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It Really Is All About Location

Posted by: In: Newsletter 13 Sep 2011 Comments: 0

By Jim McAlister, IV

President and Chief Executive Officer

I am absolutely convinced that the real estate adage – “the one key to success is location, location, location” – rings more true today than ever.

The Great Recession and anemic recovery have really taken their toll on the U.S. economy these past few years.  By anyone’s count, more than eight million jobs have been lost and the few new ones that have been added don’t come close to the pay and skill levels of their predecessor.  The official unemployment rate hovers above nine percent with many more underemployed with no good job prospects in sight.  U.S. home values have plunged more than 33 percent since the 2006 peak, according to the well-respected Case-Shiller index, and some markets still remain in freefall.  We recently traveled to several Midwest cities where the population is the same as it was in the 1950s!  While driving down Main Street, you can’t help but feel for the young people in these cities and shudder at the grim prospects of a large employer or new industry relocating to the area to jumpstart the local economy.

Texas and its “Texas Triangle” – Houston, San Antonio, Austin and Dallas/Ft. Worth – could not be more different and is a lone shining star of prosperity to the rest of the nation.  Texas has been a job machine – creating more than 730,000 jobs in the past decade, all while the second closest state created less than 100,000.  In fact, Texas created more jobs in the past decade than all the other 19 states with positive job growth combined!  California recently sent a delegation to Texas to learn how we have been stealing all their companies and jobs.  In the latest 2010 census, Texas was ranked No. 1 in population growth, surpassing the closest state by almost 1 million people.  Texas home values have gained a steady 3.7 percent annually over the past decade and home building continues to be robust in well-conceived and well-located projects.  The governors of Ohio and Wisconsin recently stated that they cannot compete in attracting residents (population!) and companies (jobs!) against the Texas model of no state income taxes, low cost of living and a business-friendly government.  With diverse economic engines driving each of these Texas cities, the state is poised to build upon the unprecedented recent boom.

The fundamental of our business – Texas land – has followed a very similar theme as the economy.  Many areas of the country are in terrible shape and will take years of new demand to absorb existing supply.  Atlanta – the epicenter of the lending binge and consequent FDIC bank failures – has more than 27 years of vacant developed residential lots waiting to be built on.  For land investors that used leverage during this timeframe, the severe national downturn has often resulted in near or total loss of investment principal.

On the other hand, our company and its investment partners have held up considerably well despite the greatest national real estate crash since the Great Depression.  Our economists tell us that Texas will be quickly facing a shortage of quality land and new houses.  People are continuing to move here at a clip of 1,000 people per day. Our funds are still projected to protect investor principal and provide decent-sized profits despite the implications of the recession and the challenging national market.

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