The Right Equation for Responsible Development: Spotlight on Saco Mill #4

In multi-part series, exclusive to the Maine Real Estate Insider, we’ll provide an up-close look at the most notable commercial development projects of the past year that are helping to fuel Maine’s economy in terms of investment and job creation.  MEREDA is proud to recognize responsible development based upon criteria including environmental sustainability, economic impact, energy efficiency, difficulty of the development, uniqueness, social impact and job creation.

Please join with us in celebrating Saco Mill #4.

MEREDA:  Describe the building and project.

Jen Chinburg, VP of Marketing, Chinburg Properties:   Saco Mill #4 is a mill redevelopment project that created 150 market rate apartments and 30,000 square feet of leasable commercial space. The project was an adaptive re-use of a long vacant mill building situated on Saco Island in the Biddeford-Saco Mills Historic District. The development team restored the mill to National Park Service standards.

The building is about a quarter of a mile long with four floors. It commands a strong gateway presence atop the hill on Factory Island.

The 4-story, 240,000 square foot 19th century mill was acquired by an affiliate of Chinburg Properties in December 2014. Construction began in September 2015. The apartments were completed in two phases, with the first 93 apartments completed on April 1, 2017 and the remaining 57 apartments completed on June 1, 2017. The project is noteworthy due to its sheer size, its recognition of the strong demand for downtown living outside of Portland, and the joint efforts of the developer, the City, and the developer’s financing team led by Maine-based Camden National Bank and Coastal Enterprises, Inc. to make the project a reality.

Saco Mill #4 was the last remaining undeveloped mill building on Saco’s Factory Island. Redevelopment efforts stalled a number of times over the last 30 years. As a result, the building suffered from neglect and exposure to Maine’s harsh weather. As with many historic rehabilitation projects, the costs to restore Saco Mill #4 exceeded conventional economics. The team utilized federal and state historic preservation tax credits to close the financing gap. In addition, the City of Saco provided additional support through the designation of the development as a Tax Increment Financing District (“TIF”).

Recognizing the challenge of heating 19th century buildings in Maine, the developer worked with Unitil to bring natural gas to Saco Island. The developer installed new building systems to the restored building and many energy efficiency considerations.

This project has added approximately 250 residents who now live, work and play in the heart of downtown Saco and Biddeford. The mill is ideally situated between the two downtowns for exceptional walkability. It is also a stone’s throw away from the Saco Transportation Center for the Amtrak Downeaster and local bus routes for easy commuting and travelling by Saco Mill #4 residents.

MEREDA:  What was the impetus for this project?

Jen Chinburg, VP of Marketing, Chinburg Properties: We have a passion for renovating old mill properties (this is our 15th historic mill renovation is New England) and we understood that this would be an amazing opportunity to impact the city of Saco and to have a highly visible mixed-use community to replace a decaying and underutilized structure. We knew that with our experienced team we could successfully handle a project of this magnitude, and we couldn’t resist the challenge to develop it in a way that would breathe new energy and give new life to the building and its surrounding environment.

MEREDA:  That sounds like quite a process.  How long were you in the planning stages before construction started?

Jen Chinburg, VP of Marketing, Chinburg Properties:  The planning, financing and permitting process took about 12 months to successfully complete. Once we broke ground it took about 18 months to residential occupancy with all of the amenities in place.  The building was so large that on certain days the site supervisor walked up to 10 miles traversing the different floors and areas of the building.

MEREDA:  Tell us about the most challenging aspect of getting this project completed.

Jen Chinburg, VP of Marketing, Chinburg Properties:  The project is noteworthy due to its sheer size, its recognition of the strong demand for downtown living outside of Portland, and the joint efforts of the developer, the City, and the developer’s financing team led by Maine-based Camden National Bank and Coastal Enterprises, Inc. to make the project a reality.

Saco Mill #4 was the last remaining undeveloped mill building on Saco’s Factory Island. Redevelopment efforts stalled a number of times over the last 30 years. As a result, the building suffered from neglect and exposure to Maine’s harsh weather. As with many historic rehabilitation projects, the costs to restore Saco Mill #4 exceeded conventional economics. The team utilized federal and state historic preservation tax credits to close the financing gap. In addition, the City of Saco provided additional support through the designation of the development as a Tax Increment Financing District (“TIF”).

