Melissa Savenko's Richmond Real Estate Review

Richmond Is One of the Top Markets in the USA for Residential Rental Properties

According to an article published by RISMedia, Richmond, Virginia  is one of the top markets in the entire country for purchasing residential rental property. That doesn't surprise me.  HUGE and growing public university with inadequate housing supply.  Growing Millenial population.   In-migration of professionals from other parts of the country to take jobs at some of the big Richmond employers, like Capital One, Martin Agency, VCU, etc.

The problem right now is there is so little supply of investment properties and we have an ever-increasing pool of investors chasing the same limited supply.  My long-time investors are crabby about it, since people new to the game are driving the price of real estate up, up, UP.  And it makes it more difficult to find and land investment properties, when you are in competition.

My suggestion:  Figure out your ideal renter profile.  Do you want undergraduates?  Young professionals?  Families with school age children?  Then look to areas that right now might be considered "fringe" for your ideal renter but still have main amenities they would want, whether it's walkability, yard and access to the river, good schools.  Recognize that you may likely have to offer discounted rent to overcome the perceived locational disadvantage to get great tenants.  In other words, follow the Nos. 1, 2 and 3 of real estate - location, location, location! - but try to be predictive of the next "hot" areas by being logical about the known wants and needs of the rental population.

As always, just my $.02.  Always interested in the opinions of others, so hit me up and share your thoughts in the "Comments" section.

 

 

 

My Return to Blogging and Some VERY General Thoughts on Richmond Real Estate

WHOA.  I knew I hadn't blogged in ages, but I didn't know it was almost a year and a half.  That's crazy. Time flies when you're having fun.  Or when you are busy.

And that's the biggest news in the last 18 months.  The market, at least in the old and historic neighborhoods of the City where I do most of my work, has picked up significantly. In some submarkets, such as the Fan and the Museum District, we're currently in a STRONG seller's market.  This rapid shift has been hard for some buyers to understand.  Many still seem to have the mentality that this is a buyer's market, and they can offer substantial discounts off list price, or ask for concessions like closing costs, and the sellers should be glad to have their offer.  Nope.  Not the case for some submarkets.

And I think that's the most interesting thing about this current Richmond real estate market.  Is this a bubble?  Why are prices rising so rapidly?  Should we be concerned about Real Estate Crash 2.0?

My take:  No.  A crash is not coming.  This is the result of a significant structural and demographic shift in the market.  You are not seeing this white hot market across all of the Greater Richmond Metropolitan area.  You are seeing it in the City.  Almost exclusively.  And some Henrico County submarkets, like Lakeside, that are immediately adjacent to the City.

What's going on?  What is the big change?  Downsizing Baby Boomers are a BIG driver.  I am seeing more and more 50-60-somethings, coming from Short Pump or Midlothian or other points north, south, east and west, who are looking for a lifestyle change.  They don't want the huge suburban house.  They definitely don't want the huge suburban yard.  The kids are grown and in college, so schools are no longer an issue.  And they want to be able to walk to restaurants, museums, shops, art galleries.  This is a group that I don't feel like you saw much of back in 2006 when I started in real estate.  But what was a trickle has become a flood.

I do most of my work in the City, and much of that in the Fan District and the Museum District.  The typical buyers in those areas in the past have been (i) folks affiliated with VCU, as professors, administrators, etc., who wanted to be close to work; (ii) young professionals, who wanted an urban walkable lifestyle; and (iii) young families, who moved to the Fan for William Fox Elementary. 

[NOTE:  Until fairly recently the Museum District was districted for John B. Cary Elementary, which was not perceived to be as good a school as Fox.  That difference used to account, in my opinion, for the price differential between the Fan and the Museum District.  The Museum District is now districted to Fox, so much of that price differential is disappearing.]

You're now adding these downsizers, many of whom are selling a large and expensive house somewhere in one of the counties, and can afford to buy in the upper end of the City property price range.  Often with cash.  And then there are the folks who are relocating to Richmond from somewhere urban - Washington D.C., New York, Boston, just to name a few localities recent clients of mine have come from - and want the same urban lifestyle that they are coming from.

So why the rapid escalation in values and the extraordinarily fast switch from a buyer's, or at least a balanced, market to a clear seller's market?  Limited supply, ever increasing demand.  There is only so much urban core real estate, and more and more people want it.

