We ask Jessica Richer of RealtyUSA on how the theatre district, and President Trump, factor into the local commercial real estate climate
Question: We have a new president in the Oval Office in 2017. What are the proposed changes that you are concerned about will impact Commercial Real Estate?
Jessica Richer: Number One is the Proposed Tax Reform Changes in the Tax Code. It is unclear how significant the Tax Reform initiatives being proposed will actually influence the Commercial Real Estate Industry. However, one very serious issue is the repeal of Section 1031 of the Tax Code. This section of the Tax Code allows an Investor to sell a property and reinvest the proceeds into a new property and defer capital gains. The major benefits of the 1031 Tax Exchange are that capital gains are deferred while an investor continues to enhance the growth of their real estate holdings.
The changes in the tax code could have the potential to impact other industries.
Question: Back to Washington, experts speculate President Trump will return Fannie Mae and Freddie Mac back from government-controlled to privately controlled companies, which may free up credit. Truth be told, the Capital District doesn’t appear to be suffering from a dearth of real estate investors buying into the region. How would you describe the real estate climate in our area, and what factors play a role in that assessment?
Richer: I am not sure what President Trump will do. He has a private business background so it would not be surprising to see him use that approach to return Fannie Mae and Freddie Mac back to privately controlled companies. What is important to note is that the time this article was written (Week of January 27th, 2017) the mortgage rates increased. What we are seeing in the Capital District is a housing supply that is low and a buyer supply that is high. According to the National Association of Realtors, supply is at its lowest level since 1999.
Question: The Palace Theatre is taking strides to improve its footprint in Albany, as well as the surrounding area. This follows the advances made at Proctors in Schenectady, and the efforts being made at Cohoes Music Hall. The arts appear to be creating an epicenter in the urban real estate market, stoking restaurant and retail businesses, and increasing residential property. If that’s a misguided observation on my part, what do you see happening out there?
Richer: You are correct. The major Arts venues have attracted resurgence in the urban real estate markets. We are seeing proposed development in the areas around the Palace Theatre. The restaurants and proposed residential developments near the Palace and what has happened on Broadway are good examples of this. The businesses, offices and restaurants developed around The Palace in Schenectady have enhanced that urban landscape and further down State Street past the Palace a number of residential initiatives have been proposed. In Cohoes the most recent proposal to convert a run down boarding home into private apartments is another example of enhancing the urban area in Cohoes.
Question: To play off of the last question; Location is often key in real estate. Traffic and accessibility is often important for business. How often are you looking at surrounding properties and businesses when helping clients assess the value of a prospective property? Like the proverbial new coat of paint for a room, how often are you suggesting buyer look at the neighborhood’s potential versus present-day shortcomings?
Richer: The “upside” potential for any investment is always a key factor. It really depends on the buyer’s immediate needs and long term goals. It also depends on the product. The interesting thing about Commercial Real Estate is that investors consider many different types of real estate. For example, I recently helped an investor who wanted to purchase a multifamily apartment building. The most appealing aspect in this purchase was that the building needed some work and had the potential to be “turned around” and become a stronger asset because it had a tremendous amount of changes that could be done to it to enhance revenues. In this situation, the buyer was assessing the costs of the improvements coupled with a purchase price based on current rents (not what could be achieved in the future with improvements). However, they were also taking into consideration what would happen if an infusion of cash were to be put into enhancing the property. Would that eventually increase the value of the property? This was an urban location so accessibility to restaurants and the city life was an important aspect of the decision.