MEREDA:  Something unexpected you learned along the way was. . . 

Jen Chinburg, VP of Marketing, Chinburg Properties:  The enthusiasm of the Saco community was refreshing. From city officials, to business leaders to non-profits and chamber executives, we felt very welcomed to become key members of the local community. The property manager for the building is from Saco, and he has done an admirable job building and cultivating positive relationships with our residents, neighbors and the broader region.

MEREDA:  Now that it’s complete, what feature of the project do you think makes it the most notable? 

Jen Chinburg, VP of Marketing, Chinburg Properties:  The apartments feature exposed brick and timber ceilings, beams and columns, polished concrete floors with radiant heat, kitchens with granite countertops and stainless-steel appliances. The building also includes amenities such as a club room, roof-top deck, fitness center, dog wash & groom room, cyber lounge, café, and conference room. The commercial space at Saco Mill #4 includes Coldwell Banker Residential Brokerage and other locally owned small businesses.  There has been high demand for people to live at Saco Mill #4 and the apartments have been essentially full since the building opened. One of the favorite features for residents is that it is a dog friendly building. There are about 70 dogs peacefully and playfully living in the building. We recently completed a fenced in dog play park where pups can play off leash and residents can socialize and build their community. We celebrated with a “Hot” dogs and beer party to kick-off the opening of this unique and fun addition to the project.

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START-UP SEEKING SPACE FOR SUBLEASE – How Start-ups Can Benefit From Subleasing

by Samantha Marinko Associate, CBRE | The Boulos Company

Maine is the home to a plethora of creative minds—entrepreneurs, artists, techies, chefs—it’s a melting pot of talent from all facets nestled comfortably in the northeast corner of New England. With these creative minds comes new and interesting business ventures, ventures that need space to do all of this creating.

Your start-up may not need office space right away. Starting small and concentrating on a foundation makes sense, and for that, maybe you work off of a stool at Bard Coffee or a co-working space downtown, but no matter how enticing endless coffee may be, that stool or single desk can’t be the end game. There comes a time when office space becomes a necessity. Therein lies the challenging question: where do you go next?

But where to go isn’t the only question. How fast will you grow? How many employees with you hire in year one? How about year two? Do you need a meeting space or just desk space? What sort of culture are you looking to build and how will your office environment impact that? In the world of startups and small businesses, there are a lot of unknowns up front. When facing these unknowns, a smart solution is subleasing space.

The benefits of subleasing will vary from space to space. The lease term can be one of those benefits for new companies with uncertain futures. Sublandlords will have utilized the space they are subletting upon their lease signing, so they’ve likely occupied the space for a portion of the initial term. If that’s the case, the lease term in a sublease will be shorter than what you’d commit to in a direct lease. For a startup with undefined needs, this flexibility can be of huge benefit. And likely, if the space works out, you’ll have the option to sign a direct lease with the landlord at the end of the sublease. Also, if the office has been utilized, it’s probably turn-key (ready for immediate use)—it may even come furnished.

If your company has never leased space before, you may not know what will work for your business long term. For home buying, you utilize information from previous living situations to help craft an outline of what’s important to you—a pretty mantle for the Christmas stockings, lots of big windows, a nice deck for the BBQ would be a bonus. Without having leased office space before, it’s difficult to craft that plan. Subleasing can be a safer, shorter trial run. Maybe you thought three offices was plenty, but turns out a conference room would be a huge value you hadn’t considered. Is a space downtown all you had hoped, or do the challenges surrounding parking negate the pros?

Subleasing, however, isn’t without its own challenges. Any requests that require landlord approval may be delayed as there are two levels they would need to be filtered through (the sublandlord would need to confirm permission with the landlord). Another potential downside is that the sublease likely will not include renewal options, making long-term tenancy in the space more uncertain than with a standard lease. Lastly, tenant perks like access to parking may not be something your sublandlord can offer. It’s all about deciding if the benefits outweigh these challenges.