Certainly, there are other factors coming into play.  Housing values are coming back to the point that people who have been underwater since 2007 are able to consider a move.  Interest rates may rise, and that concern is getting people off the fence.  First time buyers, who have not been as large a part of the market as they have been traditionally, something like 25% vs. the "typical" 33%, are getting off the fence and are finally ready to buy, after living through the 2007-2012 recession.  It's 2015, and they are tired of paying rent.

I think 2015 is going to be a really interesting year.  So far, all signs are pointing to it being a barn burner. [NOTE:  I am knocking on wood as I say that, because I don't want to jinx myself].  I consider myself very lucky that I grew up in Bellevue and Ginter Park, lived at Libbie and Grove during law school, and currently live and work in the Fan, all super-white-hot neighborhoods.  My prediction:  All of those neighborhoods, as well as Battery Park, Byrd Park, Church Hill, and Lakeside, will continue to blow up.

We'll see. Hopefully it won't take me 18 months to follow up on this post.

Turning Over a New Leaf, a/k/a Removing My Head from My Rear

Well, it's been over six months since I published a post, although there are two half-written posts from November 2012 and December 2012, respectively. 

[ASIDE:  Interestingly, the November 2012 post I never finished is about the School Board punting on the recommended elementary school closure of John B. Cary Elementary, and what a failure of leadership that was.  The topic is big in the news today, as the Richmond School Board voted 5-4 to close several schools, although Clark Springs Elementary got the axe, not John B. Cary.  That's a topic I may revisit myself.]

I've been navel-gazing for a lot of different reasons that I won't bore you with, but I've finally shaken off the funk and decided I want to write, I miss writing, and gosh darnit, I'm going to do it.  I have decided to be kinder to myself and lower my expectations.  So expect to see shorter posts, on more timely topics, and more focused on real estate.  I'll still talk about things going on in the realestate development community, such as the Redskins Training Facility, but I'm going to try to focus generally on local real estate issues and trends that affect the average buyer or seller.

So, next up:  My overview of the insane market that is the Historic Fan District right now.  Or perhaps something on the prevalence of pocket listings and the ethical issues they raise.  Or what to do in a rapidly appreciating market, for both buyers and sellers.  I don't really know.  I'm going to write about whatever tickles my fancy.  Although I am always open to suggestions.

Best,

Melissa

 

On The Eve of the Election, What Is Happening with Richmond Real Estate?

It's 5:30 P.M. on the Monday before the Presidential election.  I, for one, am just going to be happy when it is all over and done with.  Tomorrow, I'm going to vote, work, and avoid TV and radio.  I just want to wake up on Wednesday morning and find out who was elected from the newspaper.  And then maybe life can get back to normal.

But on the eve of the election, I thought it might be interesting to share a little bit of insight into what is going on in the world of Richmond real estate, right now.  I don't know that it is all - or even somewhat - attributable to the election.  But I've had several people who have been in the business a long time say this happens every four (4) year cycle.

First, in the plain vanilla residential real estate market, it got really, really quiet all of a sudden.  Traffic slowed or came to a stop on my listings.   My RE/MAX colleagues have been telling me the same thing.  Are people waiting to buy until the election is over, and this much heralded "certainty" shows up?  I don't know.  But it does seem that owner-occupant buyers have put their home searches on hold.

Which leads to a second observation:  The investors are back in force, and there seem to be a goodly number of them.  Why is that?  I really don't know.  But it seems like there is a much bigger portion of the population than we have seen in the last five (5) years that has the money to invest in income-producing real estate.

I've got investor buyers that are ready, willing and able to buy right this minute, with cash.  But there isn't enough - or any - attractive inventory to buy.  We're looking, and we're looking, but it seems like the same group of buyers is chasing a very small pool of  properties.  The "deals" that come on the market are going under contract in just days, often with multiple offers and escalation provisions.  Witness 817 Pepper Avenue this past week, in Area 20.  If you blinked, you missed it.

With these investors, where does the money come from?  Well, it seems to come from one of a few different places:

• Cash on hand savings.  Some people have done very well in the downturn, and have enough cash to finance their own deals.
• Investment portfolios.  I've seen people using their retirement money to purchase income-producing real estate, because the return on the investment is substantially more than they can get in the market.
• Banks.  Typically, the banks that lend speculatively do it only in a few situations.  Usually it is a community or a regional bank, and it's doing "relationship lending," where it is lending to an existing customer with a very deep relationship with the bank, and/or experience doing the kind of rehabilitation project they are trying to get financed.
• Hard money lenders.  These are the guys that charge a substantial interest rate to lend to a riskier borrower. 
• Friends and family money.  Needs no explanation.  Mom or Dad or Grammy or Granddad is willing to underwrite the investment.

