Cleveland, OhioIn every country, they make fun of one city; in the U.S. you make fun of Cleveland; in Russia, we make fun of Cleveland. — Yakov Smirnoff

“Want to hear a joke about the construction on I-77?” “Sure.” “Sorry, it’s not finished yet.”

How do you know you if the cell phone you found belongs to one of the Cleveland Browns? It receives texts, takes voicemail and vibrates, but there’s no ring.

Clevelanders have heard it all, but those who call “the Mistake by the Lake” home might be getting the last laugh.

Success is a Habit

It’s often said that success is a habit, but so is failure. So when one takes a look at where Cleveland’s economy has been in years past, it’s easy but lazy to assume that failure is just Cleveland’s default position. Nothing, though, could be further from the truth.

At the turn of the 20th century, Cleveland was at least as important to the toddling automotive industry as Detroit was. A generation earlier, the company that would eventually be split into ExxonMobil and Chevron was founded there by local boy John D. Rockefeller.

The post-World War Two era was especially kind to the city, which at that point had come to measure its civic pride by the thickness of The Plain Dealer’s sports section. Between the Indians’ 1948 World Series victory and the Browns’ glory years of the mid-1940s through mid-1950s, Cleveland became widely known as “the City of Champions”. These were formative years for Don Shula and George Steinbrenner, two native Clevelanders born exactly six months apart in 1930 who grew up to learn a thing or two about winning it all. Don King, who’s met a champ or two, was born in Cleveland the following year. And, for whatever it’s worth, John Heisman — after whom the trophy was named — was at that time the city’s elder statesman of athletic competition.

Getting Back in Successful Habits

Still, there’s no denying that Cleveland has faded more than a little. Over the course of a hundred years, it dropped from the fifth-largest city in the United States to the 52nd-largest — 32nd-largest if you go by metro area. While not the highest-crime indexed American city, the concierge at your Downtown hotel will insist that you take a cab or shuttle van to your restaurant after dark, even if it’s only three blocks away.

The story of Cleveland — at least through the 19th and 20th centuries — is really the story of non-coastal urban America. It rode the tide of industrialization up, then rode it down. In 1978, in the wake of the oil price shocks and the loss of factory work to overseas competitors, Cleveland became the first major city to default on federal loans. By 1983, unemployment there peaked at 13.8%.

That was then. Nobody would ever accuse this city of lunchpails and hardhats of gentrification, but “revitalization” is an often-heard word. In addition to new arenas and stadiums demanded by sports-crazed Clevelanders, the Rock and Roll Hall of Fame opened up there in 1995, adding I.M. Pei’s Modernist flourish to Lake Erie’s shore.

With this renewed sense of energy, Cleveland managed to muddle through the Great Recession of 2007-2009 better than most. Such employers as the Cleveland Clinic, Sherman Williams, KeyCorp and Case Western Reserve University provided a great deal of insulation against the worst of it. Unemployment has been more or less in line with the national average, while roughly one in four jobs there remains within the manufacturing sector. That’s quite a trick.

And it is a trick, not happenstance. Cleveland’s civic leaders have proven to be somewhat better planners than those of many other Midwestern cities. Although data is hard to come by, there’s some anecdotal evidence that Cleveland’s steady-state population of around 380,000 isn’t just in contrast to Detroit’s sharp decline. It’s in part due to it. Cleveland has the reputation of being the city where other Midwesterners move to when their own Rust Belt town goes bust.

Urban vs. Suburban

As noted above, post-war Cleveland’s engine hummed — literally and figuratively — with economic vigor. That led to a mass migration of African Americans to the city and, as was all too common at the time, this led in turn to a mass migration of European Americans out of it. This led to the growth of the suburbs, particularly the towns now known as the “inner ring”.

The dynamic playing out right now in Cleveland is similar to that in other metro areas: The children of the suburbs are finding their way back to the urban core, finding mixed-use zones both more affordable and more naturally liveable.

“The construction of new units and the repurposing of underperforming commercial real estate assets into apartments is helping fulfill tenant demand in the city center,” according to a 2019 Marcus & Millichap report. “Subsequently, some employers like Nationwide Insurance are choosing to transition their suburban locations to downtown spaces.”

The report predicts that, with all this attention on the city center, vacancy rates will creep up there. Meantime, though, suburbs and exurbs can expect occupancy to tighten. Part of the reason is that what’s going on within city limits is mostly rehabbing of Class B and Class C units. If you want a Class A home you can afford, you might have to consider a long commute. According to a Crain’s Business Cleveland article, Orange Village, Shaker Heights and Beachwood have all attracted multifamily and mixed-use development and, subsequently, renters. YardiMatrix notes that Solon is the suburb that seems to be attracting the most multifamily real estate attention today.

Cleveland itself is divided into an east side and a west side by the Cuyahoga River. Long ago, these were two distinct cities: Cleaveland — original spelling — to the east and Ohio City to the west. In 1836, the construction of the Columbus Street Bridge allowed turnpike travelers to bypass Ohio City, essentially windjamming that town’s economic development. This led to riots, gunplay and at least one powder keg explosion, according to historians at Case Western Reserve University. Eventually, Cleveland absorbed Ohio City like a vanishing twin.

The old Ohio City mob would marvel at how little has changed. Most of the new development within the city today is solidly on the east side of the river. Downtown neighborhoods such as Public Square, the Flats and the Warehouse District are attracting investment, as is East 4th Street with its proximity to the Indians’ Progressive Field and the Cavaliers’ Rocket Mortgage Fieldhouse. The Euclid Avenue Corridor is a four-mile-long redevelopment program that extends four miles from the downtown district eastward into University Circle. Between University and Lake Erie lie Cleveland Heights and Glenville, establishing the east rim of the city line as some of the most desirable real estate submarkets in town.

These areas tend to attract more affluent knowledge or creative workers. Even so, both sides of the river are seeing the reemergence of middle-class communities. In fact, Tremont, adjacent to Ohio City, is emerging as one of the most desirable neighborhoods inside the city limits.

But it’s the lakefront that is developing the fastest. The Lake and Shoreway submarkets are looking at year-over-year rent increases of 6.5% to 7%, according to YardiMatrix, boosted by the rehabilitation of waterfront infrastructure.

But with all that building and rebuilding going on, Cleveland remains on whole a particularly affordable place to live. It is so affordable, in fact, that it’s dramatically less expensive to pay a mortgage than to pay rent. And yet people who move to — or move back to — Cleveland gladly pay that premium to a landlord. How long that lasts, though, is a factor of how successful the city proves to be in converting just-passing-through young careerists into multigenerational families.

