MAAO Fall Conference- September, 2016

I attended the Maine Association of Assessing Officers informative Fall Conference at Sebasco Resort for assessors, appraisers and other real estate professionals. A well-rounded collection of seminars was created by the Conference Committee led by Chair Bill Healey. The quality of the speakers and presentations was excellent. The educational offerings included, amongst others, How Assessors, Appraisers and Brokers Look At Residential Properties; Dangerous Buildings; Subdivision Laws; Cooperative Housing; Understanding and Using Public Sector Data; and Land Surveying and Flood Zone Interpretation. In other words, the three day gathering covered a lot of important topics in this field.

I was impressed with the high level of knowledge, experience and congeniality that this close knit professional group shows. There are several full length MAAO courses and seminars available for CMA credit and professional designation during the Annual Assessment Education week. Several of these courses would benefit appraisers who practice in this niche.

OCC and Credit Risk Evaluation Report- July 2016

Quoting from Appraisal Institute news sources, the Office of the Comptroller of the Currency (OCC) said in its semiannual risk report that while the financial performance of lenders improved in 2015 compared to a year earlier, credit risks were higher across the industry. Credit risks have risen in U.S. commercial real estate as lenders compete more fiercely in a low rate environment, a federal banking regulator said in July 2016, adding that it was stepping up its scrutiny of the sector. The U.S. Federal Reserve has kept interest rates low for more than seven years to help the U.S. economy recover from the 2008 financial crisis. But that policy is also weighing on bank profits and pushing lenders to compete more fiercely for worthy borrowers. That competitive pressure is increasing risk.

It’s at this stage of the cycle that we also see strong loan growth combined with easing underwriting to result in increased credit risk,” Comptroller of the Currency Thomas Curry said in prepared remarks. The agency has escalated its oversight of commercial real estate risk from ordinary monitoring to “additional emphasis.” It also flagged risks in commercial and industrial loans, and said concerns remain about indirect auto lending and leveraged lending, which are both issues the OCC has flagged in the past. Curry also mentioned financial technology and marketplace lending as areas the OCC is keeping a close eye on. Small U.S. banks are delivering healthier profits than their bigger peers, the report noted. Banks with less than $1 billion in total assets delivered return on equity above 10 percent last year while larger banks only delivered single-digit returns.

Portland, Maine Residential Market Update- May, 2016

Multi-family rental and condominium markets have improved dramatically over the past five years. Demand has exceeded supply consistently, despite rental rates that are above affordability for a high percent of tenants. Rents have most recently been increasing at a torrid pace of  9% annually, although this is now expected to decline. Nevertheless, planning for more rental housing and condominiums continues unabated. Primary motivations behind the high demand are Portland’s fine reputation as an “arts and restaurant community”, and the related attraction of more people moving back into the city.

The lack of adequate housing has spurred several multifamily projects in Bayside, the East End, Ocean Gateway area and other infill locations. The largest is the long planned Midtown Project along Somerset Street which is about to commence construction. Luxury condos in the East End and near Ocean Gateway have escalated in demand and are now selling in a wide range of about $350,000 to over $750,000. Several new garage facilities have been built to provide the parking needed for these uses and for increased tourism along the waterfront.

Some of the projects recently completed or currently  under construction are the following:

  • Midtown, Bayside- 440 rental apts.
  • 667 Congress Street, Historic Retail area- 132 rental apts.
  • 89 Anderson Street, Bayside East- 53 rental apts.
  • York and High Streets, Waterfront west– 63 rental apts.
  • Preble Street, Bayside- 55 rental apts.
  • India Street, East End- 100+ units in several projects

Projects in planning are:

  • Chestnut Street, Bayside West – 54 rental apts.
  • Washington Ave., Bayside East – 5 condos
  • 155 Sheridan St., Munjoy Hill- 34 condos

MEREDA Index Update- May 2016

Quoting from MEREDA News, the “Maine Real Estate & Development Association announced that the latest MEREDA Index had achieved a healthy 91, indicating that as Maine sales continue to achieve high water marks for sales prices and square footage sold, there will be strong fluctuations from release to release. The MEREDA Index is an economic metric that measures the health of Maine’s commercial real estate market twice annually relative to pre-recession 2006 levels.

