Dec 7th, 2023
By Wen Shiau
Following our article What can we invest in CRE Today Nov 2023, we would like to discuss Where can we invest in CRE today?
Census data indeed shows migration out of the expensive states, California and New York, and into Florida and Texas, but detailed analysis shows a more complex picture of its economic impact. Those earning less than $100,000 are emigrating while those with higher degrees earning more than $100,000 are immigrating to California and NY. This is a natural process of gentrification. We refer to our earlier article: Why Invest in Over Taxed, Over Regulated NY and CA Jan 2023. To this exact point, the NYTimes’s recent article says it all: New York’s Millionaire Class is Growing. Other People Are Leaving. Dec 2023.
- Florida is the epicenter of global warming where Miami is the city most under threat of flooding in America. Insurance premiums are already in crisis where premiums have doubled in the past few years and increased 40% on average in the past year. While the state government may provide minimum coverage for homeowners, premiums for multimillion dollar homes and commercial property may no longer be economical. Florida residents flee due to Insurance nightmare Nov 2023. Lastly, Florida isn’t cheap anymore. Miami now ranks in the top 4 least affordable market for home ownership according to Marcus & Millichap Research.
- Texas is a very large state with an almost inexhaustible supply of flat land to build. Dallas leads the nation in the most undeveloped land with over 90,000 acres across more than 30,00 parcels. Ft. Worth ranks second with 74,845 acres of untapped land. As investors, we know that where it is easy to build with little zoning laws and large supplies of land, these conditions do not bode well for price appreciation. Dallas and Ft Worth lead the Nation in most undeveloped land March 2023.
What do the numbers for supply and demand of residential housing in US tell us?
The most loved markets to build have come to fruition in the past 15 years. Nashville, Charlotte, and Austin are the top 3 markets of increase in apartment supply in 2023 Y-Y%: 8.7%, 6.8%, and 6.5%, respectively. The US average was 2.1%. Our two favorite markets, Silicon Valley and NY, saw an increase of less than 1% Y-Y% increase in each market. Supply has consequences and Austin is the #2 city in the US where home prices have fallen the most by -7.7% Y-Y%. Cities where prices are falling the most Dec 2023. Mindful of the over supply issue, we still invest in Austin for its unique demographic demand growth of 33% from 2010-20 and its young, burgeoning Tech scene. We like buying Austin on the dip for its long term growth.
California is booming, again. New business applications in California have surged to the highest levels on record in 2023. Nothing. Absolutely nothing compares to AI and its impact on the future economy. Silicon Valley received over 50% of all VC funding in AI in 2023. Given the well-known problems of San Francisco, we invest in the more conservative Silicon Valley which has few of the crime and homeless issues yet has the explosive growth of new tech startups.
Cypress Capital Group focuses on residential real estate investment and development in select US markets where supply is constrained, and demand is strong due to the wealth creation effects of the Tech Economy.
– Cypress Capital Group