What are your thoughts on the Pacific Northwest- Portland/Vancouver and Seattle over the long term? Running acquisitions for a family office and I’m not from the market. The company has historically purchased MF in the suburbs around these markets and I’m inclined to stick with what they know, but it’s not the high growth story you’re seeing in the sunbelt. Obviously deals can get done anywhere- what would you be looking for/do you think about the region?
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To put it rather eloquently - the Pacific Northwest is fucked six ways from Sunday. Portland deserves a special dishonorable mention - arguably the worst performing metro region in the U.S.
Couldn’t agree more about Portland- won’t touch it with a 60 foot pole. Would you be able to share a bit more of your thinking about the region in general? Appreciate your response.
Check out earnings calls transcripts from REITs that have properties in the region including AVB and ESS. They have great details on the issue with the market.
I’ll look into those. Thanks! What markets are you interested in?
Interested to see if anyone has thought outside of general perception. There’s definitely some pros to the PNW, even Portals MSA. I’d avoid downtown and probably Multnomah county but Washington county, clackamas, and all of central Oregon climate wise has similar characteristics to the rest of the mountain west that people love, lowest insurance, high cost of construction, and safety from the property tax risk that TX, NM, FL, etc. see. Most of the highly educated workforce in Seattle and SF would rather live in Portland than Texas, Arizona etc.
Good points. Our founder’s perspective is that you’re an hour from the mountains, ocean, wine tasting and a plethora of any other outdoor activities you could want. In general it’s an outdoorsy persons dream- and the rent levels are reasonable. Would like to see more population information spring up but I am worried about jobs with Portland just being an absolute deterrent to any company.
A while back my firm made a pretty large play into Portland because the play just seemed to obvious. In between HCOL Seattle and San Francisco, tech companies were opening up secondary offices downtown, etc. We basically got out with our money back and that was a fight (in 2016 where it was almost impossible not to make a 2x). I learned that despite all of its excellent inherent qualities, never discount Portland's ability to screw things up on purpose. There is *zero* political goodwill towards commercial property owners. You are the enemy, and they will treat you as such.
Pros:
1) insurance is cheap
2) property tax growth capped
3) low construction pipeline
4) Non-multnomah counties: relatively quick eviction timeline and bad debt in general is less than most sunbelt
5) top 3 market for semiconductor growth
6) Attractive climate and outdoors
7) nutrient rich farmland
8) affordable alternative to Seattle and SF
Cons:
1) political risk that things can get worse
2) expensive business climate
3) high taxes
4) tenant friendly
So insurance is cheap, unless you really want to be buttoned up and also get earthquake insurance. Which you probably should, but almost nobody does.
What about prop taxes in NM?
Specifically Albuquerque, property taxes are shooting up. Property owners are nervous about receiving their notice of values next month because the county appraiser just said they intend to increase every property to full market value based on Marshall and Swift cost values. As is, I’ve seen 100% increases in a few properties the past two years.
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Appreciate the insight - if you don't mind me asking, where did you head to after leaving Seattle?
Watch out in King's county, some of the suburbs fall into areas and they will have the Imminent Domain clause that allows them to take a property and force affordable rents on the property. Borrowing in the area has taken a turn and many are worried the idea and clause will move from one to the other. Some buyers of MBS' won't even touch King County properties......That being said I think it's due for a recalibration and people moving around and that takes time to sort out but there's always opportunity there.
In Washington, you also have to factor in the real estate excise tax which is material to the seller, and I've seen lots of groups not factor it in.
I'll go to market on something and have even had CLO or a CMBS that had exposure and it'll go 5-10bps wider or no bid from some buyers.....But I think they have only used the clause once ever soooooooo.....
This is purely anecdotal, but I just did a trip in the PNW driving through Vancouver and was taken back by the level and sophistication of development. In Vancouver, every active site (of which there are many) has a detailed city placard outlining plans and I saw a numerous marketed assemblages consisting of SFR's on a block, not common in prime US markets in my experience. Vancouver also benefits from US's difficult/expensive work visa system so that many skilled, high earning foreigners are working in Canada rather than stateside, a trend that only seems to continue. On the flipside, Hastings St on the East Side is the worst case of urban blight I've ever seen (google it). Seems to be some fantastic pockets though and an extremely high quality of life.
Again, this is a purely anecdotal comment but I would encourage you to put boots on the ground for a good while and make your own assessment. Seems like a pretty dynamic city that could only go in one direction in the long run.
Glad to hear you had a great experience! Definitely pros there. I want to confirm it sounds like you’re talking about Vancouver Canada?
Oops! Yes, Vancouver, BC but I realize now you were referring to Vancouver, WA, which I just learned is a place today. I'd agree with the general negative sentiment towards Portland and to a lesser extent Seattle, but if you believe cities like these are cyclical, then they're due for another come up similar to what many are saying is happening now in San Francisco. In fact, Seattle just shifted shifted sharply to the center in their recent city council elections which purged nearly all progressive and radical elements. It's a start!
