Central TX Roundup | JLL Multifamily | 3/18/24

Summary

• Increased delays (and abandonment) of construction projects should bring construction costs down
• Goldman Sachs Asset Management to restart 'actively investing' in U.S. CRE
• The “extend and pretend” approach is delaying distressed office sales, potentially with some parallels to the multifamily sector
• Austin secures $105M in federal funding to 'cap and stitch' I-35?
• Austin wants big developments to use more recycled water, raising expenses for some projects
• Big data center project in Caldwell County gets green light for financial incentives
• Solara apartments (San Antonio) sell for $21M in foreclosure auction
• Luxury multifamily coming soon to The Rock at La Cantera, the new home of the San Antonio Spurs training facility
• Bexar County population growth outpaces national average

National and State News

More Construction Projects Are Being Delayed Or Abandoned Entirely (BisNow )

• Why it matters:?Increased delays (and abandonment) of projects should bring construction costs down.
• According to ConstructConnect, there has been a 1.7% increase in the number of U.S. construction projects that are being abandoned, paused, or experiencing a delayed bid date in the last month, as of the week ending March 2.
• ConstructConnect reports that there are 14% more public projects on hold, including infrastructure work, compared to the same week in 2023. On the private side, 9% more projects are on hold. ? The number of abandoned public projects has increased by 70% compared to the same week in 2023, which is a cause for concern.
• The Project Stress Index, which tracks the pace of bid date delays, temporary holds, and abandoned U.S. commercial construction projects, closed the week at 131.1. A value of 100 represents the average weekly value of the index in 2021.
• This is the third consecutive week in which the index has experienced a slight increase. Delayed bid activity increased by 0.2% for the week, while on-hold and abandoned activity increased by 3.4% and 1.7% respectively, compared to the previous week.

Goldman Sachs Asset Management To Restart 'Actively Investing' In U.S. CRE (BisNow )

• Why it matters:?Are the institutions back?
• In a statement on Wednesday, executives from Goldman Sachs Asset Management (GSAM) expressed their belief that the U.S. commercial real estate market has reached its lowest point and will rebound, prompting the firm to resume investing in the sector.
• While other firms remain cautious due to falling prices for office and multifamily properties, high interest rates, elevated office vacancies, and a slowdown in new construction with some projects being abandoned, GSAM is optimistic about the industry's recovery and is prepared to make purchases.
• According to GSAM's co-Head of real estate, Jim Garman, this optimism is driven by a combination of decreasing interest rates, the belief that the market is stabilizing, and a floor in prices set by active buyers.
• Garman further stated that they do not anticipate a sudden, V-shaped recovery but expect significant variations between property types and sectors, leading them to focus on opportunities in technology-driven, demographic-driven, and sustainability-focused sectors.

America’s Office Fire Sale Has Barely Begun (WSJ )

• Why it matters:?The “extend and pretend” approach is delaying distressed office sales, potentially with some parallels in timing to the multifamily sector.
• The current U.S. vacancy rate has reached its highest level since the 2008 global financial crisis, standing at 17% compared to 11% in late 2019. However, the occurrence of forced sales remains surprisingly low. In 2023, only 3.5% of all office deals in the U.S. involved distressed sellers, based on analysis by MSCI Real Assets. Recent data from January indicates a further decrease to 2.7%. Distressed sales during the global financial crisis escalated at a much faster pace.
• The strength of the economy has contributed to delaying the anticipated day of reckoning in the commercial real estate market, as most tenants continue to pay rent. Lenders are also hesitant to push borrowers into selling properties in a weak market, which could result in significant losses.
• This may clarify why debt maturities have not triggered the level of distress that was expected by some industry observers. Out of the $35.8 billion of office loans that matured in the commercial mortgage-backed securities market last year, only 25% were fully paid off. Other loans were extended or transferred to a special servicer, a third-party entity that seeks to find the best resolution for the debt, including modified payment terms or foreclosures.
• For instance, out of approximately 600 defaulted CMBS office loans that were sent to a special servicer in the past two years, only five resulted in lenders incurring losses. In these cases, the buildings were foreclosed and sold.
• The absence of distressed sales may also reflect a sense of optimism. Some borrowers and lenders could be waiting for lower interest rates, as cheaper debt could potentially reduce the need for significant price reductions when selling. There is also hope that demand for office space might rebound.

