Trends and Impacts on Value
By Ben Boothe, Sr. (Commercial Appraisals and Valuations) Appraisals/Environmentals
by BootheGlobalPerspectives trend research, appraisal data from Appraisal and Feasibility Source
Farming Industries: Farmers are seeing markets in flux with some agricultural prices are down because of trade wars, uncertain demand and unpredictable political leadership. As demand and prices for farm goods decline, the investment appeal of farm lands declines in pure economic return on investment. China is buying fewer farm products from America and Argentina and Brazil are jumping in and taking over production and international markets that once belonged to American farmers. There is reason to be concerned because we could see a period when farming and farmers cannot thrive, in this time of international trade wars, led by an Administration that has no experience or knowledge of agricultural economics. Appraisal value trends: Continued trade war conflicts create a high probability of value of farms and farm industries in decline, if prices for American produced farm goods continue to decline.
Electronics and High Tech: Some of America’s most lucrative companies are in electronics, computers and cell phones. Apple thought it was immune, but even Apple has been stung by Chinese tariffs. China and the East have dominated manufacturing of electronic and high tech equipment. Appraisal value trends: Continued declines in profits because trade wars could create a mid-range probability of lower values for the US electronic, high-technology sector.
Retail Industry: The rising risk factors for large shopping malls is well known, with some of these malls converting to low cost, discount centers appealing to a lower income demographic. The smaller “boutique” shopping areas are now facing more pressure from internet sales. Retail is trying everything to save its big boxes, but internet sales and quick delivery from UPS, Amazon and others puts retail real estate and business values in question. Impact on appraised values: Mid- to upper-range probability of lower appraised values. But prospect for well located quality "specialty product" locations such as electronics, telephone sales, computers for individuals or business, may see good potential for good leases and higher rates of appreciation.
Hospitals and Medical Industry Properties: The days when hospitals have total control on medical pricing and lobbied protections from malpractice suits are slowly ending. New laws and consumer pressure are demanding prior disclosure of fees. Plus, more disclosure on mortality rates with specific ratings on hospitals and individual doctors is putting more pressure on quality of care and more competitive pricing. We are seeing hospitals go bankrupt in higher numbers. Moves and calls to eliminate protections from malpractice are growing. Impact upon value: Mixed -- Mid to high probability of lower appraised values for lesser quality medical establishments, some optimism for rising values for those providing exceptional standards of care and lower mortality rates.
Aviation Transportation and Manufacturing: Air transport is facing more risks with wide swings in fuel costs as wells as operating in a world with increasing conflicts. Public and regulatory demand for better service, more comfort and a higher degree of quality and regulation because of Boeing’s PR disaster on its biggest new model, plus more competition from international airlines and international manufacturers from China and other sectors make this industry a target for buy-outs from investors and bottom feeders. Impact on appraisal value: Mid-range probability of lower values.
Oil and Gas Industry: The oil and gas industry is famous for it's wide swings in "boom and bust" and in the areas of the country that have underground reserves of oil and gas (or energy production resources) the values will go up and down with world demand, war and peace, political changes, legal changes in tax treatments, and changes of governments. At the present time the Permian Basin of Texas and New Mexico is showing a boom in new drilling led by EXXON, British Petroleum and about 10 other "players" in the industry. Many of the "independent" oil and gas companies are facing higher risk, and thus buildings and land owned by oil and gas companies, have a better promise of Appraisal Value appreciation if owned by the "large companies" with huge capital reserves and staying power. Small independent operators may build nice buildings, but their demand and value will ebb and flow with the markets of the oil and gas industry.
Banking and Finance: We are seeing more “non-bank lenders” than ever in the U.S. financial world. These lenders may sometimes charge higher rates, but their paperwork is simpler, their turn-around time is shorter, and their regulatory compliance requirements are fewer. Competition from these non-bank lenders is putting pressure on banks. Plus, liability is high for the directors of banks, making owning a bank or serving on a bank board less appealing. The big banks of America, seem to continue to be targeted and fined for regulatory violations and unethical actions. CitiBank, Wells Fargo, Bank of America, and other big banks seem to continue to repeat violations and bad management decisions of the past. Community banks seem to be more responsive to local community needs. Banks that will do well are niche marketing and high customer service bankers. Appraisal and valuations will rise for banks able to provide personal and professional service, but likely go down for banks that are arrogant, aloof and managed by impersonal policy manuals or stiff system-wide procedures. This industry has a mixed review as to appraised value of bank buildings and business value. Banks with excellent management and staff will have potential to excel, others will decline in value. We anticipate continued problems with the nation's largest banks. Mid range sized banks and local banks have good prospects. The non bank lending industry appears to be expanding and assuming more and more loans.
