New Mixed-use Project Coming to Corner of Hwy. 79 and Kenney Fort Boulevard Following Council Approval

A new mixed-use project could bring up to 530 housing units and commercial space to the northwest corner of Kenney Fort Boulevard and Hwy. 79 following Round Rock City Council’s approval of annexation and rezoning requests as well as a utilities service agreement.

The trio of action items went before council July 28, requesting an 8.955-acre plot of land be rezoned to a planned unit development to allow for mixed residential and commercial use, to be serviced by city water and wastewater utilities and annex 7.287 acres of the property that are not already within the city’s limits. The city previously annexed the property’s frontage along Hwy. 79 in 1979, according to city documents. All were approved unanimously.

The PUD zoning allows for a maximum build height of eight stories, although Brad Wiseman, Round Rock Planning and Development Department director, said the developer, Gulf RC Ventures LLC, is planning a multifamily project with a height of six stories. According to documents detailing the zoning request, 90% of necessary parking for the development will be contained in an attached parking garage, and 25% of units will have balconies. Click to read more at www.communityimpact.com.

Stratus Properties Inc. Announces Construction Financing for The Saint George, a Multi-Family Project in North-Central Austin

Construction Set to Commence Later this Month

AUSTIN, Texas, July 21, 2022–(BUSINESS WIRE)–Stratus Properties Inc. (NASDAQ: STRS) (“Stratus” or the “Company”) today announced that it has completed construction financing for the development of The Saint George, a 316-unit luxury wrap-style multi-family project to be constructed in north-central Austin on Burnet Road. The Saint George project is located within minutes of the University of Texas, downtown employers, Apple Inc.’s new North Austin campus, the Q2 Stadium-home to Austin’s major league soccer team Austin FC-and The Domain, an upscale retail, office and residential center with more than 100 stores and restaurants. Construction is expected to commence later this month.

William H. Armstrong III, Chairman of the Board and Chief Executive Officer of Stratus, stated, “We are pleased to announce that we have obtained construction financing for The Saint George, another Stratus multi-family project, located in the rapidly growing Burnet corridor in north-central Austin. The Saint George will be a high-quality addition to our portfolio, ultimately adding value to our leasing operations. After project stabilization, we look forward to considering monetization opportunities for this property.”

The project is owned by The Saint George Apartments, L.P., a Texas limited partnership and a Stratus subsidiary. The construction financing consists of a four-year construction loan from Comerica Bank to the limited partnership in the amount of $56.8 million, which is secured by the project. Stratus provided a completion guaranty and twenty-five percent repayment guaranty, which will be eliminated once the project meets specified conditions. Click to read more at www.finance.yahoo.com.

United Alloy Inc. Breaks Ground on Expansion of Manufacturing Facility in Seguin, Texas

SEGUIN, TEXAS – United Alloy, Inc announced today that they are breaking ground on a nearly 110,000 square foot expansion of their existing manufacturing facility in Seguin, Texas. Headquartered in Janesville, Wisconsin, United Alloy, Inc. is a contract metal fabrication and powder coating company. United Alloy produces the highest quality leak-proof metal fuel tanks, hydraulic reservoirs, skids, frames, chassis, trailers, and complex weldments for an extensive list of long-term Fortune 500 OEM customers. United Alloy is ISO 9001 Certified and is also a recognized Woman/Minority Owned Business.

This expansion will include the latest automation for light sheet metal fabrication, powder coating, and assembly. The extra space will allow United Alloy to continue to grow its capacity fabricating and assembling sheet metal enclosures for large OEM customers. United Alloy also plans to dedicate space to launch an apprenticeship program that will allow it to train entry level welders, fabricators, painters, and assemblers. To learn more about United Alloy employment and apprenticeship opportunities please visit their website – www.unitedalloy.com or contact them at 830-549-5550.

