Tuesday, December 11, 2018

The Rising Cost Of Construction And Its Effects On Commercial Construction in New Hampshire

Since 2014 construction costs have steadily risen across the United States due to the continued increase in the cost of materials and a labor shortage that has gripped the construction industry. And New Hampshire contractors and construction companies haven’t been spared. But how are these factors affecting the commercial construction industry here? And in what ways are they affecting building projects across the Granite State?

Where have all the skilled laborers gone?

The unemployment rate sits at 3.7 percent as of November 2018, with approximately 155,000 jobs created in that time. And employers within the construction industry and the trades are having a harder and harder time finding young, skilled workers to fill their employment needs. Part of this is because of the stigma that has been placed on having a career in construction. A thinking that has pushed young people away from the trades and toward a four year degree.

“We need to make construction sexy again.” said Bill Jean, Director of Business Development for Fulcrum Associates. “There are still those trades that are very physically labor intensive, but a lot of the trades are getting a lot more technical requirements associated with them now… I think you’re finding that you’re needing a little bit more of a technical staff, technical training.” There are a number of initiatives underway that are hoping to change how construction and trades careers are perceived, and employers recognize the need to invest in better training and apprenticeships for the next generation of skilled laborers.

New Hampshire, though, faces a unique challenge with its labor shortage: the exodus of young people. Their ‘exit: stage right’ leaves the Granite State as one of the oldest states in the nation, with a rapidly aging workforce and population. The median age of a construction worker in New Hampshire is 44 years old, 3 years older than the national median of 41. As companies see their workforce get older and retire, they are not seeing nearly enough young talent come into the trades to replace the retirees. This doesn’t tell the whole story though.

The industry is still bothered by the scars of the last economic downturn, which saw many skilled tradespeople leave the area. Historically, many tradespeople in the construction industry have been migrant, going where the work is. The last downturn heavily impacted the New England market, with those that moved out never coming back. Trying to fill the boots of the tradespeople that left the area during the last recession has put that much more stress on companies that are already struggling to find workers for their current projects.

Materials don’t come cheap

On top of the need for workforce, construction companies are getting hit in the wallet by the steadily rising cost of materials. Looking at almost any graph of materials cost from the past few years looks like the hill Sisyphus was forced to roll his boulder up. As of this writing, according to an analysis of U.S. Bureau of Labor Statistics done by Associated Builders and Contractors, construction material prices were 7.4% higher than they were at the same time the year before. Crude oil was up 47% over the past year. Much of that cost being due to mounting trade tensions between the U.S. and China, as well as the shadow of impending sanctions on Iran. Iron and steel were up 12.2% buoyed by the current tariffs, and with iron ore forecasts showing a continued rise in price that won’t subside any time soon. Finally, softwood lumber was up 5.4%, also affected by trade tariffs.

While the price increase for materials like softwood lumber haven’t affected New Hampshire’s industry much, due to resources in the Northeast and Canada, the rising cost of steel initially caused some friction within the market as the volatility during the early days of the tariffs caused prices to fluctuate almost daily. Unable to eat all of those price increases, many companies, like Fulcrum Associates, were forced to pass off the cost to the end user. Affecting planned projects and their budgets.

What does the crystal ball say?

While both of these variables seem to paint a dire picture for commercial construction in New Hampshire and nationwide, how much has the rising costs really affected business? According to the latest Construction Confidence Index released by Associated Builders and Contractors at the end of September, not much. The outlook from most construction firms is that sales will continue to rise over the coming months, with higher profit margins expected. The survey found that the CCI for sales expectations rose from 72.2 to 72.6 during the second quarter, and expectations for profit margins increased from 63.4 to 64.5.

Bill Jean and Fulcrum Associates concur with the report. “Beyond 12 months the crystal ball gets a little fuzzy, but certainly if you’re looking at a 6 to 12 month window we feel very confident about the strength of the market and the industry. We don’t see a great trend upwards in profitability, but we’re still finding that work is being heavily competed for. There’s a lot of it out there, and there’s probably more of a volume available out there [today] than there has been in the last decade.”

The chances for any sort of slowdown in commercial construction in the short-term seems unlikely. The long-term outlook is not as clear. The biggest challenge to the commercial construction industry in the future is finding talented, young tradespeople. Access to labor and the shallow depth of the region’s trade talent pool happens to be the primary factor for the increasing cost of commercial construction in New Hampshire and the rest of the Northeast region. A rising cost that may or may not eventually catch-up with the industry, especially as it plans for a decline to the growth the industry has been enjoying. For the moment though, the cup runneth over.