A lot of decisions need to be made up front, but the route of subleasing can allow for a little bit of wiggle room for the real estate newbies, or just the noncommittal. Your local commercial brokers are a great resource that can work with you to fully understand the ins and outs of subleasing and finding a space that will work for your specific needs.

Original Publication: The Boulos Report June 2018 Real Estate Newsletter  https://f.tlcollect.com/fr2/518/34417/Marinko_Start-up_Seeking_Sublease.pdf

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MEREDA’s Morning Menu Breakfast Event AIA Contracts: Setting the Stage for Success at the Contracts Phase

There is no one right or best form of construction project delivery. There are many different ways to structure a construction project from Design-Bid Build, At-Risk Construction Management, Design-Build, and IPD with each approach having corresponding advantages and disadvantages with regard to speed, collaboration, cost, and customization. This panel of industry experts will discuss the relative strengths and weaknesses of the most common delivery methods, and offers suggestions as to the types of projects that are best (and worst) for each of these methods.

Make plans to join MEREDA on November 8, 2018 from 7:30 AM – 9:00 AM at the Clarion Hotel in Portland to learn about the different ways to structure a construction project, the relative strengths and weaknesses of the most common delivery methods, and suggestions for each.

About the Event:

November 8, 2018 – 7:30AM to 9:00AM

Clarion Hotel
1230 Congress Street
Portland, ME

Breakfast: 7:30 AM
Program: 8:00 – 9:00 AM

About the Panel:

Kenneth E. Rubinstein is an attorney, and co-chair of the Preti Flaherty construction law practice group.  Ken regularly assists owners, contractors, subcontractors and other constituents of the construction industry in negotiating contracts and resolving disputes.  When not representing clients, Ken is a member of the AAA panel of construction arbitrator and teaches construction law at Boston University School of Law.  Ken is also a regular contributor to ENR magazine.

Cordelia Pitman is the Director of Preconstruction Services at Wright-Ryan Construction. With a BA in Physics from Middlebury College and a Master of Architecture from Columbia University, she has over 25 years of experience in the A/E/C industry and is a Registered Architect and a LEED Accredited Professional. Prior to joining Wright-Ryan’s team in 2009, Cordelia worked as a Project Architect for over 15 years at Winton Scott Architects, where she gained invaluable experience on many jobs around the state, including the Harlow and Williams Pavilions in Augusta, Maine.
Cordelia is also actively engaged in the community. She served on and chaired the City of Portland’s Historic Preservation Board for over a decade and has volunteered her time to such other organizations as Architalx, Greater Portland Landmarks, and CEI.

Registering for this Event:

MEREDA Member: $45 each  | Non – Member: $55 each

Register After November 1:  Member: $55 each  |  Non-Member $65 each

Your RSVP is requested by November 1, 2018. Payment is expected at the time of registration. No refunds will be granted to anyone who registers, but fails to attend or who cancels after November 1, 2018.

This MEREDA Morning Menu Breakfast Event is Sponsored by Norway Savings Bank, Preti Flaherty and Wright-Ryan Construction, Inc. 

Visit www.mereda.org  for more information and to register.

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The Right Equation for Responsible Development: Spotlight on Cliff House Resort

In multi-part series, exclusive to the Maine Maine Real Estate Insider, we’ll provide an up-close look at the most notable commercial development projects of the past year that are helping to fuel Maine’s economy in terms of investment and job creation.  MEREDA is proud to recognize responsible development based upon criteria including environmental sustainability, economic impact, energy efficiency, social impact and job creation.

Please join with us in celebrating Cliff House Resort.

MEREDA:  Describe the building and project.

Cliff House Resort:  The iconic Cliff House resort, sitting on the edge of Bald Head Cliff in Cape Neddick, has been welcoming guests since 1872. Leading investment firm, Rockbridge Capital partnered with Maine hoteliers Marc Dugas and Peter Anastos to create RBDD Cliff House Acquisitions, LLC which purchased the property in 2014 and began extensive renovations and additions to capture the best of Maine in every season. Cliff House reopened with newly designed guest rooms and suites, over 25,000 square feet of new meeting and event space, including a new cliffside ballroom, oceanfront dining and bars, indigenous landscaping, and many other enhancements. A new luxury spa and wellness center, family pool, and Lobster Shack added to the already lengthy list of resort amenities.  The greatest highlight is the new collection of oceanfront resort suites which range from family bunk suites to romantic 1-bedroom suites with breathtaking views of the Atlantic Ocean high atop Bald Head Cliff.

