Nearly everyone is talking about housing in Utah. The high cost of housing is a concern for young families considering purchasing their first home, for parents thinking about the next generation, for seniors on fixed incomes struggling with rising property taxes, for those without a home, and for those who rent. Rising housing costs impact both urban and rural communities. Much of our future wealth creation and community stability rest on our housing policy over the coming decades.
Structurally Short Supply In Utah, we are building residential housing at a furious rate. Along the Wasatch Front in 2022 we pulled 6,682 home building permits(1) and completed 11,773 multifamily units(2). That is a an estimated 18,455 new housing units along the Wasatch Front in 2022. In Washington County, we pulled 1,934 home building permits(1) and completed 470 multifamily units(2). That is an estimated 2,404 new housing units in Washington County. Adding 439 home building permits in Iron County, that is approximately 21,000 housing units statewide. Utah grew by 61,242 residents last year(3). That is 22,269 housing units assuming 2.75 people per household. Except it doesn't account for short-term rentals and second homes. For generations, owning a home was the American dream. Today, in addition to owning a primary residence, owning a second home or a short-term rental is becoming much more common. Individuals aspire to own a cabin in the mountains, a place on the lake, or an short-term rental in a vacation destination. As travel and tourism increase in the state and as we see increase economic success, demand for housing is rising much faster than simply population growth. This is the reason we have a structural shortage. If demand were for just population growth, we would be building about the right number of homes. To keep up with future housing demand, we have to consider how many second and short-term rental homes are needed to avoid being structurally short. Housing and Inflation In each of the last 7 decades, home prices have risen faster than inflation. This makes sense because if the price of materials and labor are rising, then the cost of building a new home must also rise. During high inflationary periods, such as the 1970's and the past three years, efforts to significantly increase the number of units built can backfire. Intuitively, increased supply should result in lower cost. In a high inflationary environment, materials and labor costs are rising because they are under supplied. Efforts to increase housing supply too quickly will pressure labor and materials prices to rise even faster, making the problem worse in the short-run. Reducing Regulatory Barriers Some argue reducing regulatory barriers will reduce cost and therefore prices. These regulatory changes will only reduce the price to the end consumer if it materially lowers the cost structure or materially increases supply of units built, or third materially reduces demand for second home and short-term rental investments. If it doesn’t accomplish one of these requirements, then reducing regulatory barriers won't be effective in solving housing affordability issues. Affordability Many are worried about affordability. I have heard it reported more than one once that 70% of Utahans can't afford to purchase a home today given their current income. It is important to remember that 70% of Utahans already own a home and their payment is fixed. If inflation drives wages higher, that increase in income may become discretionary--potentially creating more spending power and more inflation. For those who don't own a home and are looking to buy, rising prices and the rising interest rates that accompany inflation push home ownership out of reach. What should we do? Most of our efforts to solve the inflationary home price problem make the problem worse. For example, if we create a first time home buyer program to offset the rising cost of housing, we increase demand for housing and prices will be relatively higher than they would otherwise have been. If rents are too high, subsidizing rents increases demand for rental units, causing rents to rise. As a result, one of the best solutions in an inflationary cycle is to wait and try not to contribute to the inflation. Affordable Housing Affordable housing in this context is we are speaking of government subsidized housing. Although well intended, affordable housing and deeply affordable housing can contribute to housing inflation. If the supply of labor and materials is already constrained and creating inflationary pressure, building thousands of subsidized units will result in higher construction costs. For affordable housing developments to have their highest impact, they should be built in a time when there is adequate supply of materials and labor so as not to significantly interfere with the housing market. Affordable housing can be effective where it is designed to get people help and then get them moving to a market rate solution. Affordable housing that incentivizes long-term residents with rent subsidies is a wealth trap and very expensive for governments. Community Stability It is critical for our communities to have stability in schools, church, government, and other civic structures. When there are a high proportion of renters in a community, the housing structure can contribute to turnover and instability in a community as landlords raise rents and sell investment properties. The only way to control how long you stay, how much you pay, and what neighborhoods are available is to purchase a home. Otherwise the Landlord will decide how long you stay, how much you pay, and what options are available to rent. Home Ownership and Wealth According to the Federal Reserve, the largest single contributor to household wealth is equity in a primary residence. More than a 401(k), more than savings, and more than investment properties. This information becomes even more valuable when we recognize wealth gaps in the country closely mirror home ownership gaps. It is nearly impossible to close wealth gaps without addressing home ownership rates among demographic groups. While some are persuaded to rent instead of buy, we should remember that you will buy at least one home during our lifetime…yours or your landlord's. In summary, housing is a difficult challenge. Supply is tight because we have to build for more than just population growth. Demand will increase as more people can afford second homes and short-term rental investment properties. Building more when prices are rising may make cause prices to rise even more quickly as builders compete for labor and materials. Affordable housing solutions require keeping people moving into market-rate solutions. Finally, housing is critical to community stability and wealth creation. Given the current context of an inflationary economic cycle, a measure of restraint and patience may be the best solution so as to avoid pushing home prices even higher when policies were intended to keep housing costs down. (1) ERA Brokers Consolidated 2023 Residential Review. Click on the "Residential Market Research" link below for more information. (2) NAI Excel | NAI Vegas 2023 Commercial Real Estate Outlook. Click on the "Commercial and Multi-family Market Research" link below for more information. (3) Utah Population Estimates Committee effective July 1, 2022. Real estate markets in 2021 showed historic gains as prices soared on low inventory.
