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The Raub Blog


by admin on December 29, 2010

As we close out the Old Year and ring in the New, IRC sees it this way – we are finally ending 2010, “year ground zero” and we are now entering “YEAR ONE” — the first year of the recovery.   The commercial real estate cycle in San Antonio bottomed out in the middle of this year, so let’s call the bottom July 4th ; this way the celebration of the Birth of our nation coincides with the birth of the new up cycle in the economy.  Now we are about to enter Phase Two, where we have actually moved off of the bottom and are starting to see a little momentum.  As I wrote in an earlier newsletter, this recovery will not be a “V” but a flat curve of a recovery, a slow, but steady, gradual improvement; like a Mona Lisa smile, slight but pleasant, and we are now a little to the right of the center of her lower lip.

 Apartments, always the favorite investment class, are starting to do well.  In Quarter 3 we hit 91% occupancy with Class A new apartments close to 95%, which is essentially full occupancy. The funding sources for new construction have been on vacation for two years, but are coming back into the market in 2011.  Developers are actively looking for sites to submit for financing and as it takes a year to 18 months to get a project up, we will not see many units added to the market until mid 2012.  This will cause an escalation in rents and further rise in occupancy levels.  Sales of Class A and B product have sky rocketed in the past 120 days, providing needed liquidity to the market.

 Office Buildings are actually doing well.  We were flat for 2009, which is actually good compared to the rest of the nation and world for that matter.  We absorbed nearly 400,000 square feet of net new space this year, a very healthy rate of increase.  Construction is dead so occupancies in the low 80%’s will increase.  Rents never fell much and are firming up.  It takes a year to build an office building and nothing new is planned except some small user buildings and the 350,000 square foot NuStar office on IH-10 on the north side of The Rim.  Space in 50,000 blocks is scarce, which is the type needed to attract large new employers to San Antonio, like Medtronics, Chesapeake Energy and EOG Resources

 Retail is a dichotomy.  Smaller centers that cater to local tenants have been pounded because of the economic down turn and decline in consumers’ spending.   Some larger tenants have failed, too, like Circuit City and Linen N Things.  But high end centers with national tenants are able to weather the storm and since no new construction has begun since 2008, space for new concepts coming into San Antonio is at a premium.  Sales tax revenues moved up 2.7% this year and occupancies are at 86%. 

 Investment Realty sees 2011 – our YEAR ONE – as the best possible time to invest in our San Antonio market.  The worst is behind and the best is ahead.  Entering the cycle at the bottom seems risky but is actually the safest time to invest.   We see an exceptional opportunity in single family lot development, which has been quiet for the past two years, just like construction in the other commercial sectors mentioned above.  The inventory of lots for 2012 in good neighborhoods is very shallow and banks are not in the market at this point.  We believe this provides an extremely attractive opportunity for investment by private equity in the form of limited partnerships like the ones that IRC forms. Likewise, we are pursuing some very interesting properties in the multi-family sector. We like them for their income characteristics as well as value growth.  To discuss, please call me.                                

 Stephen A. Raub 

 A very Happy and Prosperous New Year to you all!!!!   

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