Central Texas Roundup | JLL Multifamily | 11/4/24
Summary
GDP grew 2.8% in Q3
The Jobs Report was Soft, Why are Treasury Rates Higher
Home prices hit record high; growth slows nationwide
Algorithm aids office-to-residential conversion amid market shifts
REITS anticipate multifamily recovery as supply glut ends
Austin property taxes highest nationally; Texas cities follow suit
Austin and other fast-growing cities face affordability challenges
$55M loan refinances Austin affordable housing project
Modular homes in Lockhart built by StudioBuilt platform
San Antonio surpasses Austin in new home construction
Dallas developer addresses Kerrville’s housing shortage
REITS in San Antonio invest in diverse assets
NATIONAL
US Economic Growth Extends Solid Streak (WSJ)
Why it matters: U.S. economy growth slowed slightly to 2.8% last quarter.
The U.S. economy's growth in the third quarter fell short of economists' expectations, registering below the anticipated 3.1% rate and showing a slight deceleration from the second quarter's 3% growth.
The real estate sector continued to struggle, with residential investment declining for the second consecutive quarter, dropping at a 5.1% rate, largely due to persistent high borrowing costs.
Business spending, as reflected in nonresidential fixed investment, showed positive momentum, increasing at a 3.3% rate across categories such as software, R&D, equipment, and structures.
Despite the minor slowdown from the previous quarter, the overall growth remained robust when viewed in a historical context. For comparison, during the last economic expansion spanning from mid-2009 to late 2019, the average annual GDP growth rate was 2.5%.
The Jobs Report was Soft, Why are Treasury Rates Higher? (Kensington Capital Advisors – No Link)
Why it matters: Weak jobs report shakes markets ahead of presidential election and Fed meeting.
The October employment report significantly underperformed expectations, with only 12,000 jobs added, far below the projected 100,000 and a sharp decline from the previous month's 254,000.
While the unemployment rate held steady at 4.1%, the private sector actually lost 28,000 jobs when accounting for government positions and downward revisions to earlier months' data.
Employment figures and data collection were affected by external events, including hurricanes Helene and Milton, as well as a strike at Boeing.
Since mid-September, Treasury rates have been on an upward trajectory, influenced by mixed economic indicators, an expanding U.S. credit risk premium, and market speculation regarding inflation and political developments.
Despite the weak employment data, the bond market's perception of potential inflation, coupled with expectations of a Federal Reserve rate cut, is paradoxically putting additional upward pressure on rates.
US Home Prices Hit Another Record High, But There Are Signs of a Slowdown (CoStar)
Why it matters: Prices for existing single-family houses across the United States hit their 15th consecutive record high.
In August, prices rose by 4.2% compared to the same month in the previous year.
Year-over-year, all metropolitan areas experienced price increases. However, when comparing August to July, home prices decreased across all 20 markets surveyed.
The highest growth rates were observed in New York, Chicago, and Las Vegas, with these three cities being the only ones to reach record-high price levels.
How an Algorithm Could Help Fuel Office-to-Residential Conversion Momentum (Costar)
Why it matters: Push to overhaul under-utilized buildings gains momentum amid widespread valuation decline.
Gensler introduced an algorithm in 2019 designed to assist in evaluating the potential for repurposing struggling office properties. This tool examines 100 different data points to determine the viability and financial potential of conversion projects.
The algorithm assesses which properties are suitable for repurposing and generates a compatibility score. Properties scoring above 80% are considered prime candidates for conversion.
Given the current weakening office market conditions and growing demand for residential and multifamily spaces, the timing is opportune for transforming these underperforming office assets into more desirable property types.
Apartment REITs See End to Supply Glut, Elevate Outlook for 2025 (Costar)
Why it matters: Sun Belt rental recovery is expected as early as spring 2025, due to anticipated end to record amounts of new supply.
Some of the nation’s largest apartment owners are buying and building which is a sign of investor confidence in multifamily prospects.
MAA, Equity Residential, and UDR have invested in major development pipelines, hoping to benefit from strong demand as oversupply fades.
Demand is being driven by supply slowdown, overperforming job market, high cost of ownership, and maturity of technology hubs in the South.
