Austin’s Second Wave of Development
Moderation in multifamily units under construction coupled with consistent occupancy and absorption in newly delivered product is leading to a second wave of office, industrial and retail development in Austin. That's why we're excited to bring you Bisnow's 5th Annual Austin State of the Market event on April 30 starting at 7:30am at the Hyatt Regency Austin.
Live Oak Gottesman CEO Rob Golding says over the last 24 months, people have been concerned by development levels across property types, but demand has eclipsed everyone’s expectations, filling those buildings and buoying fundamentals. On the industrial side, Karlin/Trammell Crow and Clarion have built spec in the last 36 months and occupancy rates have held at comfortable levels. Now Rob’s seeing signs of new spec projects coming soon and, in fact, Live Oak Gottesman is in the permit/planning stages for new development.
Rob sees office in the Southwest submarket as indicative of what’s happening all around town. At least four competitive buildings have delivered there in this cycle, including projects in Encino Trace, Rollingwood, Champion Office Park and San Clemente. They range from 50% to 95% pre-leased, and the submarket will remain in the 90% occupancy range with new deliveries, a very healthy stat. Meanwhile, rents have risen at least $2 to $4/SF. All in all, everything’s looking great in Austin, so Rob says the real question we need to ask is if we’ve reached a tipping point where we’ll stop being as cyclical. We’ve had 69 months of recovery and Rob thinks we need to evaluate our expectations to the new normal taking into considering recent job growth and in-migration over the old metrics.
World Class Capital Group president and CEO Nate Paul (right, with Invesco’s Joseph Tu at a Dallas Bisnow event) tells us his firm has 29 existing investments in the Austin market, including a 38-story, 350-unit luxury high-rise apartment project called 99 Trinity, which is planned to be built on land WCCG owns next to the Four Seasons Hotel in downtown Austin. WCCG will break ground shortly. Nate tells us the project’s late ’17 delivery positions it well because most of the newly built units will be absorbed by then. Nate, who will be speaking at the Austin event, says WCCG has significant expansion plans for the Austin market, including developing existing properties currently owned, as well as a pipeline of new acquisitions and developments.
The firm is in the midst of completing a 35k SF mega dining experience at its 4th + Colorado project in the former Spaghetti Warehouse in Downtown Austin. The project is anchored by The Capital Grille and The Market with two more restaurants scheduled to open before year’s end. WCCG also has several parcels with plans for future development, including a 59k SF Downtown land site at Third and Congress around the Austonian tower (long-term hold) and a 118-acre redevelopment project on the former Cypress Semiconductor campus in Round Rock. In its portfolio, World Class Capital Group owns development parcels with entitlements to develop more than 4M SF in downtown Austin alone. Nate says he plans to announce development plans for the Cypress Semiconductor site before the end of the year. This will be a large master-planned, mixed-use development consisting of office, flex, retail, apartments and housing.
The capital markets spigot is wide open in Austin, says HFF senior managing director Doug Opalka. Never in the history of the city has so much liquidity been poised to deploy. Doug says there are no signs that’ll change any time soon. The Austin office had more than $1B in equity and financing transactions and another $1B in sales, all in 2014. He has his eye on the multifamily sector; although groundbreakings are definitely slowing, he expects transactions to stay just as high. But, Fannie Mae and Freddie Mac have been on a torrid pace of production in Q1, which means they will have to slow their production to stay under the government-mandated $30B cap per agency. That means life insurance companies, CMBS, banks and other capital sources will step in to absorb the deals. It's something to watch as capital for all property sectors could become more scarce late in the year as multifamily deals attract a higher percentage of capital.
Across property types, Doug is seeing increased appetite for urban deals, with some groups entering Austin focused entirely on the CBD or prominent dense mixed-use projects like the Domain (pictured) or Hill Country Galleria. But that won’t hurt suburban activity, he tells us—there is still plenty of capital targeting those deals. All in all, he says financing is a bit “deal agnostic” right now—groups are taking any type of properties they can get (value-add, core, new construction, etc) as long as the return metrics are strong. There is a mountain of capital trying to deploy into real estate, from both domestic and foreign capital sources, and Austin is on everyone’s radar because our fundamentals are so strong, he tells us. Join us for Bisnow's 5th Annual Austin State of the Market event on April 30 starting at 7:30am at the Hyatt Regency Austin. (Sign up here.)