TEXAS SNAPSHOT, JULY 2007

San Antonio Multifamily Market

Goga

San Antonio’s multifamily market had a record-breaking year of growth in 2006 with multifamily developers delivering 4,700 units. While this influx of new construction may present challenges with absorption levels during the next few years, there is still optimism in the San Antonio multifamily market due to the growing population and above-average job growth, according to Marie Goga, multi-housing sales specialist with San Antonio-based Investment Realty Company. Just this past April, San Antonio’s unemployment rate was 3.6 percent as compared to the Texas unemployment rate of 4.2 percent and the national rate of 4.5 percent. “In 2004, there were 19,900 jobs added and 24,200 were added in 2006, which were two of San Antonio’s best years ever,” Goga says. “As of March 2007, the annual growth rate is expected to reach 22,400. Growth may not continue at the levels as the previous 2 years, but it should remain strong.”

Lawhorn

South San Antonio, in particular, has seen significant growth in the past 2 years. “The success of The Toyota Motor Corporation’s plant and plans for the new Texas A&M University campus have fueled this growth,” says David Lawhorn, multifamily investment broker with Lawhorn & Associates in Boerne, Texas, located just northwest of San Antonio. “Historically, much of the apartment development has bypassed the south, but now five new apartment complexes are in the works.” In addition, land prices, which are two to three times lower than the north and west — coupled with less rocky terrain — are attractive to developers. For example, Michigan-based Crosswinds National plans to build their first San Antonio project, a 535-acre mixed-use development called The Preserve, near Medina River Park and the Toyota plant. There also are plans in the works for a project called Verano at City South near the proposed Texas A&M University. The development would include single-family homes, apartments and retail. 

Downtown San Antonio also is seeing strong activity due to an increasing demand for the urban lifestyle. “With the highly successful downtown tourism, many have been surprised that downtown living choices were not plentiful,” she says. “This is now changing.” Beginning last year, there was much development in condominium construction downtown. Currently, the $38 million, 264-unit Vistana project, the 160-unit Vidorra condominium development (selling at $300,000 and up) and the Alteza condominiums with 145 units above the planned Grand Hyatt Convention Center Hotel are all under construction.

It’s not just the condominium market that is picking up, as apartment developers also are increasing their activity in the area, according to Lawhorn. “There are about 1,859 apartments downtown at approximately 98 percent occupancy with rents ranging from $1.07 to $1.11 per square foot.” For example, Ohio-based NRP Group LLC plans to build 500 apartments with 20,000 square feet of retail space for the South Flores area. The $60 million project will be located on 10 acres on East Cevallanos Street between Probandt and South Flores streets, near Blue Star Arts Complex. The South Flores area also has two completed for-sale condo projects, Camp Street Lofts and South End Lofts, with others currently under construction.

Overall, the majority of current multifamily development is primarily located along the north side; however, there is current construction in other corridors throughout San Antonio. The North Central submarket above Loop 1604 has approximately 1,750 units under construction and the Northeast submarket near Loop 1604 and Highway 78 has 1,158 units under construction. Also in the Northeast side, between Loop 410 and IH 35, there are 456 units under construction. The Far Northwest submarket above Loop 1604 has 459 units. The Southwest has about 604 units while South Central has 429 units. Proposals for the future include approximately 1,500 in the Far Northwest and downtown anticipates 1,035 units in proposals. “In all, approximately 7,500 new apartment units are presently under construction with a mix of 60 percent conventional and 40 percent affordable housing,” Lawhorn says. “About 4,000 of these units are scheduled to be complete by the end of the year.”

Development projects in San Antonio’s multifamily market include the ultra-luxury as well as a continued need for affordable housing. On the luxury side of the spectrum, near the highly successful 50-acre Quarry Market retail center, there are plans to build 280 ultra-luxury units called the Artessa at Quarry Village. “They will be three stories on top of 70,000 square feet of retail space,” Goga says. “The Tuscan-inspired apartments are expected to lease for about $1.55 per square foot.”

On the other side of the market, approximately 38 percent of the new projects currently under construction are affordable housing and/or senior housing developments. “Despite the changes in the south side, there is still a demand for new low income housing,” Lawhorn says. “Currently, there are 429 units for affordable housing in South Central San Antonio under construction.”

As far as rental rates are concerned, average rents for San Antonio multifamily product increased 3.4 percent last year and are expected to increase an additional 3 percent this year to $680 per month — approximately $20 more than the average rental in 2006. “In the last quarter of 2006, rental rates for Class A averaged $0.99 per square foot, Class B was $0.83, Class C sat at $0.76 and Class D was $0.68,” Goga says. “Citywide rents are averaging about $0.83 cents per square foot.”

The overall occupancy rate for San Antonio in the first quarter of 2007 is at 91.3 percent, down from a rate of 92.4 percent for the same time period last year. Above 90 percent is still considered healthy in the industry. “The decrease in occupancy may be partly attributable to the end of Hurricane Katrina evacuee’s Federal rental assistance,” Goga says. “In addition, there has been a 24 percent increase of single-family homes on the rental market.” According to the San Antonio Board of Realtors, there are about 2,300 single-family homes on the rental market, up from 1,866 during the same period a year ago. The decreased occupancy level has promoted continued concessions averaging about $35 per unit per month. “However, this may soon be offset by additional renters resulting from the 13 percent increase in home foreclosures from a year ago,” Lawhorn says. “Tighter loan restrictions also will increase the number of renters in the San Antonio market.”

In the future, the southern part of the city will further its growth with mostly affordable housing properties, as will the Northwest, Northeast and Far West sectors. “The 1604 West Loop in Northwest San Antonio and 1604 East Loop in the Northeast sector are two of the fastest growing areas for conventional and affordable housing,” Goga says. “The Far West part of San Antonio also is experiencing increased conventional and affordable housing. There is anticipated new construction for the far northern sectors of San Antonio’s MSA due to the high occupancy rates and projected increase in population growth.” 

As Fortune magazine listed San Antonio as one of the “10 Best Places to Own Real Estate” for 2007, the year should prove to be a strong one. Investors have been investing in the city at record levels over the last 4 years, and the demand is expected to remain strong. Investors appreciate San Antonio’s strong economy and the city’s lower volatility compared to other Texas markets.

— Marie Goga is a multi-housing sales specialist at Investment Realty Company in San Antonio. David Lawhorn is a multifamily investment broker with Lawhorn & Associates in Boerne, Texas.


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