value goes, but not sure how COVID will affect it in the coming year. The ROI on starter investments is OK, but its not the best. Its not in the current top ten if you pay attention to the various BP lists and articles.

Keep your eye on the growth stats and the real estate prices after the high summer season ends,  and get more opinions (hopefully from people smarter than me).

Cara Powers · Answer

@Bill S. Thanks for taking the time to post such a thoughtful answer. I forget that our population growth is anemic. You're right that without population growth, the areas I'm talking about won't be revitalized. And I would say that most of Albuquerque's challenges are related to poverty at the personal level and lack of resources at the government level. That said I'm going to change the tone a bit and tell you why Albuquerque is a great place to live.

1) Weather. It's almost always sunny. We do get some snow in the winter, but the streets get cleared quickly, and it never lasts for more than a few days. And yet, you only have to travel 15-30 minutes to go snowshoeing or cross-country skiing in the winter. There is even a small ski area in the Sandias. Skiing in Santa Fe or Taos is only 1-2 hours away. In the summer, the temperature rarely gets into the high nineties and almost never goes above 100 degrees. Because of the low humidity, evaporative cooling keeps the house comfortable even on the hottest days and is way less expensive that A/C.

2) Outdoor sports. In the foothills to the east there is an extensive trail system that intersects with the extensive trail system in the National Forest. It is possible to live literally next two a trailhead. Trails are used for hiking, mountain biking, and horseback riding. There is also a trail system used for walking/running/biking along the Rio Grande. Days where the wind makes outdoor activity less fun happen but are rare. Albuquerque also has a bunch of small city parks with tennis courts and playgrounds throughout.

There are a ton of state and national parks and public lands. There are even lakes within easy driving distance. People here are very into camping and other outdoor recreation.

3) Wide variety of people. There are people who have spent their whole lives in New Mexico, and there are transplants from all over the US and even the world. The National Laboratories, the Air Force Base, Honeywell, GAP, Netflix and others mean we have a people from everywhere, and a lot of them are highly educated. There are also a lot of artists.

4) Convenience. You don't want to live on the West Side. The west side of the Rio Grande is a bunch of the kind of suburban sprawl you can find anywhere. It's inexpensive even for Albuquerque, but Bill S. is right that crossing the river during rush hour is painful. However, if you stay on the East Side, everything is super convenient. The intersection of I-40 and I-25 mean everything is not more than a twenty minute drive, and rush hour doesn't significantly change that. And yet we have most national chains, two Trader Joe's, two Whole Foods, lots of Sprouts, Lush and tons of others you wouldn't expect to see someplace where everything is twenty minutes away.

We did just get Netflix. I know some people in the film industry here and they are starting to film again. Also, the University Hospital is (sadly) the major employer. Between the two, if I had money to invest here, I'd be looking at executive rentals. I think units furnished with modern comfort but local personality would do well with film industry people, traveling nurses, families of hospital patients, and possibly medical residents.

Also, we're getting an Amazon fulfillment center, so that should be good.

Account Closed · Answer

@Bill S. I agree, they could definitely do more for the business environment and that is indeed where the risk lies in investing in ABQ.  I don't know how they can see the kind of success that Phoenix, Denver, and SLC are having now in terms of job creation and not following the same lead.  The only comfort I have in regard to overall growth is that cap rates don't seem to imply any growth anyways.  Based on cap rates in ABQ versus somewhere like Phoenix or Denver, your downside hope is that rents grow at a rate equal to inflation each year or more while in Phoenix/Denver your downside hope is that rents grow at least at inflation plus ~2% a year.  I don't know which scenario is more realistic, both seem very plausible.

Weather wise, I would never think ABQ would have similar weather to Phoenix, it's the first (or maybe second highest) elevated city in the country.  I was just commenting on the overall quality which is still think is great but yes, windy.  100 degrees is hot and sometimes nice IMO but Phoenix reached 115-120 degrees, which is an entirely different ball game.

