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The Raub Report January 2010 Commercial Real Estate Newsletter for San Antonio

by admin on January 1, 2010

“Welcome 2010! The best thing about you is you are NOT 2009!” I think that 2010 will be the positive side of the bottom curve. If you are treading water, conserve your energy and look for opportunities to make the most. If you are underwater, be sure you can hold your breath longer.  However, the “New Normal” will not look like past recoveries; it will be slower. The market boom of 2006 and 2007 is not going to return. 

Why not? The Bureaucrats are in control and the financial control has shifted from Wall Street to Washington

D.C.  Businesses are still fearful and uncertain of what new rules “Change” will bring from government.  Until the rules are set and investors can adjust, capital will remain on the sidelines.  “We expect that 2010 will continue to provide mixed signals with regard to the recovering economy and real estate markets,” says Jeffrey Rogers, President of Integra Realty Advisors, a leading appraisal firm. “Values are down 43% from their peak in October 2007, and the Integra Commercial Property Index predicts a further decline of 5% in the next six months. Transactions volumes should recover somewhat from their lows in 2008 and 2009 due to the return of some liquidity in the credit markets. However, volumes will be significantly less than their 2006-2007 highs. Two economic pitfalls to watch will be consumer credit and oil prices. There is significant danger that consumer credit delinquencies and defaults could rise drastically in 2010.”

San Antonio’s local residential building is bottoming now.  In 2009 there were 7,132 home starts in the San Antonio area, down from the 2006 high of 19,247. Jack Inselmann of American Metro Studies, the acknowledged expert in the market, forecasts 8,000 home starts for 2010, on a par with starts in the year 2000. The extension of the first time buyer credit is having an impact. In the best areas, home lots will start to be in short supply by the end of the year, while Class C areas will still be overdeveloped.  The biggest constraint on recovery is continued pressure on banks to reduce their exposure to real estate. Local and regional builders are presently seeing their banking relationships dry up, while the national builders are being aggressive about expansion.  In response to this, IRC has started IRC Builders Funding, Ltd, a private equity partnership making interim construction loans to local builders in the San Antonio and Austin areas.  This is helping to bring needed liquidity to an industry that is important to our community’s economic health.

Many, many commercial real estate investors have been hoarding cash, sitting on the sidelines waiting and hoping for an RTC Replay of fire sales on properties.  It is not going to happen.  There is no RTC this time around.  It is in the Federal regulators’ and banks’ best interests not to see fire sales, because this creates a lower market price for the properties on which they have loans. The lenders must then mark-to-market the values of their portfolios resulting in placing even more loans in jeopardy.  Thus begins the downward spiral of values.  To dampen this vortex, the banks and their regulators are exercising what is being called, “extend and pretend” — which is simply rolling over loans, trying to not force more properties into foreclosure than absolutely necessary, with a view to values eventually recovering.  

We do see the San Antonio and Texas markets as the best place to be for this recovery.  Job growth drives commercial real estate and we have a strong pipeline for the next several years.  The commercial real estate recovery will follow on the jobs recovery.  For an interesting view on this, please watch the YouTube video at www.texaplex.com.

 Consequently, IRC believes that in San Antonio, now it is the time to be buying.  The first part of the year 2010 is the bottom of the market, and we are already seeing there was an increase in activity in the Fourth Quarter of 2009.   As the Bid-Ask spread narrows on property, sales volume, which has been anemic for two years, will pick up dramatically when the market reaches the clearing price for properties.  For some, it will be the worst of times; for others the best of times.   IRC is ready to help you with your commercial real estate decisions.

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