As cap rates compress in the neighboring Boston and New York City markets, investors are driven to explore investment opportunities in the Springfield, Mass. and Hartford, Conn. markets. Both of these markets are unique in that cash flow at point of entry is what largely determines a good investment, as opposed to other markets which have the potential to raise rents and grow income dramatically.
“In both Hartford and Springfield, investors need to evaluate the market price for a property based on the income the building is currently generating,” Taylor Perun, Senior Associate, Northeast Private Client Group who specializes in the Greater Hartford and Western Massachusetts markets. “Both markets offer investors limited opportunities for rent growth so investors need to look at a property’s ability to generate returns as is or with small-scale improvements such as increasing operational efficiencies. You don’t want to over invest in a property at the risk of raising vacancy rates.”
The Hartford and Springfield investment real estate markets are also unique in that they are both the last to peak and first to fall in the investment real estate cycle. Both are currently at their peak, bustling with activity and opportunities for investors to generate strong returns on the sale of their properties. Among our firm’s current Hartford and Springfield investment opportunities are an 18-unit mixed use property in Hartford’s desirable West End on the market for $1.2M, four adjacent multifamily buildings boasting 24-units on South Whitney Avenue, and a 63-unit multifamily portfolio in Holyoke, Mass. which is on the market for $2.875M.
Economic development in Hartford
As millennials across the U.S. migrate back to cities, Class A multifamily units in Hartford are leasing up quickly. Further signaling population growth in the city, residents are beginning to move into units at the five luxury apartment buildings that have been developed in Hartford during the past 18-months.
“Despite the volume of new development projects in the City, the Hartford market remains strong as an increasing number of employees are choosing to live in the City where they work,” Perun noted. “While other Connecticut markets such as New Haven and Stamford are getting soft, Hartford hasn’t been overbuilt.”
With the addition of Yard Goats Stadium and word of a Hard Rock Hotel coming to its downtown, Hartford is drawing people into its urban core. Consequently, many investors are seeing vacancy rates below 5% with high demand allowing them to price units more aggressively. Further, there is currently high demand among investors to purchase Class C workforce level housing assets in the Hartford market.
Economic development in Springfield
Economic development in cities is a good sign for investors. It shows an investment in the area and often signals job growth, which not only drives demand for workforce level housing but represents buying power for area retailers.
Currently, MGM Springfield, a $950 million resort casino, is under construction on the I-91 corridor. While many of the resulting tourism dollars brought into the region will be spent inside the walls of the casino, the creation of new jobs helps drive demand for workforce level housing in Springfield and neighboring communities.
In December 2015, 17 projects were approved by the Economic Assistance Coordinating Council for the Economic Development Incentive Program (EDIP). Designed to create 1,008 new jobs and retain 1,291 jobs in Massachusetts, the list includes expansion projects for companies in Holyoke, Springfield and Westfield. These projects will also help drive high demand for workforce level housing in Western Massachusetts, resulting in low vacancy rates for investors.
As investors look for undervalued assets in Hartford and Springfield to enhance their portfolio, it is important to keep an eye on the investment real estate cycle. As markets rise and fall, the definition of a “good investment” changes as do the best practices for buying and selling.
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