A "Hall Analysis" of Gastonia as a Market for Buy&Hold Rentals

[Josh Stack]

Hey Everyone,

There has been some good discussion about Gastonia lately, particularly in this thread started by @Johnny Szeto. While there has been some excellent discussion and some anecdotal evidence shared by @Tyler Watts, @Ruben Guerrero and @Brian Orr amongst others.

To get some more facts on the table, I thought I'd take a deep dive and make an analysis of Gastonia using the method outlined by @Brandon Hall  in this seminal blog post on how to analyze a city for underlying economic and demographic fundamentals.

You'll want to download the reference documents and have them handy as we walk through this. I will primarily reference the 2016 report. I will reference the page numbers of the PDF document, not the page numbers printed on the report itself. They differ. Additionally, the methodology for the analysis will be chronological as laid out in the "Hall Method" defined in the blog post.

Gastonia CAFR 2015 (year ending June 30, 2015)

Gastonia CAFR 2016 (year ending June 30, 2016)

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Introduction

• Population Growth
  • Page 62 - "The current population growth has been fairly stagnant. The current year estimated population per the United States Bureau of the Census is 73,698. This estimate is up by 1,957 from the 2010 Census number of 71,741."
  • It is notable how the population increased 2007-2010 as the employment rate began to climb only to drop in 2011 and then start to slowly rebound in connection with a sustained reduction in unemployment.
• Economic Growth
  • Page 17 - Oddly, the report makes no attempt to discuss or forecast economic growth in Gastonia, rather they discuss economic growth in NC more generally.  This cannot be interpreted as a good sign.
  • Page 24 - it is only noted that "Gastonia has experienced some return of positive economic growth".
  • The Chamber of Commerce is having a speaker on 1 Nov 2017 to give an economic outlook for the area.  If anyone can attend and report back, that would be awesome.
  • Page 15 - The COMMERCE, INDUSTRY and ECONOMIC OUTLOOK section however lays out a number of things that are going in the city's favor economically though.  Some choice excerpts:
    • The City’s economy has benefited from its location within a major population center, its proximity to Charlotte, access to major interstate highways and Charlotte-Douglas International Airport. For many years, the primary industry in the City was textiles. However, the continuing national trend of companies relocating manufacturing facilities outside the United States has resulted in significant losses of jobs and investments in the textile industry. Over the past decade, the City’s economy has diversified its commercial and industrial base through a variety of industry, trade and tourism sectors, while the significance of the textile industry has declined. 

      --

      Gastonia has proven to be a hot economic market in 2016. Loray Mill opened Phase I of their project with over $22 million invested. Loray is boasting a 100% occupancy rate for its residential units and is most closely compared to Charlotte’s successful South End. Loray is now home to the Loray Athletic Club and Growler Pub. 

      --

      The most notable project is Gastonia’s new Franklin Urban Sports & Entertainment (FUSE) district. This visionary project is located in the former Trenton Mill neighborhood and will serve as a catalyst for redevelopment. The FUSE district will be anchored by a new multi-sport and entertainment venue that will be home to the Gastonia Grizzlies baseball team. Gastonia is in the property acquisition phase currently and will begin design in 2017. 
      

      --

      Gastonia Technology Park (GTP), the area’s premier business park, has transformed into a center for international businesses. The Gastonia Technology Park is full, with all available land purchased and planned for development. 
      

      -- 

      CaroMont Health, Inc., the parent corporation for a multi-state, integrated health care system consisting of CaroMont Regional Medical Center (the “Hospital”), physician office practices, imaging centers, outpatient centers, an ambulatory surgery center, a nursing home, occupational medicine, and hospice, maintains its principal offices in the City. The health system’s service area includes Gaston, Cleveland and Lincoln Counties in North Carolina and York County in South Carolina. 
      

      --

      The downtown area of the City is undergoing notable revitalization... A $10 million, 29,506 sq. ft., LEED-certified conference center with attached parking deck has become the centerpiece of downtown redevelopment.
      

      --

      A developing arts district is also spurring development with a $7.9 million “live-work” ArtSpace development presently in the planning stage, an artists’ center of studios and galleries located in a 30,000 sq. ft., City- owned building, a new artists supply store, and numerous private studios and galleries nearby.

      -- 

      The City and surrounding areas have been defined as a metropolitan-dominated region, with Charlotte serving as the central economic engine and employment center. Within this context, the City and Gaston County are fast becoming what economists refer to as a “regional retail center.” 
      

      --

      The grocery sector has been nothing short of explosive. Two new high-end grocery stores opened in 2016. Publix occupied an existing grocery store space bringing a $4 million remodel investment. Harris Teeter returned to the Gastonia market with a $7 million new shopping complex. Additionally, Lidl and WOW supermarkets have entered the Gastonia market. 
      

