Do Public Works Projects Attract Real Estate Investors?

Question

I recently wrote an article about public works projects and how they effect the mood of real estate investors.  I updated it on my blog today and I want to know if you agree or disagree?

Do public works projects such as a multi-million dollar redeveloment of an airport or a conversion of a run down warehouse to shops, restaurants and housing units attract more dollars from real estate investors?

Bill Gulley · Answer

Good point Karen there is the trickle down effect.

Just to clarify, Karen's great point about parking lots. A good example might be secured long term/or short parking away from the higher rental lots on the airport grounds. A rental car business is a good lot parking aspect as some airports bid the space on airport grounds.

The FAA has jurisdiction of all airport grounds, improvements and roadways. When you turn off a highway for example on to "airport road" it is under the jurisdiction of the FAA and through agreements administered by local police, etc. Just saying, don't be buying farmland where the proposed airport road will go thinking you'll have access as it will probably be regulated as to access as well as to improvements. This issue was a test question on the FFA, ATC exam that I had to take in the Army, I'm sure it hasn't changed as the feds love control.

Again, as Karen mentioned, our airport was expanded greatly a few years ago one of the results was additional land purchased by FedX away from the airport to expand the distribution center. It does impact the whole community.

Karen Margrave · Answer

As mentioned already, investors need to look at the merits of the public works project and how it would impact their investment strategy. For instance, in the example given with the airport, having a better airport or a new airport for an area that has been lacking service could open up many more business opportunities, thus creating many more real estate investment opportunities not even in the area of the actual airport.

Which companies and industries will benefit by the addition of a new or improved airport? What impact could that have in different segments of the local economy? For instance will the addition of the airport bring more tourists to the area? If so, vacation rental properties might be a great investment. If there's more tourists, what areas would they flock to, and what services would they require? How will the bigger airport impact the neighborhood and what could be needed, a new strip center or ? Parking lots by the airport? Convenience stores with gas?

Real estate development is like dropping a pebble into the pond, it doesn't just affect the immediate area, but impacts an entire area, and if you know your local market, you can find the opportunities.

Bill Gulley · Answer

Chris, something I found long ago is that there is a big difference between city folk and country/small town folks. The expectations concerning traveling or traffic, privacy, quiet, odors and scenery or views are very different. Yes, in various way investors can get stung.

RE investors should begin looking at the big picture, the entire city and see what areas show promise for what they intend to do. Narrow down target areas and then select properties as applicable. Another book could be written about the interactions of buffer zones and the maturity of neighborhoods. You need to get the flavor of an area before making a meal of it.

Public works projects have positive and negative effects on sfd neighborhoods. Parks and recreation, new shopping areas, civic centers, theaters, near sfd zoned properties can be a real plus. Industrial, larger hospitals, treatment facilities, and airports can kill off a neighboring area.

With respect to your airport project, I would not want a sfd within a 5 mile radius, that is the airport control zone where large aircraft will be ascending or descending  at lower altitudes, I'd want to be about 8 to 10 miles out from approach and departure bearings of the major or prominent runways. Most small town folks like me really don't want the noise, someone from a large city may not think anything of it, but either way, it limits the market.

What should be in that area? If lots or land is available or if redevelopment can be done within the budget, I'd say commercial retail, offices, hotels/motels, restaurants and light manufacturing.

Airports are certainly a boom to a local economy, the noise, traffic congestion, lighting that only a pilot admires and even odors at times does bring money.

An airport brings jobs and an investor may attempt to target those workers. Most will be low-mod income, fueling, baggage, security, grounds maintenance, restaurant workers may want to live close to work. Apartments may be a good bet around the control area. There are higher paying jobs as well, but I'd suggest they won't be concerned about being so close to work.

You just need to match the type of redevelopment planned to its market, it's not always for family dwellings.

Al Williamson · Answer

I encourage people to take position after city council allots the redevelopment money. That's the time to network into the community and connect with local influencer who will be very open to promoting the area. There is typically a lag time before a contractor comes on board. Lots of public hearings etc.

Gone through process twice in Sacramento.

Bill Gulley · Answer

Absolutely Chris, good job and I especially like the credits given to the political powers that be....way to do it.

But, you're usually too late as an investor after major projects are announced, best to keep your ear to the ground, read what the city may do and where it's most likely to be done.  :)

Al Williamson · Answer

Chris Clothier I 100% agree. That is the crux of my investment strategy that is about 14 months from paying off. I actually believe in going a step further to work behind the scenes to attract these projects and promote my target area.

Looking forward to your blog update.

Chris Clothier · Answer

Bill Gulley - I can't say thanks enough for the detailed reply.  That type of insight is excellent and a great point of view.  I think there is a lot to be taken from projects like the airport redevelopment that are not always apparent.  For instance, I mentioned the government and their attitude toward moving a city forward.  It is my opinion that local governments and their actions should matter to real estate investors.  Then again, no real estate investor should simply decide to invest in a city because of the actions of local gov. or public works projects.  It is one small piece of the puzzle.

You brought up great points about the personal decisions investors make about proximity investing which is certainly the next step an investor has to take when deciding to invest in a city.

Big thanks again for the response.  I definitely think investors should be aware of the direction of a city first and the specific numbers of an investment property second.

Chris Clothier · Answer

Thanks for the comments Al Williamson and Bill Gulley.  It seems like the projects we hear about in the press usually involve very well connected people and I was wondering if the every day  investor follows behind and if that strategy is a good one or not.  Bill, you make a very good point about being behind the movement.  I wonder if that leaves investors actually getting hurt?  Al, here is the blog article I wrote today.  I will post this on my BP blog in a couple of days after it has been cataloged  on my site. [url] http://blog.memphisinvest.com/blog/bid/91868/Memphis-International-Airport-A-Fantastic-Start-For-Redevelopment[url]

My other real question was whether or not individual investors pay attention to this type of development in a cities infrastructure before investing there?  And then, do they invest near this type of project or simply in the city that is undertaking a revitalization?

Again, I appreciate the thoughts.

Do Public Works Projects Attract Real Estate Investors?

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