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Investing Savannah Market

Savannah, GA Tax Advantaged Zones, Part Two: Local Zones

SAVANNAH, GA TAX-ADVANTAGED ZONES

part two: local zones

In the last post we learned all about Federal Opportunity Zones, in this one we’re going to learn about some great tax-incentivized zones created by the state of Georgia and the city of Savannah itself.

LOCAL O-ZONE OVERVIEW

The city of Savannah established four incentive zones in order to spur development in certain underdeveloped areas of town. Like the federal zones, these local zones use tax incentives as a way to encourage development. In this case, the city typically gives developers discounts on property taxes, but there are also income and payroll tax incentives. Side note – the city’s literature on how these programs work is confusing, to say the least. I’m not an attorney, I’m not a tax professional, and I’ve had a few beers today, so please take this as general information that could help you in your Savannah real estate investing endeavors. If you’re thinking about pulling the trigger on a real estate purchase based on some information I’ve included here, make sure to talk to a tax pro at least before moving forward!

The map of all four zones is below. The West Downtown Opportunity Zone (in green) and the MLK-Montgomery Street Enterprize Zone (blue) have seen the most development since these zones were implimented. Neither Pennsylvania Avenue or the Waters Avenue Enterprise Zones have seen much development at all, but it is my belief that that will soon change – and I’ll explain why by the end of this blog!

savannah realtors

 

 

WEST DOWNTOWN OPPORTUNITY ZONE

homes for sale in savannah georgia
  • Established in 2016

  • $3500 per new job created credit toward state income tax or payroll tax withholding. This includes currently existing businesses, not just new development.

  • This area includes the Plant Riverside District and the new apartments being built near Service Brewing.

  • This zone was established through a state program, all other zones are local programs.

 

PENNSYLVANIA AVENUE ENTERPRISE ZONE

homes for sale hinesville ga
  • Established in 2009

  • $3500 per new job created credit toward state income tax or payroll tax withholding, 5 jobs minimum. This includes currently existing businesses, not just new development.

  • 100% property tax exemption for years 1-5 past development

  • 20% per year step up for years 6-10, so that year 11 the developer is responsible for 100% of the tax burden.

  • Development or rehabilition must increase tax assessment by 5 times (meaning, if an improved parcel was worth $100k before development it must be assessed at $500k after development).

  • There have not been very many major developments in this zone, though there has been some house flipping and property values have been on the rise.

 

MLK-MONTGOMERY STREET ENTERPRISE ZONE

hinesville realtors
  • Established in 2010

  • This zone has the same incentives and requirements as the Pennsylvania Ave Zone.

  • This area has seen a lot of new development, but not really until the last three years or so. These developments include gas stations, new apartment complexes, and some apartment complex/mixed use rehab projects (like West Broad).

 

WATERS AVENUE ENTERPRISE ZONE

savannah real estate
  • Established in 2015

  • This zone has the same incentives and requirements as the Pennsylvania Ave Zone and the MLK-Montgomery Zone.

  • This zone has seen next to no qualifying development in the zone itself, but there has been a lot of smaller scale residential flipping/redevelopment.

 

FINAL THOUGHTS AND ANALYSIS

So we’ve had two successful incentive zones, and two not so much. Why have some been successful and others haven’t? In my mind, two reasons, and they’re different for each zone.

The West Savannah zone has been successful because that Kessler dude rolled up with a dump truck full of cash and just MADE it work. He was helped by the fact that his development is a stones throw away from areas that were already pretty touristy. I think that Plant Riverside is a field of dreams type thing – if you build it, they will come.

The MLK zone has been successful because the population of Savannah is growing faster than we can build new housing units, and many folks want to live close to all the action downtown. The MLK zone is a place where they can still be close to the action, but do it at a bit of a discount vs having a condo on Broughton and Bull. So it’s proximity, and the tax incentives I’m sure convinced some developers to shoot for that area vs some alternatives, like Starland. Though, development is happening there as well, as we all know.

So why haven’t the other two zones been successful? I think it all comes down to proximity to downtown, as we touched on earlier. Pennsylvania Ave is so far from downtown you practically have to drive – and if you already have to get in the car, and you have enough money, why not live in Ardsley or Kensington Park? There’s just too much bad inertia there. But Waters Ave — Waters is different, in my opinion.

From Waters and Park, you’re about a mile from Forsyth and Daffin. Anything you could want to do is a quick bike ride away, or a $6 uber. This part of town still has a lot of mature trees and streets featuring spanish moss. Also, rents are a lot cheaper here. A 2 Bedroom that would rent for $1200 here would rent for $1700 in Starland, or probably $2200 downtown, or more. As rents continue to rise, more and more middle class move out to the Eastside chasing those cheaper rents and cheaper houses – and small-scale flippers and rehabers are fixing up properties to accommodate that movement.

