[RWS #705] Finding the Best U.S. Real Estate Markets

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Picture of a City for The Real Wealth Show Podcast Episode #705

Understanding your market is the first place one should start when vetting  a real estate deal. If a metro area is not growing, neither will the value of your real estate. Our guest today is a leading, internationally-recognized expert on the topic.

John Boyd founded The Boyd Company to help big companies like PepsiCo, Boeing, Hewlett-Packard, and JP Morgan Chase with their corporate site selection. With five decades of experience, he’s gained deep knowledge of markets across the nation. He’s a popular speaker on topics pertaining to business relocation, the economy, and the direction of new corporate development and jobs. And, he’s here with us on the Real Wealth Show!

Click here to learn about the best places to buy rental property in 2019.

Podcast Transcript

Kathy Fettke: John, welcome. It’s so great to have you here.

John Boyd: It’s great to be here.

Kathy: You are a commercial real estate expert in the Houston area. Houston, boy, has had some tough times and at the same time, there’s massive growth. What’s the latest? What’s going on in Houston today?

John: We view Houston as one of the strongest markets for companies and for entrepreneurs to be investing in today, for a myriad of reasons. The first reason is just the overall state business climate and the favorable tax structure, and the tax advantages go beyond the lack of a corporate or personal income tax. But, also the property tax rates in Houston today are much more attractive to executives of major companies in the northeast after the Tax Reform Bill a couple of years ago, which limited property tax deduction to $10,000. There’s a lot of dollars and cents drivers that fuel the attractiveness of Houston, and beyond the costs, the idea that Houston has really diversified itself beyond energy, there’s an exciting technology scene happening in Houston. The city is uniquely linked to the global marketplace.

Kathy: How so?

John: You have George Bush Continental Airport, which is the 10th busiest airport in the U.S., with an impressive roster of nonstop flights to major markets. There’s a common denominator among cities that are attracting major corporate head office projects today, and that common denominator is a link to the global marketplace. Having a major airport, like George Bush, is a major asset and it puts Houston in the mix with other head office cities like Chicago with O’Hare, Boston with Logan, the New York City metro area with Newark Liberty and LaGuardia and JFK.

That idea of the unique link to the global marketplace with air travel and also your port, which connects you and connects the economy to the booming Latin American market, that’s something that we always look for when we look at markets that are poised to sustain growth and markets that are attractive for our clients to invest in. It’s that unique link to the global marketplace, and you have that in Houston.

Kathy: How would you say Houston compares to Dallas, which has been a hot spot as well?

John: Dallas in the metroplex is on a roll. The Texas economy is firing on all eight cylinders today, and we see all the exciting things happening in Dallas, but some people like vanilla, some people like chocolate, and this idea of historically Dallas had a little more pizzazz. I think a lot of it had to do with the television show and JR Ewing, but Houston has done a terrific job in diversifying its economy.

Houston has one of the most highly regarded economic development programs in North America, the Greater Houston Partnership, which really does a terrific job telling the story of Houston as a city. It’s open for business, open for entrepreneurs and professionals from around the globe, and I think that’s another reason why you’re seeing a lot of the new mixed-use millennial-friendly development happening in downtown, and even in suburban markets, like the woodlands, which I happen to spend a lot of time in and as Chevron as it happens to be one of our clients. They have a major presence in the woodlands, and the Howard Hughes Corporation which owns the woodlands development, happens to be a client of ours as well.

Kathy: When you say client of yours, what do you mean by that?

John: We advise major corporations where to locate their facilities toward North America, and 99% of the work is in the corporate sector, advising companies where to locate. Another part of our business is advising some of the nation’s top real estate development companies like Howard Hughes, to identify markets that are attractive for new development, whether that be new office space development, new repurposing of vacant retail into mixed-use housing development, or industrial projects like data centers, and warehouses like manufacturing projects.

Kathy: Is there any place in the US that compares to Dallas or Houston because we’ve been investing in Dallas for over 12 years, and it’s hard to find any area that’s going quite as rapidly.

John: You’re right. The Dallas market is red hot. The labor market is very tight in the metroplex. We view terms of heavyweight corporate location cities in the southeast, and in Texas, we’ve looked at cities like Atlanta and Dallas and Houston, most of our site selection projects that look at that region of the country for a head office or regional headquarters. We tend to look at the same cities, and we look at Houston, we look at Dallas, Atlanta, Nashville is emerging as a major new corporate head office location. You have the new Mitsubishi headquarters just announced in Nashville.

Kathy: What about Orlando?

