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The Raub Report January 2009 Commercial Real Estate Newsletter for San Antonio

by admin on January 1, 2009

For real estate, December 2008 was a very cold month.  Sales volume in homes and commercial real estate shivered lower – down about 33% from the prior year – and leasing was very slow.  Activity in January, however, appears to be picking up for IRC and for other brokers.  But the outlook for the rest of the year is not strong.

Some businesses, especially retailers, are seeing declines in excess of 30% in their revenues, which means they are likely not profitable.  Therefore, the owners must dip into their company’s capital to keep things going. This will keep business expansions at a standstill until revenues begin to increase again. 

As I have reported before, San Antonio enjoys one of the best economies in the U.S.  Net new job creation last year was 16,600, but we will not likely see job expansion this year.    Single-family home starts which topped out in 2006 at 19,252, dropped to 12,805 in 2007; and we were at 8,719 starts in 2008.  MetroStudy’s forecast is for a decline this year to 8,000 home starts.  We are still declining, but things should turn up later this year. Home lot inventory stands at 2.5 years where about 1 year is normal, so land development will be at a standstill this year. Foreclosures are up from about 3,000 normally to 3,900 last year which is not terrible and vastly better than other areas of the country.  Statewide bank-owned, foreclosed homes have started dropping in number, indicating there will not be a glut of REO in this market.

Apartments are doing OK.  At this point we have about 6,000 units under construction to be delivered in early 2009.   This amount should be absorbed in the next year.  San Antonio has maintained occupancy levels over 90% since 1996, illustrating we are one of the most stable markets in the U.S.  The issues with single-family home market will make apartments more attractive for people because buying a home actually requires a down payment — now.  Also, credit analysis for a renter is less rigorous than for a buyer – now. However, new apartment starts will decline substantially in 2009 as development investors and lenders are on the sidelines.

Office rents have been strong but will weaken. New office space construction of 1.2 million square feet would take about 3 years to absorb, if we continued at the 400,000 square foot rate of the past, which is in doubt. Therefore, new office starts will not happen.

The danger is that commercial real estate lending is at a virtual stand still.  Nationally, there are billions in loans coming due this year; and with the severely limited opportunities for refinancing, the specter of defaults looms large.  However, solid lenders are not going to foreclose on performing properties, unless the regulators continue to do stupid things.  Hmm?  Most borrowers and lenders will find their way through the mess without big trouble.  But troubled properties and borrowers are not going to see much love.

 Time to run and hide?  Opportunities are coming this year.  If you lease retail or office space and your lease is nearing renewal, now is the perfect time to relocate to upgrade your location. Maybe buy instead of lease. IRC can help you with both. 

Investing?  Everyone is on the sidelines now waiting to buy a dollar’s worth of property for two quarters.   Those deals are very rare and only available to large investors who can move quickly.  IRC is working hard to uncover attractive investments for our clients.  We know that now is the time to buy well-located property for future appreciation.  We also believe that investing in groups provides the advantage of diversification among several properties and professional asset management.  We welcome your questions about the market and the special opportunities that our fair city presents in this time of turmoil for long-term wealth creation.

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