NAA Real Estate Workshop: Chill or no chill?

“Winter is coming” for the real estate market in 2018. Or, is it?

By James Myers, contributor

John McCallister used a phrase from a popular HBO program, Game of Thrones, to make a statement at the NAA Real Estate Workshop in Las Vegas in December 2017: “Winter is coming.”

McCallister, who has worked for 35 years in real estate, used the sinister phrase in reference to predictions that the real estate market will at some point go fallow and that real estate professionals, including those in the auction industry, should prepare for the worst.
“Ladies and gentlemen,” he said, “if winter is coming, I don’t know when it’s going to arrive. 2017 was a terrific year.”

McCallister outlined how markets throughout the United States, including timberland and agricultural, are doing well. For example, in the Delta region that includes Arkansas, Mississippi, Tennessee and other southern states, buyers are snatching up anything and everything that comes onto the market.

“Those buyers are paying above market values for those properties,” he said, based on conversations with consultants.
In the Florida panhandle, speculators whom McAllister referred to as “slicers and dicers,” purchase land at 100 acres at a time, subdivide it and sell off five-to-10 acre tracts.

“We’re seeing that come back to the marketplace,” he said. “It’s been around 10 years since we’ve seen that level of activity.”

Real estate: More bidders/buyers than they have ever had

What continues to be a difficult sell in McAllister’s service area are undeveloped residential lots. However, land used for agriculture is productive and supports more agricultural rent, which means it’s more valuable.

McAllister, who is in frequent contact with auction real estate professionals in Indiana, said quality farmland in the Midwest has had “more bidders/buyers show up than they have ever had before. There is a lot of interest in land. As Mark Twain said, ‘they’re not making any more of it.’”

Christopher Vaughan, AARE, AMM, Western Regional Director for Higgenbotham Auctioneers, has been in real estate since 2009 and focuses on government contracts. He was part of the panel and discussed trends specific to his specialty during the conference.

“Folks in government think a lot differently than you and I,” Vaughan said in his opening statement to a smattering of laughs. “People work in business to make money. People work in government to exercise power.

“Without our money, the government has no power.”

Vaughan said, however, that it’s important for Auctioneers to get to know local, state and federal representatives and “work with them so they can see that the auction approach is the best way.” He shared how he has met with his Congressmen and staff members of his senators about legislation that will help the auction industry.

Since Election Day of 2016, Vaughan said the volume of government business in terms of request for proposals on a nationwide basis has “increased dramatically, especially in real estate.” It appears that more government land will become available for sale, and it could benefit Auctioneers.

“[The United States President] has already indicated a willingness to downsize the real estate portfolio of the government.”
Vaughan said Housing and Urban Development Secretary Ben Carson has indicated a willingness to get the federal government “out of the housing business,” but ensuring FHA loans and Section 8 housing vouchers would remain under the government’s purview.

“In terms of the federal government and housing authorities owning real estate and managing it,” he said, “quite frankly, they don’t do a very good job of it.”
Real estate: Positive impact from the new tax bill?

Reduced maintenance funds for housing authorities, which Vaughan said have decreased over the last 10 to 15 years, makes it “tough for the housing authorities to own and manage” the property, which is why they want to unload it. While an increased number of government RFPs could benefit Auctioneers, Vaughan said some elected officials are reticent to go with the auction method because they “want the final say and try to negotiate the deal.”
Soozi Jones Walker, a commercial real estate broker based in Las Vegas, also sat on the panel and talked about the positive impact of the new tax bill, which was passed by Congress in late December.

“The promising thing we have going on for us is the promise of lower taxes,” she said. “Realistically, it’s going to be a good thing for the U.S. and the possibility of repatriating those dollars that are sitting outside the country – bringing them back in is going to be huge for us in the businesses we’re in.”

With a tax rate as low as 21 percent, she said there is a real incentive for corporations to invest in real estate. Furthermore, with America’s stable economy, foreign investors whose currency is devalued should be showing more interest in American real estate, even property with a low return, because they’re not losing money in their currency.

“In the next 24 months,” Walker said, “I think China slowing down their economy is going to have an effect. I think the positive side of it is that those that can get their money out will bring it to America because the U.S. has a very stable economy.

“In the long range because they fluctuate, that money may go back and forth, it could be great for the auction folks – people that do land – and for the residential side.”

Walker continued, saying that in the next year to 24 months, auctioneers who were “beating the grass to find one or two bidders could have multiple bidders “strictly because there are so many different entities” looking for real estate investments.

“The heydays are coming back, I think,” she said. “I’m cautiously optimistic.”

The 2017 NAA Real Estate Workshop was held as part of the Real Estate Community of Practice.