      --

  • The report also mentions "economic development" throughout the report and this is clearly it is a focus of the city leadership.  Whether they can execute on this focus area is up for us to judge with our wallets and investment dollars.
• Unemployment
  • Page 16 - Unemployment in the City was 5.5%, higher than the County rate of 5.3%, and higher than the State rate of 4.9% and the national average of 4.9% at fiscal year-end June 2016. Unemployment in the City was 5.5% as of August 2016. The prior year rates for the City were 6.7% and 6.4% for the months ending June 2015 and August 2015, respectively. These rates are not seasonally adjusted.
  • Page 63 - “By December of 2017, the North Carolina unemployment rate is expected to be around 4.2 percent.” 
• Diversity of Industry
  • Page 255 - Principle Employers.  The top ten list of employers in the city is a good mix of healthcare, govertment (Schools, County and City) as well as retail (Walmart), and industry (Freightlier, FKA Six Filtration, American and Efird, Pharr Yarns) and food packaging (Dole).  The city is still fairly dependent on industry, even if it has diversified since the days of being a mill town.
  • Another data set on Gastonia's employment by industry from datausa.io
• Higher Education
  • The CAFR does not mention higher education but the city does have two colleges nearby
    • Gaston College - 5,582 enrollment
    • Belmont Abbey College - 1,495 enrollment

Financial Analysis (This is not a strength of mine so if you have any insights, please comment)

• Schedule of Revenue, Expenditures and Changes - Page 149
  • The city took in 29 million in Ad Valorem Taxes which year over year was down slightly and as we will see later is heavily dependent on property taxes
  • 8 million USD spent on General Government; up 800k YoY
  • 28 million spent on Public Safety; up 1.5 million YoY
  • 5.5 million spent on Public Works; flat YoY
  • 5.5 million spent on Culture &Recreation; up 100k YoY
  • Page 155 - almost 400k is spent on "Economic Development" more than 50% of that being allocated to other funds but otherwise it is hard to see where Gastonia is actually spending money to foster economic development and growth.  I suppose this would show up elsewhere in specific initiatives or investments being made in infrastructure or tax benefits offered to companies.

Statistical Analysis

• Property Taxes - Page 244
  • 26.6 million in Property Tax revenue in 2016 which is about 62% of overall tax revenue.
  • Property taxes are down since a peak in 2014.  I am not sure why.  
    • If you reference the property tax revenue for 2014 in both the 2015 and 2016 report there are different figures.  
    • Research indicates that the property values were reassessed in 2015 and property values were deemed to have declined by 2%.  Property taxes were to be re-evaluated that year but I have not found if they were changed or remained the same.  This could account for the reduction in property tax revenue since 2014.
  • The franchise tax which accounted for up to 3.7 million USD in revenue since 2007 and was all but eliminated by 2016 has been made up for with a new Utility Sales Tax which is higher in revenue (4.8 million in 2016)
  • Sales tax has also been growing since 2014 maybe giving some underlying positive indications on the economy?  I can't find that tax rates have changed much except for a new sales tax on some services in 2016. 
  • It is worth noting that tax revenues overall are healthy (42.5 million total) and near the peak for the 10 year reported 2007-2016.
• Top Property Taxpayers - Page 247
  • This list has changed significantly in the last decade with 4 of the top ten dropping off the list from 2017-2016.
  • The highest taxpayer is Daimler Trucks North America but they only account for 1.31% of total assessed value in the city.
  • The top ten list has a good mix of industry, utilities, real estate investment firms and retail.  
  • It is worth noting however though that the top three account for 3% of tax revenues and all are manufacturing based taxpayers.
• Demographic and Economic stats
  • Unemployment - already covered above, trending down since 2009 but still above state averages.  Newest data available, as pointed out by @chris martin shows Gastonia unemployment to be 4.6%
  • Page 254 - Per Capita Income - Significantly down since 2007/2008 when it took a big hit and unemployment nearly tripled.  It has been growing since 2014, with the newest data available being 2015.
  • Median Age - 37 which is below the state average but I have not found historical data.  Not referenced in the CAFR
  • Population Growth - Flat or slightly growing as noted above.
  • Page 255 - Top 10 Employers - As noted above, a good mix of govt, retail and industry though manufacturing is highly represented and thus the city is dependent on these jobs.

Here are some random articles that support the case above one way or another (others have already posted some of these links, thing of this as a wrap up:

http://www.gastongazette.com/opinion/20160327/gast...

http://www.gastongazette.com/20141220/study-one-pa...

http://gastonchamber.chambermaster.com/events/deta...

https://www.charlotteagenda.com/85324/states-faste...

http://www.charlottestories.com/gastonia-just-rank...

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All in all, it's hard to paint a super compelling picture of Gastonia as a market with strong economic fundamentals to be a awesome buy and hold rental market.  That said, my feeling is based on things that are happening (as leading indicators) and the promise of what's possible - along with a path of progress march west from Charlotte, I'm still bullish on Gastonia.  

Maybe the case outlined above though will make you think otherwise and leave more affordable houses for me to snap up.

- Kind regards,

Josh.

[Josh Stack]

Northglenn Development at I-85 / US-321.