In December of 2019, the City of Seguin and the Seguin Economic Development Corporation announced that United Alloy would be expanding to Seguin, Texas, with plans to construct a new stateof-the-art manufacturing facility in two phases on a 27-acre tract of land within the Rio Nogales Industrial Park. Phase 1 of United Alloy’s expansion to Seguin was completed in December of 2020, representing an investment of more than $17 million. Today, United Alloy has more than 100 employees at their
Seguin facility. Upon completion of Phase 2, United Alloy’s total building footprint will be approximately 230,000 square feet and will represent a capital investment of more than $35 Million.

“We are thrilled that United Alloy is expanding their operations in Seguin, Texas. Even though they have only been a member of our business community for a short period of time, United Alloy has developed a tremendous reputation as a quality employer and are a top-notch corporate citizen. We are excited to watch United Alloy grow and look forward to working with them for years to come.” said Josh Schneuker, Executive Director of the Seguin Economic Development Corporation.

Colliers Q2 2022 Houston Industrial

“Capital flows are still robust for industrial assets despite some near-term headwinds as the sector continues to show strength on the user (leasing) demand side and reasonable new construction pipelines. We believe that the central part of the country, including SE Texas, are well positioned for robust future industrial growth as the Gulf of Mexico Ports and North/South rail options push more distribution from the backlogged West Coast to this region.” Patrick Duffy | President of Colliers in Houston

Key Takeaways

  • Robust leasing activity
  • Positive net absorption
  • Vacancy drops 
  • Rental rates increase
  • Construction starts up

Houston Highlights

Houston’s industrial market continued to gain momentum as leasing velocity reached over 10 million square feet in the second quarter. The increase in demand for space continued to spur new development with over 21 million square feet under construction and an additional 65 million square feet proposed or in the final planning stage. Houston’s industrial market recorded 6.6 million square feet of positive net absorption in the second quarter. The vacancy rate decreased 280 basis points annually from 8.5% in Q2 2021 to 5.7% in Q2 2022.

Executive Summary

Commentary by Jim Pratt 
The headlines for the 2nd Quarter of 2022 might mimic a political campaign of yesteryear, “It’s the economy, stupid!” While that may be somewhat harsh, we are certainly in a period of dramatic change and uncertainty in the Houston industrial market. With inflation at 40-year highs, currently exceeding 9%, and YTD increases of 1.5% in the interest rates by the Fed, developers and investors alike are revising their investment parameters to reflect these significant shifts. While the appetite for investment doesn’t seem to be affected, there is a wider gap in Seller expectations and Buyer pricing that will likely grow through the end of the year. Further, additional increases in interest rates are expected to total 1.5% to 1.75% and should have a significant impact on valuations. As we are easing into a recession that could be exacerbated by the additional interest rate increases anticipated from the Fed, the impact of a national recession on the Houston economy, and more specifically the Houston industrial market, is unknown. We continue to have strong tailwinds that could likely carry us through without a huge impact.
International investment dollars are still pouring in as these investors are willing to accept lower returns in exchange for the safety of their investments. U.S. real estate is an excellent hedge against inflation and offers security. These investors may be muting the overall impact of rising interest rates on cap rates. While not rising point for point with interest rates, there is certainly movement in cap rates on most industrial real estate. Long-term debt has increased as much as 150 basis points, creating negative leverage where cap rates are lower than the interest rates on debt. To maintain the required debt coverage ratios, investors have to provide more equity with lower percentages of leverage to satisfy the lenders. All of these factors are affecting the pricing and will continue to have a more significant impact through the end of the year.
Nationally, according to the Wall Street Journal, property sales dropped 16% compared to April 2021. Prior to April of this year, sales had increased for thirteen consecutive months. The decline has been more pronounced in the Houston Industrial market. According to statistics from Real Capital Analytics, industrial sales dropped from 114 properties and $1,904,940,472 in the 4th quarter of 2021 to 57 properties and $1,549,963,942 in the 1st quarter of this year, and only 43 properties totaling $777,668,957 this quarter.  
Aside from the drop-off in industrial sales, we have a very healthy industrial market. The vacancy rate dropped from 6.11% in the 1st quarter to 5.6% this quarter. Year-to-date absorption through the end of the 2nd quarter was 13,078,101 square feet, in line with the record setting absorption in 2021. More importantly, the average rental rate increased from $7.88 to $8.60 over the past quarter. Where annual increases in rental rates had recorded 2% for many years, they increased substantially and are now typically ranging within 3.5% to 4%. Owners are bolstering their returns as they try to offset the impact of inflation with larger increases in the rental rates.
Another trend continuing to take root in the market is the preference for shorter-term leases by landlords. Houston has historically seen 5-6% annual increases in rental rates, but the weighted rental rate change over the 1st quarter was 5.52%. Landlords are reluctant to commit to long-term leases that lock in fixed rental rate increases, preferring shorter-term leases that allow for more significant rental rate increases at the end of the lease term. While lenders still want longer-term commitments for a stabilized cash flow on new acquisition loans and ground-up development, current owners typically renew for shorter terms.
So, despite all of the changes in the economy, we believe the Houston industrial market is strong and adapting to the changing parameters. We will continue to watch the economy closely, and adjust to changes in the market, but with a solid foundation, the outlook for the balance of 2022 continues to be good.

