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Raub Report – August 2011 Commercial Real Estate Newsletter for San Antonio

August 8, 2011

In the June edition, I wrote about Uncertainty; and sadly this monster is still roaming, becoming even stronger, like a Transformer. In this metaphor from the movie, Risk is that fast and neat car, which is manageable to drive. But then it morphs into the monster of Uncertainty, which is destructive, deadly and uncontrollable, causing normal folks to flee for their very lives. Until we have some clarity on how business is going to be treated in this New Normal world we live in, trillions of investment dollars are going to stay in hiding, not leasing new space, building new buildings, or hiring new people

National Association of Realtors economist George Ratiu says that everyone’s worries about America paying its debt makes it tough for companies to hire, which affects leases and expansion. And the problem isn’t necessarily limited to the debt ceiling. Already keeping folks up at night: Dodd-Frank and healthcare bills. Their previsions have yet to be hammered out, making businesses unsure, he points out. “Regulators will have lots of leeway in shaping new rules,” he tells us. “People in the markets want to see its impact before making financial commitments.” The impact: decreased tenant demand, especially for office and retail space. Credit will be harder to get because some investors will continue to perceive CRE as risky, he says. My belief? We will see slow improvement for the next year with only real growth beginning in 2013.

But, we live in San Antonio, Texas. Homebuilding is still bumping along the bottom, but the Builders have adjusted to the new normal. Jack Inselman of American MetroStudies observes in the July 29, 2011 San Antonio Business Journal that “A lot of would-be buyers (are) sitting on the sidelines … also complicating production numbers: A credit clampdown that has put a stranglehold on new lot development.” Considerable activity is starting in the new lot development arena. In fact, IRC is forming a series of new partnerships call IRC DevLand Fund, Ltd. that will make loans to home lot developers, in a manner similar to our highly successful IRC Builders Funding, Ltd.

Additionally, apartment construction is about to ramp up in a very big way. Over a dozen new projects are on the drawing boards which will bring several thousand units on line in late 2012 and 2013. It takes over a year to bring a new project to market. Current occupancies for Class A projects are in the 95% range with strong rents. This is in part due to the weakness in the new home market because of higher credit qualifications demanded for first time home buyers. And, San Antonio is creating a lot of new jobs from new business relocations like Petco and NSA, from San Antonio Military Medical Center at Ft. Sam and the Eagle Ford Shale drilling activity.

IRC is also putting together a new partnership to purchase well-located, attractive older apartments near the core of the city. We have found some very compelling values. We believe now is the time to capitalize as rents and occupancies will be increasing for some years to come, especially in infill locations.

I would welcome the opportunity to discuss with you the new projects we are forming. Please call me.

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