In my opinion as a resident of the Eastiside and a real estate investor/professional is that the Eastside has almost hit a critical mass of middle class residents that it could support a cafe or bodega. And that new development will draw in new residents, which will draw in more business, and so on. Really…

…If you build it, they will come.

 

More Reading/Sources:

https://www.savannahga.gov/DocumentCenter/View/8919/Waters-Ave-Incentives-Guide?bidId=

http://www.savannahga.gov/DocumentCenter/View/3081/EZ-brochure?bidId=

Author: Pat Wilver

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Savannah, GA Tax Advantaged Zones, Part One: Federal Opportunity Zones

SAVANNAH, GA TAX-ADVANTAGED ZONES

federal opportunity zones

When a government wants something done, they can do it one of two ways – do it themselves, or encourage private enterprise to do it. One of the ways that government inventiveness private corporations to do something is through the use of tax incentives. There are some POWERFUL tax incentives for real estate developers in the city of Savannah, so let’s talk about the first of these types of zones and how the average investor can benefit from them: Federal Opportunity Zones.

FEDERAL OPPORTUNITY ZONES

Federal Opportunity Zones (O-Zones) are a huge program that got rolled out in the Tax Cuts and Jobs Act of 2017. Investing in an o-zone allows the investor to completely avoid paying capital gains from the sale of ANY asset as long as certain conditions are met. This is a much better deal than the simple tax deferral that an investor can get from a 1031 exchange, and you can do it with non like kind assets – for example, you could sell the TSLA stock you bought at $150 (pre-split) and roll your 10x gains into an o-zone tax-free. Now, O-Zones are hard to invest in for the average investor, but it’s still critical to know where these zones are. You can bet that big players will be putting their money to work in an o-zone whenever possible, and if you can forecast where the big money might be flowing then you can ride that appreciation wave that will follow. If you’re investing in Savannah real estate and you’re not taking o-zones into account you’re ignoring a big piece of information that could help drive your investing decisions.

First, some notes on why o-zones are not really for the average investor:

  • You can’t just invest your money into an o-zone, you must invest it in a Qualified Opportunity Fund (QOF).

  • There are a ton of rules governing how a QOF must operate. A certain percentage of their total assets must be in an o-zone, for example, and they have to at least double the taxable value of property acquired inside the o-zone, funds must be held inside the QOF for at least ten years, etc etc.

  • QOFs need to get buy in from many different stakeholders: local citizens, politicians at the local and state level, and often need to fight zoning fights to do what they need to do. This induces significant legal overhead.

  • Basically, unless you’re investing/raising a significant sum of money ($10+ million), it doesn’t make sense to have all the legal and administrative overhead required to run a QOF.

BUT – that doesn’t mean that a real estate investor in Savannah can’t benefit from these zones! You know a lot of the big development going on around town? Places like Eastern Wharf, the new apartments going up by Wheaton, and the two new apartment complexes out Presidents past East Broad? All of these massive developments are happening/have happened inside o-zones and are possibly QOFs. Wouldn’t it be nice if you knew where all the opportunity zones in Savannah were so you could forecast where the next big money investments might happen?

Well, you can! Go to sagis.org/map and turn on the “Federal Opportunity Zone” layer – or check out the screenshots below. Now just because an opportunity zone exists doesn’t mean that money is just going to come pouring in – you’ll want to look for other favorable indicators for development. Favorable zoning. Undeveloped, dry land that won’t cost much to buy. Or perhaps an undeserved demographic. Like, perhaps an influx of college kids, service industry workers, and young professionals chasing cheaper rents into an area of town with no coffee shops, bars, dining, or retail within walking distance? Know anywhere like that? I do, because I live there: East-side and the Waters Ave corridor – which is all in an o-zone.

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realtor savannah ga
savannah realtors

Federal Opportunity Zones aren’t the only part of the Savannah real estate tax incentive equation though, the city of Savannah has its own incentive zones that more specifically target certain areas where the city wants to see big commercial revitalization take place. Check back in a few days for a post on the City of Savannah’s Enterprise Zones!

 
 
Author: Pat Wilver

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COVID-19 and the Downtown Savannah Rental Market

COVID-19 AND THE DOWNTOWN SAVANNAH RENTAL MARKET

Edit, May 28th, 2020: Now that this post is about two months old I’d like to comment on how my predictions turned out. It seems that my models were more pessimistic than what actually ended up happening, and that’s probably because I’m naturally a very conservative investor. Based off anecdotal evidence and conversations with other local investors + my own experience, it seems that rents definitely DID NOT go down 25% in April – but it was harder to fill vacancies. Many landlords lowered standards for what kind of tenants they would accept (in terms of credit and income.) Some landlords also reported price drops, but not extreme ones. Most landlords that I talk to do still agree on the overall assessment that rents are on track to remain flat this year or possibly slightly decrease. Airbnb’s are still getting crushed, but the top 25% of units are not profitable again. Some SCAD students did end up breaking leases, but not to the extent that I modeled. And with that, on to the article as I wrote it two months ago:

We work with a lot of investors here at Trophy Point Realty Group, and they’re all asking us the same thing: “What do you think the impact of the corona virus will be? Do you think real estate will go on sale like it did after the 2007-08 financial crisis?”

