10/20/22 Charlotte Mastermind Group Meeting

Charlotte October 2022 – Key Take Aways

• Joe Kinsey – CoStar – Recent CoStar data reveals all real estate types have decreased drastically in sales volume year-to-date – multi-family at 54%, followed by office, industrial and then retail at 33%. CoStar’s multi-family investors are seeking creative ways to track and secure highly leveraged variable rate loans. Office has seen yet another spike in vacancies from 5% to 12% and may continue to rise over time considering employees failure to return to the office. This is extremely apparent in Uptown.
• Chuck McShane – CoStar – Chuck begins by discussing inflation’s impact on apartment rents. More people are consolidating households now than in 2021 due to decline in consumer spending. Asking rents are down about 2% for one-bedrooms since July.  Although a significant slowdown is occurring, a record number of multi-family projects are currently underway, set to be completed within the next two years. Of these 20,000, approximately 30% of construction properties are occurring near the LYNX Blue Line. The market is expected to tighten after that. On the industrial side, there is a decline in imports at Savannah and flattening in Charleston. Savannah imports were down about 10% year-over-year in September. They’re still higher than they’ve ever been prior to 2020, indicating a shift from the West to the East. Markets like Charlotte will benefit immensely from this spillover impact. He finishes by stating Charlotte has the highest retail rent growth over the last year in the country (approximately 11% year-over-year) with this market being fiercely competitive.
• Russell Hughes – Hughes Realty Advisors – The present market has less volume yet is seeing a healthy return in due diligence. Clients braced for an impact which never came, and now, are taking the opportunity to ask crucial questions. He describes interesting real estate ventures emerging, such as fully operational vertical agriculture clean rooms, appealing highly to sustainable restaurants and grocery stores. These commercial grow rooms are essentially warehouses stacked with floor-to-ceiling aquaponic systems used to produce various agriculture, solely using generator-powered electricity. Pittsburgh company already targeting approximately 20 different locations for North Carolina operations; however, $40 million in funding still needed.
• Neal McElveen – Terracon – Neal describes Terracon’s continuous work on brownfield sites and light industrial closings, where the company’s involvement extends only to the completion of the first phase. Due diligence is up, as always, with numerous multi-family projects planned and high-rises in the works. The main challenge still lies in finding qualified employees for the complexity of the projects at hand.
• Tanna Thomas – Terracon – Tanna reiterates her colleague Neal’s sentiments regarding finding qualified candidates with environmental compliance experience. A growing concern for her is the considerable number of people who have left the company internally, as well as within her GC network, for various industries outside of the real estate world.
• Jill Ecuyer – Crossman & Company – Jill’s primary client is Publix. She handles all leasing for the centers they own in North and South Carolina. Their pipeline has continued to grow and has yet to slow down. Publix, as a corporation, is in hybrid mode. Publix owns approximately 30% of all their establishments but intends to raise this to 60% by the end of 2023. This will occur through: (1) development, which has grown from one person to four so they can manage more projects, and (2) aggressive purchasing, although Publix only needs to match the price being accepted on the establishment up for sale. No negotiation is required. She moves on to discuss Ace Hardware opening a superstore, a moderate store and even considering a hub store, in order to compete with Amazon and its delivery service. Automation is gaining popularity through fast food apps which can and probably will lead to fewer jobs. Finally, she concludes by sharing a 1021 eagerly seeking an opportunity to do a flag hotel in Carolina Beach, whether it be tearing down something for existing land or not. They are on a time crunch. Contact her directly for more information and/or to be connected.
• Clyde Nelson – Medalist Capital Advisors – Clyde works on the financing side, handling various sophisticated loans (98% of which are in commercial real estate) and having access to equity. He works with about 200 different lenders in all major property types – multi-family, industrial, retail, office, and self-storage, as well as regional banks, credit unions and debt funds. Loans are as small as one million with a few being over $100 million. Liability insurance companies have general accounts across the board, with 12-14% invested in commercial real estate. Apart from diversification, the only reason he believes life insurance companies invest in commercial real estate is because they are earning a premium, at least the same yield or some premium over what they can yield, on much more liquid investments like U.S. corporate bonds, which appeal in excess of 6%.
• Scott Herrmann – Sound Ventures, LLC – Scott is Chief Executive Officer focusing on development investment of the rental housing sector. He first began in the Build-for-Rent space in 2017, when it had five years momentum behind it. Today, the data has grown exponentially even though it’s far behind other sectors of commercial real estate. The chasm is widening between apartment renters and those who can afford to buy. The clients/tenants for that product come from many different areas, which include renters by choice, renters by need, people early in their career and empty nesters. Within those classes, he is seeing different product types, such as horizontal apartments and communities like NexMetro from Phoenix. Scott has joint ventured with DuBose Williamson, of Collett Capital, and Rick Rader, of Crescent Communities, in order to help launch build-to-rent platforms on Harrisburg Road and in Waxhaw. Unfortunately, the garden style apartment and 195-unit townhome projects have been placed on hold due to lack of infrastructure. In this case, sewer capacity. Good news is that the request was submitted and approved by Charlotte Water. Bad news is that there is no capacity, causing an unexpected delay. Scott is hopeful and believes this will work to their advantage in the end since construction costs are expected to decrease within the next 4-6 months.