MEREDA:  What was the impetus for this project?

Cliff House Resort: As noted in a 2016 Boston Globe Article:

“With the opening of the Cliff House, the trend of turning modest New England beach hotels into posh escapes is gaining momentum. The shift is happening as hotel owners and investors reason that travelers who are accustomed to stylish, urban boutique hotels will want the same experience in quaint seaside towns.”

MEREDA:  That sounds like quite a process.  How long were you in the planning stages before construction started?

Cliff House Resort: The planning and permitting stages lasted approximately one year.

MEREDA:  Tell us about the most challenging aspect of getting this project completed

Cliff House Resort: As an operating summer resort, significant construction phasing was required to respect the operation during the summer months. The phasing resulted in a two-year construction schedule which began in 2015. The redevelopment also required incorporation of existing structures which had significant historical sentiment along with respecting residential abutters and proximity to the ocean.  Extensive collaboration with surrounding residential neighbors was required in order to ensure that existing vehicular access was maintained to properties that used Bald Head Cliff Road.  The road, while the main entrance to the Resort, is also the only access to a number of nearby oceanfront properties.

MEREDA:  Something unexpected you learned along the way was…

Cliff House Resort: The previous owner stated that construction of a new wing that was approved 15 years ago was valid in perpetuity. The ownership team was skeptical, but it turned out to be true. The previous owner had the insight to permit the entire site plan with the ability to phase construction over the years.

MEREDA:  Now that it’s complete, what feature of the project do you think makes it the most notable?

Cliff House Resort: Stunning exterior views, coupled with outstanding interior design and world class service right here in Maine.

The ability to fuse two buildings which were very different in both age, style and design into one seamless resort with a complete new addition which nearly doubled the size of the resort was an amazing accomplishment.  The resort appears as if it was built as one property. The depth of vision, skill, and expertise of the architects and designers with ownership coupled with stunning exterior views and outstanding interior design with world class service, is all right here in Maine.

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Join MEREDA for another great “meet-and-greet” opportunity at the Annual Fall Networking Social

Another great “meet-and-greet” opportunity, this time on Portland’s Waterfront, you are invited to the Maine Real Estate & Development Association’s (MEREDA’s) highly-anticipated Annual Fall Social on October 25th!

MEREDA’s networking events attract key players in Maine’s real estate industry and provide our members with excellent opportunities to interact with the experts.

Join us on Portland’s waterfront for hors d’oeuvres, spirits, and great conversation with colleagues, friends and other industry professionals for our Annual Networking Fall Social on October 25 from 5:00 – 7:00 PM.

Join us for a cocktail or two, and reconnect with colleagues and friends, both old and new!

Before the official “networking” gets underway, MEREDA will hold its Annual Meeting of the Members beginning at 4:45 PM – Members Only

About the Event:

MEREDA’s Annual Fall Networking Social

October 25, 2018 – 5:00PM to 7:00PM
Hilton Garden Inn, Portland Downtown Waterfront
65 Commercial Street
Portland, ME

Registering for this Event:

MEREDA Members: $45 each | Non-Members: $60 Each
Prices Increase by $10 after October 18.

Your RSVP is requested by October 18. Payment is expected at the time of registration. No refunds will be granted to anyone who registers, but fails to attend or who cancels after October 18.

For more information and to register, visit http://www.mereda.org

MEREDA’s 2018 Annual Fall Networking Social is sponsored by Bangor Savings Bank, J.B. Brown & Sons and Preti Flaherty.

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Meet Dan Brennan, New MaineHousing Director

Dan Brennan, MaineHousing Director

Earlier this year, Dan Brennan was confirmed as the new director of MaineHousing, succeeding John Gallagher who recently retired. Brennan has been with MaineHousing for 25 years, and before his appointment as director, he was Senior Director of Programs.

