Central Texas Roundup | JLL Multifamily | 7/8/24

Summary

• The market is keeping an eye on redemption requests as a driver of transaction activity
• Green Street observes regional multifamily trends continue to emerge across the country
• Starts and permits drop for both multifamily and single-family
• Massive redevelopment project on Austin’s east side continues to face challenges
• Austin lures international manufacturers and suppliers due to Samsung and its growing high-tech manufacturing ecosystem
• DC leaders endorse plan for $1B Port San Antonio campus
• San Antonio City officials have discussed a downtown sports and entertainment district, code-named 'Project Marvel' and involving top-tier real estate and consulting firms

National and State News

A Real-Estate Fund Industry Is Bleeding Billions After Starwood Capped Withdrawals (WSJ)

• Why it matters: The market is keeping an eye on redemption requests as a driver of transaction activity.
• After Starwood announced new restrictions in May, sponsors of similar funds reported an increase in redemption requests.
• However, some firms have seen withdrawals stabilize. Blackstone, the largest fund sponsor, noted that June redemptions were lower and slightly below the withdrawal requests in April. This marks an improvement after investor redemptions rose in May due to Starwood's announcement.
• According to Stanger, an investment bank specializing in real estate funds, investors are projected to redeem $16.5 billion from these funds in 2022, compared to $1.5 billion in 2021. Additionally, new fundraising is expected to decrease to $5.7 billion this year, compared to the peak year of $34 billion in 2021.
• To address the ongoing challenges, some fund sponsors like Blackstone and KKR have already implemented restrictions on investor redemptions over a year ago, allowing only 2% of the total fund's assets per month or 5% per quarter. While there seemed to be some progress earlier this year when Blackstone's $60 billion fund resumed meeting all redemption requests, Starwood's actions indicate continued turbulence in the real estate fund industry. To avoid a liquidity crunch and potential property devaluation, Starwood went beyond other funds by limiting monthly withdrawals to 0.33% of net asset value.

Market Momentum Pulse Check (Green Street – No Link)

• Why it matters: Regional multifamily trends continue to emerge across the country. ?
• Key insights for both public and private investors include:
• There is a significant variation in pricing power across different markets. In the first quarter, REIT market-level revenue growth ranged from mid-to-high single digits in specific East Coast and West Coast markets, to low-single-digit declines in some Sun Belt markets.
• On average, West Coast metropolitan areas experienced the most robust sequential revenue growth in the first quarter and observed an acceleration in asking rent growth heading into the second quarter.
• Sun Belt markets, on average, recorded the weakest sequential revenue performance in the first quarter, both in absolute terms and compared to the typical seasonal norms.
• East Coast markets, particularly the D.C. Metro and Boston, have consistently exhibited above-average asking rent growth in recent months.

Starts and Permits Drop for Both Multifamily and Single-Family (Real Page)

• Why it matters: The supply cliff looms—national multifamily starts are down nearly 52% year-over-year. Permits are down significantly in San Antonio, but remain up by 2.9% year-over-year in Austin.
• Due to increased interest rates and a tighter lending environment, the seasonally adjusted annual rate (SAAR) for multifamily starts in May experienced a significant decline. It fell by 10.3% from April and plummeted by almost 52% compared to May 2023, reaching 278,000 units. This slowdown has put a halt to the previously booming development cycle.
• In May, the number of multifamily units under construction declined by 1.5% from April, totaling 898,000 units. This figure represents an 8.6% decrease compared to the same time last year. Additionally, the number of authorized multifamily units that have not yet started construction increased by 1.6% to 129,000 units in May. However, it is still 7.9% lower than the number reported one year ago.
• Across all Census regions, the annual rate for multifamily permitting experienced significant decreases compared to one year ago. The steepest declines in annualized multifamily permitting occurred in the smaller Northeast region, which saw a 46.7% decrease to 46,000 units. The West region followed with a 31.6% decline to 96,000 units, and the South region with a 28.3% decrease to 186,000 units.
• Austin secured the second spot as a top multifamily permitting market, with 18,772 units permitted. Although this is a roughly 3% increase from last year, it also represents a similar decrease from the previous month.
• Other major markets outside the top 10 saw notable declines in annual permitting. This includes San Antonio (-8,891 units), Raleigh/Durham (-5,401 units), Denver (-4,774 units), and Jacksonville (-3,976 units).

