Hartford’s investment real estate market is unique in that it tends to peak later than primary markets such as New York and Boston. At this late date in the current investment cycle, aggressive competition and highly priced properties in New York and Boston are driving many realty investors to secondary markets such as Hartford and Springfield, Mass. These investors are looking for relatively undervalued properties and more generous returns.
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Hartford's investment real estate market is unique in that it tends to peak later than primary markets such as New York and Boston. At this late date in the current investment cycle, aggressive competition and highly priced properties in New York and Boston are driving many realty investors to secondary markets such as Hartford and Springfield, Mass. These investors are looking for relatively undervalued properties and more generous returns.
Unlike other markets such as neighboring Boston and New York, where the potential to increase rents has driven the rapid increase in property values over the past few years, investments in Hartford are often based more upon actual current cash flow at the time of acquisition. Historically, investors in Hartford have been limited in their ability to grow rents while maintaining high occupancy and low tenant turnover. This poses challenges for not only the current owner, but down the line when owners seek to sell or exchange the buildings for a profit.
That said, in certain Hartford submarkets and product types, the current investment real estate fundamentals are as strong as we've seen in recent years. With the right acquisition strategy, investors may find the potential to add value by raising rents, attracting different types of tenants and improving operational efficiencies.
Hartford properties in the west and south ends specifically are piquing investors' interest, as they border more affluent submarkets that can support stronger rents, offering investors an opportunity for increasing property values. One such property is 155-163 South Whitney Ave., an 18-unit mixed-use property in Hartford's west end, which is currently on the market for $1.2 million.
Despite a failed state government and concerns about Hartford job growth, key economic drivers in the city have been successful in luring young professionals and higher-demographic tenants in the central business district. Investors are attracted to markets with improving demographics and the eventual potential addition of Dunkin' Donuts Park (the Yard Goats' stadium), Hard Rock Hartford, which is projected to open in fall 2018 in the downtown north neighborhood, and several luxury apartment projects, including 777 Main and Front Street Lofts, are luring Millennials and others to live in the city's urban core. Also attractive to investors is that some of these projects, such as 777 Main, repurposed formerly vacant commercial properties for new uses, thus reducing the volume of abandoned and vacant properties in Hartford.
Among Hartford's strongest housing assets in the current market is Class C workforce-level housing. Investors have been competing for these properties, resulting in higher prices over the past 12 to 24 months. Demand is being driven in part by low interest rates and investors are seeing vacancy rates below 5 percent.
That said, there are early signs that asset values in certain Connecticut submarkets may be getting softer. With new Class A multifamily development now coming online in Stamford, Norwalk and New Haven, for example, owners are faced with offering incentives and concessions to attract renters. Taken together with the continued decline in national homeownership rates, this budding oversupply of higher-end multifamily product is putting downward pressure on rents, occupancy and asset values.
If there is a silver lining, it's that unlike the previous cycle, banks are now paying closer attention to real estate fundamentals and have started to tighten up on financial underwriting and scale back on certain products such as high-leverage and interest-only financing. By requiring investors to raise more cash for an acquisition and to pay down the principal balance more quickly, any continued downward trend in asset values should result in fewer distressed and bank-owned properties flooding the market in later years.
Moving forward, the Class C multifamily market should continue to hold up strongly, as should certain classes of retail investment property.
Edward Jordan founded Northeast Private Client Group, an investment real estate firm with offices in Connecticut.