“Renting is significantly more expensive than owning,” according to Yardi. “Homes in the metro remain among the most affordable in the country. However, the cost of living is escalating, while wage growth remains flat. Cleveland residents are increasingly challenged to find affordable housing, especially since roughly two-thirds of incoming stock is targeting professionals relocating to high-end properties in the area.”

And while it’s true that Cleveland has done a better job than most cities at attracting college graduates, most longtime residents would eagerly trade them all to get LeBron James back.

Cleveland at a Glance

  • Construction (projected, 2019): 1,600 units; while a decline from 2018’s 2,000, this would the first time since in the 21st century that more than 1,500 units were delivered in two consecutive years
  • Vacancy rate (projected, year-end 2019): 5.8% metro-wide, down 20 bps year-over-year
  • Annual rent (projected, 2019): $940, up 3.1% year-over-year

Sources: Marcus & Millichap

Detroit, MichiganTo many people along the coasts, Detroit is a bust. One in three Detroiters lives in poverty. Entire blocks are abandoned, and whole neighborhoods go with minimal police protection or even street lighting — the so-called “grayfield”. The only reason you don’t hear more about corruption in Detroit’s City Hall is because of its proximity to Chicago’s. There are only a hundred feet of difference between Detroit’s highest point and it’s lowest, providing the kind of unbounded plain you’d expect tumbleweed to roll across. And to top it off, the weather is awful.

But maybe Detroit has hit its inflection point. True, it’s still losing population, but not like it once was. Almost one out of every four Detroiters left town as a result of the Great Recession; that’s an even higher proportion than moved out during the oil shocks and economic turmoil of the 1970s. But jobs are coming back, despite ongoing restructuring in the city’s emblematic auto industry. While some areas have gone fallow and might just return to nature, the Downtown, Midtown, Corktown, and Lafayette Park sections are just as packed with hipsters as anywhere in Brooklyn or San Jose. And the weather — well, believe what you will about global warming.

Out With The Old

Viewed from the outside, Detroit looks like a fix and flipper’s dream. In 2016, the mean price for an apartment in a five-unit-or-larger building was $304,380. A single-family, detached home went for $68,701 on average. In some Detroit neighborhoods, most of us could buy a house and put it on a credit card.

But things could be worse. And recently had been. In 2012, when the economic recovery proved slow to spread to the upper Rust Belt, something like 1,300 Detroit homes a month were sold, while the average price plunged from around $70,000 to around $56,000. Meanwhile, the city issued just four residential building permits. Not four per month. Four over the entire course of 2012. Construction has come back since — at least permits are in the double digits now. But Detroit still has the lowest ratio of housing starts-to-population of anywhere in America.

Of course, housing price collapses don’t happen in a vacuum. They’re a symptom of a larger economic catastrophe and not the symptom which the population experiences almost immediately. Detroit’s falling residential real estate market stemmed from a rise in both unemployment and crime. Motown’s jobless rate climbed as high as 14%, and its incidence of violent crimes renders it No. 2 to Camden, N.J., on’s least-safe cities list.

The fair question to ask is, “Why would anybody live there?” Originally, it was a key port connecting the Great Lakes with the St. Lawrence Seaway. To this day, it’s the most voluminous point of entry into the United States — yes, that’s right, more traffic comes into Detroit from Windsor, Ontario, in a day than crosses into the States from anywhere along the Mexican border. And as the ancestral home of the American auto industry, the Detroit metropolitan area claims the third-largest local economy in the Midwest, behind Chicago and Minneapolis-St. Paul. There’s plenty of money to be made there, but the time when a shift worker could expect lifetime employment at a middle-class wage is gone, and there are still hundreds of thousands of people who haven’t figured out a Plan B yet. If you do have a job, though, your paycheck goes farther in Detroit than in any other city in the U.S., according to Forbes.

And of course, there’s the cultural scene. It’s famous as a magnet for visual artists and even more famous as a magnet for musicians. While widely associated with Berry Gordy’s studio that produced the Supremes, the Temptations and much of the rest of the 1960s’ soundtrack, Detroit is also an important spot on the rap, jazz, blues, techno and rock maps. Architecturally, there are few cities that compare and UNESCO named Detroit a City of Design, a designation that has so far eluded every other U.S. city.

In With The New

And yet Detroit never cried “uncle”. Yes, the city famously became the largest municipality in America ever to declare bankruptcy; that made headlines in 2013, but less noise was made when it emerged from protection in 2014. While crime remains pervasive in the city as a whole, the urban core is emerging as a safe space. And unemployment, while not quite at the labor-shortage level that has become the national average, has dropped to around 4.7%, seemingly in record time.

That employment isn’t coming from the traditional — that is, automotive — sector. Manufacturing is down to about 12.6% of the city’s jobs. There are more opportunities in education and human services; trade, transportation and utilities; and professional and business services. Construction, while accounting for less than 4% of Detroit jobs, is the fastest-growing segment of the local economy by far at 6.1% year-over-year employment growth.

While Chrysler and General Motors remain major employers in Detroit — Ford not so much — these aren’t where the growth is occurring. Government, health providers, schools, utilities, and the hospitality and gaming industries make up much of the rest of the workforce. The boost in white-collar jobs has come courtesy of Quicken Loans, Compuware, Comerica, Deloitte and the headquarters of Little Caesar’s.

The population is growing — slowly, but at least the needle is pointing the right direction now. More than 7,000 people moved into Detroit in 2017. While this represents a population growth slower than that of the U.S. as a whole, it also represents a reversal of direction for a city that has seen a consistent decline since the 1950s.

“Drawn by the market’s low entry costs and attractive yields, multifamily investors primarily targeted Class B and C assets with a value-add component,” according to Adriana Pop writing in a Yardi Matrix report for winter 2019. “Following the completion of only 306 units last year, deliveries are bound to hit a cycle high in 2019, with 2,730 units expected to come online.”

Right Time, Right Place

As can be claimed by any city, each of Detroit’s neighborhoods has its own distinct personality and its own distinct destiny. While the city is overwhelmingly African-American, there is an enclave of Indians and Pakistanis in Hamtramck, for example, and a recent influx of Mexicans gave rise to the rather hastily named Mexicantown. The Hmong population of the Osborn section was featured in Clint Eastwood’s 2008 film Gran Torino.

“Submarkets recording the strongest rent hikes included Dearborn (up 7.3% to $1,346), which now commands the metro’s highest rents, as well as Detroit–West (up 7.2% to $641) and Holly/White Lake (up 7.0% to $797). Following Dearborn, Bloomfield Hills/Birmingham ($1,306), Detroit–Downtown ($1,297) and Detroit–Midtown ($1,232) also posted some of the highest rates across the metro,” Pop writes for Yardi. “The resurgence of Detroit’s core is bound to prompt developers to bring more multifamily units to the market.”