It sure seems like all kinds of people are viewing real estate as one of the best places to park investment money right now.  That's not just the guys who are flipping houses again, or professional investors.  It's also Mom and Pop folks who are investing in income-producing real estate for the first time ever.  It's also the guys who are financing the flipping.  If you can get a minimum of 10%+ doing hard money lending, have a first position lien on a tangible asset, and are working with someone with a track record with investment real estate, where else are you going to get that kind of return, with that kind of certainty?

Third observation:  For a ready, willing and able owner-occupant buyer, this could be the best possible time for you to buy a house.  But you need to move fast, and close before 2013.  The reason:  You will have leverage with certain sellers, who want to avoid the increased tax hit that they will take in 2013.  Not all sellers will care - owner-occupants can still shield up to $250,000 as individuals, $500,000 as married couples, of profit from the sale of a primary residence from any income tax.  But people who are selling second homes, or investment properties, or estate sales, are likely going to take a substantial tax hit if they do not close a sale transaction by December 31, 2012.  And time is running out to make that happen.

So my conclusions: 

1.  Owner-occupant sales will, I hope, pick up after tomorrow, when there is more "certainty" and the 2012 Election is over. 

2.  Investors will continue to enter the market in increasing numbers, as real estate continues to perform better than other asset classes and money remains stupid cheap.

3.  Buyers savvy enough to buy between now and the end of the year should see the opportunity for deep discounts, as sellers rush to avoid major tax increases that are anticipated in 2013.  I believe in retrospect, as we get into 2013 and can look back, we'll find this leverage, combined with the historically low interest rates, will make 4Q 2012 one of the best times in recent memory to buy real estate.

So, other real estate professionals, what do you think of these predictions?  Comments are always appreciated.

Downtown Development - Does the Emperor Have No Clothes?

I knew someone would write this perky, upbeat article for me.  It comes from Work It, Richmond, and I can't remember if that is some Richmond Times-Dispatch  offshoot or another initiative from the Greater Richmond Chamber of Commerce, through HYPE, the "Helping Young Professionals Engage" group. 

[I personally call HYPE "Helping Young Professionals GET Engaged"," but that's just me.]

Anyway, of course everyone there said everything was "Great!," everything was 100% occupied or renting up well above expectations, rents were high, blah, blah, blah, blah.....

God bless Brian Ohlinger of the VCU Real Estate Foundation, who basically looked at the developers following his presentation and said "Stop. Building. VCU. Student. Housing."  Although in a much more diplomatic and politic manner.  No one else seems willing to call anyone on all this insane apartment development downtown.

I'm going to write more on this later, but I just had to post this article.  For now, you can see my personal opinion on the apartment building craze here.  And keep in mind my March 7, 2012 post includes a much broader geographic scope of development than Venture Richmond's definition of "Downtown" and does NOT include a heck of a lot of apartment units that were discussed yesterday.  Scarier and scarier, I believe.

The Victory Rug Factory Proposal and the Special Use Permit Process - Ironies Abound

Well, this story appeared in Richmond BizSense yesterday, only a few days after the story of the Georges versus the Snows, which I am also calling "the Tempsford Road Kerfuffle."   I was struck when I read this story and the comments, in comparison to the story covering the feud over the Snow's special use permit application to subdivide their lot. Ironies will be addressed later, most likely in another post.

The Victory Rug story outlines the dispute between the Oregon Hill Neighborhood Association ("OHNA") and a developer, Guy Blundon of CMB Development, over the conversion of a commercial building into apartments.

Let me be clear on the front end. I don't know Mr. Blundon. This is not personal.  I am sure he is a lovely human being. He may do nothing but "high-quality developments wherever he's been in the Richmond area," and he may indeed have a "social conscience," as one ** cough ** commercial real estate broker commenter noted. However, what is indisputable is he does not live in Oregon Hill.

Blundon wishes to turn the old Victory Rug building into 18 apartments, with an adjacent 18 space parking lot. The proposed unit mix is one studio apartment, 6 one bedrooms, and 11 two bedrooms.

The neighborhood proposes 6 apartments and 2 single family homes, which would be supported by the current R-7 zoning.