Looking ahead, these six drivers will impact housing markets in 2022. Population Shifts The trend toward the south and the intermountain west accelerated as employers became more flexible with work-from-home options and higher-ed has expanded online learning. Migration that favored large urban centers with high concentrations of employment and education is now leaning toward recreation, tourism, and open space. Materials and Labor Shortage Lumber prices shocked the real estate world in the spring of 2021. Now, steel prices are setting records and materials are in a rolling shortage. On the employment side, 23% of employees are expected to change jobs in 2022. Key people and key materials remain in short supply and working out supply logistics will take time. Capital Expansion Rising stock markets and rising real estate values coupled with direct capital infusion from federal government stimulus means there is more money than ever circulating in the economy. This expansion of capital is searching for investments. Unfortunately, every time capital is placed in the stock market or the real estate market, a seller has capital returned that needs to be re-invested. This is driving prices up and returns down. Interest Rates Both short-term and long-term interest rates will be determined by Fed policy. Expectations are that Fed stimulus will be withdrawn and short-term interest rate increases are imminent. If these actions slow the economy or impact employment gains in California, New York, or Illinois, expect the Fed to pump the brakes and resume more accommodative policies. Inflation Along the I-15 corridor, more demand, materials and labor shortages, more capital to invest, and low interest rates mean higher real estate prices in 2022. While the CPI hit 7% for December, housing measured only a 4% increase while home prices rose over 20% in most markets in 2021. Inflation is higher than reported. Affordability One of the most difficult real estate challenges is affordability. It is compounded by rising home prices and limited supply. Affordability can be improved by rising wages, falling home prices, or lowering interest rates. In 2022, wages, home values, and materials are all expected to rise. It is a challenging time for housing affordability. Conclusion While we won’t solve the affordability problem in 2022, we do know that over a lifetime, owning beats renting consistently. Long-term housing stability and closing the wealth gap in the United States both point to home ownership. For more information please visit https://erabrokers.com/research/ The last twelve months have seen sentiment in residential housing markets change dramatically. The result is one of the most dynamic and challenging housing markets in memory. Following is a brief overview of market conditions over the past twelve months and a look at what to expect in the second half of 2021. Summer 2020 The summer of 2020 ended the first wave of COVID-19 cases and with it came a sense that the pandemic might be easing. As individuals and families considered their housing circumstances, their employment, their school opportunities and their personal constraints, they looked to move. Early in the summer, supply was plentiful and buyer demand—although increasing—was not driving multiple offer scenarios. Rental eviction moratoriums were being enforced and mortgage forbearance was widely available. With interest rates at record lows, moving to a home that provided safety from the virus and accommodated work and school circumstances started the wave of home buying. Fall 2020 An accelerating wave of COVID-19 cases in the fall increased buyer activity as people sought refuge from the pandemic and policies that restricted movement. With relocations increasing, existing housing inventory began to fall. Buyers entered the market faster than sellers offered homes for sale setting up multiple offer. Builders, who just a few months ago were concerned about oversupply, found they had no inventory to sell. Many builders had released commitments in the spring and were now looking for lots, land, labor, and materials to ramp up their homebuilding operations. Interest rates remained near record lows and rents began to rise. Spring 2021 As COVID-19 cases fell from winter peaks and vaccinations rates rose, we experienced one of the most challenging markets for buyers ever recorded. What began as multiple offers turned into dozens of offers in many cases. The supply of available homes was measured in days, not months, and many builders moved to sell finished units only. Supply chain challenges and labor shortages became acute and seemingly everyone was following record high lumber prices. Builders renegotiated contracts and missed delivery deadlines. Sellers asked for tens and hundreds of thousands of dollars over ask and required buyers to waive due diligence and financing contingencies. Prospective sellers were unable to move because they couldn’t find a new home to move into, deepening the shortage and accelerating the price appreciation. Summer 2021 Moving into the summer, lumber prices began to stabilize and then fall. Existing home inventories increased, although inventories remain lower than during the summer of 2020. Price levels are much higher, although price increases seem to be stabilizing. Some sellers