Austin News

Austin secures $105M in federal funding to 'cap and stitch' I-35 ?(ABJ )

• Why it matters: The city’s progress for cap and stitch funding shows actual steps towards making easier commutes for residents.
• On March 11, federal funding was announced to support the construction of a 5.3-acre "cap" over I-35, located between Cesar Chavez and Fourth Street. This expansion builds upon the Texas Department of Transportation's $4.5 billion project to rebuild I-35, which runs through the heart of the city.
• The overhaul of the highway, originally built in the 1960s as a major north-south route, is estimated to take approximately eight years. The redesign aims to modernize and improve the infrastructure.
• This project is the first of several planned "caps" and "stitches" in the city. In addition to providing new work opportunities for contractors and construction firms, it presents a chance to significantly enhance the quality of life in downtown Austin. The plans include the creation of new green spaces, improved walkability, and potential future development prospects.

Austin wants big developments to use more recycled water, raising expenses for some projects (ABJ )

• Why it matters: The new water rules could make projects less economical for developers and further delay immediate housing needs in Austin.
• During its meeting on March 7, the City Council approved resolutions to revise its water reuse regulations. These updates establish that large developments, measuring 250,000 square feet or more, must either have on-site water reuse systems or connect to the city's centralized reclaimed water system if they are within 500 feet of the network.
• The implementation of this new requirement is scheduled to commence on April 1.
• Council Member José Vela introduced a series of amendments that provide an exemption for dedicated affordable housing projects from the updated rules. Vela stated that the council will continue to evaluate the impact of these changes on housing costs and explore avenues for subsidization.

Big data center project in Caldwell County gets green light for financial incentives (ABJ )

• Why it matters: South Austin continues to attract long-term economic drivers with the approval of incentives for data center development, which will bring more demand for housing in the area.
• A new data center campus located south of Austin is officially moving forward. In the future, the campus has the potential to encompass millions of square feet of space, require over $4 billion in investment, and generate more than 50 job opportunities.
• Caldwell County Commissioners Court granted financial incentives to Prime Data Centers LLC on March 12 for the first phase of their planned turnkey data center campus, which has a projected cost of $1.3 billion.
• Prime Data Centers, although not responsible for operating the campus, is set to construct up to nine data centers on the site as part of the full buildout. The total capital expenditure for the project is estimated at $4.2 billion, according to a press release by the Greater San Marcos Partnership on March 13.

San Antonio News

North Side apartments sell for $21M in foreclosure auction (SABJ )

• Why it matters: Lender buys back another over-leveraged deal in San Antonio.
• According to Bexar County records, an entity affiliated with real estate lender LoanCore Capital has acquired the Solara apartment complex, which consists of 285 units. The property was purchased at an auction held by the county on March 5 by an entity known as 11710 Parliament Street Holdings LLC. The purchase price was $21.3 million, which equates to approximately $75,000 per unit. This amount represents a discount compared to the property's appraised value of $27 million, as indicated by local tax data.
• The Business Journal previously reported in November that the original owner, an investor based in Austin, had defaulted on a $56.3 million loan associated with the asset located at 11710 Parliament St. The loan was obtained in 2022 and had a variable interest rate.

Luxury apartments, retail plotted at La Cantera mixed-use site (SABJ )

• Why it matters: Luxury multifamily coming soon to The Rock at La Cantera, the new home of the San Antonio Spurs training facility.
• City of San Antonio records reveal that Affinius Capital, formerly known as USAA Real Estate Co., is preparing for the third phase of its mixed-use development, Town Center at La Cantera, situated on a 100-acre parcel at the intersection of Interstate 10 and Loop 1604.
• Bryson Marshall, a development partner with Phoenix, confirmed that the developer intends to commence construction in the first quarter of 2025. Initial plans encompass the construction of 350 residential units and 10,000 square feet of commercial retail space on the property.
• Apart from the new residential units, Town Center at La Cantera will feature office spaces, a hotel, health and wellness facilities, entertainment venues, additional retail spaces, and park areas.

Bexar County population growth outpaces national average (SABJ )

• Why it matters: Texas continues to lead the nation in population growth.
• According to a report by the U.S. Census Bureau, Comal County ranked among the top 10 fastest-growing counties in the United States.
• In 2023, Bexar County witnessed a population increase of 27,488 residents. Eight out of the top 10 counties with the highest population growth were located in Texas.
• Southern counties, on average, experienced faster growth in 2023 as compared to 2022. The 1,422 counties in the region had an annual change of 0.56%, exceeding the 0.31% growth rate observed in the previous year. A majority of the counties recorded population gains, with 67% of the southern counties experiencing growth compared to 59% in 2022.
• Texas remains a significant center for growth, with the Dallas-Fort Worth-Arlington metro area surpassing 8 million residents in 2023. Additionally, the Austin-Round Rock-San Marcos area welcomed over 50,000 new residents during the same period.

JLL Multi-Housing - Central TX

Ryan McBride | Robert Wooten

Chris Roper | Nick Beardslee | Alex Fernandes