Austin Hit with 50% Tax Valuation Increases
Austin landlords have been in sticker shock for the last week, watching as tax valuations skyrocket, according to experts at Bisnow’s Austin State of the Market event yesterday.
HPI partner Sam Houston says his firm’s 8M SF industrial portfolio averaged 50% tax increases this year, and its office portfolio leaped 30%. That pushes Downtown operating expenses to $20/SF and tax costs to $10/SF. He predicts Class-A office valuations in the submarket will soon reach $600/SF. Live Oak Gottesman president Scott Flack believes the jump in valuations won’t slow development, but will impact our affordability (residential renters will probably feel a direct sting with rents rising based on taxes alone) and competitiveness with other markets. Pictured is our commercial development panel—Cadence McShane VP Srinath Pai Kasturi; Sam; Scott; Gracy Title SVP Bob Roberts; Integra Realty Resources senior managing director Randy Williams; and Retail Solutions founder David Simmonds.
Multifamily rent growth has slowed, according to CWS Capital Partners partner Mike Engels and Gables Residential director Jennifer Wiebrand. Jennifer’s portfolio had been getting over 8% rent growth in 2013. That dropped to 5.4% last year, and now she’s budgeting 3%. (Mike’s portfolio got 3.8% growth from Q1 ’14 to Q1 ’15, below many of his other markets nationwide.) Jennifer says most new deliveries are doing one month of lease concessions (often in creative ways like giving out free toasters or lifestyle products), and she's seeing supply and demand come out of equilibrium for the first time in a long time this month. She expects that trend to continue through the summer. Above, 275 attendees joined us at the Hyatt Regency’s new Zilker Ballroom.
Meanwhile, multifamily development costs are rising dramatically—Mike says they’re up 25% in the last 25 months. (Developer yield requirements are dropping.) Land prices can reach $45k per door for mid-rise product, or $30k for garden-style, says ARA executive managing director Pat Jones. Then it costs $130/SF to build a garden property, Berkadia SVP Andy Hill adds. High-rise tops $235/SF, adds Jennifer, who expects relief (starting with wrap product pricing) after the first of the year. Here’s our multifamily panel: JLL managing director Scott Lamontagne, Andy, Pat, Mike and Jennifer.
Thrive FP president Adrian Lufschanowski says the buyer mix across property types has changed since the beginning of the year. For a while, the top bids were institutions and out-of-state buyers. As soon as oil prices dropped, they pulled back and local groups (which had been pushed out) stepped back to the forefront. Expect those investors to hold five to 10 years. But HFF senior managing director Doug Opalka sees no shortage of capital, including local, national and international sources. Scott Lamontagne is seeing that abundance of buyers—he’s expecting 25 offers on a light value-add multifamily deal he’s working now.
Broadway Bank SVP Laurie Logue (whom we snapped with World Class Capital’s Rosalie Keszler) is monitoring the oil markets weekly and says she’s not extending any new credit right now. She (and the TBA) expect interest rates to rise about 12 to 15 bps in Q4, and she’s underwriting higher DSCR in preparation. But our panelists don’t predict that rising interest rates will impact deal flow.
Here’s our investment/capital panel: Adrian, Laurie, CohnReznick partner Mike Celkis, World Class Capital CEO Nate Paul and Doug. It’s been better to buy Austin properties than to build them recently, but that’s changing, says Nate. The huge influx of bidders has pushed competition and pricing so high that development is making more sense again. (He’s been bulking up his development arm.)
GLG has offices in “all the coolest cities in the world,” says CTO Will Ballard, and since ’06, that’s included Austin. He says real estate here is often nicer than NYC but cheaper, and Austin has a great lifestyle and central location, which makes it easy to recruit here. GLG is moving to an “activity-based working format” without assigned desks; Will says the office will feel like a coffee shop. That may or may not be in its current spot at 301 Congress—Will says it’s actively looking at moving, but will probably stay in or around Downtown because most of its employees live within two miles. Plus, it means no one has to drive to lunch, something that can knock out two hours with traffic in the suburbs.