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Where Are Investments Thriving?

As one quarter winds down, there are signs of improvement within the commercial real estate sector in many respects. Connect Media recently chatted with principal/managing directors Shahin Yazdi and Jonathan Lee of George Smith Partners, to gain some insights into where the opportunities are and what may lie ahead for the following three quarters.

Connect Media: We’ve seen a flight from major metros that have been investment centers and job centers for the last 10 years, such as San Francisco and New York. What investment markets do you see thriving in 2021?

Yazdi: We have been active in secondary and tertiary cities for the past five years and the pandemic has exacerbated what was already an established trend. With the acceptance of work at home from employers, coupled with the emergence of technologies such as Slack, Zoom and Microsoft Teams, working remotely suddenly made more sense than ever. Many people took it a step further and moved out of gateway cities for places like Salt Lake City, Boise, Denver, Austin, Las Vegas, Phoenix and even Bozeman. People are looking for affordable housing while also maintaining a high quality of life. This has caused a migration out of the big cities into smaller markets that are much more affordable and can still cater to various lifestyles.

Each of these markets has seen incredible year-over-year rent growth as supply as struggled to keep up with demand. When speaking to some LP equity groups regarding Boise, they shared that they saw less risk in the Idaho capital than San Francisco, given the school closures, taxes and posture of the leadership in California. What that has led to is the availability of institutional capital that was unheard of just three years ago in certain cities.

And the demand is there to fuel the growth. A brand new apartment building in Bozeman recently traded for $475,000/door as the city struggles to keep up with the inbound movement of residents from Washington, Oregon and California. Rents for class-A product in Boise are up 20 percent pre-pandemic, which is in stark contrast to apartments in West LA that are giving away six to eight weeks of free rent to stabilize newly constructed apartments. The gateway cities will stabilize soon, but they have lost ground to cities that were quicker to open and less draconian in their pandemic policies.

Connect Media: We’ve seen massive changes in states reopening in Q1 2021. How is this impacting activity, even week by week?

Lee: Energy builds momentum, and the cities and states that opened earlier have the lead when it comes to both recovery and establishing a new paradigm. Each week that a school district remains closed in California is fodder for an established family to look to another state for relief. With the emergence of a vaccine, people in lockdown states have questioned the veracity of public health officials and made decisions with their U-Hauls. States like Texas have grabbed this momentum and used the foundation of a move from Toyota years ago to grab Tesla and Oracle and the high-paying jobs that come with it. At the same time, as COVID cases continue to drop and more people get vaccinated, all states will be able to reopen safety. This will definitely continue into the Q2 and Q3. By Q3, we believe all states will be completely open and business activity should increase significantly throughout the country.

Connect Media: What’s a word of caution or advice to offer investors based on what you’ve seen in the last 12 months?

Yazdi: I would say that even though we have seen migration to the Mountain states and Texas, there could be a reversion of the mean, back to prior patterns. Anyone who visits Utah or Colorado in the summer will be enamored with it, but given a full winter coupled with fewer job opportunities, the allure could fade for some. If even a small portion of the residents who relocated shift back to gateway cities, it will have an outsize effect on the metros who were the beneficiaries of the post-pandemic moves. Rents and prices for single-family rentals that shot up during the pandemic could recede if people moving lack the desire to remain. Investors should really ask themselves if this is a pandemic trend that will continue as states reopen or is it a temporary shift that really won’t last.

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About Lisa Brown

Lisa Brown has decades of experience in corporate communications and marketing management with organizations including Coldwell Banker Residential, Grubb & Ellis, Marcus & Millichap, NAIOP, SIOR and ALM. In those positions, she worked in conjunction with chief executive officers and chief marketing officers to create corporate messaging, cohesive branding standards, strategic marketing plans and thought pieces. Brown is a frequent speaker at industry events and an editing adjunct professor for an online course. She has a master’s degree in mass communications from San Jose State University.

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