Downtown and New Center are getting the most attention, but that’s hardly surprising in this age of urban gentrification. We told pretty much the same story about Chicago, Houston and most recently Los Angeles. Even so, it’s important to remember that the Detroit metropolitan area has 4.3 million residents, and the city accounts for only around 700,000 of them. At the moment, the biggest single project in the pipeline is a 613-unit mixed-use community in Clinton Township, referred to by the locals as “up I-94 past the Walmart.” Dearborn, Canton/Plymouth, and Waterford are also active submarkets.

But even the more shopworn areas of Detroit have not been forgotten by policymakers, so ought not to be completely dismissed by investors. Fannie Mae supported two communities with a total of $47 million in refinanced loans for green initiatives, and Detroit is more active than most cities when it comes to subsidizing affordable units.

“To avoid the massive displacement of renters as low-income housing tax credits expire through 2023,” according to the Yardi study, “the city council has approved nonprofit Detroit Local Initiatives Support Corp. as manager of its $250 million Affordable Housing Leverage Fund, set up with the purpose of preserving 10,000 existing affordable housing units and creating an additional 2,000 units.”

A lot of the action, then, is at the low end. The Yardi report, which tends to focus on Class A, B, and C stock, makes note of Detroit’s C- and even D units. Even so, there is a high end emerging in both the city core and the exurbs. The draw for investors is that Detroit’s high end has as low a barrier for entry as you can find in a major American city.

Detroit at a Glance

  • Average monthly rent (projected, year-end 2019): $1,015, up 3.8% year-over-year
  • Vacancy rate (projected, year-end 2019): 3.6%, up 30 bps year-over-year
  • Annual multifamily transaction value (10-year average): $328.1 million
  • Homeownership rate: 70.0%

Sources: Marcus & Millichap, Apartment Association of Michigan

Los Angeles County is a trapezoidal expanse of arid land stretching from an ocean of salt water to an ocean of sand and rock, punctuated by unscalable mountain peaks and towering canopies of ancient woods. Water has always been precious there, and the land is becoming just as scarce. It’s absurd that more than 10 million people live in Los Angeles County, but the weather is just so nice!

As big as this county is — and it’s bigger than the two smallest states combined — only a portion of it has places where people actually want to live, and those communities are rapidly getting built out. (In case you’re wondering, the combined population of Rhode Island and Delaware is 2 million.)

“Buying a home has become out-of-reach for three-quarters of LA County residents,” according to YardiMatrix, citing the California Association of Realtors. “As home values climb faster than wages, many would-be homeowners turn into long-term renters.”

So that leaves builders struggling to keep up with demand. They were winning the race for a couple of years, and the rental market did soften for a while. But it might be heating up again, as the 10,000-unit-per-year construction sprint proved not only sustainable but actually insufficient. According to Marcus & Millichap, 2019 deliveries could beat 2018’s by over 50%.

‘Landlord’s Market’

The winter 2019 Yardi report points to what it calls a “landlord’s market” triggered by the county’s job growth causing new residents to flood in. “Despite a surge in rental construction, the average occupancy rate has remained high, at 96.6% as of October,” the study says.

If that’s true, it’s bound to get even tighter from here. When compared to the U.S. economy as a whole, Los Angeles County is actually something of a laggard. In good times or bad, any region would brag about having 1.4% more jobs than it had a year ago, but LA’s figure stands far below the national average of 2.0%. Similarly, a 4.8% unemployment rate is not in the least unhealthy, but the American norm comes in at 3.7%. So it would appear that the Angeleno job market still has room to grow and, thus, so do Angeleno rents.

Even though L.A. job growth is slower than the U.S. average, the rents are significantly higher: $2,178 versus $1,419. The county is so choked with potential tenants that Yardi subdivides them into two classes: “lifestyle” renters as opposed to “renters-by-necessity”. The former, comprised mainly of retirees, have the wherewithal to buy a house but choose not to. The rest — young professionals, blue-collar workers, the military — don’t have much of a choice financially.

These correspond, more or less, to the distinction in housing stock between Class A and Classes B and C. It’s telling, then, that the deeper you go into the alphabet, the more rapidly rents are rising. This is reflected in acquisition yields, which start at 4% for Class A and rise to 6% for Class C.


Los Angeles has famously been called “72 suburbs in search of a city.” That barb has stung Angelenos for almost a century now, but it only hurts because it’s true. Further, each of these communities has got its own housing market dynamics. Average rents range from Lancaster’s $1,294 to Century City’s $6,611.

We won’t go all the way through the list, but some high points jump out. First, L.A. seems to have found the city it’s been searching for. More than 5,000 units are under construction in Downtown Los Angeles, making it the hub for residential development in the area. It’s followed by East Hollywood and Hyde Park, then the communities along its 70 miles of oceanfront.

Much of that oceanfront development is toward the southern end of the county. “Expansions by defense and aerospace-related firms enhance the appeal of cities south of LAX Airport,” Marcus & Millichap report. “To the north of the airport, smaller Class C assets trading at high-2 to low-3 percent initial yields steer deal flow.”

Such neighborhoods as Hyde Park and Ladera are seeing some of the highest rent increases, approaching 10% in both of those submarkets — stretching the definition of what passes for affordable living in L.A. Canoga Park, tucked away in the San Fernando Valley to the north, saw more than $500 million in transaction value in 2018, more than any other L.A. County community outside Downtown L.A.

Beyond the Valley sits Santa Clarita, a community of 200,000 that really has very little to do with the mega-city to the south. This edge city has its own identity and its own economy, which includes $434 million in 2018 real estate transaction value.

Children of the early 1990s might be wondering about the nation’s most famous ZIP code: Beverly Hills 90210. Turns out, almost half of Beverly Hills rents — funny how we never saw an apartment building on the show. Along with neighboring Westwood and Bel Air, it continues to see higher rents every year.

The Other Half

All the neighborhoods mentioned so far have one thing in common: They’re all on the same side of a very real line that bisects the county into a desirable western section and a struggling eastern section. The line starts at the northern county limit, following Interstate 5 around the eastern edge of Downtown L.A., then following Interstate 110 to the southern county limit.

But just because Hollywood’s rich and famous ignore that half of the county doesn’t mean multifamily housing developers do — or that they’re not finding investors to back these plays. Certainly far more money is being poured into the luxury markets west of the interstates — perhaps too much, considering how occupancy rates are declining — but there are still plenty of opportunities in places that few others are focused on.

In addition to opportunities in the aforementioned San Fernando Valley, “buyers seeking upside-producing opportunities in areas of tight vacancy eye listings in … cities north of Route 60,” according to a Marcus & Millichap report. “Here, the 1960s- to 1980s-built Class C properties provide investors with low-3 to mid-4 percent first-year yields.”

