Regional Spotlight: Baltimore, Maryland
A Closer Look at the Charm City’s Persistently Resurgent Real Estate Market
Baltimore, Maryland, has long been a city of contradictions. Simultaneously holding positions on national “top 10” lists for “new tech hot spots” (Forbes), “top 10 U.S. foodie cities” (Yelp), “best places to live” (Livability), and “most dangerous U.S. cities,” part of the Charm City’s charm seems to be an incorrigible contrarianism. That is great news for its real estate investors.
Thanks in large part to its proximity to Washington D.C., a historic waterfront and bustling Inner Harbor, burgeoning jobs market, and a recently renewed dedication to public-private investment partnerships, Baltimore offers real estate investors an array of options for generating both short-term and long-term returns. That is, of course, if you understand the local market or can work with someone who does.
“At first blush, the Baltimore housing market would seem like a bad investment to a lot of investors,” said Marco Santarelli, founder and CEO of real estate investment firm Norada Real Estate Investments. “However, there is significant opportunity in the Baltimore real estate market for investors, and not just because the metropolitan area is home to nearly 3 million people. Recent market trends indicate a high probability of appreciation in the market over the next 12 to 24 months, with the competitive market making it highly likely that prices will remain high even if rates of appreciation level off.”
Since the start of 2010, Baltimore home prices have risen nearly 18.2%, while housing inventory has plummeted by nearly 40%. The result is an extremely tight market, rife with opportunity for investors in a position to acquire either single- or multifamily rental assets. Given that Baltimore home values have risen more than 8% over the past three years and appear likely to rise higher over the course of 2020, many analysts warn that the market could be poised to topple toward the end of 2021. In the face of local policies dedicated to population growth and new development, this scenario seems unlikely. Further, local investors are not concerned.
“Today, we own more than 700 properties in the Baltimore area,” said Fred Lewis, founder of the Dominion Group, a group of nine operating companies and five business segments based in Baltimore and operating throughout the U.S. Lewis is also the founder of Real Investor Roundtable, an investor mastermind for experienced real estate investors.
“The Baltimore market can be difficult to learn. You have to understand the dynamics of every street in the city,” Lewis explained. “It has a uniqueness that works for investors willing to work hard, learn the market and understand the nuances.”
Sean Renehan, development officer for real estate private lender Walnut Street Finance, agreed that the Charm City can be very nuanced.
“There is so much history in this city, and it makes Baltimore a ‘neighborhood city’ more than most cities of this size,” he said. “Every neighborhood has a different flavor, and investors can really thrive when they begin to understand this.”
Overcoming Obstacles with Creativity and Willpower
One of the biggest stumbling blocks for many real estate investors who consider placing capital in Baltimore properties or projects is the city’s trend of population loss over the last seven decades. These trends can be misleading and confusing when it comes to investment opportunities, although they are indisputably a problem for lawmakers and the city’s general reputation.
Between 1950, when the city posted its peak population of 949,700, and 2010, the city lost more than a third of its population. Since 2012, when the population appeared to be slowly expanding once again, Baltimore’s population trajectory has been bumpy. In 2018, the city appeared once again to experience significant population loss (about 1.5%) since that 2012 benchmark.
Investors should note that somewhat rocky population trends for the city of Baltimore do not necessarily extend to the Baltimore metro area. In fact, U.S. Census Data indicates the Baltimore metro area population numbers exceed 6.7 million, making it the 20th largest metro area in the country. That population consists in substantial part of young professionals between 19 and 33. About a third of the metro area’s incoming population has not yet celebrated their 30th birthday, according to statistics from the Applied Population Laboratory at the University of Wisconsin.
Those residents tend to move outward toward the suburbs as they age. This creates an ongoing and growing demand throughout the extended metro area for multifamily construction and single-family residences for young families. That population creates a strong demand that powers many of Baltimore’s investing operations, including Jarrett Walker’s Wallcrest Homes LLC, which caters mainly to first-time buyers and individuals investing in homes they expect to hold for a relatively short amount of time before moving on.
“We invest in single-family residential and small multiunit properties that are in the ‘sweet spot’ of $200,000 to $300,000 when they are listed,” Walker explained. He has been investing in the Baltimore area for several years on an individual basis and began investing under his Wallcrest Homes banner in 2018.
“We decided to focus on that area of the market because it enabled us to produce quality products our buyers are proud to own and created opportunities for us to participate in revitalizing communities in the Baltimore area,” Walker added. “We picked Baltimore over other markets in close proximity [Annapolis and Washington D.C.] because it was the best-suited to our goal of giving back to communities and the local government is the best for investors to work with in terms of zoning, regulations, etc.”
A Changing Landscape for Housing
As is the case throughout much of the U.S., the preferences of the young professionals and young families currently buying and renting the housing inventory in Baltimore are changing the face of the urban and suburban landscape in the area. The city has made a very public commitment to reinforcing partnership activity between public and private interests (P3), creating a uniquely supportive environment for groups that gain clearance for new development.
“Baltimore’s good use of public and private partnerships draws what I think of as a ‘purple line in the land,’” said Harding Easley, managing director of advisory firm The Harding Group, citing the city’s 2016 Purple Line project, projected to be complete in 2022. “For example, I can easily imagine Baltimore drawing national attention for their light rail project, the Purple Line, which is developing its way into a completed 16-mile line that will serve the Beltway when completed in 2022.”