The issues: The neighbors say the project is too dense for the urban neighborhood, doesn't provide enough parking, and they don't want more VCU students. The developer says the 18 units proposed are the bare minimum necessary to make the project work financially, and he plans to rent to young professionals.

Let's unpack this.

First, some basic facts and principles to underpin the analysis:

Oregon Hill is a dense, urban residential neighborhood of early Victorian (1890s+) rowhouses tucked between VCU's Monroe Park campus and the river.  The neighborhood was a blue-collar, working class neighborhood for families who worked in the tobacco warehouses, manufacturing facilities, and docks in Shockoe Slip and Shockoe Bottom. Because of the nature of the neighborhood and the demographic of the residents for whom it was developed, there is not nearly as much masonry construction as there was in more affluent Victorian neighborhoods of the same period, such as the Fan and Jackson Ward. Much of the neighborhood housing stock is frame.  Consequently, the property values have traditionally been lower than in other neighborhoods immediately proximate to VCU, most notably the Fan.

Oregon Hill has already suffered some serious urban planning damage from the creation of the Downtown Expressway, which cut a swath right through the middle of the neighborhood.  The historically African American neighborhood of Jackson Ward suffered as well.  I don't think it's at all unreasonable to say these neighborhoods bore the brunt of these massive development projects because they were poorer and minority, and did not have the clout of their more affluent neighbors, such as the Fan.

In the last _____ [10? 15?] years, Oregon Hill has transitioned from a predominantly owner-occupant residential neighborhood to become a residential neighborhood with an unusually heavy influx of VCU students and other renters.   As in any college community, in the areas surrounding the university, there are tensions between the home owners and the student renters.  Think noise, parties, drunkenness, petty vandalism, and trash, plus tons of extra cars.  And VCU's rapid expansion (over 20,000+ students) and transformation from a commuter college to a true residential urban university means there are very real growing pains exacerbating the typical "Town vs. Gown" challenges.

I think one could fairly argue that Oregon Hill, and the property owners of Oregon Hill, have born a disproportionate share of the burden from the creation of the Downtown Expressway and the expansion of VCU.

[NOTE: I'll have to validate this later with some citations. This post is getting too long as it is. But especially in the Trani era, VCU did pretty much as it pleased in its insatiable march to expand its footprint. VCU expanded into the neighborhood, despite the OHNA objections, and despite previous representations from President Trani himself. Remember the controversy over tearing down historic stables? Or the construction of the VCU gym at old city Stadium? The Carver neighborhood is now suffering the same fate].

So, with that background and underpinning, let's unpack this Victory Rug proposal.

1. The likely tenants will not be "young professionals," as Mr. Blundon claims. Let's be realistic. There is a strong likelihood they will be VCU students.
2. 18 parking spaces is not enough space to accommodate all the project's residents. That's one space for each UNIT. However, you should be calculating car needs based on BEDROOMS.  So, that would be a need for 28 parking spaces.
3. Are there REALLY 18 legitimate parking spaces? If these parking spaces look anything like spaces I've seen in some other urban deals, and aren't even appropriate for a compact car, as indicated by one commenter, that is a legitimate concern raised by OHNA.
4. Commenters claim that Mr. Blundon was told BEFORE he purchased the property that the neighborhood association would oppose a project they considered too dense. I presume there were discussions about what "too dense" meant. If that is indeed the case, then I agree with the commenter that says Mr. Blundon now can't fall back on some position that 18 units is the bare minimum that is financially feasible. He knew the risks.

People may not believe me, but I am actually pro-development, and especially urban infill development. I think recycling old buildings is the greenest thing we can do. Creating appropriate living spaces in urban areas means - theoretically, at least - eating up less greenfields with sprawling suburban development.

BUT, I also believe residents and particularly home owners have the right to oppose any development in THEIR neighborhood that requires a special use permit. If the OHNA says this development is too dense, and has legitimate, reasonable, and rational reasons why, the City Council should give the neighborhood association's official position great deference. I mean, really? How dare these commenters essentially suggest, if not outright say, that the people who live in this area and own their own homes should be grateful that this developer is going to come in and put up some shiny new apartments? 

 Here some examples:

"It seems like this property could potentially bring better residents to the neighborhood than those who currently reside in the unkept rowhomes."