By Michael Barrett
Gazette staff
@GazetteMike

Posted at 9:40 AM

The area around Gastonia’s biggest interchange arguably hasn’t been very welcoming in recent years.

The vast majority of people driving through the meeting point of Interstate 85 and U.S. 321 are just trying to get past it, and on to wherever else they’re headed. And that historically industrial pocket is not one that typically comes to mind when listing Gastonia’s high points.

But when developer Kent Olson sizes up the future of the land there, he envisions only limitless potential.

“If you took a step back, you might say, ‘Yeah, that used to be a seedy area,’” said Olson, the owner of Development Solutions Group in Charlotte. “But I see opportunity there. We’re all aware of the tough times the whole Highland area has experienced, and it’s unfortunate. But Northglenn is going to help revitalize that whole quadrant.”

Northglenn is the major mixed-use development that Olson intends to build on 55.7 acres just northeast of the 85/321 intersection. It will essentially straddle Dr. Martin Luther King Jr. Way on two parcels of land that look from above like a set of diagonal butterfly wings.

The west side of the development will be bordered by Bulb Avenue, Chester Street and Rankin Lake Road and feature general commercial uses on the ground floor, with apartments above the retail businesses. The east side will be located south of Long Creek and be entirely residential, with a likely mix of single-family attached units such as townhomes.

In December, the Gastonia Planning Commission unanimously approved a request to rezone the western 32 acres at the site for general commercial purposes, and the 24 acres on the east side for a multi-family residential use. The new zoning conditions will allow for a maximum of 200,000 square feet of commercial space, and a maximum of 320 townhomes, apartments or other residential units within the development.

A higher and better use

Olson has procured and developed more than 3,200 lots in the Charlotte region in recent years, with the majority of that involving residential projects. He has more recently taken an interest in the potential of land west of the Catawba River, as Charlotte’s growth in this direction has begun to speed up.

Olson is spearheading the Ashton Terraces project, which will involve 72 townhomes off Neal Hawkins Road, with construction starting later this year. And he has been approved to develop 80 more townhomes at the former Rhyne Elementary School site on West Davidson Avenue, in a venture to be known as Rhyne Terraces.

But the Northglenn concept is unquestionably much more ambitious. It emerged from Olson initially eyeing the 26-acre tract off Dr. Martin Luther King Jr. Way in north Gastonia, for another residential venture.

“But my wife kept saying we also needed to explore that 32 acres across the street, facing U.S. 321,” he said. “So we started looking and realized it had the same listing agent. That and other things made it easier for us to go under contract.”

Olson said he always prefers to work in hand with municipal planners and area residents in crafting a development.

“We didn’t have all the answers,” he said of their initial approach to 55.7 acres. “We never do.”

But after meeting with Gastonia Planning Director Jason Thompson and other city staff last spring, they jointly decided the westernmost property didn’t need to retain its industrial identity to thrive.

“Jason said this has always been a site the city was excited about,” he said. “We all thought it can have a higher and better use.”

‘Everything just screams success’

Olson believes Northglenn has the potential to become something like Ayrsley, the popular mixed-use development off I-485 in southwest Charlotte, or even Baxter Village, which has become an ultra-successful mixed-use project off I-77 in Fort Mill, South Carolina.

“We spent many months working with some smart people and came up with a plan,” he said. “We came up with a list of uses everybody would like to see and then a nice common, exterior aesthetic theme to make sure everything is in harmony and will blend well.”

Olson believes the residential component of Northglenn will make for a walkable community that will appeal to a lot of people. And it will connect directly to the commercial wing, with retail, restaurants and other uses.

For cyclists and pedestrians, the project will not only connect to downtown Gastonia via the Highland Rail Trail. It will be linked to nearby Rankin Lake Park via a new greenway being constructed along Long Creek and under U.S. 321.

“The fact that it’s connected to a greenway is a real bonus,” Olson said.

That new greenway to the park is being completed as part of a long-awaited major overhaul of the I-85/U.S. 321 intersection, which will better ferry traffic through the area. A realignment of Dr. Martin Luther Way was recently completed there, allowing Bulb Avenue to be reconnected to U.S. 321.

“You’ve got all these major infrastructure improvements happening, and all of it is coming together at just the right time,” said Olson. “You’ve got over 55,000 cars a day coming down U.S. 321, over 100,000 a day on I-85, and Rankin Lake Park and Sims Park within walking distance.

“This is a bedroom community of Charlotte, and this site is just down the street from downtown and the (developing) FUSE District. Everything just screams success.”

A lot of permitting still has to take place, and the landscaping of the site will be hindered by the trees and rocks that have to be removed there. Olson said passers-by won’t see dirt being turned until the summer of 2021, with vertical construction likely in mid-2022.

“The length of the build-out will be market driven,” he said. “If we’re fortunate to still be in a hot market, all that stuff will be built out and occupied fast.

“I think it will take two to five years for the whole project to be complete after we start going vertical in 2022.”