are asking too much for their homes, taking themselves out of the market. Appropriately priced homes are still seeing multiple offers, although far from the frenzy of the spring. The COVID-19 Delta variant began a third wave of rising case numbers since the pandemic began. Second Half 2021 Looking ahead to the fall and winter, we believe the same drivers are moving the market that we identified at the beginning of 2021. Home as a safe place is the number one priority for most home owners and renters. Individuals and families are still looking for a place to educate their children, work, and play while remaining safe from COVID-19. The increased flexibility of work arrangements are accelerating relocations. The recent increase in cases has some employers extending their work-from-home accommodations, which in turn has employees moving to the place where they want to live while keeping their job. Low interest rates are softening the impact of higher prices as monthly payments remain manageable for many individuals and families. While inventories are higher than the past spring, overall inventory remains far below historical levels and far from oversupply. What’s Ahead Inventory levels should increase, bringing them closer in line to historical levels. Supply constraints will continue to disrupt builders, but not at the same level as the past spring. Rental demand will remain high and rental units will remain under supplied, causing rents to continue to rise in most markets. Price levels are at risk if interest rates rise, remote employees are called back to the office, or builders get ahead of market demand. Given the current conditions, we expect prices to rise in the second half of 2021, although more slowly than in the first half of the year. For more information visit https://erabrokers.com/research/ One year ago, in March 2020, State and Local Governments put the United States into a recession in response to the global COVID-19 Pandemic. From the outset, it was apparent this recession would be unlike the past recession, or any other in our memory (see my post from March 19, 2020). It set in motion structural changes in our economy that will last decades. V, U, W, K Recovery As soon as the recession was declared, economists tried to describe the shape of the recovery. The first forecasts were for a sharp recession and a proportionally sharp recovery, a “V”. As COVID surged in a second wave during the summer, the concern became a long recovery and a long bottom, or a “U” shaped recovery. The improving economics in the fall lead to fears of a fall recovery and a winter retrenchment, followed by a more sustained recovery in the spring, or a “W” recovery. It is clear, that the COVID-19 recession will be something different, a “K”. A “K” shaped recovery is an economic cycle with a sharp downturn, followed by sectors that boom and others that bust. This bifurcated recovery is painful as some languish under frustratingly dismal conditions while others watch their economic outlook brighten. Value stocks languished in bear territory following the spring correction while Tech was responsible for the S&P reaching an all-time high at the end of the year. Big box retail saw tremendous pressure on sales while industrial distribution centers experienced record demand. Apartments in the densest urban cores are saw lease rates fall more than 20% while suburban and rural housing saw record high price levels. Tourism destinations such as New York City, Hawaii, and Las Vegas were hit very hard while destinations near national parks in states that did not close performed well. Restaurants with large dining rooms struggled to remain open while drive-thrus saw record sales. Non-essential employees who could not work from home became unemployed while essential and remote enabled roles remained employed and may have thrived. Unfortunately, K-12 education, one of the most resilient sectors in any recession, has not been spared the bifurcated outcomes. While budgets were hit with technology and curriculum modifications, the bigger impact was students who could continue to attend in person versus those who could not. Parents and students without means were disproportionately impacted by closed schools. With children at home, parents may have had to choose between essential jobs and their child’s education. Education is a means to opportunity, and many were set back by policies that kept children home without necessary technology, supervision, and support. Structural Population Shift Since the Industrial Revolution, people have migrated to cities for education and employment. While the country was historically dominated by small farms and agricultural jobs, the industrial revolution resulted in technology and productivity gains that transformed farming and created opportunity in nearly every other industry. The result was generations of better jobs and upward mobility concentrated in urban centers. These urban centers have housed the nation’s largest employers and attracted talent from across the country. In many instances, employers are there because they were looking for a deep pool of human capital and the infrastructure to support their growth. Over decades, state and local governments set policy with the knowledge that employees would be required to work where their