"...[f]rom my perspective, a new small apartment would be better than what is there now…a run-down vacant commercial property. Richmond on a whole seems to run into this a lot. The people who live in the neighborhoods have a vision for what they want but not the financial ability to do it. Is it worth it as a community member to allow the improvement of your neighborhood even if it doesn’t necessarily match your vision?"

Condescension, much? I guarantee these commenters don't live in Oregon Hill. They are also probably the first people who would be jumping up and down if any such project were coming to THEIR neighborhood. Shades of Tempsford Lane.  But my disdain for the attitude expressed by those commenters will need to be worked out another day.  For now, what to do about the Victory Rug project?

Maybe there is a middle way. How about compromise? I understand that it has to work financially for the developer.  And I know I haven't seen a pro forma.  But the property owners in the neighborhood have to live with the results long after the developer is gone, and have deeper and detailed insights into what the true day-to-day issues are going to be.  In the interest of trying to be creative, here are some ideas:

• If it's really supposed to be for single professionals, how about 18 one bedroom units? That makes it more likely that there is only one car per unit. Not a perfect solution, but worth a discussion.
• If the developer intended for it to be for young professionals, make it an age-restricted community. No one may occupy a unit unless they are 25 or older.
• I believe the area is zone for parking.  So you can't legally park on the street for longer than an hour without a parking sticker.  So, how about as a condition of special use, make the apartment tenants ineligible for a parking sticker?
• Can you give your apartment dwellers a discount or a credit if they certify that they are car-free? Maybe that's the wackiest idea yet, but if you are trying to reach a compromise, maybe we have to throw out some nutty ideas.

 What do y'all think?

Real Estate Investment in the City of Richmond - The Too Typical Story These Days

Back in May 2011 I reported on news from Inman News that real estate investors would be major drivers in the real estate market for the foreseeable future, particularly in the foreclosure and short sale worlds.

That has certainly proved to be true. Experienced investors have been in the buying mode for the last several years, even if their personal investment models have radically altered. For example, I have several investor clients who went from flipping houses into "buy and hold" rental property. My condominium developers stopped doing condos and started doing apartments. The driver for all these changes: available financing for flipping and condominium development went "poof!" overnight. But money for income-producing investment properties, or developing apartments, was and is still available and even cheap.

The very interesting phenomenon that I observed beginning mid- to late last year, which seems to be gaining traction: people who have never held investment real estate are trying to get into the game. It makes perfect sense, when you realize over a ten (10) year time horizon real estate has outperformed the major stock and bond indices by substantial amounts - 40%+ return on investment compared to 15% or even negative returns. [NOTE: These statistics are according to the annual update program I saw at the Greater Richmond Association of Commercial Real Estate ("GRACRE") on Tuesday.] There are also special tax advantages to real estate, versus other types of capital investments.

Here is the typical "new investor" call I am getting more and more:

BUYER: "I'd like to start buying some investment real estate."

ME: "Great! What are you looking for, and what are your financing sources? What type of return on investment are you expecting?"

BUYER: "I want to buy a duplex or triplex in the Fan. I've talked to my banker, and (s)he says I'm qualified to buy. It needs to make money right away."

ME (Thinking, not saying): "Get in line. Everybody and their brother is looking for investment real estate in the Fan. If you don't have cash and you can't move quickly, your chances are somewhere between slim and none. And, P.S., by the way, Fan duplexes are almost NEVER going to cash flow. They are too expensive. They are great investments if you fit one of three (3) scenarios: (1) you have a ton of money you need and/or want to put down; (2) you are buying it as an owner-occupant, with the rental on one unit to offset your own mortgage expense; or (3) if you want to convert the property back to a single family residence."

ME (Saying): "Well, I think you are going to face a lot of competition from some really well-financed players in that submarket. Also, any investment real estate in the Fan is going to cost you well upwards of $300,000. That's a lot of money at risk for your first investment property. Why don't we consider single-family homes in [BLANK] neighborhoods, which I really think are going to have a continued upward trajectory in value and marketability."

BUYER (Oftentimes now huffy): Well, no, that's not what I want. I want a Fan multifamily property. My brother's sister's aunt's father-in-law bought a Fan duplex in pristine condition for only $150,000 just two weeks ago. And my lender says I will qualify for 80% financing up on properties up to $400,000.