John: We like Orlando. A lot of exciting development is happening in Florida. Florida is on a roll. Again, lack of a personal income tax. A lot of wealthy transferees are not only buying second homes in Florida, but they’re moving their businesses and making the primary residence in the Sunshine State. The Orlando region is exciting for a number of reasons. One of the things that I’m excited about when I think about Central Florida is the Brightline expansion. Brightline is the new rail system that currently connects Palm Beach County to Miami. Over the next couple of years Brightline will be extended via the partnership with Richard Branson’s Virgin group to Orlando.

From a real estate perspective, you think about all of the exciting transit-orientated housing developments that exist in markets like New Jersey and New York and Connecticut. There’ll be similar development opportunities into Central Florida related to Brightline, and ultimately west towards Tampa, which ultimately that’s where Brightline is going to go. A lot of our development clients are eagerly anticipating and keeping a close eye on developments with Brightline, and there’ll be a lot of opportunities for some new exciting mixed-use transit-orientated housing developments along that path, North to Orlando, and ultimately west to Orlando or Tampa.

Kathy: Right, Orlando to Tampa is a hotspot. We’ve got a 4,200 lot development there called Mirada that we bought 10 years ago in the downturn for 10 cents on the dollar, and boy, are we glad we did. Jacksonville is a smaller area, but that seems to be growing as well.

John: Jacksonville is on a roll. The banking industry in Jacksonville is booming. A lot of the development in Jacksonville is happening along the waterfront. You have Macquarie the major bank from Australia doing some exciting projects there. We like Jacksonville. Jacksonville it’s interesting, and within the context of Florida, culturally, Jacksonville is a much more conservative area with a strong military presence. It’s almost culturally more akin to Southeast Georgia than it is the rest of Florida, but the fundamentals are in place. It’s a pro-business market. It’s doing extremely well, but I’m especially high on that I-4 corridor, markets between Orlando and Tampa. Lots of exciting things happening. Even South from Tampa down to Naples, the I-75 corridor, which is really emerging as one of the nation’s top medical device clusters, a lot of medical device activity. You have Lee Memorial Health, which is doing a major expansion. That area is primed to become one of the new orthopedic capitals of the country. There will be a lot of new healthcare development opportunities related to that as well.

Kathy: You mentioned Atlanta, why?

John: Atlanta is really the prime example of this idea of being connected to the global marketplace. Atlanta’s international airport has more nonstop flights to global markets than any other city in the U.S. today. They enjoy, again, a very solid pro-business climate. There’s a great professionalism among economic development practitioners in Atlanta. When you think about the art of economic development, it was really crafted in the southeast. Cities like Nashville and Atlanta, and in Texas, to lure industry away from expensive cities in the rust belt and expensive cities in the northeast. Atlanta is just doing a lot of things right. It’s an addition towards high concentration of Fortune 500 headquarters, you also have an emerging tech scene. You have some of the nation’s top developers doing a lot of millennial-friendly construction downtown. We have a new loop that’s being built around the city, which will be public space and by-pass. Atlanta is now emerging really as a major place for technology operations. General Electric has one of their major tech centers in Atlanta. It’s on the map for lots of projects today.

Kathy: Interesting. We’re bringing that back on our hotlist, along with actually Charlotte. These are two cities we were excited about 10 years ago, and then they got hit fairly hard during the recession, but they seem to be back on track. Any thoughts on Charlotte, North Carolina?

John: Absolutely. Charlotte is on a roll. It just got a new corporate headquarters for Honeywell. You have a very positive state business climate. Governor Cooper has done a good job working with Republicans and bringing Republicans and Democrats together to cut taxes, to craft a new incentive program. Charlotte’s doing very well. There’s no question about that.

Kathy: Man, being from California, I wonder if we’ll ever figure that out.

John: Well, the joke is the last one to turn the lights off. Seeing an out-migration of companies and wealthy executives leaving and taking their money with them out of expensive states like New Jersey, Connecticut and California.

Kathy: Especially when you’ve got an aging population, every penny matters and you’re not going to stay in a high-tech state if you’re on a fixed income.

John: I agree.

Kathy: Do you think there’s any reason to be in places like Detroit that seem to be really reinventing themselves? Cleveland, Pittsburgh. I know Pittsburgh made Amazon’s, I believe, top 10 list.

John: A lot of exciting things are happening in Pittsburgh. You’re right, Pittsburgh did make Amazon’s top 20 list. Pittsburgh is home to one of the nation’s strongest technology clusters. You have Uber which is headquartered there. Apple and Google have operations in Pittsburgh. Robotics Row is an emerging center of excellence in the robotics industry. Carnegie Mellon is a leader in artificial intelligence technology. This idea of fintech and the idea that today banking projects are becoming technology projects, Pittsburgh is well-positioned to capitalize on that trend.

