During the summer of 1986, British pop band Simply Red had a No. 1 hit in the U.S. titled “Holding Back the Years” that discussed an inability to grow when focused on the past.Looking back at the past three decades — and contrary to the song — Richmond has grown and is growing quite a bit.While there have been a number of key private projects that mark the waypoints over the past 30 years in Richmond’s commercial real estate market, some of the larger public projects and initiatives have steered the direction of commercial real estate.Richmond’s downtown has burgeoned, particularly in the past 15 years, and that is due in no small part to its main growth driver, Virginia Commonwealth University.
Back in 1986, VCU had total enrollment of approximately 15,000 combined undergraduate and graduate students.Thirty years later, VCU now has more than 31,000 students.That has been a huge catalyst for bringing jobs, apartments, restaurants and vitality to the downtown area.Today’s hottest apartment markets are in downtown Richmond, and there are very few people who would have predicted such success 30 years ago.In fact, the Tax Reform Act of 1986 was viewed by many in the commercial real estate world as the end of life as they knew it. The act fundamentally changed how investors looked at real estate.Prior to 1986, real estate was viewed primarily as a tax shelter. By shutting down accelerated depreciation and unlimited offset of passive losses against active income, the act adjusted the value of commercial and multifamily real estate virtually overnight.
Since real estate loans were the largest assets held by the savings and loans associations, the ensuing 10 years were very tough on both real estate investors as well as the S&Ls.The next decade after the real estate recession of the early 1990s and purging of bad real estate loans by the Resolution Trust Corp., the government agency charged with liquidating assets from failed S&Ls, was marked by great expansion and increasing values in commercial real estate.The growth was helped by a few public infrastructure projects such as the completion of state Route 288 through Chesterfield, Powhatan and Goochland counties in 2004 and its ultimate connection, via Interstate 64, to Interstate 295.State Route 288 helped spur the growth along its way with huge private investments in the West Creek business park in Goochland by Capital One for its multibuilding campus and CarMax for its corporate headquarters.
With the huge population and strong demographic base in Midlothian and western Chesterfield County, the new highway made it easier — and faster — to get to such places as Short Pump Town Center, West Broad Village and Innsbrook Corporate Center.Everyone feared the uncertainty surrounding the megamergers of Richmond’s largest banks: Crestar, Central Fidelity and Signet, into banks located in other states.While it is clear that some individuals were impacted to a greater degree than others, overall employment actually grew by more than 90,000 jobs between 1996 and 2006 in the Richmond region.
The loss of several banking headquarters led to the rise of community banks, notably Union Bank and Trust, Virginia’s largest community bank. Several other community banks have blossomed as well to provide loans on local projects as the larger banks have retreated to focus on larger markets.The last decade has been perhaps the most exciting for Richmond commercial and multifamily real estate.After the Richmond region and elsewhere in the U.S. took a severe pounding following the residential bubble burst in 2007 and the Great Recession that followed, projects are once again bursting with activity.The region has been able to project an image of cool history combined with an artsy base enabling it to be voted among the best places to live and visit in numerous publications.
From a real estate standpoint, lots of exciting projects are happening in RVA — from the opening of the new Quirk Hotel and Stone Brewing Co.’s production plant, to continued activity at Willow Lawn and Libbie MillMidtown, to grocer Wegmans opening in Chesterfield.The historically low interest rates also are helping with all of this development.Bolstered by a 10year Treasury yield that is almost as low as it has been in 30 years, rates are in the 3 percent to 3.5 percent range for 5 and 10 year commercial mortgages, according to the John B. Levy & Co. Mortgage Survey.As country music artist Tim McGraw sang in his top hit, it’s time to focus on “My Next Thirty Years.”