Monday, January 15, 2018

NAI Norwood Group Sells 26,000+/- SF Office Building

PRESS RELEASE             Contact:  Cassie Farley 668.7000

NAI Norwood Group Sells a 26,000+/-SF Office Building at 44 Franklin Street in Nashua, NH – NAI Norwood Group is pleased to announce the recent sale of a two-story, 26,000+/-SF professional office building located at 44 Franklin Street in Nashua, New Hampshire. Up until approximately the late 1990’s, this building was more familiarly owned and operated as the main headquarters for the Nashua Corporation. Karl Norwood, Perry Snow and Matt Bacon of NAI Norwood Group represented the seller, 44 Franklin Street, LLC, in the transfer of the property to the buyer, Lofts 34, LLC (aka Brady Sullivan Properties).  According to the Hillsborough County Registry of Deeds, the property sold for $2,500,500.

This professional office building - along with its ownership rights, and parking rights involved with two nearby parking lots - was acquired by the buyer to combine with their immediately adjacent mill property located at 34 Franklin Street, currently being renovated into approximately 200+/- residential apartment units, and thereby provide additional parking which is in short supply in this area.  At the time of the sale, the 44 Franklin Street building was home to the Public Defenders, which tenant occupied the entire second floor. The vacant first floor portion was soon hoped to be a new location for Compass Innovative Behavior Strategies, which business operation specializes in behavioral therapy for autistic children and is currently headquartered in Bow, NH.  For full details on this sale, please contact Karl Norwood, Perry Snow or Matt Bacon at 603-668-7000 or info@nainorwoodgroup.com.

NAI Norwood Group is an affiliate of NAI Global, the world’s leading managed network of independently owned commercial real estate brokerage firms.  Through this network of 355 offices in 55 countries, NAI Norwood Group is able to leverage their 45+ years of dedicated local experience around the world. With our extensive background and strong local contacts, we are able to assist individual corporations in negotiating leases, sales, business brokerage, investments, relocation, site selection and development. For more information please visit www.nainorwoodgroup.com. Or contact one of our offices: 116 South River Road, Bedford, NH 03110, (603) 668-7000 or 28 Deer Street Suite 301, Portsmouth, NH 03801 (603) 431-3001.

Thursday, December 07, 2017

Tax Reform Could Impact Affordable Housing

Congress is proposing to gut LIHTC in the house version of the tax reform bill, as illustrated in a recent article (http://bit.ly/lihtcnh) by Kenneth Viscarello, Attorney at Sheehan Phinney, published in the NH Business Review. Attorney Viscarello outlined the proposed impacts in terms relevant to the housing market and means of financing such projects that we face in New Hampshire, and points out a couple of key changes that especially relate to the for-profit developers of affordable housing in this state.

The current code supports a public-private partnership that is essential to providing adequate stock of affordable housing, since the government can’t (and many say shouldn’t) be charged to meet the need, both from an efficiency standpoint and that of practicality.  Without the corporate tax exposure, need to buy these tax credits by the primary purchasers today will be reduced, and, as Attorney Viscarello points out, there are no other offsets to benefit LIHTC.  While not a one-dimensional issue, this impact is important to consider.

If you are interested in housing development, news relating to the industry, or just want to discuss commercial RE topics, please feel free to reach out to me through my profile, email me, or call my office at 603-668-7000 x216.

Matthew Bacon, MiCP
Commercial Real Estate Advisor

116 South River Road | Bedford NH 03110 | Main +1 (603) 668-7000
Cell +1 (603) 724-4554 | Direct +1 (603) 637-2005

What do Federal Tax Plans Mean for Real Estate?