Sigh. What's a girl to do? I've got colleagues who say it is not our job to protect people from themselves. If people want to make a stupid investment, you let 'em. Sell them the property, take your commission, and don't look back. The problem is, I feel like in many ways protecting people from themselves is exactly my job, and if I don't advise a client that I think is contemplating an....let's say "imprudent" investment....I am shirking my fiduciary duty.

What's the right answer?

Here's where I am right now: For any of you folks who want to start slow and small building an investment portfolio in the City of Richmond, give me a call. I'd love to help. For anyone who has buckets of cash and needs somewhere to put it, and likes City investment real estate, call me too. And for those people who fit into Categories 1, 2 and 3 for Fan or Area 10 multifamily properties, I'd love to help you also. New investors who sound like my fake Buyer above, I'm not sure I can help you buy, but I sure as heck have a bunch of properties I'd love to sell you. [:)]

Real Estate Development - Interesting Happenings in Richmond a/k/a RVA

There is SO much going on in Richmond, it's hard to figure out where I want to start.  Here are just the biggies:

1.  INTERBAKE FOODS:  The Interbake Foods building has transferred to Rebkee Company.  Yet another state and federal historic tax credit conversion in the making.  Word on the street is it will be apartments - shocker - with a hoped-for retail component. I'm curious to see whether the apartments are VCU-focused, or marketed instead to young urban professionals.

2.  TAX CHANNEL BUILDING:  The Tax Channel building on Broad Street near DMV is under contract.  I'm not sure if that transaction has closed.  I haven't heard anything about what the plans are for the building, but underneath that hideous facade and minus the ugly rear addition, it's supposed to be pretty spectacular inside.  AND the refacing, etc. that was done back when, apparently with the intention of making it God-awful ugly, was specifically done in such a way as to make it easy to convert the building back to its original glory.

3.  BOULEVARD:  The City of Richmond Fleet Maintenance facility is moving.  Check out the recent Richmond Times-Dispatch article about it here.  Only five (5) years after Umesh Dalal, the City auditor, recommended it do so.  Oh, well, that $2.4M annual savings over five (5) years, that $12M, we don't really need that....But that the City of Richmond is slow-moving and borderline incompetent isn't really news.  The more significant implication of the Fleet Maintenance Facility move is it opens up almost that entire Boulevard parcel for redevelopment, including, one would hope, a new ball park for the Flying Squirrels.  Now, if we can just get the City School Board to blow up the monstrosity that is the Arthur Ashe Center, we'd have the final piece of the puzzle.  Plus the porn store is becoming a Mexican restaurant!  Yea!

4. CITY STADIUM:   Still no word on that "highest and best" use study that was supposed to be done for the City Stadium property.  Shocker.  My personal opinion is the site is perfect for mixed use development.  However, I also strongly believe the City owes it to us, the citizens, to do a competitive bid/request for proposals on that parcel.  In fact, weren't there supposed to be TWO (2) studies done on that parcel?  One was to explore "highest and best" use, one was to explore ways to maximize the property if it stayed a sports stadium.

5.  VCU/VUU APARTMENTS:  More apartments are planned for the Virginia Union area at Brook and Lombardy.  The Gilbane project in Carver has been approved with less density and less height.  [ASIDE TO GILBANE:  Please, please, PLEASE don't value engineer that building into some hideous nod to the industrial and Victorian architecture of the era. The renderings look OK.  But 8 1/2 Canal is AWFUL.  Don't do it again.  I'm begging.]  The apartments in the VCU/VUU area make sense, but apartments continue to go up all over Downtown and Shockoe Bottom.  In one of the next few posts, I'm going to try to count up the apartment units added east of Belvidere  in the last year or so, just for fun.

6.  FAN BUS BARN:  No word on plans for the Bus Barn located at Robinson and Cary in the Fan.  6+ acres of prime real estate in one of the most expensive areas of the City.  Why the radio silence?  Why isn't the City talking about potential plans for that parcel?  At least why aren't they throwing one of their "highest and best use" studies at the thing?

7.  3600 BROAD:  The big grey whale of a building on Broad at Hamilton, the former Chesapeake & Southern Railroad headquarters, is being converted to apartments.  This is also a historic tax credit renovation, using state and federal credits.  [ASIDE:  Is this tax credit thing becoming a sort of refrain?].  Apparently the building is considered a "contributing structure" in the Scotts Addition Historic District.  Hmmm......interesting. 

