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Baby
boom meets property boom By
Suzanne McGee Randy Hecht's favourite hunting ground for
fresh investment ideas may be Silicon Valley, but one of his biggest new
themes has more to do with bricks and mortar than gigabytes and pixels. Mr Hecht, chairman and chief executive of RS
Investments, a San Francisco money management firm, is betting that, as
more baby boomers approach retirement age, their purchases of retirement
homes will send property prices sharply higher in communities from Florida
and New Mexico to Baja California and New Zealand. Mr Hecht and Jim Foster, president of RS Real
Estate Group, a division of RS Investments, bought land in New Mexico and
resold it to developers who are now building 5,000 single-family homes
aimed at retiring baby boomers. The result: "a biggish profit",
says Mr Hecht. He believes this is just the tip of the iceberg and is
scanning the land for other opportunities. "Over the next 21 years, 51m baby
boomers and 'echo boomers' will hit 65," Mr Hecht says. "There's
a scarcity of land in the kind of locations in which they will settle. The
boomers are picky. They want recreational facilities, because they'll
remain very active for decades. And they want views - a river, a lake, an
ocean, a mountain." The older members of the boomer generation
have already staked out the prime spots. Waterfront acreage in Hawaii has
risen tenfold in price in the last five years, says Mr Foster. Parts of
Arizona are "built out", he adds, and the combined demands of
retirement facilities and golf courses are literally draining the
available water sources. "Montana is overrun by older baby boomers
buying next to rivers." Demographic expert Richard Hokenson says:
"The boomer phenomenon is one of the most obvious demographic trends
of the century, but people continually underestimate its impact on a
variety of markets. He cautions retirees: "If you wait until everyone
else is [buying retirement properties], you run the risk of being priced
out of the market." New Jersey-based Mr Hokenson owns a
condominium on Mexico's "Mayan Riviera", south of Cancun, where
he may retire. But he says it doesn't matter whether or not people know
where they want to spend their retirement years. "You just want to
get into the market somehow . As long as you pick an area people will
likely want to retire to, you'll be in the market. If your plans change,
you can sell that property and use the proceeds to buy another one." Mr Hecht says traditional retirement regions,
particularly California, are already over-priced, and that New Mexico will
be a prime new destination, along with parts of Mexico. Clark Thompson, founder and chief executive
of EscapeHomes.com, a San Francisco-based website covering vacations and
retirement homes, believes states with low income taxes and lots of
outdoor amenities, such as Wyoming, Nevada and New Mexico, will lead the
next wave. "People want to live somewhere where the kids and their
kids have something to do when they come to visit," says Mr.
Thompson, who spent his own childhood holidays with cousins on his
grandfather's ranch in Wyoming. Martha Johnson, senior vice-president of
residential mortgage lending at Borel Private Bank, based at San Mateo,
California, is structuring jumbo loans based on the combined value of the
first homes and the vacation/retirement properties being purchased by a
growing number of her well-heeled clientele. "Buying now minimises the risk on a
couple of fronts,"she says. Buyers can test-drive their potential
retirement home, using it first as a vacation retreat. The purchases also
give them at least a toehold in markets where growth restrictions may curb
future development and fuel real estate price increases. "Everyone in
the San Francisco area knows first-hand what happens to real estate prices
when a big population shift takes place," she adds. Financial advisers are divided on the wisdom
of investing in retirement homes more than three to five years before
people plan to retire. Gilbert Davis, a Pittsburgh-based adviser for high
net worth boomers, recently talked a client out of buying a multi-million
dollar property. "He didn't want to rent it out, so it wouldn't
generate any income, and he only planned to use it a few weeks a year for
now. Unless you know a particular community is the only place you'd
consider retiring, and that special factors like growth restrictions mean
property will only become more scarce, you are probably better off
investing elsewhere until you are at least five years away from
retirement." There are other risks in acting prematurely,
advisers warn. A community that looks ideal today may be less attractive
in a decade, if it becomes overbuilt or hurricanes erode its beachfront.
Moreover, says Jeff Erdman, a private wealth adviser for Merrill Lynch in
Greenwich, Connecticut, buying a second home perhaps for retirement is a
highly personal decision. That makes it tricky for other investors to
forecast accurately and profit from trends in retirement home pricing. "My clients don't look at their
purchases as investments," he says. Mr Hecht is
undaunted. "The only big question we need to answer is, where is the
next 'nicest place to retire to' going to be? Somewhere that hasn't
already been overrun," he says. "If we can figure that out, the
rest falls into place."
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Action on Aging |
