8/18/22 Charlotte Mastermind Group Meeting

Charlotte August 2022 – Key Take Aways

Matthew Martin – Reserve Bank of Richmond –

• We are not in a recession (yet), considering the current labor market is very strong. Payroll employment growth remains healthy, job openings remain elevated and wage growth is accelerating broadly.
• North Carolina, specifically Charlotte (3% higher) and Raleigh (4.4% higher), are clearly leading the employment recovery in the Fifth District and driving state growth.
• The macro data shows, however, that GDP growth slowed with personal consumption expenditures softening (1.6%), income in real terms down, and new home sales also on the decline (excluding multi-family).
• Inflation has obviously elevated, according to Matt, but core is off peak lately. Initially, goods spending and goods pricing took off during Covid. Services instead are now on a slow but steady rise with inflation, that is driven primarily by this rotation and wage price. He asserts commodity prices should eventually provide some relief.

Brian Schoeck – Johnston Allison Hord –

• Brian shares an update regarding city council and their consideration on a request for a Chick-Fil-A/Starbucks drive-thru in Grier Heights. The zoning committee was not in favor due to its environmental impact and lack of alignment with the 2040 UDO plan. However, planning was in favor. It was recently presented again and approved.
• Brian proceeds with discussion on a contract which fell through due to financing on a Harris Teeter in New Bern. The property was placed back on the market and went into contract last week with an asking price that’s $2 million less than the original. He believes this could possibly reflect today’s present economy.

Joe Kinsey – CoStar Group –

• Continued seller/buyer disconnect based on the number of contracts falling through.
• Multi-family brokers are seeing less offers, although there is an ongoing healthy appetite.
• Industrial brokers are signing deals, yet the days of forward sales are long over.
• Joe states the biggest issue retail faces is finding smaller leasing space. Mid-size has proven difficult to fill.

Chuck McShane – CoStar Group –

• A record amount of construction is underway on the multi-family side. Although 14% lower than the highest peak of 2021’s Q4, rent growth remains incredibly high.
• With the amount of construction and supply coming in, he predicts the market will normalize heading into 2023.
• Chuck makes mention of smaller restaurants that have been closed are now reopening. This is a good sign.
• On the industrial side, a record amount of construction underway in the Charlotte, Greenville, Charleston, and Savannah areas. Charleston is the location where large, million-dollar “boxes” are being constructed.
• According to Chuck, the office sector is still in the air. Some companies are looking at keeping the same amount of space while simultaneously expanding their head count in that same amount of space over the next few years. How that affects the macro trends will be tracked.

Gates Grainger – Investors Title Company –

• The title insurance sector is “busy, busy, busy!” according to Gates. He sees multi-family running hot, as well as an increase in hotel deals (from 2020-2021).

Joe Marek – Johnston Allison Hord –

• Has seen a slowdown in interest and a lower volume of deals in office leasing activity.
• Contrary to this, interest in retail has spiked through 1031 transactions and clients desperately looking to expand, whether that is buying or leasing to develop new locations.
• A recent analysis which reports second quarter retail availability is at a 10-year low, down 56% from a year ago.

John Culbertson – Cardinal Real Estate Partners –

• He works closely with foreign UNHW clients. He was recently hired by New Zealand money to assemble land in the Southeast. He’s partnered with Tim Samuels, previous land manager of NVR, Inc., and four other partners, to handle this extremely busy work.
• Statesville, Cabarrus, and some parts of Gaston County reject new, single family home development. He says this is due to politics, not sewer, as many have been led to believe.

Ally Roberson – Cherry Bekaert LLP –

• She notices her clients purchasing property predominantly in retail, restaurant and strip centers. They are seeking assistance that would help accelerate deductions that would apply to those specific building purchases.

Jeff Mitchell – Duffey Southeast Construction, Inc. –

• He states the company is very busy and predicts the markets and areas they service will continue strong.
• His team holds the master contract for AT&T throughout the Southeast, excluding Tennessee and Georgia. Upgrades are mostly mechanically heavy electrical replacements, such as generators.
• Industrial market is continuing to grind from here to Atlanta and everything in between.
• The current data center projects are contracted predominantly by Verizon in Tennessee and Louisiana.

Benton Blaine – McGuireWoods Consulting LLC –

• Benton works in industrial and office economic development, as well as some container work on a national level. Nevada, Texas, South Carolina and Florida are booming, with Ohio now cooling down.
• He states Florida is facing major water issues, citing a $2.1 million tap fee his team recently paid.
• Another issue he addresses is that developers are asking for more and more without consideration of the logistics, as long as the project is completed. Thus far, two projects have been cancelled, both residential trust manufacturers, and four others on hold.
• Benton is concerned about Uptown Charlotte and companies’ lack of interest in leasing there. Instead, his clients are choosing to look in the South End or Ballantyne areas.

Clyde Nelson – Medalist Capital Advisors –

• According to Clyde, 90% of Medalist Capital Advisors business is acting as a loan broker in all major property types, with loans ranging from $1 million-$100 million. He notes banks have become very aggressive, particularly local, and regional banks.

Floyd Hollenkamp – Poettker Construction Company –

• He describes issues with labor management on projects and the attempt to gain control with subcontractors and their market. Unfortunately, the turnaround is quick, and everyone is running at a maximum capacity.
• The risk with material pricing and lead time are constant challenges but can build absolute trust that those risks are worth taking if managed properly.