Central TX Roundup | JLL Multifamily | 3/26/24

Summary

• JLL’s international capital lead forecasts increased global direct investment in CRE in the second half of 2024
• The Fed holds rates and holds steady on their plans to begin rate cuts in the back half of 2024
• The rate of price declines, particularly for apartments, is slowing
• A Mueller-like development could be coming to Southeast Austin?
• Velocity, a massive mixed-use project in Southeast Austin, breaks ground
• Approved rezoning for two projects could bring more than 600 apartments to booming North Austin
• 2,000 acre master-planned project to bring extensive development to Southeast San Antonio
• New $300M Baptist hospital will start delivering jobs to the rapidly-growing far west San Antonio region
• San Antonio leads the nation in domestic migration (on a percentage basis)

National and State News

VIDEO: Robust Pipeline Points to Rebound in Global Property Investment, JLL Executive Says (CoStar)

• Why it matters:?JLL’s international capital lead forecasts increased global direct investment in CRE in the 2nd half of 2024.
• According to JLL capital markets executive Riaz Cassum, global direct investment in commercial property is expected to rebound this year, following a 10-year low in 2023, as sellers adjust prices in the industry.
• Cassum, in an interview with CoStar News at the Mipim conference in Cannes, France, expressed a more positive outlook for global commercial property investment, especially in the second half of the year. JLL reported that total commercial property deals in 2023 amounted to $594 billion, a 44% decrease from 2022, making it the lowest level of direct investment, including cross-border transactions, in over a decade.
• Cassum highlighted the Middle East as a significant source of capital for property acquisitions in the United States this year, as buyers in this region have substantial funds due to higher oil prices. He also mentioned Australia as an area of interest and identified Singapore and Japan as regions experiencing growing interest from Japanese investors, particularly in the housing sector. Additionally, Cassum noted that European investors are expected to be less active due to their previous high levels of activity and already having fully allocated investments.

The Fed’s Conundrum: Interest Rates Are Both Too High—and Too Low (WSJ)

• Why it matters: The?Fed holds rates and holds steady on their plans to begin rate cuts in the back half of 2024.
• The Federal Reserve decided to keep its federal-funds rate target unchanged, maintaining a range of 5.25% to 5.5%, which marks the highest level in over twenty years. However, the Fed still intends to reduce interest rates later in the year. Federal Reserve Chair Jerome Powell reiterated that the current rates are "restrictive" and indicated that they will likely start easing policy restraint at some point during this year.
• Unlike the overnight rate targeted by the Fed, long-term interest rates have not experienced the same significant increase since the pandemic. The yield on the 10-year Treasury note has been hovering around 4.3%, which, though higher than pre-pandemic levels, is not historically considered very high. Additionally, it is noticeably lower than the 5% level reached last autumn.
• One area where long-term rates still appear significant is in mortgage rates, which have risen considerably compared to pre-pandemic levels. This has led to a widening spread between mortgage rates and Treasury yields. The high mortgage rates have created challenges for many prospective homeowners, making it difficult for renters to transition into homeownership.

US property price declines slow (MSCI – no link)

• Why it matters:?The rate of price declines, particularly for apartments, is slowing.
• In February, the RCA CPPI National All-Property Index experienced a 4.0% decline compared to February 2023. Although this represents the slowest annual rate of decline since the end of 2022, the index's monthly returns are showing an accelerating pace of decline. From January to February, the index dropped by 0.3%.
• Among the different property types, apartment prices recorded the largest monthly decline in February, with a decrease of 1.0%. However, the annual rate of decline for multifamily prices has been moderating for the past six months. In February, the apartment index showed an 8.9% decline compared to the same period the previous year.

Austin News

Austin approves $87M planned purchase of Tokyo Electron campus (ABJ)

• Why it matters: A Mueller-like development could be coming to Southeast Austin.
• Following approval from the City Council during its March 21 meeting, the city of Austin is poised to purchase Tokyo Electron Ltd.'s 107-acre campus, formerly their North American headquarters. The purchase, estimated to be up to $87 million, will now proceed with negotiations.
• Mayor Kirk Watson has expressed his vision of transforming the property into a dense, transit-oriented neighborhood. He drew comparisons to the Mueller neighborhood but stressed the intentional focus on public transit and incorporating lessons learned regarding affordability and other challenges in a highly sought-after planned community.
• According to city spokesperson Shelley Parks, the two existing buildings on the site cover 189,795 square feet across 46.8 acres. These buildings will be utilized for a second Combined Technology and Emergency Communications Center, as well as office space to meet future city requirements. Parks also highlighted the 60.3 acres of undeveloped land at the campus, which holds significant potential for promising opportunities benefiting the East Riverside and Montopolis communities.

