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

by admin on May 1, 2010

Good News! We have reached the End of the Bottom. There are many signs that the general trend of commercial real estate is no longer down. Wells Fargo Bank says, “Most economic indicators, including employment, retail sales and industrial production, improved notably over the past month. As a result of the improvement, our growth estimates have been upwardly revised.” According to the IPD US Quarterly Property Index, US commercial real estate has delivered the first positive quarterly return in 18 months over Q1 2010. From Q10 Kinghorn Driver, a national commercial mortgage broker, “activity has increased dramatically as it appears lenders are becoming more comfortable with current market conditions.” They have seen significant improvement in refinancing activity in San Antonio. Mark Dotzour of the Texas A&M Real Estate Center recently stated corporate profits are up, corporate debt is down, likewise household debt is down and consumer spending is rebounding. “Clearly there is virtually no threat of inflation in the next two years … There’s virtually no chance of the Fed increasing interest rates (maybe a symbolic small move aside).” For Big Investors, demand for trophy properties, like Union Square I & II and the Renaissance office buildings is strong; both acquired by local private equity recently. While The Rim mega retail center is thriving, the developer is in serious financial trouble. This trophy will probably be sold to a well-capitalized real estate investment trust.

Now for the Bad News. Government spending is up and off the charts. For example, the money we are sending to bailout the broke Greeks is actually your grandchildren’s future earnings. Let that sink in a minute. Next, loan originations are down 90% from the peak of 2007, as are commercial real estate transactions. Dotzour says the Banking Crisis has not been solved just anesthetized. Also, new investment activity is lagging because of uncertainty of the impact of new, higher taxes, the cost of healthcare reform, the chaotic state of financial news, and reluctance by tenants and businesses to make long term commitments because of these uncertainties. Hiring will remain muted so we will be in high unemployment for many years, causing a drag on the economy and a long, slow recovery.

Yet San Antonio is doing comparatively well. Government jobs are strong, like San Antonio Military Medical Center at Ft. Sam, the National Security Agency and Air Force Cyber Command. Marcus & Millichap projects that the city will gain 22,000 jobs in the metro, a 2.6 percent gain, in 2010.

In retrospect, during the boom in 2006, I brokered a number of transactions for users who bought the property even though their use for the property didn’t work out for some reason. They were confident the tract was good and would increase in value. They were correct and made money re-selling their investment. Today, it is completely the opposite. Even when the Buyer has a compelling need, they are very hesitant to move forward because of the uncertainty in the economy. We have gone from confident expectations to fearful reluctance. This too will change, but slowly.

We at IRC still believe that now is the best time to acquire property for the three to five year timeframe, as markets will improve and the best opportunities are being found today.

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