Route 60 starts in the economically disadvantaged neighborhoods of East Los Angeles and runs east into San Bernardino County. These communities include Monterey Park, West Covina and the university town of Pasadena.

But east, west, north or south, there is more nuance to Los Angeles County than there is to most states. From the beachfront to the mountains to the forests beyond, this is the most populous non-state municipality in America, and it defies easy pigeonholing. It could easily spin off a Santa Clarita County, a Palmdale-Lancaster County and a Long Beach County, each of which would be a major population center. So even in the worst of times, there’s bound to be some interesting investment case in this multifamily real estate market. And these are anything but the worst of times.

Los Angeles at a Glance

  • Average monthly rent: $2,350/month, up 4.0% year-over-year
  • Vacancy rate: 3.9% and rising
  • New units (projection): 14,800 in 2019, compared with 9,700 in 2018

Sources: YardiMatrix, Marcus & Millichap

Regular readers of this space are already aware of opportunity zones — the specific tracts of land throughout the United States in which the federal government offers tax incentives to invest. But it’s worth taking another moment to understand exactly where these tracts are, which benefits the tax man is offering and what the potential downside could be.

As for where they are, they’re all over. They’re urban and rural, in states and territories. There are more than 8,700 separate opportunity zones, and they comprise roughly 11% of the U.S. land mass.

Opportunity zones were created as part of the Tax Cuts and Jobs Act of 2017, and their establishment was the one part of the tax reform package which garnered the most bipartisan support.

By definition OZs are, according to the Internal Revenue Service, “economically-distressed”. But there’s distressed and there’s distressed. You’ll find blighted inner-city neighborhoods as well as underdeveloped swaths of isolated Rustbelt towns. You’ll also find plenty of Indian reservations, which are among the poorest ZIP codes in America. But you’ll also find a slice of midtown Manhattan. It’s in the 50s west of 10th Avenue. Sure, that area is still referred to as “Hell’s Kitchen,” but now it’s more well known as the neighborhood southwest of the Trump International Hotel and Tower. I don’t know how many other opportunity zones have both BMW and Mercedes-Benz dealerships, but that one has them both — plus Audi. But regardless of what legislative alchemy went into defining “economically-distressed,” the Community Development Financial Institutions Fund now administers the Opportunity zone program as a fully constituted agency of the U.S. Treasury Department, and savvy investors are looking for ways to leverage the tax breaks afforded by this new initiative.

Pluses and Minuses

To start with, all investments must be made through a qualified opportunity fund — you can’t just pour money into a project located in an opportunity zone and expect to realize any tax advantage. Also, the tax benefit isn’t for everyone, but rather it’s geared to those reporting capital gains. You have 180 days from the time you realize those gains to find a QOF in which to invest. While individuals and businesses realize capital gains every day of the year, in some cases you don’t know if you’re reporting a net capital gain or net capital loss until you do your taxes. In those cases, you have 180 days from December 31 of the filing year, so don’t be surprised if there’s a gold rush to park money in QOFs in June.

There are three main benefits of deploying your capital gains toward QOFs. The first is that you can defer paying those taxes for seven years. Next, there’s an opportunity to reduce the taxable amount of the capital gain. Say you came into a net $100,000 from the sale of stock and you funnel it into a QOF. If you keep it there for those seven years, then you won’t be taxed on 15% of the gain. So, when the tax bill finally comes due, you’ll have to pay taxes on $85,000 rather than $100,000. If you can only keep your money there for five years, then the taxable amount is reduced by just 10% and you’ll be taxed on the other $90,000.

Lastly, as an incentive to lock your money into the project, any gains you make from selling your interest in the QOF are tax-exempt providing you stay in it for at least 10 years. But there are potential downsides. First, there is the opportunity cost. Money invested in QOFs is money that could be invested in other tax shields, such as the New Markets Tax Credit, which might sunset at the end of this year — or be renewed indefinitely; nobody really knows.

And let’s be real: Tax treatment is only one element of what constitutes a good investment, and it’s usually not the only one. Presuming you would still want to invest your capital gains in multifamily real estate, you might prefer to go with some Class A high-rise that doesn’t need tax incentives to make it an attractive project.

Another consideration to weigh is liquidity. You can’t, generally speaking, have both the tax deferral and periodic cash distributions. The QOF can get around this by refinancing the underlying investment and sending that freed-up cash the investors’ way, but it might be best to only put in money that you don’t need to see for 10 years.

New Rules

Some investors might have been sitting on the sidelines the past few months, wondering which would come first: Treasury’s long-awaited update to its guidance governing OZ investing, or the 180th day after December 31, 2018, when the window will close for finding homes for a lot of net capital gains. The guidelines won the race April 17, so we’ll see what happens now.

It specifies that a QOF could own multiple assets and sell off individual properties in its portfolio.  Additionally, “the guidance makes it easier for funds to ensure compliance with the requirement that a fund has 90 percent of its assets invested in Opportunity Zones and expands the working capital safe harbors,” according to a Treasury press release. “The proposed regulations also provide clarity on treatment of gains on long-term investments, ownership and operation of the business, and what constitutes Qualified Opportunity Zone Business Property.”

Facts About the new Opportunity Zone Guidelines

  • Investments can only be made via qualified opportunity funds, partnerships or corporations set up specifically for investing in eligible properties located in OZs. LLCs are permitted.
  • The bar to establishing a QOF is not high. It involves self-certifying by filing Form 8996 with the IRS.
  • A taxpayer can transfer property other than cash as an investment to a QOF, but might not be able to take advantage of all tax incentives.
  • A list of qualified opportunity zones can be found here.
  • A map of qualified OZs can be found here. (Go to the Layers icon on the menu along the right side of the screen, select “Qualified Opportunity Zone Tract,” deselect all other options and zoom in to your region of interest. Opportunity zones will be shaded in blue.)

Source: IRS, CDFI

[Caption Opportunity zones in greater New York. Credit: U.S. Treasury Department]
[Caption Opportunity zones in greater New York. Credit: U.S. Treasury Department]
[Caption Opportunity zones in the Deep South. Credit: U.S. Treasury Department]
[Caption Opportunity zones in the Deep South. Credit: U.S. Treasury Department]
[Caption Opportunity zones in Puerto Rico and the U.S. Virgin Islands. Credit: U.S. Treasury Department]
[Caption Opportunity zones in Puerto Rico and the U.S. Virgin Islands. Credit: U.S. Treasury Department]

If there’s one borough of New York City that is often associated with urban blight, it’s probably the Bronx. In recent years, however, it’s become another striking example of urban renewal in the United Stands. Real estate prices continue to rise, albeit with slowing velocity, throughout the city, and throughout the country, for that matter. But the Bronx, starting from a lower baseline than the other boroughs, seems to be maintaining its stride. There’s a lot going on up there in the only borough on the U.S. mainland, and there’s a lot more likely to happen in its multifamily real estate market in the years to come.