Years after being announced, Velocity rises in SE Austin (ABJ)

• Why it matters: Massive mixed-use project in SE Austin breaks ground.
• In mid-March, construction for the first phase of Velocity, a 314-acre master-planned district located east of Austin-Bergstrom International Airport, commenced with vertical framing. The initial development to be erected within the project will be an "urban-style" apartment community, as announced by Presidium Group LLC, the Dallas-based developer of Velocity.
• According to the plans unveiled in 2020 when Presidium joined the project, once fully completed, Velocity will encompass seven million square feet of space, which will be allocated to nearly 2,700 apartments, 2.9 million square feet of office space, 585,000 square feet of flex industrial and creative office space, and 310,000 square feet dedicated to commercial uses such as retail, restaurants, a movie theater, and three hotels.
• The initial project at Velocity will be a 307-unit apartment complex, consisting of studio, one-, two-, and three-bedroom apartments ranging from 375 to 1,400 square feet. This "urban-style" apartment community will have four stories and climate-controlled corridors with elevators, diverging from open-air corridors with stairs. Presidium aims to finish the development by mid-2025.

Developers propose hundreds more apartments in North Austin (ABJ)

• Why it matters: More multifamily growth is planned for booming North Austin.
• The Austin Zoning and Platting Commission, on March 19, recommended the approval of two projects that could bring over 600 new apartments to the bustling North Austin area.
• One of the recommendations was for a zoning change from general office to mixed-use on a 9-acre site located at 13614 Metric Blvd. This change would allow for the development of 238 new multifamily units in close proximity to the Wells Branch neighborhood. Additionally, the commission also recommended the approval of a zoning change on a roughly 10-acre site at 10911 Stonelake Blvd., just north of the North Burnet and Gateway district. This change, from limited industrial zoning to multifamily, paves the way for a plan to construct approximately 400 apartments.
• The Metric Boulevard site, owned by Woodforest National Bank, is situated along a busy city corridor, near an existing bus route, and in the vicinity of Austin's Wells Branch Greenbelt. The developer behind the multifamily housing project on this site has not yet been disclosed. On the other hand, Don Reese, the founder and partner of Riverside, an Austin-based real estate investment firm, is seeking the necessary zoning change to build apartments on the Stonelake property.

San Antonio News

Massive Southeast Side development to deliver thousands of new homes, commercial space (SABJ)

• Why it matters: 2,000 acre master-planned project to bring extensive development to the southeast side.
• A massive mixed-use development is being planned by VersaTerra, a San Antonio developer, on the Southeast Side of San Antonio. The development will span a vast 2,000-acre parcel at the intersection of Loop 410 and New Sulphur Springs Road. It aims to provide approximately 5,000 new home lots and around 700 acres allocated for commercial and industrial development.
• The turnaround timeline for the project is expected to span 15 years. Currently, VersaTerra is working on zoning and entitlement processes for the property, with plans to commence construction in the spring of the following year.
• The project's strategic location near the Brooks area, Toyota Motor Manufacturing facility, and the prospective site for a new JCB facility is seen as a significant draw for residents. This area is in great need of new housing options. The development fills a crucial gap for master-planned communities in the city, offering a diverse range of housing products across various price ranges to accommodate potential residents interested in living in this area.

$300M Westover Hills medical campus nears completion (SABJ)

• Why it matters: New Baptist hospital will start delivering jobs to the rapidly-growing far west San Antonio region.
• Baptist Health System is progressing with the construction of a new Westover Hills medical campus, nearly three years after announcing plans for its westward expansion. Valued at approximately $300 million, this development will feature a major hospital worth around $240 million, responding to the growing demand for medical care in this high-growth area.
• The five-story hospital, expected to be completed in late June or early July, will initially have approximately 100 beds. Its design allows for both vertical and horizontal expansion, enabling Baptist to triple the bed count in response to increasing demand.
• Located at S.W. Wiseman Road and Loop 1604, the Westover Hills campus will also include an approximately 90,000-square-foot medical office building. Construction on this structure is nearly finished, with the building already being occupied, as reported by Phillips.

Americans Are Moving to San Antonio (CoStar)

• Why it matters: San Antonio leads the nation in domestic migration (on a percentage basis).
• San Antonio led the nation's largest metropolitan areas in population growth through domestic migration in the past year.
• According to recent estimates from the U.S. Census Bureau, between mid-2022 and mid-2023, the greater San Antonio area experienced a net influx of 30,379 Americans through domestic migration. If domestic migration were the sole factor driving population change, San Antonio would have surpassed the other 35 largest metropolitan statistical areas (MSAs) in the country.
• In terms of sheer numbers, without considering local population size, San Antonio ranked behind only Dallas-Fort Worth, Houston, and Tampa in attracting domestic migrants last year.
• While San Antonio is not a primary destination for international arrivals, it still ranked as the nation's sixth-fastest-growing major metropolitan area overall last year. Its population growth rate of 1.81% was among the highest in the country.
• Since 2020, the Greater San Antonio Area has witnessed a 5.27% increase in its residential population, marking the third-fastest growth rate among large MSAs across the country.

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