Definitely one of the more unique markets in North America and on many lists for one of the few "global" cities worth investing in (per a few major pension funds + asset managers like Brookfield). Tons of structural levers in play: port with China, constrained land supply, etc.
Sub-1% vacancy in residential. Sub-1% vacancy in industrial. Office vacancy is sub-10% today. Consistent population growth.
Agree on some of the social issues. In North America, the homeless seem to always head west until they can't anymore. In USA, that means Seattle, Portland, SF, and LA have it to worst. In Canada, they all end up in Vancouver.
Haven't been to Vancouver in a few years, but I always felt that the homeless situation was much worse in Seattle and Portland.
The beauty of the PNW cannot be understated. Portland also has a great food scene, the city is a dumpster fire unfortunately. One of the biggest travesties. Hood River is just amazing.
It's funny reading the diversity of comments here. It's interesting to see how politics is becoming a hot button issue in real estate (partially deserved given what's going on with NYCB).
A few points to make:
1) The PNW is not a uniform market. Yes, there are municipalities that are blue to the extreme but there are other municipalities that are moderate or all-out red where political risk is less of a variable. There are a lot of growth opportunities in Eastern WA, Idaho and places like Eugene, OR.
2) Large tech companies are still expanding in Seattle. Microsoft recently renewed one of their leases in Bellevue and are doing a major expansion of their Redmond campus. Amazon has signed very large leases in Bellevue. Google is still expanding in Kirkland (albeit, they are tapering it a bit). The expansion of the light rail will hopefully become a catalyst for the entire region flattening rents by making places such as Columbia City more attractive to live in. As they come to occupy more office, I expect their to be more growth and opportunity on the Eastside specifically.
3) Seattle politics are becoming more moderate with the election of moderate mayor Bruce Harrell. Homelessness has seemed to improve over the past couple of years. I don't expect any significant negative policies affecting CRE to pass unless the political environment once again begins to swing left. Most folks I know however seem content with the current political environment. They are passing laws aimed at increasing development such as laxing zoning etc.
4) OR doesn't have sales tax and WA doesn't have income tax. Property taxes in WA state are relatively low.
5) Portland proper sucks right now. Portland suburbs like Hillsboro and Lake Oswego are thriving.
6) Lifestyle is amazing. Not too cold in the winter and not too hot in the summer. Green and beautiful year-round. In March, sunsets are already at 7:30PM and it's light to almost 11PM in peak summer. In the summer, it almost never rains. Weekend recreational opportunities are endless. In the winter, it can suck but the closest ski resort is only 40 minutes away and top tier ski resorts (significantly better than anything on the east coast) are less than 2 hours away.
7) The negatives are HCOL, relatively low pay in CRE, crime is generally growing, winters suck if you're not a skiier, high amount of CRE supply delivering hampering growth, super high cost of construction. Geography is limiting developable land BUT that usually helps long term basis.
For the record, I love the PNW. Probably my favorite area in the country, for the reasons you described. The issues of Portland and Seattle (to a lesser extent) are complete own goals in my opinion. Second your shoutout of Lake Oswego. That place is amazing.
I think the Seattle metro market tanked early in the cycle, and will rebound faster than other markets. There is such a perpetual low supply because of the difficulty to develop, compared to sunbelt markets where you can quickly get over supplied in a hot market. You just don’t have the land and the expenses to build because of the stringent codes makes the supply story positive imo. Policy is easily the worst aspect of the Seattle metro but in some ways it actually helps.
Seattle on the other hand has great demand fundamentals, hard to see growth slow here when you account for the concentration of large employers and a top pipeline of talent for CS coming out of the local universities. Think SF but on a smaller scale. There is tons of institutional interest here and lots of competition for deals like every good market.
For the rest of the NW Boise is a classic example of upside down supply because of the ease (red state) to build. Portland metro is tough due to there not being lots of big magnet employers bringing people in and really not a lot of great local university.
I’m bullish on Seattle metro but the rest of the PNW is really not that exciting in my opinion from an institutional standpoint.
Really like WA but the excise tax is an absolute killer. Yes, they shot down rent control in WA but they’re trying to add another 1% to excise taxes which will bring to 4.5% in some municipalities. Nobody talks about it but it’s close to LA “mansion tax”. How anyone justifies anything short of a 7-10 year hold with a 4.5% sales tax is beyond me.
As much as the excise taxes hurt me as CRE professional, I'd actually prefer having these than paying a State income tax. It's arguably not a bad way to collect taxes from CRE folks since many who do this business properly pay next to 0 in taxes. It definitely hurts returns and development but it should in theory be baked into the price.
Edit: May be an unpopular opinion but just my 2c.
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