8.  CONDO INVENTORY:  The number of available condominiums in the City of Richmond is rapidly approaching undersupply.  The reason:  There have been NO condominiums developed since 2008.  Projects funded and in progress when the market crashed were completed, like Windsor Court.  But there was no financing for new projects, and therefore no new inventory in the pipeline - until now.  A high-end "luxury" condominium development called The Tiber is going up on Libbie Avenue near Grove.  I'm keeping my eye on it to see how it goes.  It's been my position for a long time that there is an under-supply of "luxury" condominiums available, even before the market crash, for the wave of down-sizing Baby Boomers.  And in my opinion, there is also a pretty specific formula for floor plan, size, amenities you must have to develop successful high-end condominium units.  Let's see if these folks first-to-market get it right.

This is only scratching the surface on what's going on in the real estate world here in Richmond. There are so many interesting things, such as the increasing number of out-of-town developers entering the market.  Some of those developers are entering the Richmond market with (IMO) really great plans, some with not just head-scratching plans, but "what the H-E-double hockey sticks are you THINKING?" plans.  I'm happy to name names, and we can all sit back and watch whether my predictions are correct or not.  But for now, it is back to the salt mines.  As always, I welcome your comments and/or suggestions for topics or otherwise.  Hasta la vista, baby.

Richmond Is #8! - For Real Estate Investing, That Is

Well, many of you may have already seen this report, from Inman News, which names little ole Richmond, Virginia as one of the Top 10 Markets in the country for real estate investing.  The folks at Inman are predicting a 47.8% increase in values over the next ten (10) years, with a 164.3% return on investment ("ROI").  Yup, you read that right.  164.3% ROI.  Show me a stock or other investment vehicle that's going to top that.

So, I'm feeling a bit vindicated in my long-standing recommendation in this down market, which is that folks with surplus cash should be buying investment real estate N-O-W NOW.  Don't know the first thing about real estate investing?  Give me a call.  I'd be happy to help.  I work with a lot of very successful investors, and there are plenty of deals out there.  And many more to come, as the rest of the distress sale inventory that's filling up the pipeline gets worked out.

Stop reading now if you want to avoid the shameless personal plug:  Here are my qualifications as a real estate agent working with investors.  I am a corporate lawyer with 7+ years of practice under my belt, most of it at a Top 20 Law Firm.  About 50% of my current business is with investors.  I really enjoy working with investors, and have developed broad experience in rehabbing historic homes, the Richmond tax abatement program, and various state and federal tax incentives.  I am a Richmond native, lived almost my whole life here, so I know the City like the back of my hand.  I can be reached at (804) 986-3993 or [email protected].  Don't miss the chance to get on this train.  In a year, this perfect storm of low interest rates, huge inventory, and falling prices may well be gone.

Historic Preservation Tax Credits Are Endangered by Court Ruling

Here is a succinct article describing a pending court challenge to tax credit programs. The appeal is the result of an IRS tax challenge to the syndication of tax credits, and the IRS' recent victory on the point in the Fourth Circuit in front of a three judge panel.  The analysis is complicated and technical, dry reading that only a lawyer could love.  Short version:  The IRS argued successfully that the distribution of tax credits to the partner-investors in a limited partnership equals a disguised sale and should be taxable as ordinary income.  As the article points out, the historic tax credit program has been an economic boon to Richmond and other older cities throughout the Commonwealth, like Staunton, Roanoke and Lynchburg. 

For the average bear, here are the relevant facts.  Taxing the distribution of the credits as a sale will reduce the value of the credits to the developer.  This could make the rehabilitation of historic buildings non-economic.  Oftentimes the tax credits are the difference between a project being sufficiently profitable and not.  This means fewer historic renovations and adaptive reuse projects - the conversion of old apartment buildings and even hospitals to condominiums (cf. Windsor Court Condominiums, One Monument Place, Locke Lane, Ginter Place), the conversion of industrial and commercial spaces to apartments (cf. Tobacco Row, Carolina Consolidated, Lee Street School), the conversion of industrial spaces into commercial buildings (Glave & Holmes' office, the Edgeworth Building) - will be done.

That means:

• Less additional real estate tax revenue to the City, as buildings remain underutilized;
• Fewer construction jobs;
• Less spending on products related to construction;
• The need for more ground-up building; using more green space for building;
• Having to move further out of the urban core to find that green space, with all the ancillary environmental impacts. 

I don't think any of these are good things.  Hopefully, the full panel will revisit the ruling and consider the long-term policy impacts of these programs.