employers were headquartered. While technology was enabling remote work and remote education for a few prior to the pandemic, COVID-19 may have broken this relationship between employer and geography by allowing millions of jobs to move remote nearly overnight. Live, work, play is a movement that has been upended by COVID-19 and the structural shifts in its wake. It used to be that we lived where we worked. Now, many may have the opportunity to live anywhere. If they have that choice, will they choose to live where they play? Will they relocate to be near family? Will they choose to live in expensive urban centers? We have already seen that many are willing to relocate if their employer will allow them. This is a potential reversal of a migration trend that could favor most communities in the country with only the largest, most expensive, most dense urban centers impacted. It is a reversal that could change population and demographic trends for generations to come. Interest Rates What happens when interest rates are not set by market forces, but rather managed by policy? Jerome Powell, chair of the Federal Reserve, and Janet Yellen, immediate past chair of the Federal Reserve and current Secretary of the Treasury, have stated that they do not want to see interest rates rise. An increase in interest rates would make government borrowing more expensive. What are the impacts of a managed low interest rate environment? First, is the intended boost to consumption and investment. Because interest rates are low consumers and investors are incentivized to spend more. Housing is a good example. A 1% decrease in interest rates on a $350,000 home will allow the price to rise approximately 14% while the mortgage payment remains the same. In other words, the payment on a $350,000 house at 4% is approximately the same as the payment on a $400,000 house at 3%. There is downside. First, if you are looking to earn a return on savings, you will be disappointed. This incentivizes savers to take additional risk and compete for other investments like stocks, bonds, and real estate—driving those assets values up. Second, the distortion makes government borrowing for federal, state, and local governments appear lower than it should be, incentivizing borrowing by government.
When interest rates become more about policy decisions than economics, unexpected distortions occur that are not healthy in the long run. Policy Distortions More than ever, economics is valuable in helping understand the result of policy choices. It is important to listen to what policy makers say, but it is even more important to watch what they do. Policy makers have often said they want to help individuals who have been hurt by the COVID-19 induced recession. More than once, they have issued checks of $1,400 to qualifying individuals. They have provided rental assistance and eviction restrictions. At the same time, interest rate policy has increased home values on average by $50,000 in the United States. This disparate impact has benefited homeowners and widened the wealth gap relative to those who rent. Policy makers have said the want to put money in families’ pockets to help them weather the pandemic. The combined relief packages of over $5.2 trillion in COVID-19 stimulus in the United States distributed to over 130 million households would have been $40,000 per household if distributed directly. If relief focused only on those who lost jobs during 2020, the combined relief packages for approximately 25 million lost jobs is $208,000 per lost job. Policy makers are concerned about large urban cities and their recovery. Structural shifts accelerating work from home options have released many from living in urban areas, and they have responded by moving to less crowded areas. The result is less traffic, less crime, better air, and better balance for relocating employees. The downside is less revenue to support urban infrastructure and programs. Policy makers have said they are concerned about getting Americans back to work. Many will stay out of the work force by no choice of their own until economies are open and policy makers trust citizens to make good decisions. Policy makers are concerned about equal opportunity for all Americans. There is no greater equalizer than education, yet in many communities our schools remain closed and those students who are least prepared to catch up are being impacted the most. Conclusion Unfortunately, as with most recessions, individuals are impacted differently. This recession is unique in that winners and losers are primarily determined by policy, not by economics. The response has been to stimulate the economy by lowering interest rates and fiscal spending of $5.2 trillion. Homeowners, suburban and rural communities, and essential services are winners that are benefiting from the upside in a “K” shaped recovery. Urban centers, renters, children, and low wage earners are feeling the downside. The policies of the last year are highly inflationary, even if inflation doesn’t show up in traditional consumption items such as food, fuel, or other household purchases. Asset prices are rising and will do so until the policy induced stimulus runs out. Reduce Your Tax Liability, Buy Commercial Real Estate
