#RealEstate - FRG Consultants

What’s Red, Blue and Gray All Over?

The population of the United States is rapidly growing older. According to the US Census Bureau, the number of older Americans is projected to more than double from 2010 to 2050. And by 2030, Americans 65 and older are estimated to represent over 20% of the total population. Technological advances and modern medicines are contributing to a greater number of seniors each year.

Question: Is the country prepared to meet the housing needs of this growing demographic?

According to the US Census Bureau, as of July 2022, there were approximately 144 million housing units in the US and of those housing units almost two thirds are owner occupied. Seniors living in lower income households cannot find the means to adequately update their homes to meet their needs as they age. Aging in place is becoming more of a challenge for this demographic group due to high home maintenance cost, interest rates, and a reduced income as seniors rely on social security and/or part-time work.

Several state governments are paying attention and trying to make it easier to age in place. The Institute for Taxation and Economic Policy (ITEP) provides a list of states that offer lowered property tax options, renter’s aid and reverse mortgages through HUD’s Home Equity Conversion Mortgage (HECM) program. For example, Iowa’s legislature recently passed bill SF 619 for the Elderly and Disabled Homeowners. The bill allows income qualified seniors to exempt $3,250 of taxable value of their primary residence for the 2023 tax year and $6,500 for the 2024 tax year. Similarly, Connecticut’s state law offers an income-based property tax credit up to $1,000 for single homeowners.

Without more awareness and action to proactively push funding through legislation for affordable senior housing, the “I’ll think about that someday when I get a little older” will be tomorrow and our nation may not be ready.

What Are Your Office Hours?

Over the last 24 months, the office real estate market has drastically changed, and this change was likely always going to occur; however, the COVID-19 pandemic accelerated it. Stay at Home orders resulted in an employee exodus from physical corporate office space to an explosion in employees working remotely from home. 2020 was a boom for technology companies as there was a widespread adoption in the use of video conferencing and cloud-based collaboration tools.

This boom also resulted in a decrease in demand for traditional office space. Many employers still see the value of having a physical office space for collaboration and face-to-face interaction. Companies like Citigroup, Disney, and Goldman Sachs have slowly required a return to the physical office, however, in most cases that mandate comes with flexibility, e.g., return to the office two to three days a week. Experts anticipate that there will likely be a rebound in demand for office space, though not to pre-pandemic levels.

So, what is a property owner of office real estate to do during this downturn?

Reposition the property: By making improvements to the property, such as updating the common areas or adding new amenities, an owner can make the property more attractive to potential tenants.

Offer flexible lease terms: In a declining market, it may be necessary to offer more flexible lease terms, such as shorter lease lengths or more generous options to terminate a lease, to attract tenants.

Diversify the tenant base: Instead of relying on a few large tenants, an owner can diversify the tenant base by attracting smaller tenants or by offering flexible office space to businesses that are looking for a more flexible lease structure.

Be creative: Instead of trying to lease the space only as office space, landlords can consider other uses for the space such as retail, residential, or warehousing.

Finally, be patient: it’s important to remember that the market will recover over time. By being patient and holding on to the property, an owner can take advantage of the market’s recovery.

So, the days of the open-door policy are not dead. Instead, they have morphed into a combination of an actual open door and a virtual open door.

#Cleveland-#OfficeMarket-#Remote

Where’s the Rent?

According to Moody’s 10 million Americans are behind on their rent. And as of December 2020, according to the National Low Income Housing Coalition renters owe ~$30-70 billion in back rent to landlords.

The Center for Disease Control and Prevention (CDC) extended the federal moratorium on rental evictions due to a tenant’s failure to pay rent through June 30, 2021. This decision is both good and bad.

The eviction moratorium is a vital protective public health measure. The obvious positive impact of the moratorium is that millions of people who are unable to pay their rent can stay in their homes and out of crowded congregate settings, or worse. Research has shown that it is easier to keep someone from becoming homeless than attempting to get them out of homelessness.

However, with each extension of the moratorium there is an increase in the number of landlords struggling to find cash to pay mortgages, taxes, utilities, and maintenance cost. ~10 million individuals own one or two rental units and these individuals account for 22.1 million, or over 50% of the rental housing stock in the U.S. The hardship of no rental payments disproportionately impacts the small landlord. Many of these small landlords are providing housing to the lower income market and the risk of these landlords filing bankruptcy or facing foreclosure could have a significant impact on the availability of affordable rental housing.

