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Posted by: In: Newsletter 13 Apr 2013 0 comments

By Jim McAlister IV

President & Chief Executive Officer

The U.S. is emerging from the worst downturn in land and housing since at least the Great Depression. For 5 years, land was not being developed across the U.S., even Texas, as lenders were not lending to developers. During this time it was virtually impossible to sell land sites; land transactions came to a standstill.

During those 5 years, jobs and population were booming in Texas – more than any other state. Developers and home builders were unable to put new product on the ground in response to this growth. This resulted in Texas having a severe shortage of lot and housing inventory.

In the graph below, you can see that while population in the Texas Triangle cities (Houston, Dallas, Austin and San Antonio) was strong, lots and absorption of lots (new houses being built) went on a downward spiral in 2007 and are just now heading back up. The downward spiral was a result of lenders not lending to developers and home builders.

land_absorptionThe following graph illustrates how Texas is critically low on developed lots. Most of the rest of the U.S. is still over-developed.

inventory-4q12It’s clear that a tremendous amount of land in Texas needs to be developed in order to accommodate the pent-up demand and future population growth. This movement is now under way. As of only very recently, large publicly traded home builders/developers have been able to secure loans. The result, after 5 years of land for single-family housing remaining dormant, is a land rush on premiere development-ready land tracts.

The impact of buyers coming back into the land market has certainly been felt by Rockspring Capital. Over only the past couple of months, buyers placed more than 2,000 acres, totaling roughly $60M, under contract on our partnership sites. The sales contracts are occurring at terrific prices for our partners.

The lending market is thawing, but still has a way to go. While large public builders/developers are able to secure loans, the private builders/developers are still not getting loans. My guess is that in roughly a year, lenders in Texas will be back to business as usual.

Due to a very strong demand and very low supply, an unusually large amount of land should be absorbed over the next 5-10 years. There could be no better news for us as a land investment company, and we are thrilled for what the future has in store for our investment partners.

Posted by: In: Industry Insights 11 Apr 2013 0 comments

(San Antonio Business Journal) An influx of new residents, combined with a shortage of homes, has created in San Antonio a housing market that favors those with a precious commodity at their disposal: Land.

Now, an investment firm out of Houston is working to capitalize on that market dynamic.

“There are probably six or seven sites we’re in negotiations on,” says Jim McAlister IV, president and CEO of Rockspring Capital, an investment firm that deals exclusively in land acquisitions. To date, Rockspring manages more than $260 million worth of assets.

Residential sites are not the firm’s sole focus. Last week, for example, Rockspring purchased 7.6 acres in the far West Side master-planned community known as Westover Hills. The site is being marketed for a variety of uses — including office, medical and multifamily developments.

The residential sector is, however, high on Rockspring’s radar — especially in major Texas metros like San Antonio.

“For the next three years at least, the housing market, especially the land market, is going to be very strong,” McAlister says. “Our future for the next several years is set.”

San Antonio, like other Texas metros, has seen a huge influx of new residents over the past five years, McAlister explains.

The new housing stock to meet this demand, though, has been slow to develop.

“(The Texas housing markets) are just now coming out of a huge downturn,” he says. “Over the past five years, there’s been almost no new product.”

Part of the problem for builders has been an ever-dwindling supply of finished lots available for them to buy so they can build new homes.

Rockspring, McAlister says, has the ability to bring those lots to market. The firm’s network of high-net-worth individuals and institutional investors means that the firm has cash on hand to buy large tracts of land at a very competitive price.

Rockspring also has the financial wherewithal to make the high-dollar improvements to make a site development ready — and thus very attractive to the end user.

A recent example of Rockspring’s strategy is a subdivision in New Braunfels known as White Wing. Rockspring purchased the property, a total of 117 lots, in February 2012. At the time, the project was at a veritable standstill — with the original developer in dire financial straits.

Four months after buying the lots, Rockspring sold 46 of them to Scottsdale, Ariz.-based Meritage Homes. About a year later, Meritage purchased the rest of the lots in the community.

McAlister will not divulge the location of the six or seven deals Rockspring is currently eying.

But he does expect to be making some annoucements “very soon.”

“We are buying a whole lot of land right now,” he adds.

To view the San Antonio Business Journal article, click here.

Posted by: In: Newsletter 05 Apr 2013 0 comments

By Beau Ryan

Senior Vice President & Chief Operating Officer

As we’re getting ready to mail our investment partners their K-1’s and audited financials, and since the April 15 tax deadline is around the corner, I would like to share with you key information about the American Taxpayer Relief Act (ATRA) of 2012 and its impacts on this year’s tax season.

The passage of ATRA permanently extends many of the Bush-era tax cuts for lower and moderate income individuals. It also imposes a maximum 39.6 percent tax rate on income and a maximum 20 percent tax rate on capital gains and dividends on individuals with a taxable income over $400,000 and families with income over $450,000. More importantly, the passage of ATRA provided much needed certainty for estate tax planners and for taxpayers who want to arrange their financial affairs.