Service and Consulting Industries, CPA Firms, Attorney Firms, Appraisal and Environmental Firms: Service and consulting industries are growing in almost every sector of industry groups. We would include legal and accounting services as additional parts of this grouping. These offer good quality service and are available on call. This industry grouping continues to have a positive profitability potential. Appraisal values for this sector of the economy are considered good with a positive in probability for upward value potential.
Electric Cars vs. Traditional Cars: Technology, depleting petroleum reserves and growing air quality concerns are creating a perfect storm for the growing electric car industry. It is predicted that in a decade a substantial percentage of total auto sales in the will be electric. Electric vehicles show enormous profitability potential. They have fewer moving parts. They get tax credits and they have excellent performance features.
We see rising values and appraisals for real estate in this new electric vehicle industry and lower values for the traditional petroleum-based auto industry properties.
Defense and Military Contractors: Uncertainty and conflicts have grown throughout the world. This bodes well for defense, weapons development and production and sales of military equipment. Appraisal of said properties have good upward potential in value.
Office Warehouses, Distribution Centers, Shipping and Storage Centers: One of the basic needs in the USA is more office warehouse space, distribution centers and shipping and storage buildings, due to the massive amount of commerce between the USA and other nations, particularly Latin America and Canada. These buildings will continue to represent assets that appreciate in value. They often can be modified for use as airplane hangers, boat storage and even mini storage facilities, and some of these applications represent a 20 percent return on investment annually. Appraisal valuation implications suggest that these have good annual appreciation if well managed, well maintained and marketed appropriately.
Condos, Apartments, Multifamily Properties, Resort Housing, Town Homes and Rental Properties: This market segment has seen growing demand, particularly because new homes are expensive, and there is always a need for transition housing. The lake front, mountain view, ocean front or river front style resort housing has also show excellent investment appeal. Apartments can be converted to condos, and multifamily can be marketed in several different ways, from government rental assistance, to upper scale secured retirement uses. Essentially when these are used as rental or income producing, the tenants actually are paying for the property. Appraisal implications suggest that these are appealing investments with a good probability of appreciation if well located, managed and maintained.
Hotels, Motels, Hospitality Industry: Hospitality industry properties in destination, resort or tourist cities or large cities show a higher value than room rental rates and similar properties in small towns or cities that do not have attractions or appeal. Mid-size towns and cities with colleges or universities, hospitals or other attractions will support mid- to upper-mid-range prices and values. There is a continued demand for overnight housing across the USA, especially when an economic event such as the discovery of new mining or oil hits the area, or a new hospital, university, or attraction comes to town. Location, management, advertising, and appeal often determine the value, and appraisal trends show good value and price appreciation potential in the cities that attract people for important reasons. A hotel-motel, located in a small town like JAL, New Mexico, or Merkle, Texas, would have less investment appeal than a similar property in Arlington near the Texas Rangers stadium or in Fort Worth near University Drive (close to TCU or the hospital district).
A RULE OF THUMB IS THAT INTEREST RATES + A SUITABLE SPREAD FOR THE INVESTOR SHOULD EQUAL OR EXCEED INFLATION RATES.
OR, FROM A LENDER'S STANDPOINT, LENDING RATES SHOULD EQUAL INFLATION PLUS A SUITABLE PROFIT FOR THE LENDER.
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Good location, good demographics, good management, good business plan, good marketing, good ethics and integrity, good relationships in business, excellent equipment, facilities, roads, transportation, all contribute to the appeal, success and value of any business or property. We have seen outstanding leaders create success when all around them fail. So our view is that, for example, an excellent bank or industry with good features as listed can still excel even in a tough period. Most economists believe that 2019 - 2020 will see some reverses, and we are already seeing that through impacts of tariffs on many industry groups. But we also see there are some excellent leaders and managers that are prospering in spite of the environment. No doubt good politics and good economic factors can help, but we are at your service in FEASIBILITY STUDIES, APPRAISALS OR ENVIRONMENTAL STUDIES. BenBoothe.com, is available to help you be one of the excellent performers, even in a demanding time. Call us: 817 793 1484 or email: firstname.lastname@example.org. We are at your service.