Dan has also recently been elected to MEREDA’s Board of Directors.  MaineHousing has been a great supporter of MEREDA over the years and we are pleased that Dan accepted our invitation to sit on the board.  We look forward to his active participation in furthering MEREDA’s mission of promoting responsible real estate development throughout Maine,”

Get to know Dan in this great article (on page 3) we found in Northern New England Housing Investment Fund’s recent edition of “Returns”.

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MEREDA’s Morning Menu Breakfast Event – On Fertile Ground: The Maine Marijuana Industry

The marijuana industry offers enormous opportunities for real estate owners and professionals, but poses unique risks and challenges. MEREDA is pleased to welcome attorneys Ted Kelleher and Hannah King from the law offices of Drummond Woodsum as they provide an overview of how the Maine medical and recreational marketplaces will function going forward, what kinds of licenses will be available, what the timeline will be for the creation of the new recreational market and what these businesses look like operationally. They will discuss legal issues and concerns for landlords and property owners, including issues specific to the issues around title insurance, property insurance, as well as provide information on how landlords can best protect themselves.

Join us for breakfast in Bangor on October 16 from 7:30 AM – 9:00 AM at the Hollywood Casino Bangor for a discussion and presentation on how the cannabis industry has evolved, where things stand today and what the future may hold with regard to rules & regulations.

About the Event:

October 16, 2018 – 7:30AM to 9:00AM

Hollywood Casino Bangor

500 Main Street
Bangor, ME

Breakfast: 7:30 AM
Program: 8:00 – 9:00 AM

About the Panel:

Hannah King, Attorney, Drummond Woodsum

As co-chair of Drummond Woodsum’s regulated substances practice, Attorney King advises tribes across the country and marijuana businesses in Maine, Massachusetts, New Hampshire, and Vermont on marijuana licensing and regulatory issues. She has been involved in drafting proposed legislative changes to Maine’s Marijuana Legalization Act and the Medical Use of Marijuana Program. She is also a member of The ArcView Group, a national cannabis angel investment platform, and serves on the 15 member selection committee, where her responsibilities include vetting investment opportunities in all aspects if the cannabis industry for consideration by ArcView members.

Edward (Ted) Kelleher, Attorney, Drummond Woodsum

Ted co-chairs the firm’s Regulated Substances Practice, which focuses on consumer products industries with heavy regulatory oversight, in particular brewing, distilling and the newly emerging marijuana industry. Ted is widely recognized as one of the pre-eminent business and regulatory lawyers for marijuana related businesses in New England. He has represented dispensaries, Native American tribes, investors, landlords and property owners and municipalities as they try to navigate the complex and quickly changing world of marijuana laws, regulations and business transactions. A thought leader in this industry, he has spoken widely about marijuana legal and business issues to a variety of civic and business groups.

Registering for the Event:

Your RSVP is requested by October 9, 2018. Payment is expected at the time of registration. No refunds will be granted  to anyone who registers, but fails to attend or who cancels after October 9, 2018.

Ticket Prices:

Members: $25 each | Non-Members: $35 ea
Prices increase by $10 after October 9

This MEREDA Morning Menu Breakfast Event is Sponsored by Epstein Commercial Real Estate and Drummond Woodsum.

Visit www.mereda.org for more information and to register.

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The Right Equation for Responsible Development: Spotlight on Huse School Apartments

September 4, 2018

In multi-part series, exclusive to the Maine Real Estate Insider, we’ll provide an up-close look at the most notable commercial development projects of the past year that are helping to fuel Maine’s economy in terms of investment and job creation.  MEREDA is proud to recognize responsible development based upon criteria including environmental sustainability, economic impact, energy efficiency, difficulty of the development, uniqueness, social impact and job creation.

Please join with us in celebrating Huse School Apartments.

MEREDA:  Describe the building and project.

Huse School Apartments:   Huse School Apartments involved the renovation and rehabilitation of the former John E.L. Huse Memorial School, built in 1942 and 1949 in Bath. We re-purposed this elementary school to create 31 apartments and added a new construction wing with 28 apartments, for a total of 59 units. The project was financed using a combination of affordable housing tax credits and historic tax credits. The project also included extensive new sitework surrounding the school and, nearby, a new community playground that benefits residents of the City of Bath.

