With the recent announcement that Amazon will be constructing a second headquarters expected to bring 50,000 highly paid jobs to a major American city on the Eastern side of the country, real estate investors have started to pay attention. That’s because a major employer like that is bound to cause an impact on the local housing market. With America’s aging housing supply and relative lack of new construction, this means the fix-and-flip market is going to see a major surge in demand in any city that is selected as a destination. In an article originally published on Business Insider, Miles Deamer, Director of Investments at AlphaFlow, provided some interesting facts and figures with relation to the top city choices for Amazon. Here are the five that seem the most likely given today’s housing and business environments.
1. Pittsburgh, Pennsylvania
If there was ever a city that combined the resources Amazon will need with the housing supply that will be demanded by an influx of new workers and an environment like the home headquarters in Seattle, it’s Pittsburgh. Located on the western side of Pennsylvania, it is geographically centralized. The fact that it is inland in a Great Lakes state means that there is little to block growth in the city, and the success of other tech giants’ satellite offices in the city makes it a likely candidate. As Sturm points out, “The influx of well-paying jobs has contributed to a hot real estate market. Brookline, a South Hills community with easy access to the city’s subway line, has transformed in recent years to house both working professionals and students.”
2. Cincinnati, Ohio
Located a bit further south than Pittsburg, near the border of Ohio and Kentucky, Cincinnati is home to 2 million. It’s also one of the most affordable large American cities to live in, which would make it easy for incoming workers with competitive salaries to purchase. The median home value currently sits at just $152,500, and that is in a town where over half the real estate lies above the $100,000 mark. Other notable firms in town include Proctor & Gamble and Kroger.
3. Atlanta, Georgia
Atlanta has become known as a destination city for Millennials because of its lack of natural boundaries to growth, its investment in infrastructure, and its vibrant cultural events and offerings. The city invested heavily in new parks and light rail, but a housing shortage has been plaguing the area for the last couple of years. Almost half the housing stock costs more than $200,000, but employees in the tech center are likely to be able to afford that price, and the city’s investments closely mirror those that Amazon has pushed to achieve in Seattle.
4. Austin, Texas
Another destination city popular with younger and more educated workers, Austin is also home to the famous South by Southwest festival, which combines music, art, and tech culture in a large-scale annual event that has come to be known as the destination for people looking to get a start in the tech industry. Building permit filings are up about a third over last year, too, so not only will there be a workforce ready to take on the challenge of staffing Amazon’s second headquarters, there will also be a housing market ready to handle the influx of new homebuyers.
5. Nashville, Tennessee
Long known as a destination for country music artists looking to make it in the industry, Nashville also boasts a healthy population base and a business-friendly environment that make it a top contender for Amazon. As Ray Sturm points out, it has a lot of real estate development opportunity in West End and Midtown, where access to the downtown area is leading to an increase in demand.Read the original article in its entirety over at Business Insider.
The AlphaFlow team recently attended the IMN 5th Annual Single Family Rental Investment Forum at the Loew’s Hotel in Miami Beach, Florida. The team met with some of the top industry experts, discussing the current state of the single family rental investment and lending markets. Throughout the conference, we noted one consistent theme– demand for rental properties has increased across the U.S. When individual developers, financing partners, and take-out investors are all seeing smoke, there’s fire. There are three core elements that are contributing to this major shift: market conditions, demand drivers, and supply suppression.
Let’s dig a little deeper, starting with the understanding of why limited market conditions are impacting single family rental units. Across the United States, we are seeing low saving rates, income stagnation, and an unprecedented rise in student loan debt. With little to no savings, the vast majority of Americans are unable to save up the 20% down payment needed to purchase a home. Renting naturally becomes the next best option. This is a download of the opening day keynote presentation.
On the demand side of the equation, strong job growth and low unemployment are giving Millennials (individuals born between 1982 and 2004) the option to leave their family home sooner. Unlike prior generations, Millennials care more about the proximity to, or availability of, amenities over the size of a house. This group then pushes toward dense urban centers where the price to purchase a first-time home is much more expensive, thus renting is the primary option. Across the nation, we are seeing Millennials migrate for good paying first-time jobs. Areas such as the Pacific Northwest are showing strong signs of economic growth, attracting recent college graduates. Other areas to note include:
Kansas City, MO
Oklahoma City, OK
San Francisco, CA
Supply suppression, caused by low inventory, a minimal number of distressed units, and low national building permits are factors contributing to a squeeze in new single family rental units coming online. Since the 2008 market collapse, very little ground up construction (building a property from an undeveloped parcel of land) has occurred, primarily as a result of tighter lending practices as the industry was still digesting Dodd-Frank and QM (qualified mortgage) policies. Low supply has also been exacerbated as the price to develop new homes has increased. Builders today are hard fought to build for under $200K as costs have increased for local building permits, labor, and raw materials. A great example of this is currently seen in the Dallas market, where a majority of new construction is built in the $300K-$400K range, targeting Millennial first time home buyers.
Fix-and-Flip Market Inventory
As interest rates slowly rise and inventory thins, we are seeing fix-and-flip developers begin to change their approach in selecting properties to buy. Coming out of 2008, developers had a plethora of potential properties to purchase out of foreclosure or from borrowers in duress. In previous years a developer would purchase a property at a discount, complete some light cosmetic rehab and sell the property, netting 25%+ returns. In today’s market, however, finding discounted deals is extremely cumbersome pushing developers to count on their rehab improvements (over the acquisition cost) to net the returns they desire. We are seeing four markets in particular where developers are still able to obtain somewhat of a discount upon purchase: Illinois, New Jersey, New York and Ohio. Since these states operate under Judicial foreclosure ruling, properties foreclosed on years ago are finally coming to market, presenting developers with attractive acquisition deals.
What This Means To AF Loan Acquisition
We see no reason to anticipate any decrease in demand for rentals in the near future. In fact, as interest rates begin to increase and credit starts to tighten, this will only further exacerbate supply constraints as financing options become more expensive. For real estate investors, this market climate presents some interesting investment options. For fix-and-flip developers, this presents another viable exit strategy after the rehab portion of a project is complete.
With more developers counting on their rehab to bolster a property’s exit price, AlphaFlow is reviewing all scopes of work (SOW) with greater scrutiny and making sure the anticipated updates are in line with the surrounding market. Furthermore, we are limiting exposure to novice developers and no longer purchasing loans from first-time developers. Instead, we are selecting loans with more seasoned developers, at a lower yield. Regarding new markets to enter, we will continue to monitor “where” and “how” potential deals are sourced by developers. We will continue to focus on market drivers such as diversity of employment base and millennial migratory habits to help guide our loan acquisition strategy as we believe these are forward leading indicators of market health.
About the author:
Miles Deamer is the Director of Investments at AlphaFlow. He is responsible for the acquisition, underwriting and execution of real estate debt investments. Before AlphaFlow, Miles was one of the earliest employees at LendingHome, helping scale the sales, operations, & servicing teams. Early in his career, Miles was a member of the credit team at First Republic Bank (NYSC:FRC) reporting directly to the Chief of Credit.
Miles received a BS in Real Estate Development from USC where he was a member of a Division I National Championship Water Polo Team.