Texas Real Estate Business • SEP 2018

www.REBusinessOnline.com September 2018 • Volume 14, Issue 7 SPEC INDUSTRIAL DEVELOPMENT PAYS OFF Robust demand for space continues unchecked in Texas, enabling developers of speculative product to achieve healthy returns. By Taylor Williams E San Antonio’s rise as a distribution hub is driving speculative industrial projects like Logistics Commerce Center, a 400,400-square-foot development by Davis Commercial. ven in the age of e-commerce, which has taken industrial real estate markets to new heights, developing a project on speculation carries significant risk. But industrial builders and buyers in Texas are find -ing that returns on spec projects and investments are very much worth the gamble. In Texas, absorption of speculative industrial space has accelerated dur-ing this cycle, driven by an array of us-ers expanding their operations. Ware -housing and logistics firms, bearers of the e-commerce flag, have led the charge as markets like Dallas, Houston and even San Antonio have become more distribution-oriented. Construction and housing indus-try vendors and consumer products firms have followed closely as paces of single-and multifamily develop-ment reach record levels in Texas. As many of these companies expand their online sales platforms and cater to cus-tomers who want next-day delivery, they are shifting their real estate foot-prints from multiple smaller stores to single, larger distribution spaces. Recent examples of such users in Tex-as include Conn’s HomePlus, which signed a 656,658-square-foot lease in Houston, and Better Home Products, which inked a 179,875-square-foot SEE DEVELOPMENT, page 28 VALUE-ADD OPENS DOORS FOR MULTIFAMILY BUYERS And the record amount of capital chasing the sector has elevated the competition among lenders, which works to borrowers’ advantage. By Taylor Williams C apital sources of all types see opportunity in the apartment sectors of core Texas markets, which regularly lead the nation in employment and population gains. With so many investors trying to park money in this space, sales prices have risen, cap rates for mul-tifamily properties in major markets have compressed and lenders are competing among themselves to fi -nance acquisitions. When lenders compete, borrowers win. For multifamily lending in siz -able markets, value-add borrowers are seeing tighter spreads on their loans, a factor of both more lenders entering the space and the Federal Reserve’s decision to raise short-term interest rates. But rising land and construction costs have also contributed to sky-rocketing prices on newly built mul-tifamily product, which has weeded out some potential investors. Rath -er than shun the market entirely, however, many of these buyers are targeting Class B and C assets for value-add plays that will attract res-idents who can afford higher rents. Cortland Partners acquired the 376-unit Copper Springs in Houston in 2015 and spent about $15,000 per unit in renovations. Rents at the time of acquisition were roughly $1,060 per month. The property’s asking rents currently stand at $1,325 per month. SEE FINANCE, page 30 INSIDE THIS ISSUE Market Highlights: Are Austin and San Antonio Growing Together or Apart? pages 16-19 One Year After Hurricane Harvey, Regulatory Changes Abound in Houston pages 22-23 SIOR Q&A: Brokers Across Texas Dish on Industrial, Office Strategies pages 24-26