Texas Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in Texas.
Issue link: https://texasrealestatebusiness.epubxp.com/i/591312
36 • November 2015 • Texas Real Estate Business www.REBusinessOnline.com "Back to the Future" is 30 years old. Can you believe it? Multifamily in- vestors might wonder, are we living the hyperactive dream of low interest rates and new apartment starts, only to need a lightning bolt to get us back? Right now, very little suggests San Antonio will need that DeLorean any time soon. The national homeownership rate is at its lowest level since 1967. This is due in part to a lack of homebuyer access to credit and the transiency of the population, which makes settling down restricting. Possibly, the most critical aspect is median incomes not growing fast enough to compensate for rising housing prices. In San Antonio, the median home value crossed $200,000 for the frst time in July. Of the new homes being built, only 33 percent are priced below this level. With home prices outpacing income growth, San Antonio households have a challeng- ing decision regarding whether to buy or rent. Facing the headwinds of rising home prices, three large segments of the population seek housing. The one receiving the most attention is millen- nials. As of 2012, this generation com- prised 25 percent of the U.S. popula- tion. Two other large, identifable groups are immigrants and baby boom- ers. New immigrants to the U.S. are projected to form 40 percent of new households over the next eight years. Baby boomers are recognizing that their peak earning years are in the rearview mirror. They are surveying the landscape for alternatives. With fxed incomes, the pressure is on to fnd suitable, afordable housing. Historically, San Antonio is welcom- ing to both immigrants and retirees. The pro-business environment and relatively low cost of living opens the door to people moving to the Alamo City. The challenge has been encour- aging the next wave of the population, including millennials, to visit and re- side here. With downtown investment in the Museum Reach and Mission Reach, the recognizable San Antonio River Walk has extended to enhance the downtown core for both quality of life and business. Other new features or expansions include Tobin Center for the Performing Arts, Henry B. Gon- zalez Convention Center and the San Pedro Creek greenway project. Locally based real estate investment companies should be given much credit. One impressive mixed-use de- velopment is The Pearl by Silver Ven- tures. This dynamic, growing invest- ment was one of the frst to give San Antonio a "hip factor." Investing in Multifamily Many other submarkets are receiv- ing signifcant investment. Embrey Development created a mixed-use development connected to the Alamo Quarry Market that is the frst of its kind in San Antonio, and USAA Real Estate Co. continues to innovate with both multifamily and ofce construc- tion at the Shops at La Cantera cam- pus. These diverse investments provide data points for both new households and new investors to the market. Per a recent American Community sur- vey, San Antonio leads the nation in millennial population growth at 9.2 percent. Overall, the MSA population grew 9.5 percent from 2010 to 2015. San Antonio's combination of pop- ulation growth, nominal median in- come improvement and rising home prices ofers the fundamentals neces- sary for a sustained apartment indus- try. Developers in San Antonio seized on the gap in housing options by in- troducing institutional-grade product never before enjoyed in San Antonio. The features of the new developments ofer luxury benefts to households weighing afordability and quality of life. As of the second quarter, stabilized Class A properties enjoy an occupan- cy rate of 95 percent. With an average apartment size of 800 square feet, this puts rent at $1,000 per month across the market or $1,300 per month in the city core for new apartments. Without a direct, afordable new-home alterna- tive, the advantages of the new breed of apartment are hard to ignore. It is easy to stop there. Everyone likes a good story about new homes versus new developments. The reality on the ground is that the three iden- tifed growing household segments — millennials, immigrants and retir- ees — often come to San Antonio with little equity, little income and no cred- it. Many millennials, immigrants and baby boomers need the best alterna- tive for the money available to them. The workforce housing option of- fers the advantages of proximity to employers, solid construction and val- ue-add potential. Investors, and even tenants, love the phrase "value-add." The broad defnition can mean many things. The truth of the matter is that a well-located property getting a facelift or interior improvement to improve quality of life at a nominal cost to the renter, is a good thing. Class B rents have also improved to $1.11 per square foot. This is a solid rental level, but many Class B deals in San Antonio are still well below that fgure. This encourages inves- tors, whether new or returning to the market, to source assets in need of en- hancement. At $1.11 per square foot, new San Antonians can fnd housing options at approximately 22 percent of their gross median income. This makes the transition benefcial for the renter and good for the investor. Currently, Class B assets average 94.9 percent occu- pancy. Supply and demand suggests the San Antonio multifamily market still ofers a semi-liquid investment type with a history of consistent yields and potential quick appreciation. As apartments are individual businesses, there are still operations and enhance- ments that have not been maximized on every deal in the market. Will this ride last forever? We will not really know until we hit 88 miles per hour. M U LT I F A M I LY S N A P S H O T: S A N A N T O N I O BRIGHT FUTURE ON THE HORIZON FOR ALAMO CITY APARTMENTS Brandon LoPorto Senior Director Cushman & Wakefeld/ San Antonio Commercial Advisors With downtown investment in the Museum Ranch and Mission Ranch, the recognizable San Antonio River Walk has extended to enhance the downtown core for both quality of life and business.