Thanks to our strategic partners at IPX1031 for the following insights. For more detail on tax reform and local market forecasts, please visit https://www.northeastpcg.com/register2018 to register for upcoming investor workshops with IPX1031 in New York, Connecticut & Massachusetts.
Hartford, Conn. and Springfield, Mass. are both markets offering upside for value-added investors. With the expansion of transportation along the Hartford-Springfield corridor and job creation from the new MGM Springfield, this is an opportune time to consider acquiring a Class-B or Class-C property to reposition as part of your investment real estate portfolio. Here are some of the trends currently shaping the Hartford-Springfield market.
Record-high asking rents and selling prices for commercial real estate in the five boroughs pose an ongoing challenge for investors seeking to maximize returns. A recent article in The Journal News notes high asking rents and the conversion of commercial space into residential in Manhattan is now driving companies to explore options in Westchester County. Among the Westchester communities where these businesses have found new commercial space are Elmsford, Mount Vernon and Yonkers.
While continued delivery of new construction Class-A multifamily is resulting in softer rent growth and occupancy at the high end of the Boston area market, savvy investors are continuing to seek Class-B and Class-C opportunities in neighboring submarkets where they can add value to existing multifamily, mixed use and retail properties, and maximize returns. For these value-added investors, Boston’s North Shore and Merrimack Valley submarkets offer such properties in close proximity to mass transit, highways and downtown amenities.
Values, rents and occupancy rates are rising in the Class-B office market in the regional submarkets throughout Connecticut, Massachusetts and New York. This is in-line with national data which shows there was net occupancy growth during Q2-2017 in the U.S. office market as a whole, according to Cushman & Wakefield. As the number of jobs created rises nationally – 222,000 jobs were created in June 2017 alone – assets in secondary markets offering easy access to transportation are increasingly in demand with value added investors.
Northeast PCG recently closed mid-market retail transactions in submarkets of Boston, Mass. and New Haven, Conn. The 6,000 square foot multi-tenant property in Brighton, Mass sold at a price of over $500/SF and a cap rate on actual Net Operating Income of 4.38% — highly aggressive metrics for un-anchored, non-credit commercial, indicative of ongoing investor interest in Boston area submarkets. Likewise, the 7,000 square foot Starbucks-anchored retail strip in Old Saybrook, Conn. sold at a price of nearly $320/SF and a cap rate of 6.47%.
Investors continue to find viable opportunities to invest in Class-B and Class-C assets in Greater New Haven which offer the opportunity to make capital improvements, raise asking rents and generate higher returns. This year Northeast Private Client Group has closed a number of high-profile transactions in the New Haven submarket, including the sale of the iconic “Exchange Place” at 123-127 Church Street for $6,388,000 on March 29; the sale of 245 Whitney Avenue for $2,310,000 on April 12; and the sale of 101 Orange Street for $2,131,500 on May 10.
As the first quarter of 2017 draws to a close, multifamily assets continue to trade at record high rates in both Boston and New York City. As many investors explore opportunities in neighboring communities where undervalued Class-B and Class-C assets offer the opportunity to make modest capital improvements, raise asking rents and generate returns, markets such as Framingham and Worcester are thriving. In 2016, Worcester and Framingham ranked first and second among I-495 corridor submarkets for transaction volume in the $1 million to $10 million range. In November 2016, MetroWest Daily News reported commercial property values in Framingham had risen close to 12-percent per a review by the town’s assessing department.
The Commercial Observer reports 2016 investment sales activity in Manhattan came in at $57.8 billion, down 25-percent from its 2015 record of $77.1 billion. New York City’s multifamily market hit a 5-year low in 2016, accruing only 656 multifamily transactions. While Queens saw a 59-percent increase in multifamily deal volume, multifamily deal volume in Brooklyn declined 28-percent and the Bronx declined 17-percent, according to The Real Deal.
With cap rates at rock bottom and interest rates rising, many investors believe we are at or beyond the peak of the current market cycle. Add a resurgent stock market to the mix and investors may see more attractive yield alternatives beyond real estate. That said, opportunity still exists to add value and grow rents in selected Class-B and Class-C assets throughout the Northeast. In 2017 we will be hosting a series of investor workshops in New York, Boston, New Haven and Hartford/Springfield to address these issues and more.