There’s no indicator that the changes will structurally affect values

There has been much debate over the merits of the U.S. House and Senate tax plans coming out of Washington. For me, this forum is not to judge good or bad, but to give some insight on what the proposals are and what the likely outcomes could be.
In my role as a commercial real estate broker and volunteer for the Commercial Investment Board of Realtors, I visited Washington each of the last six years to discuss real estate issues with our representatives. This gives me a good insight as to which way the leaves are blowing.
First a quick disclaimer and civics lesson: While there has been a push to “get the bill passed before Thanksgiving” and now to “get the bill passed before the end of the year,” we really have no idea when or even if it will pass. If everything passes, the House and Senate will have to reconcile before anything gets sent to the president.  Users and investors should not take this article for investment advice, as it is the equivalent of trying to pick today who will win the 2018 World Series. There is just no way to know. (Except it should be the Boston Red Sox.)
Also, taxation is like a Whac-A-Mole. You may see savings in one area, but expense in another, so seek your tax adviser for a look at the whole picture.
While the focus of this article practice is commercial real estate, many folks have questions on residential real estate. Both plans call for the elimination of deductions on home equity line debt. In addition, the House calls for the amount of interest on debt in excess of $500,000 to be nondeductible (currently the limit is $1 million). It also eliminates outright the deductions on second homes. Also of importance to the state of New Hampshire is that the House and Senate plans cap real estate tax deductions at $10,000.
One key issue that came as a surprise on the commercial real estate front was proposed changes to depreciation. Currently, commercial real estate depreciation schedules are either 39 years or 27.5 years. Don’t ask me why those are the numbers – no one ever accused the tax code of making sense. The proposed change would have a nominal impact on multifamily investment assets, however on the office, industrial and retail front, we will see that you will be able to depreciate 4 percent of your asset’s value each year as opposed to roughly 2.5 percent. That is a considerable shelter which could increase the value on those asset classes.
Realtors have often been concerned about changes to Section 1031, which allows investors to sell an asset and defer taxation so long as they invest back into the economy with another “like kind” asset. Both plans offer no changes to this policy for real property. However there are some subtle changes for personal property that could affect items like equipment and specialty fixtures such as lighting. Best to consult your tax advisor with any questions here.
On the speculative side of the investigation is the Senate’s proposal to combine this tax plan with changes to the Affordable Care Act. While the details of this are not specific, there is a tax on investments that is embedded in the ACA. If a reconciled bill comes before the president, it is not certain at this time if that tax will remain or if it will go. The formula is somewhat complicated, but in short, the tax is 3.8 percent on investment gains above a certain dollar amount, based on earnings. Most folks are not even aware that this exists now, so it is unclear what impact this will have.
There is a saying that you should “never let the tax tail wag the investment dog.” I think the proposed changes are a good example. The changes here can have a major effect on your commercial real estate assets, both as investors and users. Tax reform could affect a small 2,000-square-foot office condo or a 100-unit multifamily investment.  However, at this juncture there is no indicator that a sweeping change (such as the passive income/loss rules in the mid-1980s) will structurally change values. Yes, there will be market fluctuations as a result and some asset classes will win and some will lose, but the macro factors of supply/demand and interest rates will trump these proposed changes (pun intended). Stay the course on your real estate goals. Your needs are likely more important than these tax changes.
Chris Norwood is president of NAI Norwood Group, Bedford.  Greg Bryant of Bedford Cost Segregation and Lynne Bagby of Asset Preservation Inc. both assisted in helping to explain the subject.


Tuesday, August 15, 2017

Investors Buying Office Space in Bedford NH

Bedford NH - NAI Norwood Group is pleased to announce two recent office sales in the Bedford NH market. 10 Chestnut Drive is a 13,690+/-sf two story office building off the busy Route 101 corridor comprised of a number of small, local businesses. According to the registry  of deeds it sold for $790,000. 116 South River Road Building B was a 7500+/-sf two story, steel framed, brick fa├žade condo that sold in the prestigious Coldstream Office Park at 116 South River Road. According to the registry of deeds it sold for $870,000.

“It is clear that these sales are a testament that a Bedford business address continues to be highly desirable.” Noted Louise Norwood, Principal at the firm. “With so much new development in town, along with the low interest rates, the demand remains high.”

“Both of these assets were sold to investors.” Added Chris Norwood, President of the firm, “With an additional sale of a small condo unit earlier in the summer, this marks our third investment product sale in Bedford in the last 60 days. While the owner occupant market is strong, the proof is here that investors are still seeking sound real estate as diversification to their other investments.”

NAI Norwood Group is an affiliate of NAI Global, the world’s leading managed network of independently owned commercial real estate brokerage firms.  Through this network of 400+ offices and 7,000+ professionals, NAI Norwood Group is able to leverage their 45+ years of dedicated local experience around the world. With our extensive background and strong local contacts, we are able to assist individual corporations in negotiating leases, sales, business brokerage, investments, relocation, site selection and development. For more information please visit www.nainorwoodgroup.com. Or contact one of our offices: 116 South River Road, Bedford, NH 03110, (603) 668-7000 or 28 Deer Street Suite 301, Portsmouth, NH 03801 (603) 431-3001.