(Houston Chronicle, by Purva Parel) Rockspring Capital’s Jim McAlister talks with Houston Chronicle‘s Purva Patel on Houston land market…
Despite a volatile stock market and tight lending standards, Rockspring Capital president and CEO Jim McAlister IV is optimistic about the market for undeveloped land.
McAlister, who joined Rockspring Capital in 1993 and oversees the company’s investment activities, recently spoke to the Chronicle’s Purva Patel about land prices, lending and the uncertain economy. Following are excerpts.
Q: What trends are you seeing in land transactions, especially in the Houston area?
A: Since 2008 the amount of land transactions has been down generally 90 percent. It’s been a huge drop off a cliff because of the illiquidity in the marketplace. Developers are not able to get loans; probably the bottom of the barrel was 2009. Since then we’ve been gradually coming out. The transactions are nowhere near normal.
We’re seeing it’s harder to get a loan for a house. Before the downturn, it was too easy. Now it’s too hard. A lot of people are not able to qualify for housing loans, so the people who should be going into starter homes aren’t qualifying. That’s causing a very large demand for multifamily housing. So we’ve seen a spike in (higher-end apartment) developments, primarily in the inner city. There’s also been a pickup in suburban industrial activity.
Q: What’s happening to the size of transactions?
A: The size of raw land transactions are going to be smaller because when credit was too easy a developer was able to buy, for example, a 1,000-acre tract. In the new economy, he can only buy enough for one pod at a time. So he’ll be biting off land sites in much smaller chunks.
Primarily we’re seeing small, end-user-driven deals and some investor-driven transactions. We’re seeing very little large single-family residential development deals, almost none. There is very little office development, almost none. It’s been very flat.
Q: What’s happening to prices?
A: Land prices are still holding on. Houston never had the artificial bubble in pricing, so most of the sales that are occurring are occurring at good pricing, not much different than the downturn. The really good buys are being made when someone is leveraged and needs to dump a property, and there aren’t a lot of people who can close quickly with cash. It’s only if somebody is in a tough situation or a bank foreclosure and the bank wants it off their books. It’s been to the surprise of everybody the current policy from Washington on down has been to extend and pretend. There are a lot of nonperforming notes banks could have foreclosed on, but they continue to extend them.
Q: Does that mean we’ll see a slew of foreclosures at some point or that borrowers are getting more time?
A: I think it’s buying them time. A lot of borrowers will get through and never see foreclosure. Because there are no mass- foreclosed land sites on the market trying to be dumped, they’re not bring-ing the market down at all.
Q: What will it take to get back to normal?
A: There’s good news and bad news. The good news is that Texas is leading the nation in population growth and employment growth, and not just leading a little bit but by a massive amount. On the other hand, illiquidity was created by the housing bubble and bust. It basically busted all the lenders, and so even in Texas or Houston, developers should be able to get loans based on today’s supply and demand. But they’re still not able to.
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