Despite economic uncertainty during the global pandemic, Austin’s real estate development shows signs of stability. Recently, the Austin Business Journal (ABJ) announced that a developer closed on a large tract in the Northwest Austin area near other large tech campuses and developments. In the ABJ report, the developers predicted that real estate will become an increasingly popular investment vehicle, especially during COVID-19. There’s a huge pipeline of Austin area real estate development and businesses making acquisitions and expansions in the area. It’s likely that developers and investors see the local real estate market as a relatively stable market during turbulent economic times.
Austin Real Estate Development Could Become More Popular with Investors and Developers
River City Capital Partners LLC had a strong interest in the 69-acre tract not only because of its proximity to major employers and major real estate developments but also because they offer special tax incentives. Opportunity zones are areas throughout Austin where planners want to encourage development. River City Capital CEO Peter Kehle and President Cory Older have taken a strong interest in properties in the zones after learning one of their developments was located in one. The tax incentives that the zones provide could make them more attractive to investors.
“Generally, people are looking at the money printing that is going to be going on out of the Fed. There will be schools of thought out there that it will eventually become inflationary,” Kehle said. “That same school of thought leads people to real estate investing.”
“Money was looking for a reason to get out of the market … and this was a reason,” Kehle said.
Because opportunity zone regulations require capital gains investments to unlock the full tax benefits, there is reason to believe money pulled out of the markets could find itself in opportunity zone projects.
“The road is leading to an increased interest in real estate investing,” Kehle said. “Yes, that could end up finding its way into these opportunity zone projects.”
Some Developers Bullish on the Austin Market
While COVID-19 has caused some businesses to reconsider expansion in certain regions, the Austin area is still attracting companies that are ready to expand. One such company is Minneapolis-based real estate development company United Properties. The company recently announced the opening of a new Austin office. Josh Delk, a seasoned Austin commercial real estate broker, has been named the new senior vice president for Austin commercial development.
“We started thinking about a third market probably two years ago,” said Bill Katter, president and chief investment officer with United Properties Development. “Austin was good for us for a number of reasons. First of all, we have some relationships there…and that helps a lot.”
Katter also shared his bullish outlook on Austin. “We just see a very resilient economy there. It’s attracting and retaining a labor pool,” said Katter.
For the moment, Katter does not think that the current economic volatility will be a repeat of the Great Recession in 2008 and 2009. In those days, very little commercial real estate was being financed or built.
“I don’t think it will last as long, presuming that there’s progress made on something that greatly reduces the mortality rate of the virus,” said Katter of the current economic downturn. “You can still finance deals right now … we’re considering a few build-to-suits.”
In the current market, United Properties is starting its business in Austin with an eye on the industrial property sector.
“We are going to try to make a run at industrial first,” said Katter. “We haven’t seen a lot of new industrial supply over the last six to nine months in Austin.”
Real Estate Investment Group Expands in Austin
This month, Houston-based real estate investment group hired Barret Espe to lead its Austin brokerage team. Espe is now Rockpsrings’s vice president of brokerage for Central Texas. He will work with David Orr, regional director of Central Texas, and Andrew Lake, operations director of Central Texas, to grow the Austin brokerage.
In an article about Rockspring’s Austin expansion, ABJ asked Orr about the difficulty of expanding during the coronavirus pandemic. Orr said via email that “It is our strategy to employ the best talent in the marketplace, and that will continue to be our focus during this period in the economy.”
Rockspring told the Houston Business Journal in January that it was expanding into real estate development focusing on single-family homes and mid-market retail.
Immediate plans for development projects in the Austin market weren’t released.
Real Estate Development Group Breaks Ground on Medical Office Building
Medical office space has been in high-demand in the Austin area. Now, the market will benefit from 29,600 square feet of brand new office space developed by MedCore Partners. The state-of-the-art development, called Hill Country Medical Plaza, is located at 1411 Medical Parkway in Cedar Park. The two-story building, designed by Felder Group Architects, has already signed in prelease agreements accounting for 77 percent of the Class A property. Texas Digestive Disease Consultants, Hill Country Endoscopy Center and a compounding pharmacy are among the tenants that have made early commitments to Hill Country.
“The robust early leasing activity that we have experienced for our new medical office building underscores the exciting growth trajectory that Central Texas has enjoyed and appears poised to continue enjoying for some time,” Wes Johnston, development manager with MedCore Partners, told Commercial Property Executive. The metropolitan Austin market recorded a direct occupancy rate of 91.6 percent at the close of 2019, and Cedar Park saw its occupancy rate reach 91.9 percent, according to a report by Transwestern.
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