Our short answer is this: “We think the impact will be short lived and we don’t foresee a great drop in real estate prices, but we can’t know for sure just yet.”

So what’s the long answer? That depends on two things: how well Federal, State, and local authorities handle the medical crisis, and how well the Federal government and the Federal Reserve handle the financial crisis that could result from the medical crisis.

 

First let’s talk about what we already have experienced.

Savannah started to feel the economic impact about a week before St. Patrick’s day. The first industry to be hit was the hospitality industry, who saw a wave of cancellations the day that it was announced the parade would not happen. Occupancy for the city’s Airbnb’s and hotels is near 10%. Salons and barbershops are closed, as is almost every single downtown retailer. It seems about 50% of the downtown restaurants are closed, with the rest doing takeout only. SCAD pushed the spring quarter to online-only and closed the dorms, and it seems about 50% of students have left Savannah – some of them breaking leases in the process.

The downtown rental market has taken a hit, and we’ll get into that with some detailed analysis later, but one thing that seems strange to me is that the market for buying and selling real estate in Savannah hasn’t collapsed in the way that many suspected it would. Many investors are sitting on the sidelines, but most would-be homeowners are still buying. Savannah has been a sellers’ market for a while, and things do seem to have shifted in favor of buyers a bit but not to a great extent just yet. It does seem, however, that listings over $300k and multi family listings are not doing as well as the 100k-160k starter home market. I believe that is because supply is still very low in that market relative to demand, which has not dropped off enough to motivate sellers to compromise. In fact, one of my cheap listings went to multiple offers over ask the same weekend I put it on the market.

 

How might this continue to play out?

    • Best Case: Efforts by local government to mitigate the spread are largely effective and social distancing measures can be lifted by the middle of April. Local hospitals quickly gain capacity to conduct mass testing (500-700/day in the Savannah metro area). This ramp-up in testing is necessary to lift social distancing measures, because mass testing will allow authorities to enact targeted quarantines where outbreaks crop up, leaving the majority of people free to conduct business as normal. SCAD begins in-person classes again by the Summer quarter, and travelers begin coming to Savannah again by the summer, bringing occupancy up to 50% by July and steadily increasing toward normal levels over the next few months. Federal government stimulus is timely, aggressive, and effective and results in almost all local small businesses making it through to the other side.

Most Likely: Efforts by local government to mitigate spread are somewhat effective, but can not be lifted until early May. Testing capacity does not meet demand until May. SCAD does not resume in-person classes until Fall and travelers do not come back until about the same time. Federal government stimulus is aggressive, but not timely enough to save the weakest businesses and landlords, and 5% are either forced to sell their assets or enter bankruptcy before August. Demand is also reduced for the rest of the year as scared people stay home more, causing another 5% of local businesses and landlords to fail. Note: That 5% number is really just a guess, I don’t have anything other than my intuition to back that number up. Point is, 1 out of 20 downtown restaurants will go out of business in this scenario.

Worst Case: Almost no mitigation of spread. Local hospitals are overloaded like we saw in northern Italy and are currently seeing in NYC. Social distancing measures are not well enforced and community spread continues, forcing social distancing to continue until June or July. Stimulus is neither timely or aggressive, causing 25-33% of local small businesses and landlords to fail by December. Some hotels are forced into bankruptcy, and port traffic slows as U.S. and global demand falls off, forcing further layoffs. A second wave of infections in the fall/winter further deteriorates the economic situation. Note: the key point here is “stimulus is neither timely or aggressive.” There’s a very good chance there is a second wave in the fall, but if the federal government continues aggressive stimulus I think we will stay in recession territory and out of something akin to the great depression.

 

WHAT’S GOING TO HAPPEN TO THE DOWNTOWN RENTAL MARKET?

Anyone involved in real estate kind of knows intuitively what the effects of any of those three scenarios would be. Scenario one barely shows up as a blip on the radar, it would almost be like hitting the pause button on the market until May/June. The most likely scenario is a slightly longer pause, with a little more pain after the pause, but still not a major event — more likely to stagnate prices for a year than result in a 2008-style crisis where prices drop 30% or more. The worst case scenario is truly scary to think about and would basically result in a depression.

