The New Year reminded everyone very quickly how geopolitical risks can impact our economic markets close to home.
Not surprisingly, the markets retreated with the news that a U.S. drone strike killed Iranian Maj. Gen. Qassem Soleimani. The Dow and S&P had their worst trading day in a month, and crude oil prices hit the highest mark since April. Time will tell if the current geopolitical crisis grows into something with longer term effects.
The fundamentals, in contrast, look very strong. Low unemployment, rising wages and an abundance of capital available create favorable market conditions. With a strong consumer foundation, willing investors, and projections for increased business spending, the signs have been pointing toward continued growth in 2020.
Strong fundamentals coupled with accommodative monetary policy paint a favorable risk profile for investors and for access to capital. Regional banks continue to have a strong appetite to lend but remain prudent in their underwriting guidelines. Geopolitical concerns aside, the risk of another CRE debt crisis appears minimal.
And there are other key reasons to be optimistic on transaction activity for 2020. The Fed has signaled it will hold interest rates stable, and abundant capital remains available.
Similarly, the fundamentals remain strong in the local Worcester economy. Outside private investment continued to come in 2019, including the acquisitions of 446 Main Street, the Sky Mark Tower, the Greendale Mall property and, of course, the Polar Park project. And this came on the heels of significant private investment made over the past several years.
What keeps drawing investors to Worcester? The first is strong demand drivers like education and healthcare which are in Worcester to stay. The second is the relative affordability of Worcester to Boston or other major metro areas. The strong basis investors can achieve here makes Worcester very attractive.
For 2020, capital flow is looking strong for both the owner and debt sides of the equation. Local banks remain eager to lend, especially for the most prominent projects in the city. Housing will continue to be a winner, given the proven demand.
But to keep the momentum going beyond 2020, corporate investment will have to come to play. And that investment has been elusive with the limited connectivity to Boston through transit. Improving rail access between Boston and Worcester will have to be addressed to support the continued momentum of our rising city.
All in all, local commercial real estate market conditions are strong. Worcester faces the same uncertainty as other markets across the country when it comes to the effects of geopolitical risks and the 2020 election. How those factors will affect the economy is too hard to predict. And that should inspire a sense of urgency.
For those seeking capital through debt, now is the time to refinance, or lock in rates on development projects and real estate acquisitions. Better to do so while the Fed remains accommodative with monetary policy and access to capital is abundant.
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Meg Liddy is Senior Vice President of Capital markets at Kelleher & Sadowsky. She specializes in Debt Placement. She can be reached at [email protected], or 508-635-6797.