REAL ESTATE FOCUS- Ogden ... quickly becoming the Wasatch Front's commercial hot spot
CARTER RANDALL AND NATE HARBERTSON
When friends visit from Salt Lake City, we typically head to downtown Ogden for dinner and entertainment. They are always shocked at how Ogden city has developed since their last trip. Living here and seeing it every day makes it harder to notice as the change happens incrementally. The transformation of historic 25th Street and The Junction, as well as the renovation of the LDS Temple and surrounding developments like the Ogden River Project and new apartment complexes, catch their attention right away. The more they look around, they notice the changes to the Business Depot of Ogden Industrial Park, the IRS Campus and a multitude of different medical related facilities.
Over his three terms as Mayor, Matthew Godfrey laid the foundation for this growth, but unfortunately, just as those improvements were winding up, the economy fell down. With strong leadership from current mayor Mike Caldwell and his economic development team, Ogden City prepared itself for recovery by providing business incentives like tax increment financing for projects, special assessment areas for targeted economic development, new market tax credits, bridge loans and small-business development loans to help secure tenants and buyers alike. Some of these businesses have included Northrop Grumman, WebNX, Boeing, Barnes Aerospace, HomeDepot.com, Hershey and Esurance.
Other business residents such as AmerSports, Darko Technologies, ENVE , Goode Ski Technologies, Rossignol Ski, Scott USA, QBP and several other sports gear companies have earned Ogden the recognition by The Wall Street Journal as “the center of outdoor sports gear in the U.S.” These companies have created thousands of jobs and have helped create a financial base for the office, retail and urban housing markets in Ogden and many of the surrounding cities.
Having lived in Utah most of our lives, we’ve have heard many names for Ogden, including the “Redheaded Stepchild,” “The Hood," and our favorite, “Paper Tiger.” Utahns have a tough time believing in Ogden. It is the out-of-state clientele that seem to better appreciate Ogden’s opportunities, its proximity to Salt Lake City (30 miles) and convenient access to I-15, I- 84, and I-80 — not to mention the fact that it is home to the second largest airport in the state and that downtown is served by the FrontRunner commuter rail, allowing for an easy commute for Salt Lake City employees and residents who live or work in Ogden.
According to Forbes Magazine in 2013, Ogden was ranked the 29th most affordable city in the U.S. for doing business. In 2012, CNN ranked Ogden as the No.1 most affordable metro area for housing. In that same year Forbes Magazine ranked Ogden as the eighth best metro area for raising a family and in 2014 ranked it No. 3. According to Kiplinger’s "10 Best Cities for Cheapskates," Ogden is No. 2. According to Kiplinger, “Low costs plus fat paychecks can add up to big savings in Ogden, the second-smallest city on our list. Ogden residents earn the highest household income of all our cheapskate cities, 18.2 percent more than the U.S. median. But expenses for housing, groceries and utilities are all below average, and healthcare costs are the most affordable of all these cities at 8.8 percent below average.” With accolades like these, it is only a matter of time before this “Paper Tiger” starts showing its teeth.
Obviously, some of the reasons that Ogden is so attractive in these surveys have to do with the cost of living. This translates in some degree to rent rate, which can be explained through basic supply and demand. Ogden still suffers with too much vacancy, but those rates are definitely moving in the right direction. We have seen rent rates stabilize over the past couple of years and with the decreasing vacancy, we should start to see some upward pressures on rent and therefore property values.
Industrial property rental rates in Weber County fall in a wide range — from 20 cents to 45 cents per square foot. There are several different industrial locations throughout Weber County, but BDO (Business Depot Ogden) is the market leader. Fortunately or unfortunately, there are millions of square feet available in both the low rent buildings and in the build-to-suit high rent market which acts as a bit of a cap to any upward rent pressure in the industrial market. However, BDO is strictly a “for-lease” product and does not allow for outdoor storage or yard space. This is forcing any heavy industrial user or buyer to look outside BDO to meet its needs. Ogden is currently trying to help fill that void with the Trackline Industrial Project, located at 600 W. Exchange. Phase One will be a modern, 85-acre site available for purchase as a build-to-suit with ample yard space and should come on line in late 2014. While the project will meet heavy industrial needs, its design looks like anything but heavy industrial. It will be walled and landscaped, with trails and parks adjoining the Ogden River and its trail system, which the economic development team has incorporated into their master plan.
This leads us to investments. The CAP rates for standard corporate NNN leases in Ogden are slightly higher than industry standards and the CAP rates for non-corporate NNN leases in Ogden are substantially higher than in other areas of the state. The demographic information identified by Forbes should lead you to believe that the risk levels of those products are actually less than they are in most areas of the country and in most areas of the state. This means that your rate of return is actually greater in Ogden for less risky investments. When you combine that with all that is happening, the already low property values and the low rent rates, you have a real value add opportunity. Rent rates are low and can only go up. Property values are low and will rise with rent rates and CAP rates are too high for the risk that they actually hold. What does this mean to investors? Your rate of return on investment (yield) will be based on a low purchase price. The rent (dividend) is going to rise while the underlying value of the property will rise in lock step with the rent. The only thing required is time and you get paid a premium to wait.
Utah has the second-fastest-growing population in the U.S. and as long as there are mountains to our east and the Great Salt Lake to our west, growth will move north. Ogden will benefit as a small Salt Lake City to those looking to shop, eat and commute via rail and act as a center for businesses looking to service all the markets in north Davis and Weber counties.
As we have mentioned, Ogden has some stigmas that date back generations. There is no denying that Ogden had plenty of rough years in its past, but that is what makes Ogden unique. It also is looked at as a badge of honor for the residents of Ogden, who take a lot of pride in this city and in its history, and as they are the largest investors in Ogden, they will be well rewarded for their belief in its future. If you call Ogden a “Paper Tiger” to a local, they might punch you in the nose or they might just smile, because they know this “Tiger” is just about to find its voice and its roar will be heard across the state and throughout Intermountain West.
Carter Randall is the co-founder, principal broker and managing partner for PPC Commercial Real Estate in Ogden. Nate Harbertson helped create PPC Commercial in 2008 and is an owner/agent. Both live in Ogden with their families.