Worcester Business Journal

22 Worcester Business Journal | December 23, 2024 | wbjournal.com ECONOMIC FORECAST 2023 Real Estate Report: Housing Hot markets for residential real estate investors BY ERIC CASEY WBJ Managing Editor C oming out of the corona- virus pandemic, Greater Worcester was a hotbed of multifamily property sales, reaching $559.8 million in the second quarter of 2022. Aer that flurry of activity raised prices and brought attention from far outside the region, the market has Hot markets for multifamily investors Market Total units Asking rent per unit Per square foot Yearly rent growth Vacancy Outlying Worcester County/ city of Worcester 15,302 $1,792 $2.14 3.0% 5.1% Route 9 corridor 4,817 $2,452 $2.50 -0.5% 4.8% Fitchburg/Leominster 4,483 $1,594 $1.65 0.6% 2.0% Southeast Worcester County 3,731 $2,318 $2.42 4.5% 12.3% Northeast Worcester County 1,756 $2,337 $2.33 2.5% 7.1% Source: CoStar As Worcester's small multifamily market cools, property owners see promise in communities like Auburn, Fitchburg, and Southbridge seemingly settled back to pre-COVID levels: e $102.8 million in sales in the third quarter of 2024 was similar to the average sales volume seen in quarters in 2017 and 2018, according to national real estate information provider CoStar. While the pandemic-era frenzy of activity has subsided, there's still value to be found for multifamily investors looking for deals in Central Mass., said Chris Collette, founder of the Christo- pher Group at Compass, which opened an office in Worcester in April. "In Worcester, Fitchburg, and South- bridge, there's stuff that you can't get in a lot of bigger cities," he said. "In Bos- ton, it's hard to find a three-family that needs a lot of work, as most of them have already been renovated." With high-potential inventory in Worcester drying up, investors in smaller multi-family properties are casting a wider net to find parcels with promise, eying cities like Auburn, Southbridge, Fitchburg, and Graon with existing multi-family stock. Worcester cooling e viability of Worcester's multi-family market inspired Collette to get in on the action a few years ago, a move that ended up being well-timed. "I bought a three-family in 2019 and put about $ 100,000 in renovations into it," he said. "I bought it for $300,000, so I'm into it for $400,000, and I sold it exactly two years later, almost to the day, for $600,000. "If I had bought something two years ago now, I might have bought it for like $500,000, and it'd be worth like $650,000 now," he said. "I bought one multi-fami- ly in 2019, I wish I bought 12." A number of factors are driving down the viability of the city's current multi-family market, from climbing property taxes to the influence of out- of-market investors, said Brian Allen, owner of the WorcesterMulti real estate firm. He has been involved in 100+ mul- tifamily transactions in the Worcester area since 2021 and has been involved in the local market since 1999. "Someone from Boston comes out, and everything is so [relatively] cheap, so if they're doing 1031 [tax] exchang- es, they can get more properties or easier-to-manage properties," Allen said, referencing a process where investors can defer capital gains taxes if they sell a property to buy a property of similar or greater value. "So Worcester has sadly become a bedroom community to Marl- borough, Hudson, or even Framingham because you can't support the rents here with wages you make in Worcester." While Worcester's market is not as lu- crative as a few years ago, savvy investors can still find deals that work as property values continue to increase. Allen has had some luck with pursuing off-the- market properties, and Collette is still seeing interest from outside Worcester. "It's a lot like inflation," Collette said. "People say inflation is down, but that just means prices are going up, just not as much as they were. I still get a lot of ... referrals from Boston and other cities." What was good news for existing property owners and well-financed investors can be bad news for bud- get-strapped renters and longtime Worcester residents, Collette said. "I want people to have a place to live, and I think everybody should have a place to live," he said. "Sometimes the city grows up around you." What made Worcester an ideal place to invest just a few years ago, said Col- lette and Allen, was the fact investors could see immediate returns with immediate cash flow via high rents and appreciation. ose days are over. "Now in Worcester, you don't get cash flow. You're probably not going to get Brian Allen, owner of Worcester Multi Seeing continuing promise in the Central Massachusetts residential real estate market, Chris Collette opened an office for his firm on Worcester's Shrewsbury Street in April. PHOTOS | JOE SANTA MARIA

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