The Sunbelt Shines

[Wide Moat Daily]( The Sunbelt Shines By Brad Thomas, Editor, Wide Moat Daily I recently relocated my office to downtown Spartanburg, South Carolina – a move I should have made months ago (at least) for several reasons. For one thing, my old place too often felt like either a sauna or a meat locker depending on the season. The HVAC was always broken, leaving me feeling like I was in Ecuador in the summer and Alaska in the winter. I’d been there for over a decade, so it was high time for a change. But more than that, I wanted to get closer to the downtown area, which has become a vibrant community well worth investing in. Perhaps the biggest example of how much it’s growing is the new minor-league baseball stadium that’s under construction. A $425 million mixed-use project, GSA Business Report announced earlier this year that it will: … include 200,000 square feet of office space, more than 375 apartment units, a 150-room hotel, parking facilities to house at least 1,500 vehicles, and a large public plaza and event space. If that sounds like a lot for a place as little known as Spartanburg, you’d be right. The article adds that this “is the largest economic development project in the city’s history.” But it’s approving such construction because of how well it’s been doing. And how much bigger and better it knows it can still become. My new office is just a few blocks away from the stadium-to-be. And it’s exciting to see the progress being made every time I go in. In fact, I’m excited about my city in general. I’m working on several new projects here even as I write this, and I’ve got realistically high hopes for each one of them. This Sunbelt destination is engaging and engaged, growing and ready for more growth. And I, for one, am raring to be a part of it. So Much More to Say About the Sunbelt I’m not the only one who’s noticed the continuing and even rising opportunity in the Sunbelt – a swath of land that stretches all across the Southern U.S. Interpretations of exactly how big that swath is vary, but it’s always going to include the Carolinas… Georgia and Florida… Alabama and Tennessee… Mississippi, Louisiana, and Arkansas… Texas and Oklahoma… New Mexico and Arizona… a corner of Nevada and the lower swath of California. These states are getting a lot of economic attention since people want to be there. Businesses want to be there. And investors want to be there, too. My editor recently went to Raleigh, North Carolina, and came back extremely impressed. Too many cities above it are falling into disrepair thanks to crime, population outflows, and generally poor management. But not Raleigh, he noted. That Sunbelt city is “clean.” Even “vibrant,” filled with friendly people who are hopeful for the future. While touring the city, he and his travel companions “walked past what was clearly a nearly brand-new civic center.” And when they “had dinner at an Asian fusion restaurant and brewery” that was “filled with youngish people who will likely be raising families soon, if they aren’t already,” it cost a good $200 less than they’d have to pay for the same experience in New York City. Speaking of cost of living, North Carolina’s top income tax bracket is 1.25% below Maryland’s… almost 3% below Connecticut’s… And roughly half of what residents have to pay in states like New York, New Jersey, and Massachusetts. So it’s no wonder that residential developments are going up everywhere in the suburbs around Raleigh. There are just too many reasons to move there, and people are heeding those signs. Yet for all the hope and change it offers, that city doesn’t even crack the Top 5 destinations to be in the U.S. Dallas, Texas, we learned, topped ULI’s “Emerging Trends in Real Estate” list going into 2025. Miami, Florida, came next. Then Houston, Texas, followed by Tampa, Florida, and then Nashville, Tennessee. Not a single Northern city to be seen in the Top 5. It’s just one more indication that the Sunbelt is dominating. It’s been dominating ever since the 2020 shutdowns. And I don’t see it not dominating anytime soon. Growth Stories Are the Name of the Sunbelt Game There are plenty of other Sunbelt growth stories I could easily highlight. Far too many to list here, but let me mention at least a few. Last week, for instance, a group of developers announced their intent to transform Fort Lauderdale, Florida’s largest marina. The planned development will include luxury condo towers, a hotel, restaurants, other retail space, and a beach club… All to the tune of $2 billion. They’re building this “mini Monaco,” as they’re calling it because all their research shows that Fort Lauderdale is the place to be. And they’re certain to make money on it as a result. In other commercial real estate (CRE) news across the South, new warehouses are popping up in Atlanta to accommodate all of that city’s booming needs. And other industrial powerhouses are busy investing in Phoenix, Arizona. Rubenstein Partners and the city of Plano, Texas, are putting tens of millions more into renovating PepsiCo’s former office campus. (Yup, even offices can do better in the Sunbelt.) And another two CRE developers – Pinnacle Partners and Trilogy Investment Company – have big plans to build apartment communities in Decatur and Augusta, Georgia, and Huntsville, Alabama. I’ll also point to Mid-America Apartment Communities (MAA), a real estate investment trust (REIT) I follow. With a particular focus on Sunbelt cities, this S&P 500 Index company owns and operates high-end apartment communities. It recently reported third-quarter core funds from operations (FFO) of $2.21 per share, which was $0.05 above its midpoint guidance. And its occupancy came in at a very solid 95.7%. Despite record-high competition this past quarter – the price one sometimes pays for operating in such popular areas – CEO Eric Bolton was able to report that MAA captured “solid performance in occupancy, record-low resident turnover, strong collections and better-than-expected performance with operating expenses.” Better yet, it’s seeing construction costs decrease in several of its key markets, which could boost its profitability that much more. And even better still is what Bolton and his team see for the future: We expect to see normal seasonal leasing patterns for the next couple of quarters and remain convinced that the spring leasing season will usher in the start of a recovery cycle with more favorable leasing conditions as demand and absorption trends across our markets remain strong and the volume of new supply deliveries steadily declines. That’s the kind of optimism I keep hearing from big and small companies alike that are operating in the Sunbelt. And there’s one more thing worth mentioning. Increasingly, this area is also attracting a lot of attention from the high-tech industry. Have a look at the map below. This comes courtesy of the White House’s progress report on the CHIPS and Science Act. The goal of the legislation is to fortify supply chains and ensure national security due to the mission-critical nature of semiconductors in today’s world. The red dots on the map represent private investments announced in the semiconductor industry. The blue dots are from the battery and electric vehicle industry. And what stood out to me is the large grouping in the sunbelt area, particularly Georgia and the Carolinas. Everything I’m seeing tells the same story: The best growth opportunities aren’t coming from the “old guard” of the Northeast. The American Sunbelt is the place to be. I’ll continue to scour the landscape for excellent investment ideas. Of which there are so many to talk about. Regards, Brad Thomas Editor, Wide Moat Daily --------------------------------------------------------------- MAILBAG Do you agree with Brad that the Sunbelt is the place to be? What other growth opportunities do you expect to happen in the Sunbelt? Write us at feedback@widemoatresearch.com. 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