Proximity and Paradox

A combination of four East River bridges and tunnels connect Manhattan to Brooklyn, and another five connect to Queens. But there are 11 spans over the Harlem River that cross between Manhattan and the Bronx, and some of them are shorter than a football field. And yet it’s a world away. The two counties separated by such a thin ribbon of water have almost the same population, yet the Bronx’s average household income is literally half that of Manhattan, and average monthly rents are little more than one-third.

True South

When most people think of the Bronx, they think of the South Bronx. That’s the area closest to Manhattan, it’s where the Yankees play and it’s where local TV crime reporters have become part of the streetscape. Its grittiness has been showcased by film makers and authors including Spike Lee and Tom Wolfe to name a few. But reality is less clearly delineated than film or literature, and the South Bronx is far more complex. The “South Bronx” has become a metonym for “the blighted areas of the Bronx” rather than a specific geographic region — like “Wall Street” refers to the New York financial industry more often that it refers to a specific stretch of pavement in lower Manhattan. It’s hard to name a part of the South Bronx that isn’t dealing with some form of socio-economic issues. Nonetheless, it is exactly those issues that make the region ripe for renewal, and builders have not been shy about moving their equipment along the riverfront. In fact, 27% of New York City’s approved permits for the first half of 2018, the latest statistics available, were in the Bronx, and mainly in exactly those neighborhoods that the 21st century economy — and about half the 20th century economy — left behind.

“The building boom is especially prevalent along the South Bronx waterfront,” according to reporter Devin Gannon at 6sqft. “The neighborhood of Melrose ranked third, just under Long Island City and East New York, for the most authorized permits” from July 2017 to July 2018. The New York Post concurs. “The southwestern edge of the Bronx is getting ready for a skyline-shifting series of commercial redevelopments,” according to real estate writer Lois Weiss. “Dotting the bottom of the borough — along the narrow Bronx Kill channel between the Bronx and Randall’s Island and running east into the Port Morris area — are notable conversions.”

Beyond the 6 o’clock News

When people say “the South Bronx,” they really ignore much of the area east of the Bronx River. True, Parkchester, Clason Point and adjacent areas face the same struggles as their neighbors to the west and are little better off financially. Still, such perfectly viable communities as Pelham Bay, Throgs Neck, Schuylerville and Country Club thrive as middle or mixed-income neighborhoods.

Meanwhile, prosperous neighborhoods spread out north of Pelham Parkway. East of the river, City Island stands out as a redoubt of marinas and antique shops. Nearby Co-Op City is hard to miss: Its 35 high-rise multifamily structures rise above surrounding Baychester and comprise the largest single residential development in the country. Deliberately middle-class, Co-Op City residents must have no felony convictions, a credit score of at least 650 and an annual household income in the range of $25,000 to $156,000.

West of the river, the North Bronx has neighborhoods which skew even further upscale. Kingsbridge and Riverdale offer particularly attractive addresses, as does Marble Hill, which is technically part of Manhattan. It used to be unquestionably part of Manhattan, but then public works projects in 1895 and 1914 disconnected it from the rest of the island and reconnected it to the mainland, respectively. So it’s more or less part of the Bronx, but falls under the authority of New York County rather than Bronx County.

Room to Rent

Of all the places in the United States with populations exceeding 50,000, the Bronx has the highest percentage of renters. And yet, the Bronx continues to fly under a lot of radars. A recent Marcus & Millichap brief on the New York multifamily market doesn’t even mention the borough. The New York-centric Ariel Property Advisors, though, takes a more locals-only view. According to its January 2019 report, more than $2 billion were invested in new development in the Bronx last year, more than half of it in those South Bronx neighborhoods that are in the most desperate need. “The multifamily asset class once again served as the driving force for the Bronx investment sales market, totaling 59% of the borough’s dollar volume and 56% of the transaction volume in 2018,” according to the Ariel report.”[T]he Bronx multifamily market posted 176 transactions that took place in 2018, representing a 19% increase year-over-year. Property volume followed the upward trend due to multiple portfolios trading hands, for a total of 288 buildings sold, which correlates to a 33% increase since the prior year.”

The report notes that much of this new construction is concentrated in the South Bronx neighborhoods of Mott Haven and Longwood, as well as the less well-heeled sections of the Northwest Bronx: Fordham, Norwood and Belmont. Much of this is directed at providing affordable housing, which we discussed in our article on Queens. While Ariel strikes a tentative note that the City Hall’s emphasis on this market could represent “headwinds” for real estate investors, their report concedes that almost 35,000 new affordable units were built in the Bronx between 2014 and 2018, and that this is on track with Mayor Bill De Blasio’s goals.

Bronx at a Glance

  • Average monthly rent: $1,694 and steady
  • Average multifamily unit sales price: $185,436, up 5.6% year-over-year
  • Multifamily cap rate: 4.94% and steady
  • Multifamily gross rent multiplier: 12.08, up 1.6% year-over-year

Sources: RentCafe, Ariel Property Advisors

Chicago real estateChicago might have a bad reputation when it comes to crime. Or taxes. Or commuter horror stories. Or artery-clogging street food. For decades, companies had been abandoning Chicago for more temperate climates (that is, literally anywhere else). But that polarity has changed. For every General Mills or Butterball or Mondelez International that left town, there’s a Walgreens or JPMorgan Chase or GE Healthcare that has increased its footprint along Lake Michigan.

Balancing act

At this moment in time — and it might be fleeting — supply and demand are in rough parity throughout Chicagoland.“ Apartment absorption picked up considerably during the first half of this year, particularly in urban areas,” Bisnow reported in October, “But there is still a race between supply and demand. Despite the increase in demand, there has been a lot of new supply, and that means vacancy hasn’t moved much recently.” That balance can’t last, not with the free-swinging market dynamics that are currently running their courses throughout the metropolitan area.

According to Institutional Property Advisors’ recent Chicago outlook report, vacancies are rising faster around Chicago than across the U.S. in general. In related news, Chicago rents are rising more slowly — as a whole. While Class A rents will likely struggle to find a 2% increase this year, Class Bs are projected to gain 3% and Class Cs 4%. This is an inversion of what happened in 2018.

Institutional Property Advisors further forecasts that, while 2019 completions will approximate those in 2018, absorptions will drop by about one-third. While that would point to declining leasing prices, it’s also true that Chicago mortgage payments far exceed effective rents and the gap between the two continue to grow. That would tend to signal that there’s ample room for rents to increase and still be competitive with home ownership, but who knows?

