Bay Area Real Estate Offers Investors Continued Opportunity and Growth
While ‘business as usual’ was certainly interrupted in 2020, affecting the immediate growth trajectory of key economic variables, by Q4 the California economy proved its strength and resilience in several ways.
The state has maintained well-above-average levels of new business creation since July, and nonfarm employment rose by an estimated 145,500 in October – second only to Texas, despite concerns that the impacts of the pandemic would drive companies and residents away from coastal employment hubs.
Looking beyond the headlines, we see further indicators of a robust future for the economy in California and the Bay Area in particular.
While some companies are expanding and relocating their headquarters to other states, the Silicon Valley remains home to several very successful recently launched IPOs, including DoorDash, Airbnb, and Snowflake.
This continues to solidify the region as a key incubator for tech start-ups. There is no shortage of up-and-coming businesses taking over the space vacated by those seeking expansion out of state and bringing jobs to the area.
With these solid fundamentals, it is clear that investors focused on growing and maintaining their wealth through real estate should not be deterred from making moves right now.
While we don’t know exactly when pre-COVID levels and growth trajectories of all economic fundamentals will return, the fact is that savvy investors build their wealth most significantly through uncertain times – they don’t sit on the sidelines, they adjust their strategies to fit a more volatile investment climate and seize opportunities through a focused approach.
Investors who are active within the Bay Area multifamily market should consider repositioning their portfolios and placing equity into higher-growth investment opportunities to fully take advantage of market recovery, while simultaneously benefit from historically low interest rates. With the election behind us and the vaccine roll-out underway, a general sense of confidence is rising and there is no longer reason to ‘wait and see.’
For example, we recently completed a 1031 exchange in which we were able to help our Client sell a fourplex in Fremont, California for a record-high price of $2.475 million in the middle of the pandemic.
Taking advantage of low interest rates, the Client then traded into a 16-unit multifamily property in Santa Clara, California, growing their unit count four-fold and increasing returns by 62%. With Santa Clara County seeing the state’s highest growth in home prices, the asset is well positioned to benefit from significant continued resident demand.
We’re also assisting investors in optimizing their portfolios through completing transactions that help them amass economies of scale, improve cashflow, and trade into less management-intensive assets when desired.
To do this, we identify and evaluate Bay Area multifamily investments as well as, in some cases, other states and product types. We’ve helped Clients strategically expand into other markets like Texas and New Mexico to diversify geographically and provide them with more options for different types of investments – for instance, we just helped Client acquire a Walgreens in Albuquerque, New Mexico with an in-place 15-year, corporate-backed Absolute Net Lease.
Going out of state can be tax-friendly, as well as expand investor reach and opportunities. That said, we do not typically advise that our clients exit the state completely.
California is certainly poised for further growth as the market recovers, and the Bay Area especially will continue to distinguish itself as ‘the place to be’ for many businesses and residents for the foreseeable future.