Last year was our 31st year in business. As I say every year, “Where did the time go?”
We had an overall good year in 2015; had a few staff changes, added some folks, lost one of our wonderful brokers, Tyler Bradford, who was hired by Books-A-Million as Vice President of Real Estate—all things considered 2015 was fine.
Our brokerage activity was mixed, we added some new property management assignments and developed a few projects for clients. Our retail brokers have been really busy, the warehouse and industrial sector was OK, and overall office, especially south of town, has been very soft.
Downtown is doing very well, with new and redevelopment projects being developed for residential rental units, mixed use and office. There is more than $600 million
in private development in the downtown/midtown area—that’s more than the last 15-20 years combined.
Up until now our most consistent growth in the downtown/midtown area has been Children’s Hospital, UAB and Health Services, which continue to grow, but now private developers are in the market. For the first time in 30 years, UAB/Health Services has competition for properties, which is raising the price of property in the lower southside/midtown areas.
Avondale and Lakeview continue to grow and expand, especially with all the new residential units and retail being developed for lease. The over-the-mountain activity for retail and residential is also very good, with prices continuing to increase and demand exceeding supply. North and East of Birmingham, Gardendale, Fultondale, Trussville and Moody are also enjoying good retail and residential activity.
The overall outlook for metro Birmingham is OK, not great. We simply are not adding many new jobs or bringing new companies to our market. The cities we compete with—Atlanta, Nashville, Charlotte, Jacksonville,Tampa—are all doing fine. Nashville maybe the hottest city in the south, other than Atlanta.
Investment properties are selling for really low cap rates/returns. It’s a great time to be a seller of investment grade real estate and a horrible time, in our opinion, to be a buyer—unless you’re a tenant owner, in which case, these deals can still work, mainly due to extremely low interest rates.
In fact, several of my clients who own buildings that they occupy are being contacted by many folks to sell their properties, with them signing long term leases. This “Sale-Leaseback” is not a bad option, but if you have a property that your firm/company occupies that is either paid for or will be paid off within the next three, five or seven years, why sell it? Where will you find a safer investment than a building you own and occupy? If we did the deal for you, the return before taxes is normally 10% or more per year. Where can you find a better investment in the current market?
There is simply too much money chasing too few deals. Again, it’s a great time if you want to “cash out” and sell.
We are overly conservative on buying existing properties for our clients with low returns. We receive calls several times a month from great clients and friends who have money and want to invest in income producing properties. We are not finding many deals that we can recommend.
It is not that we are afraid of risks, it’s simply that the pricing is too high, and three to five years from now these types of investments may look awful.
Maybe we are too old-fashioned, but we worry about our clients and friends more than we worry about ourselves. And that is not going to change.
We hope everyone has a wonderful 2016!
John Lauriello, CCIM, SIOR is a founding Principal at Southpace Properties