MEREDA:  What was the impetus for this project?

Huse School Apartments:  We believe that cities and their downtowns are stronger when residents are able to build and maintain their well-being, careers, and families in quality housing that is plugged into neighborhood services and amenities. We are always looking for new project sites to create housing that supports these beliefs. When we were introduced to the Huse School, we realized that by partnering with the City of Bath we could redevelop a historic building in an established neighborhood, while creating new quality housing in a city with high demand. Nearby amenities include Bath’s modern YMCA, the 5-mile Whiskeag Trail, and the bus line. Downtown Bath (with all of its services and attractions) is a 1/2 mile walk from the Huse School.

MEREDA:  That sounds like quite a process.  How long were you in the planning stages before construction started?

Huse School Apartments:  We first visited the existing school in summer 2014, on a guided tour of potential housing development sites with Deb Keller, Director of Bath Housing.  We were able to get the site under contract and began working on permitting and financing throughout 2015 and most of 2016, culminating in construction start August 2016. We opened our doors to residents on July 17, 2017.

MEREDA:  Tell us about the most challenging aspect of getting this project completed

Huse School Apartments:  Every project has its own special challenges! Our biggest challenge was dealing with a very tight construction labor market that caused headaches for the entire team throughout the construction process. We had a major subcontractor walk away from the job right after we started, and that caused a ripple effect through the rest of the project.

MEREDA:  Something unexpected you learned along the way was…

Huse School Apartments:  We learned that there was a rifle range built into the basement of the wing constructed in 1949. When it was built, it was part of the Cold War-era martial culture. Kids were expected to be competent shooters. Now, putting a rifle range into an elementary school seems incredible to us. It just goes to show how far the culture has moved since 1949.

On the development side, we learned during construction that the 1949 wing, which was considered to be not architecturally or historically significant by the National Park Service, was eligible to drive Historic Tax Credits because it was attached to the historic 1942 original structure. Therefore we were able to unlock more tax credit equity than we originally expected, which in turn allowed MaineHousing (the primary funder) to husband its scarce resources of tax credits and subsidies, allowing it to fund more affordable housing projects across the state.

MEREDA:  Now that it’s complete, what feature of the project do you think makes it the most notable?

Huse School Apartments:  The historic building included a gymnasium with a stage, which we have partially repurposed as the building community room. This is a space with 24’ ceilings, vast expanses of exposed original masonry walls, and refinished hardwood floors with basketball court markings. We certainly don’t have any spaces like this community room in our other buildings. It’s the space where residents are encouraged to gather, and it’s the space we show off the most when we give a tour of the building.

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MEREDA’s Annual Lewiston Auburn Networking Social

After the summer break, make plans to join the Maine Real Estate & Development Association (MEREDA) at Baxter Brewing Co. in Lewiston on September 27 from 5-7 pm for its Annual L/A Fall Social.  Located in the historic Bates Mill, Baxter Brewing currently distributes its flavorful and unique craft beers statewide in Maine, Massachusetts, New Hampshire & Vermont.

MEREDA’s networking events attract key players in Maine’s real estate industry.  Come enjoy great food, Maine-made beer, and lively conversation with colleagues, friends and other industry professionals. A great forum to put a face with a name as well as make new business connections!

Interested in learning about the brewery? A guided tour will be available fifteen minutes before the event at 4:45 pm.

About the Event:

MEREDA’s Annual Lewiston Auburn Networking Social

September 27, 2018 – 5:00PM to 7:00PM

Baxter Brewing
131 Mill Street
Lewiston, ME

Registering for this Event:

MEREDA Members: $25 each | Non-Members: $35 Each
Prices Increase by $10 after September 20.

Your RSVP is requested by September 20. Payment is expected at the time of registration. No refunds will be granted to anyone who registers, but fails to attend or who cancels after September 20.

For more information and to register, click here.

MEREDA’s 2018 Annual Lewiston Auburn Networking Social is sponsored by Androscoggin Bank and Skelton Taintor & Abbott.