Staying in the Loop

Downtown is, apparently, where the action is. “Rents in the newest buildings remain at record levels, and occupancy has held fairly steady despite new supply,” Bisnow quoted Tom Weeks, an executive with Lendlease as saying, “all of which speaks to a healthy multifamily market as the population of Downtown continues to rise.”

Weeks’s company is developing multi-unit properties along the South Loop section of Downtown Chicago, but his perspective isn’t just a matter of anecdote. There are data to back up reports of the area’s resurgence. Just because Amazon took a pass on Chicagoland doesn’t mean that other tech companies aren’t finding compelling reasons to rent commercial space there — and Downtown in particular. And, as commercial real estate goes, so goes residential.

“Corporate expansions and relocations to Downtown Chicago and surrounding neighborhoods are boosting incomes and supporting household formation. Tech companies, including Google and Facebook, are growing their footprints and increasing hiring. Software firm Salesforce is also considering expanding its presence downtown, potentially bringing 5,000 jobs to the area,” according to Institutional Property Advisors. In response, “[m]any professionals are renting in the city’s dense urban areas as high costs in these neighborhoods make homeownership difficult. As a result, apartment vacancy in the city of Chicago began to improve in late 2018 at a faster rate than in the suburbs despite elevated construction.”

Still, despite Weeks’s optimism, other published reports suggest that Downtown, and especially the South Loop, are going to face price pressure as thousands of units come online. Crain’s Chicago Business reports that “[l]andlords in the South Loop will face more competition over the next two years, as developers complete more than 2,200 units in the neighborhood,” and that across the entire Downtown area 8,400 units will be built through 2019 and 2020.

Fortunately, there’s much more to Chicagoland than Downtown, and the adjacent Near North Side, Near South Side and Near West Side. While everyone is keeping their eye on the city core, some savvy investors have been placing bets on multifamily units well into the suburbs. Grayslake and Chicago  Heights North rents were up 11.3% and 7.3% year-over-year respectively, according to Yardi Matrix. Meanwhile big projects are being built out in Wheaton and Shaumburg.

Chicago at a glance

  • New construction: 9,500 apartments in 2019 (projected), compared with 9,200 in 2018
  • Vacancy: up 30 basis points in 2019 (projected) as completions outpace absorption, reversing last year’s 40 bp decline
  • Average effective rent: $1,510/mo (projected), up 3.2%
  • Median annual household income: $53,006 in 2016, up from $38,625 in 2000; still below Illinois’s statewide figure of $60,960

Sources: Marcus & Millichap,

Brooklyn, New York

Brooklyn has been through a lot of changes since the 1950s. It evolved from a rough-around-the-edges, working-class borough of New York City to a blighted but unbowed urban expanse that forged its own voice. Then it became the frontier for artsy technocrats with a taste for coffee shops, galleries, gastropubs and event spaces. In short, Brooklyn evolved from humble to hip over the past few decades.

But many real estate professionals are giving public voice to what was, two years ago, sheer heresy: Maybe this New York City borough — if it were still its own city it would be America’s third-largest — isn’t as hip as it used to be.

There’s Brooklyn, Then There’s Everywhere Else

It’s hard to compare Kings County, as Brooklyn is otherwise known, with anyplace else. Life is quantitatively and qualitatively different. A higher percentage of Brooklynites commute via subway than people living in any comparable municipality. Gentrification has completely transformed neighborhoods as, over the past 20 years, average per capita income practically doubled with knowledge workers and creative types who work in Manhattan filling up rehabbed brownstones and spurring new construction. Brooklyn is majority minority, with black and Hispanic residents accounting for 54% of its 2.5 million residents. The remainder of the community has another distinction: The Jewish population of Brooklyn, 561,000, is larger than that of Jerusalem.

[Caption: Mural inside Dumbo’s One Girl Cookies pastry shop by Aaron Meshon]

Brooklyn evolved into a patchwork of neighborhoods that, to a degree, you can’t ignore, are often defined by dominant ethnic groups. The Chassidic and Orthodox Jews are concentrated in Borough Park and Williamsburg, while a vibrant Chinatown has emerged in Sunset Park. The language on the street in Bushwick is Spanish, and that in Brighton Beach is Russian. Caribbean culture exploded onto the scene in East Flatbush and Bedford-Stuyvesant continues a long tradition as a cradle of African-American culture.

Of course, not all Brooklyn neighborhoods are defined by ethnicity. The creative and high-tech worlds are studiously diverse, so gentrification has blurred a lot of long-rutted lines. Hipsters have staked their homesteads in Red Hook and Park Slope and reclaimed a stretch along the once-sketchy East River waterfront that has come to be called Dumbo, an acronym for Down Under the Manhattan Bridge Overpass.

“How much? Fuhgeddaboudit!”

“Fugheddaboudit” doesn’t literally translate into “Forget about it.” It’s more like an expression of resignation, or a gentle phrases Brooklyn natives might utter when you tell them what the upstairs unit just sold for. But maybe the decades-long rising temperature of the local housing market is beginning to lose steam.“ The average price per square foot of multifamily buildings in 2018 in Brooklyn was $192, down from 2017’s average of $371,” according to TerraCRG. “The average price per unit was approximately $199,000, down 34% from approximately $303,000 in 2017.”

Others, particularly real estate firm Elliman and appraiser Miller Samuel, still see multifamily unit prices rising, but volumes declining. Brick Underground quotes a Miller Samuel statistic that Brooklyn inventories are up an astonishing 75% year-over-year. We’ll see how sustainable high prices are amid high occupancy, and we’ll also see what effect this dynamic has on the buy-versus-rent decision every home hunter considers. But when you see the gentrification going on in Queens, northern New Jersey, and upper Manhattan, you might think you’re in the 2001 version of Brooklyn. It’s possible that this venerable borough might be an overbuilt buying opportunity about to happen.

Brooklyn at a Glance

  • Average monthly rent: $3,125, up 3% year-over-year
  • Median condo sales price: $805,000, down 5.9% year-over-year
  • Market share of new development rentals: 20.3%, up 1.7% year-over-year
  • Condo absorption rate: 3.2 months and rising sharply

Sources: The Elliman Report

Houston is home to a complicated housing market. That’s not surprising, considering that it’s the fourth-largest city in the United States, the largest international cargo hub and has a city limit that’s one-third larger than New York City’s.

But the Houston housing market’s most notable feature is the exceptionally wide range in price between two otherwise comparable homes in different ZIP codes. Houston doesn’t top the list of’s list of markets with the highest housing value disparity — Atlanta holds that distinction — but Houston is by far the biggest town among the top 100 of 50,000+ residents and the only one with a population exceeding 2 million.