Austin News

Struggling owner of former Motorola campus eyes switch from Ch. 7 to Ch. 11 bankruptcy (ABJ)

• Why it matters: Massive redevelopment project on Austin’s east side continues to face challenges. ?
• The bankruptcy case surrounding a major real estate project in Austin has taken a new twist, as the property owner seeks to change the bankruptcy filing from Chapter 7 to Chapter 11. The former Motorola campus in East Austin was intended to be transformed into a state-of-the-art tech hub, featuring five buildings reaching heights of up to 400 feet on the expansive 110-acre property. However, the project faced significant delays, and work came to a halt in September of the previous year. This led to funding issues, lawsuits, and ultimately the bankruptcy filing by the property owner, an affiliate of Romspen Mortgage Limited Partnership based in Canada.
• In 2020, following Romspen's acquisition of the site through bankruptcy proceedings, the Austin City Council approved a rezoning request, designating it as a planned development area. This approval granted Romspen, one of Canada's largest private commercial mortgage lenders with $3.1 billion in assets, 140 active mortgage loans, and 54 employees according to its website, the opportunity to construct towers on the site reaching a height limit of 400 feet, aligning with the surrounding area of The Domain.

International companies discuss what it’s like to move here to expand the semiconductor ecosystem (ABJ)

• Why it matters: Austin lures international manufacturers and suppliers due to Samsung and its growing high-tech manufacturing ecosystem.
• LS Electric is joining a wave of international companies flocking to Central Texas, particularly the Austin metro area. Many of these companies are establishing themselves in the region to serve the Samsung plant or Tesla Inc.'s expansive gigafactory in eastern Travis County. Others are drawn by the overall economic growth and increasing population of the area.
• International migration to the region has reached its highest level in more than twenty years, with a significant rise in the number of foreign-based companies choosing to set up operations in Austin in recent years.
• According to Ed Chi, the international director for the Williamson County Economic Development Partnership, which focuses on attracting Korean companies to the area north of Austin, the decision-making process for selecting a U.S. location is thorough. However, the Austin area receives positive evaluations due to its business-friendly environment, well-developed interstate infrastructure, high quality of life, and the presence of diverse businesses.
• Rick Turner from Tokyo Electron, an executive in the high-tech manufacturing sector experiencing growth in the Austin region, highlighted the increasing challenge of finding skilled workers. This is a critical issue for the industry, and Turner stated that the company will need to rely on public-private partnerships with governments and workforce organizations to cultivate and attract talent. Investments in housing are also crucial, as employees are facing affordability challenges in the area.

San Antonio News

DC leaders endorse plan for $1B Port San Antonio campus (SABJ)

• Why it matters: Monumental billion dollar project at Port San Antonio gains momentum.
• The proposal by Port San Antonio to develop a new billion-dollar campus for Air Force Cyber (AFCYBER) on the former military base has gained support from multiple congressional leaders who are advocating for federal funding.
• AFCYBER—which consists of over 2,000 airmen, civilians, and contractors—is responsible for conducting critical cyberspace and information operations, electronic warfare, intelligence, and reconnaissance activities that contribute to the United States' national security objectives.
• U.S. Representative Joaquin Castro is among the congressional leaders endorsing Port San Antonio's proposal. He expressed concerns about the current outdated infrastructure that houses AFCYBER operations across the Joint Base San Antonio-Lackland campus. The proposed plan aims to centralize these operations in a new consolidated campus, which Port San Antonio believes can be constructed at a lower cost and within a faster timeframe compared to traditional military construction.
• Port San Antonio has outlined a predevelopment phase for the project, estimated to take approximately 18 months to complete. Port San Antonio President and CEO Jim Perschbach expressed optimism, stating that he hopes to commence the project either before the upcoming election or by the end of this year.

‘Project Marvel’: City’s downtown plans are much bigger than a Spurs arena ?(Express News)

• Why it matters: San Antonio's worst kept secret is the transformative $4 billion project that is set to revitalize the southeast pocket of downtown.
• City officials have been diligently devising an intricate plan to transform the southeast corner of downtown San Antonio into a hub for sports and entertainment. Key elements of this plan include expanding the Convention Center, implementing significant upgrades to the Alamodome, and the potential development of a new Spurs Area at Hemisfair.
• According to city records, officials have been engaged in discussions with developers from outside of San Antonio, such as Hines and Lincoln Property Co., as well as real estate firms, design and engineering companies, and sports and hospitality consultants for the past year and a half.
• San Antonio Mayor Ron Nirenberg explains, "Over the past few years, we have been focused on various aspects of enhancing downtown. This encompasses the growth of UTSA, the redevelopment of Hemisfair, and making improvements to both the convention center and the Alamodome to ensure their modernity and continued revenue generation. Amidst these discussions, we are also considering the exciting possibility of bringing the Spurs back downtown."

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