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Homeownership Remains Unaffordable; Rental Affordability Showing Signs of Improvement

August 28, 2018

by Richard E. Taylor, Research Manager at MaineHousing

MaineHousing has released the 2017 Maine Homeownership and Rental Affordability Index.  The index indicates buying or renting a home in Maine remains unaffordable.   The index provides a statewide, county and local breakdown of home buying and rental affordability.  The index calculation is based on the ratio of home prices affordable at median household income to median home price.  A ratio at or above 1 indicates homes are affordable while below 1 indicates they are unaffordable.

Homeownership Remains Unaffordable

In 2017, home buying in Maine remained unaffordable for the second year in a row as the index moved from .97 down to .93.  The median home price increased 7.1%, or $13,000 to a post-recession high of $197,000.  Driving the affordability gap, median household income has not kept pace, rising only 4.3% to $53,190, also a post-recession high.

As the market began recovering in 2010, the combination of higher inventories of foreclosed and low cost homes, historically low interest rates, and income growth outpacing home prices led to a brief two year time frame, 2014 – 2015, when buying a home became affordable at median income.  After 2015, the gap between income and median home prices narrowed and home buying returned to being unaffordable.

The Inventory Problem

High demand and low inventory pushes up home prices.  The current dearth of new construction and the increased use of single-family units as rentals (12% increase) combined with a declining population and slowing in-migration, have contributed to slower household formation and low inventory.  Additionally, many of the single-family homes being rented were those of owners who were underwater or in negative equity.  Though increasing home values and sales prices have lessened that issue, many owners may have kept the property as a rental because demand for rental units remained strong.  The average days on market in Maine has gone from 78 in 2013 to 35 in 2017.  Based on current sales rates, there is about 6 months of inventory available.  As we move from spring to summer that inventory will likely decrease.

Historical Changes

Maine’s homeownership rate, among the highest in the nation has been declining since the peak of the pre-recession housing boom.  The decline in vacancies has been less steady but took the most considerable one-year drop from 2016 to 2017 when vacancies reached a 12 year annual low of 1.2 percent.

More Expensive New Units

Increasing costs of land, building materials, and labor are driving the cost of new single-family development upward putting many of the new units out of reach for first time home buyers.  This trend will likely force younger buyers who do decide to buy to purchase existing homes as opposed to new regardless of the financing program.

The Shift to Renting Continues

Current flat homes sales in Maine may be due, in part, to the continued shift to renting.  Households 64 and younger continue to rent in increasing numbers.  Those households in the 25 to 54 age cohorts have historically bought homes at greater rates than other age groups.  For households 25 to 34, continuing to rent is attributed to high home prices, student debt, and the locational preferences of younger Maine residents.

Renting Is Still Unaffordable but Improving

The rental affordability index measurement is based on the ratio of a 2-bedroom rent affordable at median renter income to average 2-bedroom price.

In 2017, renting an apartment remained unaffordable but the statewide index score improved to .88 up from .85 in 2016. The improving affordability index score is due primarily to a leveling off of average two-bedroom rents and improvements in renter incomes.

More Rental Units but Fewer Affordable

The rental vacancy rate has reached its lowest point in over a decade but there are fewer affordable units in stock. The supply of affordable rental units has shrunk by over 6,000 units since 2011.  This is approximately the same number of homes that have fallen from the owned category between 2011 and 2016 and may reflect the growth in single-family rental units. The increase in single-family rental units which are generally larger homes has likely contributed to increased rents and subsequently, continued market unaffordability. As with single-family owned units, multifamily construction activity has increased but has yet to return to pre-recession levels.

Current market conditions indicate that home prices will continue to rise as inventory remains tight.  Buying a home will remain out of reach for a growing number of Maine residents.  On the rental side of the equation, various forecasts have predicted a softening of rents, as the MaineHousing index suggests.   The forecasts of rental prices leveling off are largely based on greater participation in home ownership, particularly among prime age buyers.  If rental prices are beginning to decrease, the decrease is not occurring at the levels needed to bring rental prices down to an affordable level.

 

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