I could just end the article there and leave you with my speculation, but I want to put a little more thought into my predictions. I spent the last couple days gathering data and building a model that I could use to predict changes in the market price and supply of downtown rental properties based on a few different variables. This model was built to tell us the average price per unit in the downtown Savannah area (basically 31401 and parts of 31404).

downtown savannah homes for sale

I would like to give you two words of caution about the charts above. One, it’s almost impossible to predict how this virus will affect our community and how well our authorities will respond. Two, the model that I developed was devised using historic data over the past ten years, and this data is nothing like what we’re seeing right now. Do I think average market rent will really be $780 in April? No, I think that there will simply be no new leases signed because we’ll all be on lock down!

Also, a note on the term “excess rental supply”: this is not a measure of vacant units, this is just a metric to illustrate the shifts in supply vs demand. In the case of these models, we will see both extra supply and reduced demand, which will have an effect on market price. In my worst case scenario I model an excess supply of about 5,800 units (out of about 10,000 total rental units in the studied area.) This doesn’t mean there will be a 50% vacancy rate, it just means that landlords will have to slash prices to fill vacancies. Please reach out to me here if you’d like to discuss how I built this model!

It’s almost impossible to predict what the market will look like while we’re operating with shelter in place orders, because there basically won’t be a market. I think where the model will be most helpful will be in showing us how the market will look in fall/winter after the situation has stabilized. In the best case scenario, stabilized average market rents will be about $30 (2%) lower, in the most likely case they’ll be about $90 (5.8%) lower, and in the worst case about $220 (14%) lower. I think it is fair to expect the high end rentals to be hit the hardest, with cheap rentals staying relatively consistent, as is often the case during recessions.

If you’re already a downtown landlord the key takeaway is this — the next few months are going to hurt. You might have to ask your lender for forbearance, tap a line of credit, or apply for a SBA loan – and we’ll put out a blog on that issue in the next few days. If you can keep it together until September I think that is when market rents will stabilize, but don’t expect to bump rents like you normally might during SCAD move-in time. If one of my downtown properties goes vacant in April or May I’ll probably just leave it vacant until June instead of dropping rent to find a tenant – not like anyone is going to be moving during that time anyway. I think most of us will be able to weather this storm unless we spend the majority of 2020 sheltering in place or the federal government doesn’t effectively implement the stimulus bill that passed last week.

 

WHAT ABOUT THE MARKET FOR BUYERS AND SELLERS?

A lot of investors think that real estate is going to go on sale like it did in 2008. I disagree unless we really do a horrible job of managing the response to the virus. Check out this chart:

homes for sale downtown savannah ga

This chart is the historic housing price index in Savannah (bold blue line), and I added in a couple trend lines to illustrate trends in the data.

See the grey line? That’s the trend line of increases in housing price index from 1984-2000. See how much slower the growth was back then? That’s because mortgage interest rates were in the double digits back in the 80s and remained in the high single digits through the early 90s. High interest rates always equal lower valuations of assets.

The yellow line is the most important. That shows the average growth in housing prices in Savannah for the period of 1995-2003. This is important because interest rates were relatively low (about 5-6% on average), and this was before the 2003-2006 boom in prices. This boom was a result of shoddy lending practices that we don’t see anymore. Check out how big that housing bubble got, and check out how much below historic trend lines housing prices got by 2012. We still haven’t fully caught back up to where we should be.

This is the biggest reason that I don’t foresee a drop in prices – unlike 2007, real estate in Savannah is not in a bubble. Will we see prices stagnate and maybe stay at the same level for a period of time? Probably. Will buyers be able to get more concessions out of sellers? I think so. Are you going to be able to steal deals? Not unless you find a juicy off-market deal and a seller who doesn’t know any better – or unless we totally gorp up the response to the virus and don’t execute the necessary economic stimulus measures. I think we could be doing better on that end, but I think we’ll make it okay, especially after seeing that $2.2T stimulus bill pass. It was foreclosures that drove the drop in prices from 2008-2012, and we won’t be seeing very many of those because of the stimulus bill that was recently signed into law.

Bottom line is this — if you’re an investor looking to steal some deals like it’s 2012, it’s probably not going to happen. Your best window of opportunity will probably run until about August. My recommendation? Be a little more choosy, bump down the year one rent estimates in your modeling, and keep more cash on hand than you normally would – but other than that keep buying. If you’re truly worried then keep your cash on the sideline until early May, I think by then we’ll have a good idea of how this will play out.

We’d love to hear your thoughts and feedback or answer any questions, especially if you’re a local investor or thinking about investing in Savannah real estate. Please reach out anytime – we’ve got plenty of time on our hands these days!

 

METHODOLOGY ON THE COVID IMPACT ON DOWNTOWN SAVANNAH AVERAGE MARKET RENT MODELING

My independent variables (e.g., the variables that I will manipulate) are the percentage of SCAD students who leave Savannah, the unemployment rate, and the percentage of AirBNB owners that move their units to the long term rental market. These are what I see as the biggest drivers of changes in supply and demand in the rental over the next few months.

My dependent variables (the variables that will be changed based on differences with the independent variables) are market rent and excess rental supply.