If you have had strong income or expect to have a significant taxable income this year, investing in real estate may help. You can either pay the IRS, or do something they have incentivized you to do that allows you to keep your hard earned income. It is not unusual for the tax code to use taxes to incentivize certain types of investment. For example, if you make financial contributions to a qualified retirement accounts, those contributions are deductible and reduce your overall taxable income, which reduces the amount of taxes owed in the year you make the investment. Depreciation Benefits for Real Estate Real estate assets differ from financial assets like stocks in that a portion of real estate gets consumed with time and is replaced. A real estate asset is part indestructible asset (the land) and part consumed asset (the improvements). Tax law recognizes improvements are consumed by allowing investors to depreciate the improvements but not the land. Depreciation is the reduction in value over time for the normal wear and tear of an asset. The amount of depreciation allowed is determined by a schedule provided by the IRS. It has been known for many years that the IRS will allow a cost segregation study on real estate assets. This study is prepared by a professional who evaluates the real estate based on the property type, age, and nature of the improvements. Instead of being depreciated over 39.5 years, a cost segregation study separates the property into 5 year, 15 year, and 39.5 year improvements. For example, 15 year improvements are those improvements that have to be replaced in approximately 15 years because their useful life has been exceeded. This may include tenant improvements, the roof, or the HVAC system. Segregating improvements into their respective 5, 15, and 39.5 year useful lives provides larger deductions in earlier years relative to a standard 39.5 year depreciation schedule. Given that depreciation reduces taxable income and assuming that depreciation today is more valuable than depreciation in the future, accelerated depreciation is valuable. 2017 Tax Law Allows for Accelerated Depreciation President Trump’s tax law, Tax Cuts and Jobs Act, passed in 2017 made a substantial change to depreciation that benefits commercial real estate owners. It allows for 5 and 15 year property designated in a cost segregation study to be fully depreciated in the year the property is put in service. That means that if you purchase and put in use a property in 2020 and the property has $500,000 in 5 and 15 year improvements, then the owner could deduct up to $500,000 in depreciation in 2020. Also significantly, the tax law in certain cases authorizes you to use the depreciation benefits to offset prior year income. You need to discuss this with your tax professional to determine if you qualify for this treatment. Exhibit 1 shows a hypothetical $1,750,000 investment purchase where the value is allocated to land ($437,500), 39.5 year improvements ($812,500), and 5-15 year property ($500,000). In year 1, without cost segregation and accelerated depreciation, the straight line benefit on the 5 and 15 year property is $50,000 * 35% (the hypothetical tax rate), or $17,500. Under the 2017 tax law, additional depreciation benefits in Year 1 are $450,000, which at a 35% tax rate are worth $157,500. This means that in the year this hypothetical property is put into use, buying the property could save the investor $157,500 in income tax expense—or 9% of the property value. There is always a catch. Accelerating depreciation reduces your basis in the property so that when it is time to sell, your gain is larger than if you had not accelerated the depreciation. That means your tax liability is larger when you sell in the future. Of course, you can exchange the property and defer the tax liability even further by utilizing a 1031 exchange. What About Investors? The best benefits are for property owners, but investors can accelerate depreciation to offset up to 100% of the future income generated from the project. As always, please consult your tax professional to determine how the new tax law applies to you. Conclusion There are may investment opportunities available to investors. All of them have their respective benefits. Financial assets like stocks, bonds, and mutual funds can be held in tax deferred accounts that allow for investments to accumulate while deferring tax liability. Benefits to owning real estate include the ability to depreciate the consumable portion of the asset over its useful life. The depreciation benefits are set by the IRS and were revised in the 2017 Tax Cuts and Jobs Act. The revision resulted in the ability to accelerate depreciation and reduce taxable income today. This can be a valuable benefit for investors looking to offset taxable income from real estate investments. ![]() Working out Leases and Loans The speed at which the economy stopped in 2020 put tremendous strain on landlord and tenant relationships. The Government’s actions to intentionally stop the economy to slow the spread of COVID 19 have closed or otherwise harmed many successful businesses. Tenants and landlords are both at risk from the economic impact. Property owners and lenders may feel similar tension. This discussion can be applied in both contexts, landlord/tenant and lender/owner. Landlords and tenants may seem to be at odds, but their interests are more aligned than is readily apparent. When a landlord receives notice of a tenant in distress, at least six options can be considered:
