Bryan Leonard joined four other NorthMarq Capital producers to discuss and answer questions regarding tertiary and secondary markets. He noted in his remarks “We expect that San Antonio will remain a dynamic and attractive investment market across the property type spectrum for both investors and lenders alike for reasons that have always held true—steady, measured growth absent of volatile peaks and valleys.” Read Bryan’s responses below.
1. What property type/niche are seeing/hearing about in your market? What conditions make this possible?
San Antonio has long been characterized as a very stable market and for good reasons. It has a diverse economic base, perceived high quality of life and a very reasonable cost of living. It was named as the number two place to visit in the world on a recent list published by Budget Travel and consistently ranks in the top 15 of US event destinations. Many people don’t realize it is the seventh largest city in the country. In recent years, the San Antonio CBD has largely been a tourist destination but that is no longer the case. San Antonio’s CBD is undergoing a residential and commercial renaissance. For the first time since 1989, a new $142 million 460,000 sq. ft. office tower designed by the world renowned Pelli Clark Pelli architecture firm is under construction in the CBD. Numerous multifamily and entertainment venues have also been and are currently under development. Additionally, the suburbs are doing well and seeing a mix of office, retail and multifamily construction as one would expect given San Antonio was ranked sixth in population growth in the US among big metros last year. Housing starts continue to be solid and demand is outpacing supply with an estimated 3.4 months of inventory available according to local sources. We have seen many people relocating to San Antonio from other parts of the state and nation for work in recent years. These factors support healthy real estate markets locally in the broad sense. There does seem to be a niche in the affordable/workforce housing space in this market and several developers and local municipalities have capitalized on those opportunities. San Antonio is also a good hotel market given its strong position in the tourism industry.
2. What type of borrowers/lenders are in your market? For example; is it primarily agency or are bank and life companies also part of the mix? Why?
Borrower profiles in our market range from local to national, international and institutional. We do have quite a bit of interest and investment from investors located in California as well as the northeastern and southeastern part of the country. In the last several years, wealthy families with diverse business interests from Mexico have been significant real estate investors in San Antonio. It is a great relative value market when compared to the gateway markets as competition for product can translate into very thin investment returns. The San Antonio market offers investors stability with upside potential and real estate is still priced quite reasonably. NorthMarq is active with all lender types including life companies, agencies, CMBS, banks and other balance sheet type lenders in San Antonio. I would summarize by observing that San Antonio enjoys very good capital liquidity when it comes to the commercial and multifamily real estate markets and there is robust interest in investing here from a wide variety of investor types.
3. What are the unique challenges facing your market?
Like many metropolitan areas experiencing strong growth, San Antonio is working to insure highway infrastructure keeps up with increased population and traffic. Our airport is undergoing an expansion with modernization. More frequent direct flights to key destinations will be important to future growth as well as the continued strong performance in the convention and tourism business. Our convention center is state-of-the-art and San Antonio is focused on continuing to be a leader in that very competitive industry. Like any growing city, strong pro-growth leadership will be necessary to perpetuate economic growth. We are fortunate to have a strong city manager as the city is in very good financial health and maintains excellent bond ratings. San Antonio is somewhat unique in that our water supply is derived from underground resources as opposed to surface resources. Long term plans to address and guarantee that resources will be plentiful for future generations are also in place and new avenues to supplement that plan are constantly being evaluated and implemented.
4. What are the unique opportunities present in your market?
San Antonio has a unique combination of resources and geography that contribute to its desirability. It has a culture unique to South Texas and a perceived high quality of life. As previously mentioned, the cost of living is low relative to many other places and weather is favorable in that winters are generally mild, making outdoor recreation very accessible just about year around. The economy is based on a diverse mix of industries such as tourism, import/export, manufacturing, healthcare and bioscience, aerospace, financial services and military. San Antonio is home to mission critical military bases and other governmental operations and is the epicenter of the burgeoning cybersecurity field. Due to the low cost of power and general lack of significant weather events, large data centers have located in San Antonio. For example, Microsoft recently purchased land to build a $1 billion facility that is in addition to two data centers they already occupy in San Antonio. We expect that San Antonio will remain a dynamic and attractive investment market across the property type spectrum for both investors and lenders alike for reasons that seem to have always held true here- steady, measured growth absent of volatile peaks and valleys.
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