I pulled a lot of different statistics to help me build this model. They include the following data points taken yearly from 2010-2019: average rent in the 31401 zip (Zillow), SCAD enrollment and dorm capacity, Savannah metro unemployment, population, per capita income, GDP, and housing starts, 31401 zip building permits, new apartment units, and population.

I then performed a linear regression for a few of these statistics and their relationship to market rent in the 31401 zip and I averaged the output of each regression to come up with a predicted fair market rent, which I adjusted up or down depending on whether there was an excess of supply or not. How did I determine that?

I used building permit data to get a clear picture of the number of new rental units coming on the market every year vs the growth in population, and I established that the ideal ratio of units/population is .26 housing units/person. Now, you might be thinking that there would be about 4 people per apartment in that scenario, but that’s not really the case since a good portion of the population is homeowners and there’s just no way to model that. So how did I come up with .26? Basically, I took the average ratio of the years 2011-2018 and used that — I figure that the free market would come up with the best ideal ratio and I should just stick with that. So I can now use that constant of .26 to model how increasing supply or decreasing population would lead to a shortage or surplus in the market, and I adjusted market rent up or down 10 cents per unit of excess/shortage.

I then used these models to predict market rent for the years 2010-2019 to see how close my model was to the actual values. I saw that my model was off by an average of 3.12%, and 6.47% on the worst year, where the model was $100 off the actual market rent for that year. Not too bad for a guy who got a B+ in stats, I guess!

Author: Pat Wilver

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A Rising Tide: Economic Growth and the Port of Savannah

A RISING TIDE

economic growth and the port of savannah

EDIT – 9/26/2020: I published this post before COVID-19 hit, and I believe that the bearish case for Savannah is still weak. Why? It’s that port, and that port just took in the largest container ship to ever make a port call on the U.S. East Coast. The port is and will remain the single largest driver of growth here in Chatham County for quite some time and should help to offset some of the COVID related job losses and dip in tourism income.

The perpetual bears among us have been forecasting an imminent recession and corresponding crash in the housing market since about 2015. Those bears have missed out on considerable asset appreciation since then, but eventually the bears have got to be right — right?

No, at least not in Savannah, and not for quite a while — and the biggest reason why Savannah’s real estate market is still in the third inning is those big, beautiful cranes that we see just upriver of the bridge.

Savannah Realtors | Trophy Point Realty Group

Home prices have been going through the roof in places like Seattle, in part due to rich Chinese citizens buying up west coast real estate to shield their assets from the Chinese communist party (CCP) — and now the west coast markets are beginning to soften as the CCP tightens restrictions on the flow of money out of China.  That investing drove up the average American home price, but what does that mean for Savannah?

Absolutely nothing, because Chinese money hasn’t been coming here. Let’s focus on the market we do know and disregard what’s happening in Seattle, Denver, Detroit, New York, or Miami. What’s happening in Savannah and how does it affect me?

The average home price in the Savannah area is still below its pre-2007 peak, and since the market’s bottom in 2012 the average home price has grown by 74%, while Savannah’s GDP has grown by 40% from the end of the recession in 2009 until 2017 (the last available data that I found, see sources at the bottom of this post.) There are five months of housing inventory for sale currently, making this the strongest seller’s market since 2007. What does this mean?

– Real estate appreciation has outstripped economic growth, but not to the extent that it did in the early 2000s. This is a warning signal to avoid some of the overpriced assets currently on the market, but this is not a signal that we should stuff our cash under the mattress.

– If you’re thinking about selling in Savannah, now might not be a bad time to do it, especially if you own in the historic district or the islands — places where asset appreciation has outstripped increases in market rent. Why not free up some of your equity and invest it in a neighborhood where you can achieve a higher return on investment?

– If you want to invest in Savannah, it’s tougher to find great deals, but they’re still out there if you know where to look. This is where a good local agent can be a valuable asset.

– If you are currently renting in Savannah and aren’t necessarily looking for an investment and/or just want to own your own place to call home, there is still a lot of value to be had. With interest rates as low as they are, your mortgage payment will almost certainly be lower than your rent, and wouldn’t you rather be paying off your own mortgage than your landlord’s?

Whether you’re looking to invest or become a homeowner, buying real estate is making a statement — you are putting your money where your mouth is when you say: “I believe in the future of Savannah, I believe that in 5, 10, or 30 years, people will still want to call this place home. I believe that if and when I go to sell this home, I will be able to at least get out of it what I put in.” Do I feel that is the case with Savannah?

Yes, so much so that I’m still buying in Savannah myself. Here’s why:

1. Savannah is a beautiful city and it’s very walkable. As a millennial, I know what my people want, and increasingly it’s not a suburban life. We want trees, green public spaces, and we want to be able to walk to restaurants, bars, and stores. Savannah checks those boxes.