“Benefits to the city include environmentally friendly transit, connecting people to jobs and improved commuter connectivity,” Easley said. “The investment approach of the Purple Line aligns interests within the partner group with those of the city, including the long-term view and projected returns. Baltimore’s dedication to guaranteeing that the interests, both public and private, of the entire group are aligned bodes well for a successful $2.2 billion development owned by the Maryland State Department of Transportation MTA.”
Creating Opportunities with Award-Winning Results
The Charm City continues its charm initiative heading into 2020 with several new and positive titles from various industry and media outlets.
For example, insurance company Insurify named the city’s housing market “the best resurgent housing market” in its state for “exemplary [performance] in creating communities to which homeowners are flocking in droves.” Baltimore was one of only six mid- or large-size cities to receive this recognition, joining San Jose, Dallas, Atlanta, Nashville and Charlotte, North Carolina. The award was based on home value indices, total building permits and proportion of homeowners.
The city also received recognition from real estate analytics firm Mashvisor, which dubbed “the Baltimore market as a whole one of the best places to invest in real estate in 2020” and specifically cited opportunities in Baltimore for investors considering selling rentals at retail.
Daniela Andreevska, marketing director and real estate reporter for Mashvisor, said, “For investors ready to sell their cash-flowing rentals, the best Baltimore neighborhoods offer a higher-than-8-percent rate of return on rental properties, and our national real estate market analysis reveals these are some of the highest city-level profits which investors can expect in the U.S. housing market in 2020.”
Andreevska named Bridgeview-Greenlawn, Mill Hill, Harlem Park and Evergreen Lawn among these top neighborhoods.
Baltimore also received recognition for its solid employment numbers, including a rank of 20 on CompTIA’s “Top Tech Towns” index, which identifies the best 20 destinations in the country for IT talent. Baltimore previously held the 16th spot on the list, but the city’s rising cost of living may have contributed to its shift slightly downward. Cost of living is about 31.4% higher in Baltimore than the national average, but it is still significantly less than in the Washington D.C. area.
“Overall, Baltimore represents a good opportunity for investors because of the relatively priced housing there, particularly in comparison to nearby D.C.,” said Auction.com vice president of market economics Daren Blomquist.
Companies in the Baltimore metro area posted more than 48,500 tech jobs in the last year, and CompTIA analysts predicted about a 5% growth in IT jobs in Baltimore over the next five years. Given that most tech workers will willingly move to a new city in order to take a new position, Baltimore’s relative affordability and expanding tech sector will likely create ongoing demand for rental options in the area. At present, the inventory, while limited, is relatively accessible to real estate investors.
“Baltimore currently has a respectable supply of discounted, distressed deals—although that supply is gradually shrinking,” Blomquist said. “These market conditions make Baltimore a profitable place to flip properties despite slowing home price appreciation that put downward pressure on flipping profits last year.”
Blomquist also noted that flipping profits in the metro area are still “above average, which means strong demand from investors at foreclosure auction.”
Ongoing Resurgence and Demand in 2020
As 2020 opened, analysts wondered how long the combination of rising home prices, shrinking inventory and surging construction could sustain Baltimore prices in the area. The answer appears to be “quite some time.”
Yardi Matrix noted in its winter 2019 report: “The metro’s construction surge continues, with 5,200 units underway as of December and another 28,000 in the planning and permitting stages.”
However, the analysts also predicted that fewer than half the units currently in construction would come online in 2020 due to “project delays and the lingering shortage of construction workers.”
This is good news for real estate investors whose strategies involve acquiring and improving existing inventory, especially in the always-tight B and C class sectors. Baltimore continues to struggle when it comes to housing affordability, with only about one-eighth of new inventory classified as fully affordable.
Walnut Street’s Renehan noted there is a great deal of opportunity to create residential housing opportunities in the historic home sector as well as in multifamily and multiunit properties.
“Walnut Street works with real estate investors across the spectrum, from buy-and-hold to fix-and-flip to ground-up construction,” Renehan said. “We see a lot of historic home renovations from investors specializing in this area because this type of property is in great demand in Baltimore right now.”
Renehan added that investors often can maximize returns on projects in the Baltimore area via multiunit conversions as well.
“There are areas with very large homes with large amounts of
square footage,” he said. “For
an investor, that is a huge opportunity for renting because they can break that
property into multiple units. This is common because the renting population in
the city is still growing.”
Thanks to several state initiatives intended to bring new residents into the city, Baltimore offers many incentives to retail buyers, including first-time homebuyer tax incentives and student-debt elimination programs. The result of this concerted effort is the creation and ongoing maintenance of a population that has pride in their city.
“We who live in Baltimore see the growth and redevelopment in the city, and it makes us really proud to live here,” Renehan said. “Real estate professionals across the board spend their time and their lives in this real estate market to make it more vibrant, and we are definitely reaping the benefits both as investors and residents.”
Sidebar: What Investors Need to Know About the Purple Line
The Baltimore Beltway, I-695, is officially designated McKeldin Beltway. It surrounds the city and intersects the majority of major roads radiating from the Baltimore area. The Purple Line will link multiple Maryland suburbs to the Baltimore metro area and enable riders to make transfers between Maryland trains without having to ride into central Washington, D.C. The Purple Line project is administered by the Maryland Transit Administration (MTA) and was designed and will be built by a consortium, Purple Line Transit Partners, led by developer Fluor Enterprises. Fluor Enterprises will operate and maintain the line for the 36 years subsequent to its completion.
