Deals, dollars poised to come roaring back in Austin real estate — but market will look different than before pandemic
The Covid-19 pandemic has thrown a wrench in long-standing business debates in Austin, and created new challenges altogether for those in the real estate market.
Austin Business Journal convened experts Oct. 15 to weigh in on some weighty issues in a panel discussion called “From the Ground Up: A conversation on the future of real estate in Central Texas,” moderated by ABJ Assistant Managing Editor Paul Thompson.
The panelists were Bukowski Law Firm owner Sean Bukowski, Investors Alliance Inc. owner and President Diana Zuniga, Affordable Central Texas CEO David Steinwedell, Presario Ventures Principal and co-founder Darin Davis and Sabot Development Managing Partner Jim Young.
It’s a complicated time in real estate to be sure. Many offices are empty and lots of downtown businesses are hurting. But the residential sector remains on fire and industrial space is suddenly in huge demand. A highly watched annual report from the Urban Land Institute was just released and identified Austin as the second-best real estate market in the country for 2021, although that was down from No. 1 in prior reports.
Below are some highlights from the panel, which included conversations on hot-button topics like the city’s coronavirus pandemic response, the land development code, homelessness, transit and more.
How has the pandemic affected your specific market niche?
Bukowski: We represent developers and owners and kind of a broad spectrum of asset classes. At the beginning of the pandemic, deals had kind of stopped for us. ... They were frozen and no more new deals were getting done. That continued for a little while but now we’re starting to see a pretty big pick up in action, especially in multifamily.
Zuniga: In terms of leasing, leasing just came to a screeching halt. We had several good prospects for our building — it’s 123,000 square feet and by April everybody was just on hold. [That is] pretty much still the case. A few people now are stirring but the transaction volume overall, if you read the reports, is really down.
I think people are more comfortable now and hopefully people will start to get out and start to make decisions about what they’re going to do about their space.
Steinwedell: We usually are acquiring existing multifamily properties and preserving them as affordable for Austin’s workforce. Like the others, when the pandemic hit, we had to step away from an acquisition that we had underway. It’s tough as a fiduciary of other people’s money to be able to acquire something when you can’t get people on site and do third-party due diligence work and all those kinds of things. We’re now scheduled to close our first 2020 deal in November and we may even close another one by the end of the year. That side of the business is coming back.
On the private equity side, what are investors looking at and how is that market stabilizing or finding its footing?
Davis: At the beginning of the year, we had two projects in the queue that we were going to be working on to raise the equity ... And of course the first of March, we just shut everything down. The unknown was there.
About two months ago, I think people started coming out in a more comfortable, more confident way and saying, ‘Okay, what’s next? What’s next?’ I think the equity is there on the private side. ... We’re seeing the private equity start to come back. And what I’m most excited about are the projects that we had to all put on hold from March until about a month or two ago — all four of those have now resurfaced. We will probably have four ground-up development deals going on in Texas — two of those in the Austin area.
What are your thoughts on the state of downtown real estate and what does that mean for other areas?
Zuniga: The latest surveys do show that office buildings downtown are running at 20% of capacity right now. ... People aren’t going to the offices and that spills over into the retail [and] the restaurants.
I think when we get back to ‘normal,’ it will take off again. Historically, if you look at all the previous busts, there was a point in time where it feels like somebody flipped the switch and everything came roaring back.
Bukowski: It will come back, I agree. The downside is that it’s likely going to be with a lot different players than it was before. Because we represent a number of music venues, for example, and they’re not coming back anytime soon and probably not going to make it, unfortunately.
Davis: Our group made a conscious decision to head to the suburbs about three or four years ago, so we are not a downtown group and our private equity doesn’t really come to downtown.
How do we get more development? How do we make development happen faster? How do we make it more efficient? How do we use our capital more efficiently? If that can be translated into something that would be more sustainable downtown, that would be our thought.
Young: The typical Austinite can’t afford to live necessarily downtown. A lot of the employers have these great job opportunities and they’re not going to be able to live downtown and then get to those locations. These suburbs or further outside of downtown areas are great locations for us to develop multifamily units.
Though when you go further away, those are areas that those [water, sewer and utility] lines have not been upgraded yet. They’re not large enough. You might have an employer drop in ... and all of us in this panel, and probably a lot of your viewers, want to provide housing, but you’re going to end up paying a significant additional amount to upgrade lines.
What tells you an area is prepared to handle the increase in jobs, industrial space, etcetera?
Davis: We follow TxDOT [transportation projects]. We follow bond money. We look at 10-year projections of what money is being allocated today for infrastructure five to 10 years down the road.
We did a (multifamily) deal in Lockhart. If you had told me 10 years ago that I’d ever put an apartment complex in Lockhart, I would have said you’ve got to be nuts. But then [State Highway] 130 was approved. Infrastructure started going in. We said, ‘Okay, it’s time to pull the trigger.’
With Tesla coming out there, putting Lockhart that close to a major development ... there’s demand out there again today on that southeast corridor.
Do you have examples of projects that have stalled or didn’t go as far as they might have otherwise because of some of these issues with affordability [and] homelessness downtown that haven’t been resolved?
Young: I’ve had two or three people that were the site selectors for a company looking at Austin. When the defunding or perceived funding of the police, depending on who you talk to, happened, some of those companies just chose to strike Austin from the list. So politics aside, if it’s not a defunding as some people have said, there needs to be a lot better messaging about exactly what happened.
Is the possibility of Project Connect influencing your decision to develop?
Zuniga: My partners and I have property in the Riverside area that would definitely be affected by Project Connect. But it doesn’t really factor into our decision to develop the property. We’re going to do what we’re going to do regardless of Project Connect.
Young: We were fortunate that we purchased a property two years ago that’s adjacent to the Lakeline commuter station. ... We were going to develop it anyways, but what we developed at the site might have changed a little bit in that we decided to do a lot more mixed-use and retail.
We think that the number of people using mass transit and other things will bear out. Of course planning that in the middle of a pandemic where there’s empty trains going by certainly keeps me up at night sometimes.
Conversely, we had a property we owned on the East Riverside Drive area ... we ended up selling that property, but the next person is really excited about building condos near a proposed new commuter station so I’ve kind of seen it on both sides.
By Daniel Salazar.
Source: https://www.bizjournals.com/austin/news/2020/10/30/from-the-ground-up-future-of-real-estate.html