2. Savannah has a diverse economy including the following major industries/employers:

  • Fort Stewart/Hunter Army Airfield

  • Gulfstream

  • 2 major healthcare systems

  • JCB excavators

  • International Paper

  • Rapidly expanding Port of Savannah

  • Total University enrollment of 17,000 students

  • Robust tourism industry

  • Growing movie and television industry

These industries are robust.

Fort Stewart and the 3rd Infantry Division is home to the only U.S. Army armored assets on the east coast and the only ones within 50 miles of a deep water port — in short, the Department of Defense is not likely to draw down forces here because doing so would hurt it’s ability to project power around the world. Gulfstream is a world-renowned private jet manufacturer. Healthcare is only going to grow as the U.S. population ages. Georgia Southern acquired Armstrong University in Savannah in 2018 and is growing. The Savannah College of Art and Design is one of the best art schools in the world and many of its graduates elect to stay in Savannah and bring this town more good art, good food, and good business — all of which feed into making this town a location of choice for young professionals, tourists, and the growing Georgia movie and TV industry.

  • The port of Savannah is currently undergoing a massive expansion to accommodate the new class of super-panamax cargo ships (basically, as the Panama canal expands, ports on the eastern seaboard must also expand to accommodate the larger ships.) What does this mean for Savannah:

  • The Port of Savannah is one of the fastest growing ports in the country, with an annual growth rate of 7% between the years 2005-2015.

  • As of 2016, the port was the fourth largest container port in the NAFTA region, behind Los Angeles, Long Beach, and New York.

  • The port is currently undergoing an expansion to accommodate the expansion of the Panama Canal, and the Georgia Ports Authority has detailed plans to further expand the port in order to bring the port’s capacity from the current 5.5 million twenty-foot container equivalent units (TEUs) to 8 million TEUs by 2028.

  • The economic benefit is expected to be 8% of Georgia’s GDP and 9% of Georgia’s total employment.

The future for Savannah is bright and there are deals to be had for any buyer, but the days of dirt-cheap investment properties are largely gone – in 2019, it takes knowledge, skill, and a good network to find real estate investments that will yield a high return on investment.

That being said, I still believe in this market, so much so that my wife bought her own duplex in the east-Victorian district just this April. She put 5% down on a Department of Veteran’s Affairs (VA) loan to purchase the property, and now we live in one unit and rent the other for almost $300 more than the total mortgage payment — tell me that isn’t a good deal!

In the coming weeks I will dive deeper into why I believe 2019 is different than 2007, why it’s still a good time to get into the market, and how to avoid the pitfalls that led many reckless investors to financial ruin in the past.

SOURCES:

http://gaports.com/media/press-releases/articleid/200/artmid/3569

http://gaports.com/about/economic-impact

Author: Pat Wilver

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Savannah 2033: Urban Planning Done Right

SAVANNAH 2033

urban planning done right
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“A society grows great when old men plant trees whose shade they know they shall never sit in.”

Greek Proverb

Anyone involved in real estate should keep his or her finger on the pulse of future development, and I’m downright excited about the plan for development leading to our city’s 300 year anniversary in 2033. I could write ten posts about this plan and I will write a few more as I parse through the plan, but for now here’s a quick summary from my notes from the September 17th community meeting the city held about the plan. Anyone who is serious about investing in Savannah should probably just go read it though. I’d like to note that I may drop by to revise some parts of this write up as I go through with reading the full plan, and I invite anyone who disagrees with something I stated to let me know in the comments. Here goes:

There are five design priorities in this plan:

  • Expand downtown in a logical, connected fashion to the east and the west.

  • Inject Savannah’s signature, beautiful public space design into more neighborhoods.

  • Connect it all with active transportation.

  • Prioritize quality of life over commuting time.

  • Legalize Savannah’s historic building types.

What do these priorities mean in plain English?

  • Right now, MLK and East Broad are kind of the hard borders of “downtown.” The 15 year plan aims to expand what we know and think of as “downtown” west out to the the canal district and east out to the Truman Parkway.

  • You know how many squares and how much green there is “downtown”? How easy it is to walk around? That’s what they want to do everywhere else north of 52nd street – kind of.

  • They want to make Savannah more bike and walk friendly, even as far out as the mall and south-side Savannah.

  • It’ll take you longer to get from I-16 to the Truman (if you’re north of 52nd st), but it’ll be nicer to live in the neighborhoods you have to cut through to make that commute. Parking is also a lower priority than quality of life in the neighborhoods; planners hope to encourage more commuters to park near I-16 and Truman off-ramps and take shuttles (like the DOT shuttle) into downtown.

  • Change the zoning ordinances to make it easy to develop residential and mixed use in the multi-family space. That is, more duplexes, mixed use residential/commercial, quads, town-homes, etc. This is already pretty much complete with the new zoning that went into effect this September.