We like what’s happening in Pittsburgh. It enjoys a very low-cost profile. A class A office space in Pittsburgh could be roughly $35 a square foot. In Boston’s Back Bay section, you’re looking at $70 a square foot. In Manhattan, it’s not uncommon to pay over $100 a square foot. You have a combination of cost savings in Pittsburgh and the talent and the intellectual capital to be competitive for high paying jobs.

Kathy: Okay, we own some properties there so I’m glad to hear that. But Detroit and Cleveland and Chicago, these are areas that have their pros and cons, I think.

John: Chicago is on a roll. It’s attracted a number of high profile corporate headquarter relocations over the past decade. The challenge for Chicago were to see how its economic development office functions in a post-Rahm Emanuel world. Rahm, despite being a Democrat, had a very good relationship with the region’s business community and was able to craft incentives and was able to grow the cluster of Fortune 500 companies in Chicago during his tenure. The danger is that the ultra-progressive will take charge in Chicago and introduce some anti-business policies similar to what we saw in Long Island City in the wake of the HQ2 decision. We’ll see how Chicago plays out.

Kathy: Cleveland?

John: Cleveland has historically been a very mismanaged city, quite frankly, and a history of local groups competing with one another being late to recognize the dominant trend in economic development is regionalism. Cleveland was behind the curve to put together a very strong regional approach to industry attraction. That said, Ohio is doing well. John Kasich is a pro-business governor. Columbus is the real star today in terms of economic development in the State of Ohio. It made Amazon’s top 20 list. The economic development organization in Columbus is very highly regarded as well.

Kathy: The future of Detroit?

John: Exciting things are happening in Detroit. JP Morgan is one of our clients. They’re expanding, investing in Detroit. Detroit has the potential to be a national example of a successful urban turnaround story. There’s been some improvement in the state business climate. Michigan became a right to work state. There’s some ancillary benefits to Detroit perhaps attracting office projects related to a revitalized manufacturing climate in the state of Michigan.

Earlier, we talked about Charlotte. Charlotte not making Amazon’s top 20 was really a black eye on the city. A lot of the nation’s most influential business leaders, especially in the banking industry, have a relationship with Charlotte. Given Charlotte’s high concentration of banking industry, they serve on boards and foundations, are involved in lots of philanthropic activity in Charlotte. When Charlotte did not make Amazon’s top 20 list, there was a very strong outcry from these influential business leaders. They almost viewed it as an embarrassment that Charlotte was not in the top 20.

The city recently recalibrated its economic development program and fired Ronnie Bryant who was a superstar in the economic development world for many years. It showed just the idea of a steak in a sizzle where people today realize that economic development is about the brand. It’s about communication as well as the steak. It’s an addition to the quantitative analysis, business costs and taxes and incentives. It’s about the brand and it’s about the ability to sell your city. Not just the site-seeking companies but also to the best talent from around the globe. To say that we’re open and we want you to move here, we want you to bring our business here.

Kathy: I didn’t think there was anyone as obsessed about markets as me so I’m so thrilled to meet you.

John: Great to meet you.

Kathy: A lot of our charts from John Burns Real Estate Consulting show most of the growth heading towards the southeast over the next 10 years. The last on the list was the northwest, Seattle and Portland. But being located in California, a lot of investors still want to put their money up there. What are your thoughts on that?

John: There’s a lot of cost efficiencies associated with wealth leaving the Bay Area to go to Oregon, to go to Washington State. Washington State, of course, doesn’t have an income tax either, which is attractive to a lot of wealthy folks from the Bay Area. You look at all the tremendous success the technology industry has had in Seattle and Portland. Anyway, when you look at where people are moving and you look at the usual suspects, Las Vegas and Phoenix and South Florida and the Carolinas, it is interesting to also see Oregon and Seattle in the mix. But I think it’s about the lower cost profile, the favorable tax structure and just the cultural similarities of living in the Pacific Northwest. It’s the same cultural mindset that you have in the Bay Area.

Kathy: That’s true. We’re at our company. We’re pretty excited about the Reno area because it’s so close to California, so close to the San Francisco Bay Area but so much easier to do business. Lots of companies going over the border. We’ve got three subdivisions we’re building there now. I’m assuming you like what’s happening in Reno.