This kind of discontinuity in the market is often linked to social factors that perpetuate poverty, because which side of the divided highway your house sits on is often the only determinant of why it’s worth some percentage less than the same house a quarter mile away. And, since property values on your side of the interstate don’t appreciate as quickly as those on the other side, you can’t grow wealth as quickly as your near-neighbors.

But that unfortunate trend might be reversing in Houston for one very good reason: The city’s population is growing quickly, and its housing stock is virtually standing still.

[Caption (Free via Creative Commons providing credit is given): The Unisphere in Flushing Meadows-Corona Park, a vestige of the 1964 World’s Fair. Credit: Beyond My Ken]






Caption: Houston’s skyline viewed from Sabine Park. Credit: Jujutacular

A Tale of one City

What’s good for the energy sector is good for Houston, which has long been tied economically to oil and petrochemical industries. As long as the pipelines are pumping crude down toward the Houston Ship Channel, there will be a pipeline of people moving into town.

And, as of this writing, the oil is flowing. As disruptions strike Venezuela and significant parts of the Middle East, America — that is, Texas — has extended its lead as the world’s largest exporter.

Unlike other cities sitting atop the world’s oil patches, Houston has consistently strived to diversify its industrial base. Its nickname Space City comes from the NASA complex that has come to be known as the Johnson Space Center, which houses the mission control room that has overseen every manned spacecraft the agency ever launched. But Houston also has frothy career opportunities in broadcasting, telecommunications, electronics and of course construction.

The closer you get to the Gulf of Mexico, according to one recent report, the better the economy — and housing market — get. “East, southeast and south Houston apartment properties, especially those in areas near the Texas Gulf Coast, are capturing significant interest as a busy port and petrochemical boom drive apartment demand, according to a 2019 Marcus & Millichap study. “Cap rates in these submarkets have averaged 50 to 100 basis points higher than comparable properties in central Houston, as well as those located in areas to the north and west.”

Although 2018 saw a spike in deliveries of new rental units in Houston, they were in large part replacements for housing stock lost in 2017’s Hurricane Harvey, which is a major reason why supply isn’t currently keeping up with demand. “While a tragic event, the impacts of Hurricane Harvey on Houston’s housing market have resulted in a quick snap rebound for the multifamily sector,” the report continues. “With demand continuing to increase as Houston begins its economic recovery, the multifamily sector should see a return to growth and the construction pipeline.”

According to Texas A&M’s data, the Downtown submarket is experiencing the most growth in multifamily units. Sugar Land/Stafford/Sienna, Montrose/Museum/Midtown and I-10 East/Woodforest/Channelview have all seen several recent grand openings, as has Galleria/Uptown. Meanwhile, Braeswood/ Fondren SW, Baytown and Energy Corridor/CityCentre/ Briar Forest have seen a number of large apartment buildings change hands. Construction toward the end of last year was concentrated in Lake Houston/Kingwood, Heights/Washington Avenue, and Montrose/Museum/Midtown.

Judgment Calls

There’s a lot to recommend Houston, but there’s no wishing away the city’s stark economic divide. It has more than its share of ZIP codes with the highest net capital gains, but it also has more ZIP codes than any other American city with the lowest.

There are other livability issues. It’s one of the most humid cities in the U.S. and endures some of the nation’s hottest summers. Ever since Harvey, floodplain maps are being redrawn and flood insurance is becoming a serious expense for homeowners and housing stock investors. Further, if you venture away from the touristy areas, you might find yourself in one of the most robbery-prone neighborhoods north of the Rio Grande — although crime has been declining incrementally since 2006.

Still, Houston ranks up there with other top-tier American cities when it comes to job growth, rising rents and other signs of a healthy metropolis. But in Houston — even more so than almost any other American city — the key to success in real estate is location, location, location.

Houston at a Glance

  • New construction: 4,100 units (2019 projection), continuing a three-year decline
  • Average effective rent: $1,136/mo, up 3% from 2018
  • Median annual household income: $47,793, up dramatically from $42,439 in 2000
  • Occupancy: 89.7% and rising

Sources: Marcus & Millichap, Texas A&M University,

real estate crowdfundingReal estate crowdfunding tends to be at the forefront of new ways to raise money. While “creative” might not be a compliment in accounting, it is very much so in finance. Joint-stock companies were developed to establish British overseas colonies. The oddly named Cigar Excise Tax Extension of 1960 established the legal framework for real estate investment trusts. And today crowdfunding has attracted more attention in real estate than in any other U.S. economic sector.

So today, real estate investors have an interesting dilemma. There are two different ways that a newly formed LLC or LLP can offer securities without bearing the full regulatory brunt of filing with the Securities and Exchange Commission. Then, once prospective issuers select which way to go, they face a secondary dilemma of which of two flavors to pick within their selected exemption. These exemptions come courtesy of Title 17 of the Code of Federal Regulations, chapter 2, part 230 and are known as Regulation A and Regulation D.

The ‘A+’ team

Reg A was enshrined as part of the Securities Act of 1933, but hardly anyone used it. To make it more appealing, it was expanded as part of the Obama-era Jumpstart Our Business Startups Act and the new version is often called Reg A+. It’s designed to allow small companies to raise funds publicly without the time and expense of a full initial public offering.

Real estate “is the first segment in Reg A+ that is engaging wealthy investors in a meaningful way,” Rod Turner of Manhattan Street Capital wrote in Forbes, due to the kind of money this sector attracts. “Institutional and angel investors are generally cautious about getting into new investment types until thoroughly proven. So in most cases, we do not see much activity from them in Reg A+. At this stage, Reg A+ offerings must appeal deeply to consumers to be viable, because consumers are early adopters and will invest if they love what your company does.” Turner notes that the combination of the tangibility of real estate assets and the dependability of interest or preferred dividend payments are what make these projects most attractive to Reg A+ investors.

Tenacious ‘D’

Regs D is also intended to enable funding of small, growing firms, but it takes a far different tack. While Reg A is all about opening up the sale of securities to the public, Reg D is a path to a private placement.

When discussing Reg D, people generally refer to Rule 506, which has two key paragraphs: (b) and (c). Rule 506(b) allows up to 35 investors who are not accredited but are sophisticated. Accredited investors make at least $200,000 per year or have a net worth of over $1 million, while “sophisticated investor” is a more nebulous term that suggests this person understands finance. This rule forbids the kind of “general solicitation” — that is, advertising — the JOBS Act enables for hedge funds. Meanwhile, Rule 506(c) requires all investors to be accredited but allows general solicitation.

Unlike Reg A, there is no limit on how much a firm can raise and still be in compliance. This goes for either rule, although the commercial real estate market seems to favor 506(c). According to WealthForge, that’s because of the permissibility of advertising, lower document disclosure requirements and a lack of the 30-day lockup required under 506(b).