Patrick Torres · Answer

@Bobby Larsen @Hope Hatton

Always interesting to hear out of state investor impressions on our market.  I have lived in Albuquerque now for 3 years, and it is the first place I’ve purchased an investment in.  I believe in the future of our market and the potential in our city, but must be honest that the issues you see here in my experience are not typical for other medium sized cities.  Many of the city’s problems are interwoven; poverty, homelessness, and drug addiction are likely drivers of the property damage crimes that we experience at significantly higher rates than other comparable cities.  A city’s downtown should be a vibrant focal point, but ours is avoided by many residents and businesses because of these issues.  The area in the SE part of town between San Mateo and Eubank is one of the highest density areas for multi family properties, but these issues are prevalent there which makes it a particularly challenging sub market.  I went to look at a fixer up duplex in this area recently that was on the market for awhile, it was across from a small park which I thought would be a positive.  However that park and most others in this area usually have a lot of homeless congregating in them making the properties in the vicinity less desirable.  Our leaders know about these issues and are trying to address them, but a long term solution remains illusive still.  Construction of a Tiny Home Village for the homeless is expected to be completed this year, 30 units at an estimated cost of $4.3 million is good, but it’s a drop in the bucket.  Resolving some of these issues I believe would attract bigger and better employers who would be drawn to the relatively cheap price of real estate  and labor.  I expect modest appreciation with the properties I have purchased, but am hopeful we could one day see an explosion in growth like Phoenix or Denver.

Jens Nielsen · Answer

Account Closed I own 76 units in Albuquerque and I'm pretty familiar with the market. We are actively looking for 100-200 unit deals, and since I live in Santa Fe, NM its any easy drive for me.I had a lengthy discussion with my PM yesterday, and they are filling units very quickly. There's a high demand for rentals at the moment. However the demand is not resulting in too much rent pressure at the moment.

Bill S. · Answer

@Cara Powers so a few thoughts. 1) with an anemic population growth, those areas will never turn. You have to generate jobs to get population growth beyond just having more a few more babies than people who die.

2) I tried to cover some of the business issues in my first post. You will need to read between the lines. People who own/run small and medium size businesses should understand. The rest just wonder what's going on behind the curtain if they even consider that there might be a curtain. Unless you have been close to the inner workings of local and state government you won't have any idea of what's possible that impacts the business environment. It is lost on the average W2 employee. In addition, the sad thing is that many bureaucrats have not idea the impact of their actions on business. Unless there are some near the top of the political pile that do understand business and chart a different course (business friendly) for an extended period of time, everything goes along and people wonder why nothing changes. I don't want to make this a political post by calling out specific policies or political actions that have been harmful to economic expansion in the area.

3) I agree with the infrastructure issue in the area. One geographic challenge is the Rio Grande River right through the middle of the area. Too few bridges create traffic problems (even with it's relatively small population) and the river requires large expensive bridges. In addition, the patchwork of Indian and Government lands limits growth and contributes to urban sprawl without really have the urban component. Longer commutes, longer road, longer utility lines (fewer customers per mile of pipe to maintain) all lead to higher costs and lower return on invested dollar (whether public or private).

4) High Crime - lots of systemic issues there which are tough to battle and weigh on the system as a whole.

I apologize for the negative tone of this thread. It's kind of gone that way. So in closing, remember there are people there investing in real estate and making money. This is not a don't invest there post. My primary point is don't expect a rising tide to lift your ship in Albuquerque. Again, there is and will be money made in real estate there, just temper your expectations. Finally, don't use this as an excuse to write it off as a place to invest.

Cara Powers · Answer

I've lived in Albuquerque for the past 7 years. I moved there because it has the lowest cost of living outside the South. There are not many other cities where one can live 2 miles from a trailhead and 5 miles from a Trader Joe's for as little money. One thing you have to remember about Albuquerque is there is a limit to how much it can expand. It is surrounded by mountains and reservations. Developers have been focusing on the West Side expansion because land there was cheap and plentiful, which has help depress property values in what used to be the city center. However, they will eventually run out of room over there, and all the rundown houses in the B, C and D neighborhoods will start getting more expensive.

Account Closed · Answer

@Cara Powers @Bill S.

Great points by both of you.  ABQ is definitely a turn around story and it has a lot of work to get there but there are some very promising signs.  Quite frankly, with where interest rates are, they don’t even need a strong turnaround story.  Buying multifamily at 5.5% cap rates and borrowing at 2.75% interest rates generate strong return even in a stable slow growth market.  So long as appreciation keeps up with inflation.

Account Closed · Answer

@Cara Powers

Great question.  I don’t think it’s any specific policy, I think it’s due to decades of lack public of investment in the area and a lack of skilled professionals.  For the larger companies, it’s been a difficult sell because they don’t see a population to draw talent from.  And the second is poor infrastructure.  Now, I don’t want to offend anyone that lives there because I’m sure there are very talented people there.  In fact, I believe the percent of people with PhDs is one of the highest in the nation but it’s the level below post graduate degrees that they’re missing.

Just my two cents and I don’t think it’s anything new.  It was the reason Bill Gates left and moved to Seattle in the 70s.

Thoughts on Albuquerque?

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