The previous MEREDA Index numbers came in at 100 and 110, in the fall and spring of 2015 respectively. Previous to that, the four MEREDA Indexes completed to date, between spring 2013 and fall 2014, had not managed to top 80.

While the MEREDA Index has dropped from the previous two releases, that relates to the effect of the three large transactions – One and Two Portland Square and 100 Middle Street, all in Portland – primarily felt in the commercial component of the Index and, more specifically, square footage sold.”

Portland, Maine Office Market Update- February, 2016

The Greater Portland office market has sustained a robust rebound from the last recession that ended circa 2010. Here is a brief summary of current conditions:

  • Demand is exceeded by supply, but is near equilibrium.
  • Tenant market moving towards landlord market.
  • Vacancy rates continue slow decline.
  • Lease rates continue slow increase.
  • More new construction in downtown Portland as market approaches feasibility rent.
  • Supply will be pronounced in the larger SF categories.
  • Population, job creation, employee growth and need for space will grow slowly.
  • Occupancy rates will remain low for at least several years.
  • CBD office supply may increase but slowly due to development costs and land prices.
  • The exodus of workers to suburban offices may continue for convenience and cost.
  • Suburban office development will absorb demand due to less expensive project costs.
  • CBD and suburban rehabs will continue slowly for buildings having functional appeal.
  • Market rent in all size and geographical categories will rise slowly.
  • Lease terms will remain long for large space users requiring fit up and cost amortization.
  • Fit-up costs are still negotiated with fewer lessor contributions.
  • Renewal options are less difficult to negotiate.
  • Listings are on the market for shorter periods.
  • Owners are offering fewer lease-up incentives to tenants to maintain rent rates.

2015 Mid Year Maine Economy Update

A prominent Maine economist, Charles Colgan, gave an annual economic summary for 2014 and 2015 in his last Forecast Conference. Mr. Colgan was the highly regarded economist at the Muskie Institute of the University of Southern Maine for more than twenty years. His last economic forecast for the Maine economy was fair for 2015, but possibly improving in 2016. Some of his comments are paraphrased below. They were accompanied by selected charts and graphs that present an excellent overview of Maine’s immediate past and prospective performance.

  • Business is steady, and consumers are showing more confidence.
  • Southern Maine and coastal regions will continue to outperform the rest of the state.
  • Average hours work per worker has been increasing, indicating prospective job creation.
  • Corporate profits have been increasing, which should also drive investment in new jobs.
  • Consumption expenditures are shifting more toward services and away from goods.
  • Household debt burdens are declining with more conservative spending habits.
  • Home equity, still low despite market improvement, no longer fuels consumption.
  • The European debt crisis has a more negative impact on our economy than most realize.
  • Maine’s slower population growth results in fewer jobs needed for expanding labor force.
  • But, government employment continues to decline.
  • Job creation was flat through 2013 and will not reach pre-recession levels until 2016.
  • GDP is largely used for Medicare, Medicaid, Social Security and interest on debt.
  • Our primary short term problem is the need to generate revenue, then reduce spending.
  • Our primary long term problem is health care costs, with reform slow and at high cost.
  • Federal income tax reform will be revisited. A corporate payroll tax cut may help.
  • Climate change problems will be deemphasized by government over the short term.
  • Emphasis on development should be placed on the urban centers since populations there are increasing as rural areas continue a slow decline.

December 2014

We can finally report that real estate markets in Maine, New England and the U.S. continue to improve reliably, albeit at a moderate pace. Recent real estate industry seminars, authoritative realtor and vendor websites, and government statistics at most levels report more confidence in growth indicators. Transaction activity picked up dramatically in 2013 and 2014. Sales and leases are expected to sustain that large surge. Sale prices and lease rates have also been nudging upward as occupancy rates continue to rise and days on the market fall. The Greater Portland market in particular has experienced dramatic new development activity after a long hiatus and pent up demand. The Portland waterfront is the upbeat focal point of much new residential, hospitality and other commercial real estate projects.

Stock markets have recovered most of their losses incurred during the last recession, but pundits doubt that the growth rates enjoyed to 2014 will continue. Lender liquidity remains high along with strict credit underwriting and low interest rates. Some of the looming, key economic questions now are not if, but when and how much, mortgage rates and new jobs will increase.