A Real Money Pro member requested I revisit what I first dubbed ‘The Great Exodus’ way back in the first half of 2020, when it became apparent the pandemic was accelerating migration out of places like New York City. This trend has continued, if not gotten stronger, even as Covid fears and restrictions have ebbed.
As a result, my home state of Florida has become something of this generation’s version of the movie classic Casablanca. Except, of course, people are not fleeing war as much as chasing freedom. Miami has always been a refuge for Cubans and Venezuelans leaving behind communist regimes. Recently they been joined by a wave of the affluent from Peru, Colombia and Argentina moving because of leftward turns in their home countries.
An hour north of here in Palm Beach County, we continue to be overrun by an influx of emigres from the Northeast tired of surging crime, high taxes, a fast-rising cost of living and a general deterioration of civil life in the major cities — New York City, for example, had an all-time record of 2,668 drug overdose deaths in 2021. Oh, and the weather is not half bad in the Sunshine State either. Here in Delray Beach, a visitor might easily think he was in a quaint little town on the Jersey Shore during summer given all the dark yellow with blue tinged license plates on the streets in the city.
This huge migration shows no signs of slowing down any time soon. Over 64,000 New Yorkers got new Florida license plates last year, which beat 2021’s all-time record by nearly 3,000 and is up 39% from the pre-pandemic year of 2019. New Jersey license swaps were over 32,000 on the year, a new record. Even the Golden State is now getting into the act with over 30,000 license exchanges in 2022, almost double the number of just five years ago.
This migration will continue to have impacts on regional economies and for investors. The huge boom in the virtual workforce thanks to the pandemic also remains a key driver of this exodus. This will continue to be a huge headwind for commercial real estate in places people are moving away from for the foreseeable future. Vornado Realty Trust (VNO) is a name I have profiled many times as one to avoid given the firm’s huge exposure to commercial real estate in New York City, as it is the second largest commercial landlord there. The company was recently kicked out of the S&P 500 and cut its dividend payouts by nearly 30%. The stock of SL Green Realty (SLG) has been shellacked over the past year for similar exposure.
Nor will this be good for the finances of Gotham, given one third of the city’s budget is financed through property taxes. The city now projects that revenue from taxes on commercial transactions to fall over 40% this year, reducing tax fees by over $450 million. Hundreds of millions more will dry up due to expected 27% decline in residential real estate transactions. Hardly good news for investors in New York City’s $40 billion worth of general-obligation bonds or Big Apple residents as the city will most likely have to tighten its belt in the coming years.
Meanwhile, shares in The St. Joe Co (JOE) have bounced back nicely since I recommended buying the dip in this name in mid-October. The large land holdings the company has near Tampa Bay will continue to gain value over the long-term even as the housing sector is currently going through a rough patch thanks to mortgage rates doubling over the past year.
And that is the current view from a focus point of the great migration the country is currently experiencing.
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