Savannah real estate agency

The overall 2033 master plan. Notice the large public spaces in the east and west, the bike trails that will run along the railroad (cutting diagonally across the map) and along Truman Parkway. Also, the MLK ramp will be removed, allowing for another walkable/drivable connection to West Savannah.

West Downtown Expansion

A picture’s worth a thousand words, see below for the 2033 plans out west. Of note, the I-16 ramp over MLK will go away, as will the civic center. These will be turned into green public spaces and allow for the canal district to be more easily connected to the city center. The Kayton/Frazier area will also be improved much like at Savannah Gardens.

living in savannah georgia

East Savannah Expansion

Again, check out the diagram. Notice that the low-lying areas will be turned into a kind of undeveloped park. East broad will go two-way and main thoroughfares here will be made to be more like Oglethorpe and Liberty are downtown. Atlantic Ave will become more pedestrian friendly, and the plan calls for more public spaces along Waters, like a proposed Saturday market at the city-owned parking lot at Waters and 37th.

living in savannah georgia

Mid-City

The area from 37th south to 52nd is also slated for revitalization. Included in the plans are a cross-town bike trail parallel to the train tracks, improvements to Bull Street, and “Victory Park”, which will require re-routing of Victory Drive and 43rd Street between MLK and Bull St.

living in savannah georgia

Active Transportation Network

The 2033 plan is heavy on active transportation – bikes and walking. The plan proposes a city-wide active transportation network and will require conversion of some streets that are currently heavily trafficked (like Anderson). See below:

relocating to savannah georgia

New Zoning

The city’s new zoning ordinance went into effect on September 1st, 2019 and is a big step towards the final goal of the 2033 plan. The 2033 plan calls for “legalizing Savannah’s historic buildings.” Many of the old multi-family structures and town homes violated the old zoning because of things like max occupancy, parking space regulations, and units per acre. The 2033 plan calls for more mixed use and more multi-family development. The plan also calls for easier permitting and more experimentation in land use outside of the historic district (Starland yard could be an example of the kind of experimentation that the plan wishes to encourage, but it seems experimentation in residential development is also on the table.) The mixed use theme is big too — the planners here want neighborhoods to include shops, public spaces, and gathering places all within walking distance. I’ll have a new post at some point going over the new zoning in much more detail.

Bottom Line

First of all, the city council hasn’t officially adopted this plan — that vote is scheduled for later this month. Assuming they do (which appears likely), they don’t even have to stick to the plan. I believe they will though because this plan was developed with cooperation and input from various stakeholders in the community and seems to be beneficial to pretty much everyone except folks who have to drive through town. This plan will definitely be a boon to real estate investors, homeowners, the city’s budget, and even most renters who will benefit from more livable neighborhoods and new development which will keep rents in check by increasing supply (in theory.)

How much do the city planners behind 2033 think their design recommendations will increase property valuations (and by association tax revenue to the city)?

…50% is on the very low end of what is possible. In fact, it’s more likely that in 2017 dollars values would be 150-200% higher if the Plan is followed

-Downtown Savannah 2033, page 22.

That’s huge, and that’s exactly why I and so many investors I know are zeroed in on buying run-down buildings east and west of downtown and renovating them now. If this plan is put into action,

I believe property in places like Benjamin Van Clark, Cann Park, Live Oak, and parts of West Savannah to double in value,

much like property in Starland and the blocks east and west of Forsyth have done in the last decade. Keep your eye out for follow-up posts here on the blog, and as always, if you have any questions or comments leave one below or find us on Facebook.

Author: Pat Wilver

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Categories
Savannah Market

Financial Crisis part Deux? Why the next recession won’t look like the last.

FINANCIAL CRISIS PART DEUX?

why the next recession won't look like the last
Savannah real estate agents

“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”

Warren Buffet

Trade wars, slowing growth, inverted treasury yields — do these portend a looming recession or are they merely bumps in the road to continued growth? Many investors I know and work with have become increasingly concerned about recession and the pain of 2007 is still raw. I can’t tell what the future holds for Savannah real estate and real estate investing in general, but I do know a few things:

 

1. Real estate is a local market

2. Credit has not been extended recklessly like it was in the early 2000s

3. Cash is good for providing safety and peace of mind, but it remains a terrible investment

4. If you follow sound investing principles, you will not be led astray

5. Time in the market beats trying to time the market

Over the next couple blogs I will explore some of these points. For now, let’s focus on the first one:

REAL ESTATE IS A LOCAL MARKET

Home prices have been going through the roof in places like Seattle, in part due to rich Chinese citizens buying up west coast real estate to shield their assets from the Chinese communist party (CCP) — and now the west coast markets are beginning to soften as the CCP tightens restrictions on the flow of money out of China.  That investing drove up the average American home price, but what does that mean for Savannah?