In Austin, TX where supply pressures are immense, there is not a forecasted rebound until 2026.
AUSTIN
Homeowners Shell Out a Lot More in Property Taxes Than They Did in 2019 (ABJ)
Why it matters: Property taxes in Austin make up more of a monthly bill than anywhere else in U.S., study says.
Property tax payments have increased by 30% since 2019, with the median monthly payment now at $250, despite a decrease in the average effective tax rate from 0.77% to 0.67%.
Austin leads the nation with property taxes accounting for 19.8% of monthly housing costs. Other Texas cities, including San Antonio, Houston, and Fort Worth, show similar percentages ranging from 18% to 19%.
Florida and Texas have experienced substantial property tax hikes, driven by rising home values and population growth. Florida cities have seen particularly dramatic increases, with Jacksonville at 59.6%, Tampa at 56.7%, and Miami at 48.1%.
Affordability Concerns Hurt Homebuilding Prospects in Some of These Fast-Growing Cities (Costar)
Why it matters: Austin, along with other cities like Raleigh-Durham and Nashville, has seen significant job growth, leading to increased housing construction and affordability issues.
Austin's ranking for single-family home building prospects plummeted from first place in 2023 to 27th in 2024, primarily due to increasing costs and growing congestion issues.
The city now faces a stark affordability gap, with purchasing a single-family starter home costing 95% more than renting, translating to a monthly difference of $2,085.
While the demand for affordable housing is urgent, developers face significant obstacles, including restrictive zoning regulations and community resistance to higher-density housing projects.
Ownership Group Secures $55M Refinancing For SE Austin Affordable Housing Project (ABJ)
Why it matters: Ownership group elects to refinance amidst high supply environment.
Goldman Sachs Alternative extended a floating rate loan for the project, with JLL acting as the facilitator in the transaction.
The development, named Urban East, will consist of 381 units, with 191 of these units priced to be affordable for residents earning 80% of the area's median income.
Southeast Austin is seeing a surge in affordable housing projects, largely driven by collaborations between public entities and private developers.
Homes in Lockhart Modular Housing Neighborhood to be Built in South Texas (ABJ)
Why it matters: Amherst Group is developing 145-home neighborhood called Firefly in Lockhart.
The housing units will be constructed using modular techniques at Amherst's StudioBuilt facility located in Cuero, Texas.
The development will offer a variety of home sizes, ranging from 1,479 to 1,800 square feet, with options for 3 to 4 bedrooms.
The project's completion is slated for 2026. Currently, eight homes are in the construction phase, and two have already been delivered.
SAN ANTONIO
Home Construction in More Affordable SA Market Blows Past Austin (SABJ)
Why it matters: Increased home construction signal that there are more buyers for new homes in San Antonio than in Austin.
During the third quarter of 2024, San Antonio initiated construction on 17,751 homes on an annualized basis, surpassing Austin's 16,663 home starts during the same period.
The uptick in San Antonio's construction activity is attributed to the city's streamlined processes and the comparative affordability of its housing market.
While new home prices have seen modest increases, experts do not anticipate a repeat of the dramatic price inflation witnessed during the pandemic era.
Dallas Developer Plots New Housing in Kerrville Amid Ongoing Shortage (SABJ)
Why it matters: There is demand in Kerrville for more rental units than exist in current supply based on projected growth.
Kerrville's current housing supply falls short of meeting demand, particularly when considering the city's household and employment growth metrics.
J Street, a Dallas-based developer, is set to commence construction on Bluewood, a market-rate apartment complex featuring 273 units. The development will offer a mix of one-, two-, and three-bedroom layouts to accommodate diverse housing needs.
Which Asset Classes Are Most Commonly Owned by REITs in SA (SABJ)
Why it matters: Today substantial investments are being made in data centers, cell towers, health care facilities, and self-storage units.
San Antonio currently hosts 224 properties owned by Real Estate Investment Trusts (REITs), while the entire state of Texas boasts 45,000 REIT-owned properties.
Within REIT portfolios, multifamily properties have shown strong performance, driven by high demand for rental housing.
In recent years, REITs have increasingly adopted a strategy of specializing in specific property types while diversifying geographically to manage risk and optimize returns.