We recommend evaluating each situation and identifying the best solution based on the unique circumstances. Recognize that with any of these options there are laws and contracts in place that may impact the decision making process. The context for discussing these options is commercial real estate, but the principles can be applied to residential scenarios with appropriate deference to applicable law and regulation. Option 1: Do Nothing If a tenant requests relief, the landlord is not obligated to grant the relief. Although there may be legitimate reasons for the tenant’s distress, the landlord is not operating the tenant’s business and is not obligated participate in the downside. The tenant isn’t paying additional rent when it is business is exceptionally good, why should the landlord reduce the rent when the tenant’s business is exceptionally bad? Landlords may offer many reasons for not participating. Any of them may be legitimate from the landlord’s standpoint. One of the most common reasons to say no a request is to simply postpone making a decision. By not agreeing, the landlord preserves the option to make a decision later according to the terms of the lease agreement. Tenants are not helpless in this situation. They have the option of simply not paying and forcing the landlord to enforce the terms of the lease or come to the negotiating table. Option 2: Waive All or Partial Rent If Option 1 is extraordinarily landlord friendly, Option 2 is extraordinarily tenant friendly. If a tenant requests relief, the landlord may grant it. From the landlord’s perspective, it may be much less expensive to waive rent than have the property go vacant, pay leasing commissions and tenant improvements to accommodate a new tenant. In a commercial application, vacancy, leasing fees, concessions, and tenant improvements can easily cost six months of rental income. In a residential context, vacancy and turnover cost may equal one or two months rent. A landlord may determine working with an existing tenant may be less expensive than finding a new one. Tenants who make a request to waive rent should be understanding of the landlord’s situation. The building owner will also have expenses and obligations to meet and asking for a waiver of rent may create a hardship for the landlord. Tenants should understand that concessions granted by the landlord are not free to offer. Option 3: Extend the Lease Term The end of the lease agreement may present a negotiation. Sometimes the tenant willingly vacates. Sometimes the landlord choses not to offer an extension to the tenant. Frequently, the landlord prefers for the tenant to remain in place. In these cases, a temporary lease accommodation, such as a period of free rent, may be acceptable to a landlord in exchange for an extension of the lease. The lease extension could be for the amount of time the lease was waived, or for any other agreed upon period of time, longer or shorter. Negotiating for a longer term would be most common. On the other hand, a landlord who wants to change tenants might negotiate to shorten the term of the lease. Tenants should recognize that the larger the concession, the more the landlord will expect. Modifying lease terms to be longer (or shorter) may be worth the short-term financial flexibility needed. Option 4: Make Up Payments Over Time A tenant who needs short term relief may be able to make up the rent payment over time. It could be deferred for a short period of time, or it could be spread over all future lease payments—possibly with interest. This is referred to as capitalizing the rent. In this way, the tenant receives the accommodation requested and the landlord receives the rent earned—possibly with interest for having the payment postponed. While the timing is different than originally agreed in the lease, it is a solution that can be effective for both parties. Tenants who have a good business and who will legitimately be back in business soon expect to be able to pay a little more in the future and should be prepared to make the landlord whole over time. Option 5: Use the Security Deposit Many lease agreements have a security deposit. It is common for that deposit to be one or two months rent. A tenant who has a security deposit in place may ask the landlord to accept the security deposit in lieu of making a rent payment. This ensures the landlord has the lease income needed and the tenant can skip a payment to support their business. Tenants should understand that they will not receive their security deposit back at the end of the lease term. Further, they should be considerate of the way the space is returned to the landlord so that the landlord is not penalized for having forgone the security deposit at the tenant’s request. Option 6: Improve the Credit Quality A tenant may not have signed a corporate or personal guarantee. The tenant may have not pledged any collateral at the time of lease signing. Generally, landlords prefer stronger credit tenants to weak ones. With this assumption, a request from a tenant accompanied by an improvement in the credit may be favorably received by a landlord. Tenants often negotiate to