Have a Drink with the ULI

The Urban Land Institute (ULI) has always reminded me of a man who dresses in a formal tuxedo to attend an informal neighborhood dinner party where everyone else is wearing shorts and Hawaiian shirts The national group has always struck me as humorless, pretentious and often dull as dust.

Nevertheless, I pay attention to what they think and say. And so should everyone in real estate.

The latest from them and their joint study by PwC is this year’s lengthy report on “Emerging Trends in Real Estate.” As usual, it is a lot of pages (and it may apply mainly to large development organizations that make up most of the members and pay the hefty dues to belong to it), but it is worth taking at least a quick look for smaller investors such as yourself as well.

As usual, the report does not seem to take a tolerant view of its investment competitor, the stock market. That continues to be “ever seesawing,” the report says in a statement something like the tuxedo-clad man’s wife complaining that he had too much to drink at the dinner party.

For real estate, the report cites a continued “low-gear” recovery with leasing, rents and pricing continuing to improve nationwide this year.

“Real estate assets will almost certainly continue to outperform fixed-income investments” is their outlook in the “Executive Summary.”

That’s the good news.

For impatient investors, there’s also bad news. Those seeking “quick wins” will remain frustrated. “Return expectations continue to ratchet down to more realistic but relatively attractive levels.” That mouthful translated means the Institute is predicting real estate will continue to provide income and appreciation.

Whew. That’s a relief, even if it’s not exactly “pie in the sky” expectations.

In the area of most interest to smaller investors, apartments, rent growth this year is expected to decline in markets where there’s very active multi-family development.  Overall, coastal markets such as San Francisco and Washington will remain strong in many areas. Strong secondary markets include Austin, Houston, Seattle, Dallas and Orange County, Calif.

“Other metro areas scoring well include San Jose, Miami, Raleigh/Durham, Denver, San Diego, Charlotte and Nashville,” the report concluded

An interesting note only briefly mentioned is that younger urban apartment renters are tending to eagerly accept shoe-box-sized units as long as neighborhoods have good amenities and access to mass transit.

Perhaps in something of a surprise (at least to me), traditionally boring Canada will maintain its “relative wealth island status” in part because it is free of the US’s debilitating debt and credit market dislocation,” the report found.

Canada’s real estate market should maintain their “durable equilibrium” in part because of investor discipline, lender controls and government regulation that is ensuring steady growth.

Canada’s biggest concern, the report says, focuses on how well the US, European and Chinese economies do in the future. Canada could suffer if those areas don’t boost their own outlooks.

Outside the US, some Latin American markets such as Brazil and Colombia are tempting developers to enter by offering apartment opportunities for the rising middle- class mushrooming in those regions.

Certainly not a plethora of investment opportunities there for average buyers but it certainly gives you something to talk about at your next cocktail party.