The biggest business stories over the past 12 months in The Buffalo News revolved around real estate and the Buffalo Billion, according to Grove Potter, Executive Business Editor, in charge of the Business Section at The News.
I sat down with Potter recently, at The News building, to get his take on what is happening in the Buffalo economy. Before getting started, I was offered a tour of the building, since I had never stepped foot into the place previously.
As we were standing around the water cooler, Potter explained how the paper once had type setting experts who could read backwards and upside down because that was what was required to put all the letters in the proper places when making the printing plates. Of course there was a union for the skilled workers… there were actually 13 different unions in The Buffalo News building at one point.
Later, The News used a Linotype machine where the operator would type each line of type and the machine would drop each letter at a time. When the line of type was done, the machine would ring a bell and a large chunk of lead would drop into the machine (around the letters) and create a mold for that line of type. Potter then proudly explained how the paper upgraded to the most modern German printing press in the world, as he described the year-long process of the Germans assembling these state of the art presses.
Today, Potter has six reporters who each have their own beats: Personal Finance, Public Companies, River and Clean Energy, Real Estate, Manufacturing & Banking, Small Business/Retail/Shopping. When I asked which categories have had the most breaking news, or have taken up the most ink over the past 12 months in the Business section, his immediate response was Real Estate and the Buffalo Billion campaign. “The real estate sector of our economy is quite vibrant, as you know,” Potter explained, “It’s vibrant at all levels – at the top levels and the bottom levels where immigrants are buying houses for $15,000 to $20,000 – dozens of them each week are in the property transactions.” He continued to tell me how one of his most prolific writers, Jonathan Epstein, thoroughly enjoys writing about Buffalo’s very dynamic real estate market. As if like clockwork, Jonathan stopped in to say, “Hello.”
Potter went on to say that the second biggest news story in the Business Section over the past 12 months has been the Buffalo Billion, which is the Governor’s pledge to invest a billion dollars into the local economy. “It has really now turned the corner for the city, creating amazing positive change, mostly psychological as most of that billion has not yet been spent – although it will be when Riverbend is done. It has made local business people step up – it’s now or never! This is our last chance to do our best to bring this economy around.”
The Riverbend project went from being a government assisted ‘sounds good’ project, to Elon Musk’s company, Solar City, acquiring Silevo. Now Solar City is building the largest solar panel manufacturing facility in the Western Hemisphere – right here in Buffalo. “We, all of a sudden jumped up onto the international stage,” Potter exclaimed. “I mean Elon Musk is the Vanderbilt of our times. To have him with a stake in our progress, couldn’t be better! To be young and in the game at this point, this generation will have a different run than the last generation did.”
One of my biggest concerns as a business owner and real estate investor is what will happen to the values of businesses and real estate if and when the Federal Reserve begins raising interest rates. The picture that Potter painted above was so rosy that I had to ask him the tough question – “What do you think will happen if and when interest rates go up?” He didn’t seem overly concerned about the real estate market. He did say, “When interest rates go up, the (stock) market is going to take a dip, everyone knows it and they’re all trying to time it, but when the stock market dips, real estate may look even more attractive. It’s solid, it’s there, the rent comes in.”
I have to say, I do agree that there could be a flight to hard assets if and when interest rates rise which will most certainly cause a stock market crash. However, I’m not sure if I agree that everyone will flock to real estate, especially commercial properties, as there has historically been an inverse relationship between investment real estate value and interest rates. Values tend to go down as interest rates go up.
Now, I do believe that there could be a temporary spike in real estate values once interest rates begin to go up. I believe it will push any real estate buyers who were thinking about buying a property, but just haven’t found the right one yet. Once they see interest rates starting to rise, they will get busy and find a property to buy before they can’t afford it anymore (as rates go up). But after a few rate increases by the Fed, in my view it is inevitable that real estate values across the country will start to fall.
At the same time, the Buffalo Real Estate market has proven to be very resilient during a recession. In fact, that is the reason I invested in the Buffalo Real estate market in the first place, starting in 2005. Coming from a very cyclical real estate market, Los Angeles, I was looking for a more stable slow growth market that I could invest in, to hedge my Los Angeles real estate holdings. Given that the Buffalo real estate market performed the best in the country during the recession from 2006 through 2013 with the best appreciation in the country, my hedge bet worked out well. So Potter may prove to be correct in his prediction that real estate values in Buffalo will continue to perform well over time, even if the Fed raises interest rates.
Potter commented, “Buffalo has just gone through its run up, and people are concerned it may be a mini bubble.” I asked him if he thought along those same lines. His response was, “No, I don’t believe so, because the properties people want are limited. There is a small group of properties to buy, so they are only going to appreciate.”
When I asked Potter, “If a new investor was to invest in real estate right now in Buffalo, which type of real estate should it be, and where should they invest?” His response led him to a friend of his who is investing around UB and offering student housing.
There is no question that Student Housing and Senior Living Housing have been, and continue to be, big growth markets for real estate investors around the country. While I have considered investing into Student Housing projects, I haven’t done so as I am concerned that we are in a Student Loan bubble propped up by government subsidized student loans. So this led me to asking Grove if he thought that the Student Loan market in the US, with now over $1 Trillion in Student Debt, was a bubble that could crash the higher education market. His response was that this was a very personal question since he has four kids that are either in college or recently graduated. Potter does not believe we are experiencing a student loan bubble since the average student loan debt is just $30,000 (akin to buying a new car). It is manageable and most will get paid off. As he said, “There will always be some students who were deadbeats in college, and so they will most likely always be deadbeats, so just that part will have to be written off.”
As we talked, Potter threw in what he believes are the main drivers of our local economy:
• “UB, the greatest thing going in Buffalo – it is the engine that brings new money, new brains, new people, it cannot be overemphasized how important that is.”
• M&T Bank
• Buffalo Bills saved by “Saint Pegula.” “Buffalo without the Bills is Toledo.”
When I asked him if there is any reason for an investor to own gold. Should it be a portion of one’s investment portfolio, Potter responded that he is not an expert on money, but the best gold-felted advice that he ever heard was from a female investor who said, “Honey, I like to wear it, but I’m not going to hold it as a long term investment.”
I must say, I thoroughly enjoyed meeting Grove Potter and very much appreciated his gracious invitation into his world at The Buffalo News. I respect immensely what he and his team do every day to keep the news flowing.