Absolutely nothing, because Chinese money hasn’t been coming here. Let’s focus on the market we do know and disregard what’s happening in Seattle, Denver, Detroit, New York, or Miami. What’s happening in Savannah and how does it affect me?

The average home price in the Savannah area is still below its pre-2007 peak, and since the market’s bottom in 2012 the average home price has grown by 74%, while Savannah’s GDP has grown by 40% from the end of the recession in 2009 until 2017 (the last available data that I found, see sources at the bottom of this post.) There are five months of housing inventory for sale currently, making this the strongest seller’s market since 2007. What does this mean?

  • Real estate appreciation has outstripped economic growth, but not to the extent that it did in the early 2000s. This is a warning signal to avoid some of the overpriced assets currently on the market, but this is not a signal that we should stuff our cash under the mattress.

  • If you’re thinking about selling in Savannah, now might not be a bad time to do it, especially if you own in the historic district or the islands — places where asset appreciation has outstripped increases in market rent. Why not free up some of your equity and invest it in a neighborhood where you can achieve a higher return on investment?

  • If you want to invest in Savannah, it’s tougher to find great deals, but they’re still out there if you know where to look. This is where a good local agent can be a valuable asset.

  • If you are currently renting in Savannah and aren’t necessarily looking for an investment and/or just want to own your own place to call home, there is still a lot of value to be had. With interest rates as low as they are, your mortgage payment will almost certainly be lower than your rent, and wouldn’t you rather be paying off your own mortgage than your landlord’s?

Whether you’re looking to invest or become a homeowner, buying real estate is making a statement — you are putting your money where your mouth is when you say: “I believe in the future of Savannah, I believe that in 5, 10, or 30 years, people will still want to call this place home. I believe that if and when I go to sell this home, I will be able to at least get out of it what I put in.” Do I feel that is the case with Savannah?

Yes, so much so that I’m still buying in Savannah myself. Here’s why:

  • Savannah is a beautiful city and it’s very walkable. As a millennial, I know what my people want, and increasingly it’s not a suburban life. We want trees, green public spaces, and we want to be able to walk to restaurants, bars, and stores. Savannah checks those boxes.

  • Savannah has a diverse economy including the following major industries/employers:

  • Fort Stewart/Hunter Army Airfield

  • Gulfstream

  • 2 major healthcare systems

  • JCB excavators

  • International Paper

  • Rapidly expanding Port of Savannah

  • Total university enrollment of 17,000 students

  • Robust tourism industry

  • Growing movie and television industry

These industries are robust.

Fort Stewart and the 3rd Infantry Division is home to the only U.S. Army armored assets on the east coast and the only ones within 50 miles of a deep water port — in short, the Department of Defense is not likely to draw down forces here because doing so would hurt it’s ability to project power around the world. Gulfstream is a world-renowned private jet manufacturer. Healthcare is only going to grow as the U.S. population ages. Georgia Southern acquired Armstrong University in Savannah in 2018 and is growing. The Savannah College of Art and Design is one of the best art schools in the world and many of its graduates elect to stay in Savannah and bring this town more good art, good food, and good business — all of which feed into making this town a location of choice for young professionals, tourists, and the growing Georgia movie and TV industry.

The port of Savannah is currently undergoing a massive expansion to accommodate the new class of super-panamax cargo ships (basically, as the Panama canal expands, ports on the eastern seaboard must also expand to accommodate the larger ships.) What does this mean for Savannah:

The Port of Savannah is one of the fastest growing ports in the country, with an annual growth rate of 7% between the years 2005-2015.

As of 2016, the port was the fourth largest container port in the NAFTA region, behind Los Angeles, Long Beach, and New York.

The port is currently undergoing an expansion to accommodate the expansion of the Panama Canal, and the Georgia Ports Authority has detailed plans to further expand the port in order to bring the port’s capacity from the current 5.5 million twenty-foot container equivalent units (TEUs) to 8 million TEUs by 2028.

The economic benefit is expected to be 8% of Georgia’s GDP and 9% of Georgia’s total employment.

The future for Savannah is bright and there are deals to be had for any buyer, but the days of dirt-cheap investment properties are largely gone – in 2019, it takes knowledge, skill, and a good network to find real estate investments that will yield a high return on investment.

That being said, I still believe in this market, so much so that my wife bought her own duplex in the east-Victorian district just this April. She put 5% down on a Department of Veteran’s Affairs (VA) loan to purchase the property, and now we live in one unit and rent the other for almost $300 more than the total mortgage payment — tell me that isn’t a good deal!

In the coming weeks I will dive deeper into why I believe 2019 is different than 2007, why it’s still a good time to get into the market, and how to avoid the pitfalls that led many reckless investors to financial ruin in the past.

SOURCES:

http://gaports.com/media/press-releases/articleid/200/artmid/3569

http://gaports.com/about/economic-impact

Written by: Pat Wilver

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