minimize long-term credit exposure. A tenant who wants the landlord to support its long term business opportunity can lower the risk of default to the landlord. A request to waive rent and simultaneously reduce tenant credit exposure could be seen as a sign of a tenant’s weakness and incentivize the landlord to find another tenant to lease the space. Conclusion There are many options available to both landlords and tenants facing difficult times. Any of the solutions could be appropriate depending on the circumstances. In considering these options, it is important to make sure than any adjustment is compliant with agreed upon covenants and in accordance with government regulations and directives, which differ for residential versus commercial property. Finally, it is critically important that whatever decision is made, document the revised terms in writing signed by the parties as an amendment to the agreement. Landlords and tenants can obtain better results as they work together. NAI Excel, NAI Vegas, and its affiliates manage over $350 million in real estate assets from Salt Lake to Las Vegas and are available to assist in managing Landlord and Tenant relations. Market research is an important aspect of real estate. In preparing for our Commercial Real Estate Outlook and Residential Review, we took additional time and space to outline fundamental demographic trends that will shape the intermountain region. Some highlights:
We are excited about the long term fundamentals of our markets. Over the next five years, population from Las Vegas to Salt Lake is projected to expand by approximately 350,000 people according to Utah and Nevada official estimates. That expansion will require 125,000 housing units. The corresponding commercial real estate expansion of Industrial, Office, and Retail is estimated to be 50-60 million square feet to accommodate the same population increase. This does not include schools, universities, hospitals, hospitality, and other special use assets. The following five years from 2026-2030 are projected to grow by nearly that amount again reaching to 600,000 new people. To view the reports see below. Download the 2020 NAI Excel | NAI Vegas Decade in Review here: https://excelcres.com/market-research/ Download the 2020 ERA Brokers Consolidated Residential Review here: https://erabrokers.com/research/ All students are not considered equal, according to this analysis of state support for institutions of Higher Education in Utah. When it comes to capital facilities and annual appropriations, the results indicate that students at the University of Utah and Utah State University receive significantly more support from the Utah State Legislature than the other institutions of higher education. While some underfunded institutions are catching up, others are falling further behind. Some of the discrepancies are justified while others may require a second look. Also, for an expanded look at state facilities spending, view this blog post from earlier this year: http://rneilwalter.weebly.com/home/state-funded-buildings-are-not-free
Capital Expenditures are a unique challenge in state budgets because subdivisions of the state are rarely charged for using the state’s debt or equity for facilities, equipment, and other investment needs. In an effort to take advantage of the current resource allocation process, state subdivisions lobby for capital expenditure appropriations. The result is an inefficient distribution of resources for capital expenditures within state budgets where the most connected, best funded lobbying efforts frequently win. This paper proposes changing the capital resource allocation processes by attaching a cost to state appropriated capital expenditures in an effort to increase accountability and efficiency while improving the long-term credit strength of the state. ![]()
![]() When purchasing a home, borrowers are frequently asked if they would like to have the lender pay the origination fee or other closing costs by increasing the mortgage amount. Similarly, borrowers may be asked if they want to pay additional money to buy the interest rate down. This overview shows why most of the time, neither is the best choice. To read the full whitepaper, click here: Bank Financing at Closing Most people think that the lender is charging them the same rate to finance closing costs that they charge for the home loan. In reality, mortgage lenders may be charging as much as 18% interest on the funds used to pay closing costs. Borrowers can do much better simply by asking the Seller to pay the closing costs--then the lender doesn't charge a different interest rate on funds used to pay for things like origination fees, lender policy of title insurance, appraisal, and inspection fees. Similarly, most borrowers who are considering buying down their interest rate should plan on staying in the property without refinancing for at least 10 years. Borrowers who refinance or sell prior to 10 years typically are making money for the lender. If you stay in the loan the full 30 years, you may get a great deal--but you have to stay the entire period of time. Looking to determine if you should use lender paid closing costs or buy down your interest rate? Here is an calculator in Microsoft Excel that can help. Closing Cost and Buy Down Calculator. Neil |