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Location is more than scenery
September 27, 2010Article by Ray Withers
There is much more to property investment than the property itself. We are all familiar – too familiar by now perhaps – with the slogan ‘Location, Location, Location’. But ‘location’ covers a lot more than scenery and setting. It includes the political economy of a city, region and/or country, along with the history and culture.
Let’s take a relatively straightforward example, Orlando, where we are now marketing the last few units at The Village at Town Center (VTC), a luxury condominium community for 50% of the production cost and 70% below peak values. Along with each unit comes access to first class amenities including a state of the art gym and swimming pool, lushly landscaped grounds and floodlit tennis court. Rental yields are high, at 8-9%. Some of the world’s top tourist attractions, from Walt Disney World to the Kennedy Space Center are within easy reach.
All this matters a lot, of course, and explains VTC’s success. However part of this success lies in the location in Orlando. Here I am not speaking of the climate or the natural beauty of the region, although the civic seal rightly proclaims it as ‘The City beautiful’. I refer instead to its underlying economic and social stability and potential for growth.
Orlando’s current economic position is two-pronged. At one level, the economy is growing, as is civic confidence. At another, real estate prices have dropped to a 12 year low. This combination seems paradoxical at first glance, but it reflects the complex nature of the current US economy and the relationships between federal, state and city administrations. For example, the local real estate industry blames the price drop on the end of the federal homebuyer tax credit rather than local conditions, although it must also be said that in August on 28% of sales were ‘normal’ as opposed to distressed. Data from the Orlando Regional Realtor Association shows that average home prices dropped 8% from July to a low of $99,900 and sales prices were down 22% from last year. This means that the average price of a home in the Orlando area is now less than $100,000 ($63,933).
Yet the economy is also expanding and the city is one of the fastest growing in the US – an island of success in a sea of economic gloom. And while prices have dropped dramatically, they haven’t fallen as much as in other parts of the State, let alone the nation as a whole. In the third quarter of 2009 alone the local economy grew by 3.5%! Orlando, capital of Orange County, is of the fastest growing cities according to just about any measure. A $13.4 billion high tech industry employs close to 53,000 and the local University of Florida has over 50,000 students – the third largest in the whole country. A community of 186,000 souls, Orlando is known as ‘Hollywood East’ for its movie studios and has more hotels than anywhere in the US except for Las Vegas.
The city is run by a centrist Democratic administration under go-getting Mayor Buddy Dyer. The administration is committed to public services and infrastructure projects that benefit all citizens and visitors. This contrasts with many other medium sized US cities, where there is often little or no planning of this kind. A high speed rail system is currently being planned, which will link Orland, Lakeland and Tampa: a project (again unusual in the US at present) that will create a network comparable to Dallas/Fort Worth or the Baltimore/Washington, DC metro area. Mayor Dyer sees the scheme as a good way to keep former space industry workers in central Florida: ‘a natural opportunity to transition high tech workers into jobs in high speed rail’. This emphasis on transport makes the area naturally attractive to property investors, not least those from abroad, as does the high skill-base of the local population.
Stable and moderate local government with a commitment to social improvement and public works is also a major ‘plus’ for investors. Another example of positive local initiative is the Main Street Program, which helps create and market neighbourhood-based commercial districts (as opposed to hyper-markets and out-of-town malls): in the past 30 months, 82 new businesses have opened. $1.3 billion has been allocated from the city’s self-insurance account to repair the iconic 1950s-style Lake Eola Fountain, struck by lightning in 2009.
Both ‘prongs’ of Orlando’s current position are of benefit to property investors. The temporarily reduced price (in contrast to good rental returns by regional standards) and the expansion of the local economy make it attractive to investors now and also in the long term, as the City Beautiful emerges as the City of the Future.
Written by: Aidan Rankin