The passed COVID Relief (December 2020) and American Rescue Plan (March 2021) set aside a combined $50 billion in funds for state and local agencies to distribute to renters in arrears to pay their rent. And as of now less than half of landlords and a third of tenants are aware of the rental assistance.

The federal government’s goal is to get the funds to renters before the eviction process starts in July. To meet this goal local agencies will need to make both landlords and tenants aware of and encourage the use of the resources. As with most things, success is found in the execution.

Exploring and Inspecting Properties

To effectively complete a commercial appraisal or multifamily housing rent comparability study we are required to conduct a thorough exterior and interior inspection of subject properties. COVID-19 has presented challenges but has not stopped the FRG team from completing comprehensive site inspections.

In the late Spring, as the country began to slowly re-open our client requests increased. FRG team members often take multi-day trips many times via air travel to complete site inspections. In early June, FRG had a client commitment requiring an inspection of a property on the border of the states of Wisconsin and Michigan. Having previously completed projects in the same area, I knew the fastest route to the site was via a one-hour direct flight from Cleveland to Milwaukee and 2.5-hour car drive north of Mitchell Airport to the site.

As I explored this travel option, I found direct flights were no longer available. As well, my preferred airline only had two flights leaving each day with Milwaukee as the destination. And the available flights had a total travel time of almost six hours. Further, both flights would require an overnight stay in Milwaukee.

I needed to find another travel option.

I considered driving and discovered a one-way trip to the site from Cleveland would be a ten-hour drive. Further, this option would require an overnight hotel stay. At that time, many hotels, especially those in rural areas were struggling with remaining open and offered few amenities. Thus, I did not see a hotel stay as a viable option.

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COVID-19

Feasibility Research Group (FRG) is a privately-owned real estate services company specializing in commercial real estate appraisal, inspection, and research. Like many small businesses, FRG has been impacted by COVID-19.

However, the services that we provide are deemed essential by most states and thus we remain willing and able to assist you with your appraisal services and market research needs.

FRG practices social distancing. Currently, all employees are working from remote locations. Further, if an FRG appraiser is conducting an on-site inspection he/she will practice social distancing during the subject property inspection.

The FRG appraiser conducting the inspection will:

Maintain six feet distance from all property contacts
Request that only one person accompany the appraiser on the inspection
Not touch any fixtures, door handles, light switches, etc in the facility
Require unobstructed access and views of the interior of the building
Wear protective covering including but not limited to gloves and face masks

Further, as much as possible FRG appraisers will seek to conduct virtual interior inspections leveraging technology such as Skype and/or FaceTime*.

FRG will continue to monitor the coronavirus and its impact very carefully and provide updates as needed.

*NOTE: USPAP does not require a physical inspection. Appraisal Foundation Statement

The Appraisal Foundation, Fannie Mae, Freddie Mac and the Appraisal Institute have deemed virtual inspections to be acceptable.

Supporting Adjustments with Market Data

Appraisers are analysts, problem solvers, and decision makers who need to make a professional and informed opinion of the value of a property as well be able to communicate their decision-making process. One of the most important aspects of an appraisal is the integrity of the data and decision-making used. Appraisals must explain clearly why adjustments are being made and clearly state the reasoning for how the adjustments are being made.

Here’s a look at the process FRG requires to validate adjustments when comparing properties in a residential appraisal:

Why?

An adjustment is needed when there is a difference between the property being appraised and a comparable property that would impact the sale or rent price

Differences that require adjustments to value include building size, number of rooms, condition, parking, or amenities like pools or fireplaces

How?

An adjustment provides an estimated dollar value of the difference

Appraisers must explain the reasoning behind that specific dollar value; what makes an adjustment worth a specific amount in that market?

Simply stating that an appraiser is experienced and therefore knows how much things would sell for is not an accepted justification for adjustments in sale price. Every appraiser has their own unique perspective and bias, and it is the responsibility of that appraiser to create as objective and informed an opinion as possible.

How can appraisers remove themselves from the process and create a reasoned explanation for differences in sale prices? Here is an example:

A single-family home with 1 bathroom in a suburb is being appraised, and a sale comparable has 1.5 bathrooms. The appraiser believes buyers in this market recognize the value of an additional half-bathroom. An adjustment will need to be made, but for how much?