All Forum Posts by: Tom De Napoli

@Edem Dosseh, sources are US Census and Bureau of Economic Analysis

Gross Domestic Product (GDP) per capita is often cited as a measurement of a nation's development or economic capacity. However, we rarely or never read much about Gross Metropolitan Product (GMP) per capita.  GMP measures a metro area's output based on national prices for goods and services. If we look at GMP per capita (from U.S. Census) we can gain additional perspective on the vitality of the area's economy.  

As you can see below, the bottom 10 includes some Rustbelt metros, but also several superstar growth metros in the Sunbelt: 

Top 10 Metros for GMP/capita (of largest 53 metros)

1. San Jose
2. San Francisco
3. Seattle
4. Boston
5. Washington DC
6. New York
7. Los Angeles
8. Hartford
9. Dallas
10. Denver

Bottom 10 Metros for GMP/capita (lowest first)

1. Riverside, CA
2. Tucson, AZ
3. Tampa - St. Petersburg, FL
4. Las Vegas
5. Jacksonville, FL
6. Providence, RI
7. Phoenix, AZ
8. Buffalo, NY
9. Rochester, NY
10. Orlando, NY

How are investors among the Bigger Pockets community who own properties in the bottom 10 metros experienceing the effects of of lower GMPs?  How is it affecting rent growth or vacancies in single family rentals and multifamily buildings?  How is it affecting performance and leases of retail and office properties?  What asset types are performing better in these areas in relation to others?

There is certainly a lot of interesting thought leadership around how to reposition dead malls and lifestyle centers:

https://www.cnu.org/publicsqua...

https://knowledgestage.uli.org...

Here are some key considerations if your strategy is to invest in depressed retail assets:

• Market Fundamentals:  Did the property lose tenants because of macro-trends affecting retail (e.g. category disruptions in apparel, department stores, big boxes, etc) or are the fundamentals of the local market weak (e.g. declining populations, stagnant economy, high unemployment, lowering HHIs, etc) — if it’s the latter, then you should investigate potential growth drivers for that market and the time horizon for them to come to fruition.
• Zoning: Is the property zoned for your intended re-use?  What objections or support can you expect from the surrounding community.  A lot of malls and lifestyle centers are located in suburban areas where many residents are resistant to multifamily development for a variety of factors (concerns that oversupply of housing will lower prices, school crowding, fire/police/sanitation capacity).  Your deal underwriting should take into account the time, carrying costs and lobbying dollars required to rezone and re-entitle.
• Replacement Costs: Is the property in a densely populated area where space is at a premium, or is there nearby opportunities for greenfield development where a new development could be placed without the costs of demolition, rezoning, the shopping mall.
• Threat of Outside Competition:  Given the size and scale of these properties, you'll be competing against large institutional investors and existing mall operators like Simon and Taubman, who are well resourced, politically connected and have decades domain expertise.  One of our advisory board members owns these types of properties across the upper midwest and has been developing patient strategies for redeveloping.

If your plan is to invest in large malls and lifestyle centers, but not to operate, you should look into REITs that hold these types of assets and are run by operators who have forward-looking plans and strong theses for repurposing them.

Good lucking and looking forward to hearing what you learn

That’s a good question, Zaid, and a topic that my partner and I have been studying closely for the past year.   The short answer is that yes, certain categories of retail such as apparel, consumer electronics and department stores, which are vulnerable to eCommerce, have been hit harder than others.  As a result the shopping malls and lifestyle centers that rely on these types of tenants are suffering. It’s going to require owners and institutional investors with vision, patience and very deep pockets to reposition these types of properties.  

However, for entrepreneurial, independent investors among the Bigger Pockets community, we believe there is opportunity to be found in other segments of retail properties that are eCommerce resistant, such as neighborhood strip centers that offer services which can’t easily be replicated online such as hair & nail salons, fast food, medical offices, etc.  Depending on the submarket, many of these properties offer significantly higher Cap Rates than multifamily or industrial - both of which are arguably overheated asset types at the moment - because the market incorrectly assumes that all retail is risky.

Before you invest in a strip center, the main caveat is that it requires a dramatically different skill-set to operate these types of properties so do your homework first or find an operating partner with experience.

Good luck!

The location preferences of young adults hold large consequences for real estate investors.  The trend for the past 10+ years has been that the millennial generation (those born between 1981 and 1996) are opting to live in cities more than previous generations and have a strong preference for its amenities such as its walkable access to retail, entertainment, recreation, restaurants and of course employment.  However, that trend is starting to shift. 

Cities with more than a half million people lost 27,000 residents age 25 to 39 in 2018. While this number is quite small relative the total number of people in this demographic, it is a trend that has persisted in the last four years and is a reversal from the four years immediately following the recession. This drop was driven by residents between the ages of 35 and 39 leaving the city for the surrounding suburbs, which is consistent with historic patterns of families leaving cities for more space and better schools, but remaining within the metro area. Millennials are moving to the suburbs, they're just doing it later than previous generations because they are forming families later.

As the millennial generation follows the pattern of migrating to the suburbs set by their parents and grandparents, how are members of the Bigger Pockets community preparing to supply that demand with housing options that are tailored for the needs and tastes of this group?

According to a data by Zillow and reported on by the Wall Street Journal, one in eight owner-occupied homes, are set to hit the market between 2017 and 2027 as Baby Boomers begin to pass away or move on from their homes in larger numbers. This will result in two million more homes available this decade than last. By 2037 the available homes will total 21 million, which is twice the number of new homes added during the housing boom in the first decade of the 2000s. Most of these available homes will be concentrated in Arizona, Florida, and the Rust Belt, with more limited impacts on the coasts. Zillow also projects that between 2019 and 2028 there will be 7.4 percent more people turning age 34, the median age for a first-time home buyer, than in the previous ten year period. While this demand may be poised to take up the additional new supply, millennial demand may not align with the price point and areas that will see the sharpest rise in the supply of available homes. In addition new home construction is lagging historical levels, reducing new supply.