All Forum Posts by: Vince DeCrow

@Bart H.

I agree that those are abnormally high yields on muni's...indicating abnormally high risk - can't argue with that.

My thought process on the corporate moves to Chicago of companies that were previously located elsewhere in the state of Illinois is:

If the company was going to move, they had the choice to move out of the state of Illinois versus staying in the state and moving to Chicago. This indicates two things:

• The company's perceived the Chicago and Illinois fiscal risk to be outweighed by the costs or relative disadvantages of moving to a city that did not necessarily posses the positive characteristics that Chicago does.
• I would also suspect (as you stated) that these companies received a sweet tax incentive deal to move to the city, however I do not think a city the size of the Chicago would provide tax incentives to companies to move there that would not eventually benefit the city/state in the long run. If McDonalds, for example, received $500M in tax incentives to move to Chicago, Chicago/Illinois make take an initial fiscal hit, but over the years the income tax that McDonalds would keep bringing to the state would eventually pay off vs if they moved out of state.

My job creation information is per CoStar as of December, 2018. CoStar is a provider of verified analytics and data to the commercial real estate industry. The metro Chicago area actually created about 60,000 jobs in 2016 (the date of your article). I don't have any population data at my fingertips to compare to the Tribune quoted population numbers directly, however I do not believe the population in downtown Chicago has been seeing the same downward trend like the surrounding suburbs and greater metro area.

I appreciate you providing your opinion and I think you made some fair arguments, however I just see the situation in a little different light than you. To each their own.

-Vince 

While nobody has a crystal ball, I think that having deep knowledge on a market and strong local relationships in that market are some of the most effective ways to attempt to predict the future of the market. In addition, I typically look to economic indicators when attempting to project the future of the market, and the indicators mentioned in my post, among others, do not seem to be pointing to the music stopping anytime in the next few years. 

-Vince

Hi Bart,

Thanks for sharing your opinions on Chicago. Here are my thoughts:

Chicago's fiscal situation is certainly something that can't be ignored, however it is not the only factor that should be considered when thinking about real estate investment. The crime in Chicago is highly concentrated in particular areas, mainly South of the city and certain neighborhoods due West of the city. While the high crime rate in these particular area's do not make them attractive for investment, these area's by no means make up the entire city...especially the parts of the city where the money is. 

To your argument on tax hikes - Illinois saw modest (in my opinion) tax hikes in July of 2017 to help offset their fiscal deficit. Chicago also gained about 25,000 jobs in the downtown area in 2017 and a huge influx of corporate migrations to the city over the recent years, including but not limited to McDonalds, Caterpillar, ConAgra, and Kraft Heinz. While it is always possible that there has not been enough time elapsed yet since the tax hikes to convince people to move away, I would venture to say that these S&P 500 corporations had a good idea of the city's/state's fiscal status before coming to Chicago, which did not deter them from upping and moving to the city. The companies moved to the city to take advantage of Chicago's competitive advantages such as it's central location, its diverse and educated workforce, and its comparatively cheap prices to comparably large cities like New York and San Francisco. These competitive advantages cannot be undermined by the city's underfunded pensions when considering its future success. 

How can you be so sure that the city will face bankruptcy? It is historically very rare for large city's to go bankrupt, and even when it may seem so certain - solutions and workarounds could come out of the woodwork. Nobody knows for certain if Chicago will face bankruptcy, however considering the state of uncertainty that we are in now, you would think that it would reduce corporate and commercial real estate investment in the city...which it has not. Taking the uncertainty aspect into account, if a bankruptcy occurred, this would put an end to the uncertainty for investors and likely give real estate lenders more reason to keep lending (and possibly at lower rates). There are yet to be any major signs of a weakening economy in Chicago.

-Vince

Hey Omar - I'm glad you appreciated the post. Any markets in particular that you are interested in seeming follow-ups on?

-Vince

Absolutely! I have been through Cary several times in the past few years and noticed the growth myself. Are you getting yourself some skin in the game on the boom?

Hi Greg - Thanks for the input, I agree with your point and if an investor consistently stays ahead of trends, then this will lead to higher overall returns for them compared with investing on the backside of trends. However, since the vast majority of us aren't first movers on every trend out there, I kept my post focused on relatively larger and accessible cities/markets that posses the major indicators that have historically been correlated with compressing cap rates and higher returns for any size investor over the associated real estate cycle.

Since the type of analysis that you brought up requires expertise in forecasting and assumption making and does not usually come to investors for free or without putting in a significant amount of time, I will leave this analysis task to each investor them-self :). Thankfully, for those that want to invest but don't have the resources or expertise to conduct this type of analysis themselves, there are a host of passive investment partnership opportunities out there. Feel free to direct message me for more info.

-Vince  

@Matt R. That's an interesting chart. Chicago saw about $3 billion in investment in 2016 just from corporate expansions that created about 15,000 jobs in the downtown area. 

I am going to follow up with a Part II of this post highlighting a few more attractive cities for commercial real estate investment in 2018 and Chicago is one of them.

 Well said, Matt. Thanks for contributing your insights on San Diego.

Thanks Matt. As you may know, the millennials are currently the largest living generation, the most educated group that the US has seen to date, and are expected to make up the vast majority of the workforce within the next few years. Because of these factors, I find staying on top of this generation's most desirable city's to work and live in are an important factor when thinking about office and high-quality multi-family investing. In my opinion, migration trends of millennials are especially important to think about when making multi-family investments since many of them are just getting started in their careers and have a higher probability of renting vs buying a home at this time due to capital constraints. 

-Vince

@John Nachtigall

Hey John - Great addition to the post. I agree that there could be a host of net positive's for investors that already own real estate in the market that Amazon decides to drop their HQ2 in. If it ends up being a market that doesn't already possess the 50,000 workers that the HQ2 would employ, this could be a huge plus for the city's demographics and population growth, with all else equal. Many of the cities that made bids for the HQ2 would also need to develop a large number of homes/condo's/high-end apartment's for the relatively high salaried workers to live in, which could create aggregate property appreciation in the market. The overall economic stimulus impact of HQ2 could also be huge for the chosen market - unless it happens to go to a city like NYC, where the stimulus created from it may be relatively smaller or unnoticeable in the grand scheme of things. 

I'm glad you have confidence in these markets too and that you are participating in Fund III! As I'm sure you know, in addition to investing in the right markets, value-add expertise and boots on the ground approach are also big factors that help to contribute to strong returns. In the next month or so I am going to follow up with a post on 4 or 5 more markets that posses the same strong fundamentals and indicators.

Happy New Year.

-Vince