10/19/23 Charlotte Mastermind Group Meeting

Charlotte October 2023 – Key Take Aways

• The U.S. economy is more robust than anticipated with GDP going strong. Consumer job growth, wage growth and leftover savings from the pandemic period are supporting consumers and driving the economy forward, making a soft landing possible. The purchase of goods have declined and instead replaced with the purchase of services, such as “Taylor Swift” concert experiences. Individual risks, like large scale work stoppages and student debt, are less likely to trigger a recession but the accumulation of them could impact the economy and can be heightened by looming rate hikes. (Matthew Martin – Federal Reserve Bank of Richmond)
• The labor market remains warm. Urgency on job hiring is off in certain places – hospitals are still desperate to get nurses, and engineers are still hard to find. However, the Carolinas are the highest performing employment growth sectors in the fifth Federal Reserve district thanks to its professional business-driven, metropolitan areas. North Carolina is 5-6% higher than South Carolina, with Virginia the only other state above pre-Covid levels. Maryland, DC and West Virginia are still struggling. (Matthew Martin – Federal Reserve Bank of Richmond)
• Inflation is falling but remains elevated. Government shutdown in the short run with possible insolvency in the long run. (Matthew Martin – Federal Reserve Bank of Richmond)
• Class B and C spaces are opening up more than Class A. (Brian Schoeck – Johnston Allison Hord)
• Although deals are less frequent, work remains busy due to the complexity of the current ones. Lenders are tighter, making it harder to close. (Gates Grainger – Investors Title Company)
• Retail vacancy is below 3% in Charlotte, with the food and beverage industry saturating the market. (Joe Kinsey – CoStar Group)
• Norfolk Southern is considering selling or leasing the O rail line to the city of Charlotte, which would allow people to travel from Huntersville to Uptown without the use of the I-77. It will be interesting to see how the land from Camp North End to Davidson will be put to use. (Joe Kinsey – CoStar Group)
• Home décor retailer, Black Lion, formerly closed its doors on January 31st, and a new business, Southern Lion, is planning to open that will provide Black Lion’s vendors a place to go. This adaptive re-use project is located in the former Sears building in the Carolina Place Mall. A pop-up shop has opened on its 2nd floor for the holiday season. Buildout is anticipated for completion in Spring 2024. (Joe Marek – Johnston Allison Hord)
• Small business owners, interested in long-term holds, can no longer afford the space near Uptown and are looking at places closer to home, like Stallings, Monroe, Gaston and Cabarrus County for buildings ranging from 40,000-80,000 sq. ft. (John Culbertson – Cardinal Partners)
• Construction in North Carolina compared to California and other markets has been very healthy. (Brandon Conrad – First Citizens Bank)
• The banks have seen a higher volume of loan transactions from transportation than any other industry yet are aggregate in terms of dollar size. (Brandon Conrad – First Citizens Bank)
• There is a deposit crunch in the market, with more reserves going to loans. Every asset class in commercial real estate, even office, has been doing loans. (Brandon Conrad – First Citizens Bank)
• Charlotte, Wilmington and Hilton Head markets will be hard to acquire at a discount since everybody wants the same assets. (Brent Kubitschek – Waterstone Multi-Housing Advisors)
• Insurance costs are huge and growing fast. These high growth markets that have the economic demographic are markets that people want to invest in but will also have this window of people who bought in the last several years at the top. (Brent Kubitschek – Waterstone Multi-Housing Advisors)
• Charlotte will see a slowdown in Class A and a push for more Class B & C properties. Charlotte needs more low-income housing for the underserved communities, similar to the Class C builds of Ascent Housing. (Caleb Sherrill – Beyond Real Estate Capital)
• Caleb claims there will be groups that bought with the right intentions but will have to let go due to insurance and interest rate hikes and an inability to refinance. (Caleb Sherrill – Beyond Real Estate Capital)
• Clarke began in real estate when he purchased property in NoDa for his event company. His neighbor at the time sold him 3 ½ acres behind his lot. He took advantage of the light rail that came through his property and sold it in 2020. That changed his life and now he owns multiple properties in NoDa, Ed’s Tavern in Dilworth, a villa in St. Thomas and has hands in a multitude of other real estate projects. He builds “temporary environments” for churches, weddings, charities and other large-scale events. He remains humble, however, and contributes his success to hard work. (Clarke Allen – Clarke Allen Properties)
• John is a managing partner of Peak 15 Capital, a firm focused on Southeast multifamily assets as well as placing institutional-quality capital across the commercial real estate board. This year has hit the hardest for the company due to the lack of deals. His advice to developers is to hold onto land for another year or two until they can get the pricing they seek. (Jalal John Azar – Peak 15 Capital LLC)
• The number of deals has not returned since pre-pandemic levels, however the diversity of deals, i.e. technology, entrepreneurial, etc., that are in the pipeline now is positive. (James LaBar – Charlotte Center City Partners)
• Charlotte Center City Partners is hosting an open design competition focused on how reimagining vintage office can add a range of additional destinations and economic activities to strengthen Uptown as a regional asset. Competition closes November 2023. (James LaBar – Charlotte Center City Partners)
• Property, auto and personal rates are rising. John recommends contacting smaller, regional carriers for alternatives. (John Cantrell – HB Cantrell & Co.)
• John recently sold 32 single family home units to the West Bullard Land Trust and purchased two small parking complexes set to close this week. He is looking to reinvest in smaller homes to flip in the next 6-12 months. (John Cantrell – HB Cantrell & Co.)
• Jon and his team focus on industrial development and acquisitions. They continue to see very strong demand, especially in the smaller tenant space (10,000-100,000 sq. ft.). Anything larger being delivered right now and in the near future will be hurting with time and supply constraints. (Jon Phillips – Selwyn Group)
• Jon sits on the Building Development Commission and reports Mecklenburg County’s residential permits are down 5.83% year over year, and commercial permits are down 4.66% year over year. These numbers are more in line with 2019. (Jon Phillips – Selwyn Group)
• Peter notes an uptick in multifamily transactions because sellers are coming to market with more realistic pricing and agreeing to them more quickly. He predicts the buyer-seller disconnect gap will continue to lessen. (Peter Vermette – Peak 15 Capital LLC)