While We’re on the Subject …

Regs A and D at a Glance

Reg A, Tier 1 Reg A, Tier 2 Reg D, 506(b) Reg D, 506(c)
Who can raise money? U.S. or Canadian companies U.S. or Canadian companies Any newly formed company Any newly formed company
Who can buy in? Anyone, although Exchange Act requirements are triggered at the 500-shareholder threshold Anyone, although Exchange Act requirements are triggered at the 500-shareholder threshold Accredited investors and up to 35 non-accredited but sophisticated investors Accredited investors
How much can you raise? Up to $20 million total, up to $5 million per year Up to $50 million total, up to $5 million per year Unlimited Unlimited
Can securities be resold on public markets? Yes Yes No No
Can I market online? Yes Yes No Yes
What must you file? Offering circular, one time, including unaudited financials Offering circular and continual reports, including unaudited financials Form D Form D
Do you still have to comply with state securities laws and federal anti-fraud laws, as well as civil liability? Yes Yes Yes, although state registration is unnecessary Yes, although state registration is unnecessary


Sources: SEC, WealthForge, Upcounsel, Investopedia

The second half of the 20th century was unkind to many American cities, and urban blight struck few places harder than Baltimore, Md. In 1950, with a population of 950,000, it was the sixth-largest city in the United States. Over the course of one human lifetime, it has lost roughly one-third of its residents and now ranks 30th.

And yet Charm City never gave in to the forces that drove it into distress. The population drain slowed to a trickle after 2009, and Baltimore’s real estate community has turned the stark reality of decline into the marketing appeal of affordability.

Cheap sleeps

According to one online real estate brokerage, three of “Redfin’s 2019 Hottest Affordable Neighborhoods” are in Baltimore, a distinction shared by Philadelphia, which Sharestates recently reported on. Specifically, Baltimore’s Parkville, Hamilton and Linthicum sections made the list.

“A lot of people are moving away from the city center into places that feel more like suburbs,” said Redfin agent Rebecca Hall. “They’re moving to areas that don’t feel as dense; they have more of a neighborhood feel and that’s really appealing to homebuyers. Some of these pockets are also known for desirable charter schools.”

Of the three neighborhoods cited by Redfin, only one is in Baltimore City. Parkville is in Baltimore County, which is nothing like the city. The city is a tight cluster of homes and businesses hugging a harbor off the Chesapeake Bay. The county spreads out east, west and especially north from there, all the way to the Pennsylvania border — what used to be called the Mason-Dixon Line. The city has a population density of 7,607 people per square mile, compared with the county’s 1,392. Average household income, $47,350 per year inside the city limits, rises to $50,667 on the other side. Linthicum is in Anne Arundel County, which is as suburban as Baltimore County. The region’s other suburban redoubt, Howard County, is currently experiencing a building boom, especially in its two largest communities, Ellicott City and Columbia.

But Hamilton is an inner-city community of 21,000 people tucked into Baltimore’s northeast corner. According to The Baltimore Sun, the median sale price for a home in Hamilton — which will almost certainly be a row house — is $159,500. That compares to a national average of $222,800 for homes in general, according to Zillow.

Hamilton is just one of roughly 300 neighborhoods in Baltimore which are, divided into nine geographic regions — named after the eight compass points, plus Central. Most locals, though, simply split the city into East Baltimore and West Baltimore, with I-83 as the dividing line.

Baltimore Housing Market is one-of-a-kind

The real estate business in Baltimore is distinct in many ways from the way it is in your city. To start with, you have to be very careful about landmarks. The duplex you’re trying to flip might have been the childhood home of Edgar Allan Poe or Babe Ruth. Baltimore has 65,000 buildings on the National Register of Historic Places. That’s more than any other city. Not just more per capita than any other city, more in absolute terms. Baltimore has more landmarks than Boston, Philadelphia, New York or Washington.

According to Marcus & Millichap, Baltimore is currently being inundated with real estate investment money that is flowing from the U.S. primary markets to take advantage of the city’s affordability, which is a rare find this late in the economic cycle. “Buyers from Los Angeles, New York City, San Francisco and Washington, D.C., are drawn to the area for its comparatively lower entry costs and higher initial yields,” according to a report published in the third quarter of 2018. “A similar property can change hands at a sale price $100,000 to $200,000 less per unit relative to one of those other metros, with going-in cap rates that are 200 basis points higher.” The paper goes on to state that average sales prices in Baltimore appreciated 81% over 10 years, “one of the highest rates in the country.”

As much as poverty and violent crime — and the occasional riot — have generated unfavorable views of Baltimore, City Hall has been successful to some degree in creating jobs and expanding the tax base. Baltimore’s worst days followed the April 4, 1968, assassination of Martin Luther King. Chaos reigned on the streets of many American cities, and nowhere more than Baltimore. It took years to recover, but the creation of the Inner Harbor tourist destination, Oriole Park at Camden Yards and the Ravens’ new home at M&T Bank Stadium have all had a positive impact. So too has the expansion of the Johns Hopkins Hospital, thanks to deep-pocketed donors from around the world. The city’s latest project, the redevelopment of the Port Covington facility, which was shuttered as a railroad terminal in 1988 and as a Walmart in 2016, is expected to cost $5.5 billion — that’s more than Amazon plans to spend on either of its new headquarters in New York or Virginia. The Port Covington project is controversial because it is unclear how a fairly remote retail center is going to benefit the typical Baltimorean, but it demonstrates the city’s willingness to support tax-increment financing on a grand scale.

Ultimately, Baltimore is a city of sharp contrasts. There are gleaming new towers, but there are also blocks with only one house standing. There are great museums and theaters and restaurant rows, and there are tracts of high-crime corridors. A year-over-year doubling of new jobs from 2017 to 2018 and a contemporaneous fourfold increase in household formations are cheery news, but these statistics are only possible in a town that is bouncing off the socioeconomic bottom. The best advice to buying real estate in Baltimore is to be selective. If you can’t view the property yourself, you should leverage an investment sales broker or fractional investment platform with a track record of success and reputation you can trust.

Baltimore at a glance

  • New construction (2018, preliminary): 3,800 units, flat compared with 2017, centered in downtown Baltimore, Baltimore City East and Riverside/Tidal Point.
  • Vacancy rate (2018, preliminary): 5.5%, a 0.2% decrease from 2017, continuing a tightening trend
  • Average effective rent: $1,290/mo, a 2.3% year-over-year increase
  • Median household income: $47,350 in 2016, compared with U.S. median $61,179
  • Proportion of households renting: 52.5% in 2016, rising steeply

Source: Marcus & Millichap, Baltimore SunI am text block.