John: I love Reno. In fact, I go to the Hard Rock owned by the Park Brothers, good friends of mine. I’m the developers (unintelligible) in Lake Tahoe but I spent a lot of time in northern Nevada. They have the winning recipe. Above and beyond the lack of a corporate and personal income tax, they’ve been very successful in luring work forces, luring technology companies a couple of hours east to leave the Bay Area, to live in a more affordable market. We’re very high on the Reno/Lake Tahoe market. One of the fastest-growing markets in the region and the nation actually.

Kathy: That’s very exciting. My favorite hotel to stay is the Whitney Peak because you can rock climb on the side of the building all the way to the top. It’s pretty fantastic.

John: That sounds pretty cool.

Kathy: Let’s talk asset class then. I could go on and on and on talking about markets. I’m guessing Salt Lake’s on the list too. It’s hot hot hot. We’ve got a development there.

John: Salt Lake City, again, they have a winning recipe. Governor Gary Herbert is very pro-business. Goldman Sachs now has over 1,000 workers in Salt Lake City. They’ve been able to really successfully market Salt Lake City as a place not only with a low cost of doing business but as a place with premier intellectual capital. The University of Utah has one of the nation’s top computer science programs. That’s something that the banking industry in Salt Lake City relies upon. Banks like Zions Bank and Goldman Sachs and Wells Fargo all have major presences in Salt Lake City.

You have some new downtown development activity to make the region more desirable for millennials. They’ve recently relaxed their drinking regulations which a lot of companies and executives viewed as prehistoric. They went in the right direction in recent years and they’re doing a terrific job.

Kathy: We’re excited about that. Actually, we’ve got our development in Park City where you can barely build anything so you get the beauty and the skiing and you’re close to Salt Lake.

John: Park City is really special. Sundance Film Festival is a really, really special thing to do.

Kathy: Yes. It’s a lot of fun. Asset class, do you have a preference as what’s emerging over the next 10 years and where you want to put your money?

John: Yes. I really think Florida is a great place not only for businesses but for people to relocate to because of not just the favorable tax climate but you have a number of other drivers that I think will sustain growth here. I think Brightline will be a catalyst for a lot of exciting development from South Florida to Orlando to the Super Region and ultimately west on the I-4 to Tampa. I think that’s going to be exciting. You have this space industry. I think Florida is very likely to be named the new Space Command Center which will be another generator of high paying jobs for the Sunshine State.

Kathy: Would you recommend apartments or retail or warehouse or single-family or all of it?

John: All of it. Obviously, the distribution sector is red hot. It’s driven by the same day delivery trends that Amazon pioneered. Another interesting segment of the market right now is re-purposing vacant retail. This nation has millions of square feet of retail space that’s either vacant or will be vacant within the next 18 months. The message to economic development leaders and commercial real estate leaders is to begin inventorying the space and making plans to have it rezoned in the most efficient way possible so when deep-pocketed developers visit these sites there’s a quicker turnaround where these projects can be redeveloped into mixed-use facilities.

Things like a We-Works component with shared office space, with a residential component, maybe some retail. Anyway, when you think about this re-purposing opportunity, so much of the vacant retail is in desirable locations. It’s next to a major highway, there’s parking, there’s open architecture which minimizes construction costs for re-purposing. That’s really, I think where a lot of our clients are excited to be investing in over the next 18 months. It’s re-purposing retail into mixed-use purposes, residential and office space and recreation space. You mentioned rock climbing earlier and a lot of our office projects today include things like that.

Kathy: Wonderful. Well, I just feel like I could talk to you for another two hours, but I’m sure you’ve got other things to do and markets to research. Any last words of advice as we move into what many people fear and also are excited about the longest economic expansion in history? What are your thoughts on that and how investors can protect themselves?

John: These are good times. The market is strong, unemployment is at record low. We have rising wages for the first time in a long time. The stock market continues its historic run. These are good times and I think the lesson is to learn why these are good times. The relationship between cutting taxes… when you cut taxes, you promote businesses to grow, to expand, to hire. We’ve made our nation much more competitive on the global marketplace with the corporate and income tax rate cut. The danger would be to revert back to this idea of raising taxes and doing some of the things that you’re hearing on the left.

Kathy: Right, hopefully. we can prove that all this works and that really creating a job-friendly environment is the key to economic expansion.

John: I agree 1,000%.

Kathy: Well, that’s wonderful. We don’t have to worry because the longest expansion in history doesn’t necessarily mean it’s going to end. There’s enough factors in place that it could keep roaring along for a while.

John: I certainly hope so.

Kathy: All right, wonderful. Well, thank you and look forward to having you back.

John: Thank you, Kathy.

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