Old Three Hundred Capital Secures $47.3 Million in Acquisition Financing for Multi-housing Community in San Antonio

JLL Capital Markets announced that it has arranged $47.3 million in acquisition financing and secured the preferred equity for Lantower Alamo Heights, a 312-unit multi-housing community located in the Alamo Heights neighborhood of San Antonio.

JLL worked on behalf of Austin-based sponsor, Old Three Hundred Capital, to arrange its second transaction with Sound Mark Partners this year. Additionally, JLL secured a non-recourse, floating-rate acquisition loan through Prime Finance on behalf of the partnership. JLL has now financed a total of approximately 1,800 units for Old Three Hundred Capital in the last 18 months. 

Built in 2015, Lantower Alamo Heights totals 312 one-, two- and three-bedroom units. The property features 259,951 rentable square feet and was 93% occupied at acquisition. The complex features a conference/meeting room, courtyard, dog park, pet wash station, elevator access, fire pit, fitness center, game room, outdoor living and grill area, parking garage, resort style pool and pet-friendly community. 

Located at 327 W. Sunset Road, the apartments are situated in one of the top neighborhoods in San Antonio with its own independent, private school district and median home prices averaging $1 million. Close to the popular Pearl District and downtown San Antonio, the property offers residents plentiful access to greenspaces and excellent “A+ Rated” schools, upscale eateries and a high barrier to new construction, which make this an uncommon asset in San Antonio.

Lantower Alamo Heights offers Old Three Hundred Capital a unique opportunity to gain exposure to a top San Antonio submarket with limited supply and proximity to multiple strong economic drivers.

The JLL Capital Markets Debt Advisory team representing the borrower was led by Senior Director Marko Kazanjian, Managing Director Chris McColpin, Senior Managing Director Max Herzog and Associate Andrew Cohen out of the New York City and Austin offices.

Commercial Development Races to Keep up with Growth

As the population of New Braunfels continues to grow at a rapid pace, so does investment and construction in commercial real estate.

At the same time, a very low rate of vacancy in some areas of commercial real estate, such as office and retail, is putting pressure on developers to build more around New Braunfels to bring increased options for businesses.

“We’ve seen nearly 100% absorption of our office market,” said Jonathan Packer, president of the Greater New Braunfels Chamber of Commerce. “We have opportunities emerging where there’s going to be some evolution of all of our retail areas both new and existing in the city to bring jobs and people clustered together and to attract the right type of job. We need to have the spaces that allow us to compete for those opportunities.”

Data produced for the GNBCC from CoStar Group, an organization that researches and analyzes the commercial real estate industry, shows that nearly 200,000 square feet of new retail construction is under construction in 2022. Click to read more at www.communityimpact.com.