Here’s information that you might find beneficial to know.

– For the first time in 10 years, beginning January 1, 2013, the maximum estate tax rate, the inflation-adjusted exclusion, and other estate tax features have been made permanent;

– The new top tax rate is 40 percent, the maximum exclusion for both estate and gift taxes is a unified amount of $5 million (indexed at $5.12 million for 2012 and $5.25 million for 2013);

– The tax basis for property acquired from a decedent is stepped up, and the portability of a deceased spouse’s unused exclusion (DSUE) amount is preserved; and

– The generation-skipping transfer (GST) tax exemption which is tied to the estate tax rate is also set at $5 million, adjusted for inflation.

Here at Rockspring, we stay well-informed of key regulations that impact our company and investor base. We’ll make sure to highlight any key regulations that pass in the upcoming months in our next newsletter.

Posted by: In: Industry Insights 04 Apr 2013 0 comments

(Austin Business Journal) Austin maintained its No. 1 spot in the Business Journals’ latest analysis measuring the economic health of major metropolitan areas.

In March, the Capital City again ranked in first place in the Business Journals’ On Numbers Economic Index, which is calculated by an 18-part formula. The formula assesses private-sector job growth, unemployment, earnings, housing-price appreciation, and construction and retail activity for all 102 metropolitan areas with populations of more than 500,000.

Austin held the position for the second straight month — and the third time in four months.

Second place is held by Provo, Utah, which moves up from sixth place a month ago. Rounding out the top five are Houston, Oklahoma City and Dallas-Fort Worth.

Austin has been consistently strong since the index debuted in August 2012, occupying first place three times and second place the other five months. Its current record of economic growth is unparalleled:

• The number of private-sector jobs in the Austin area has increased by 9.7 percent during the past five years. No other market has expanded more rapidly than 7.5 percent.

• Austin is the only market with growth rates of better than 3 percent in four key categories: private-sector jobs over the past year and the past five years, and personal earnings during the past year and past five years.

• Home values have risen in just 10 of the 102 major markets since 2008. Austin qualifies for that elite group with an appreciation rate of 4.7 percent.

Last place currently belongs to Bridgeport-Stamford, Conn.

To view the Austin Business Journal article, click here.

Posted by: In: Newsletter 01 Apr 2013 0 comments

By Jim Hynes

Managing Director

Texas land is being absorbed for new single-family development at a rapid pace. According to a recently released study from the U.S. Census Bureau, out of 361 major metros, Houston and Dallas rank number 1 and 2 respectively for the highest number of single-family permits pulled in 2012. Austin and San Antonio were not far behind coming in at 7th and 20th respectively. In fact, Lone Star cities comprise an amazing 47 percent of this list.


So what is driving this building permits increase in Texas?

  • Strong demand – Texas leads the nation in population growth and job creation resulting in willing and able home purchasers.
  • Business friendly regulations – Land use regulation laws are very builder friendly and allow new permits without much local government intervention.
  • Low inventory of resale homes – Inventories are at or below the typical national MLS 6-month supply equilibrium figure.

Rockspring Capital remains very optimistic of the investment prospects for Texas land. Home builders are working overtime to meet the housing demand created by Texas’ population growth and job creation boom with individuals relocating to our state in record numbers.

Posted by: In: Industry Insights 14 Mar 2013 0 comments

(Houston Business Journal) Texas metropolitan statistical areas, micropolitan statistical areas and counties — including Houston and Harris County — were among the fastest-growing last year, the U.S. Census Bureau said Thursday.

Between July 2011 and July 2012, Harris County experienced the largest increase in raw numbers of any county in the U.S. It added 80,005 residents over the year, followed by Los Angeles County in California and Maricopa County in Arizona, which both added nearly 74,000 people.

Dallas County was No. 4, with 45,827 new residents. Travis County and Tarrant County were the other two Texas counties to make the top 10, ranking No. 7 and No. 9, respectively. Texas held 11 of the spots on the Census Bureau’s list of the top 50 fastest-growing counties.

Texas also took the top two spots among the metro areas with the largest numeric increase. Dallas-Fort Worth-Arlington grew the most, adding 131,879 new residents, and Houston-The Woodlands-Sugar Land was No. 2, with 125,185 added.

The Houston MSA’s July 2012 population is estimated at 6,177,035 — the fifth-largest across the country — according to the Business Journals’ On Numbers. Thursday’s estimates are the first to be released since the U.S. Office of Management and Budget redefined the borders of all metros and micros — and changed some of their formal names — a month ago.

Midland, Texas, grew 4.6 percent over the year, making it the country’s fastest-growing metro area by percent increase. Austin-Round Rock was up 3 percent, ranking it No. 7 by percentage growth.

Andrews was the fastest-growing micropolitan area in Texas. Its 4.7 percent growth ranked it No. 4 among all micro areas in the U.S.

The Census Bureau attributed much of Texas’ population boom to the oil and gas boom.

“After a long period of out-migration, some parts of the Great Plains ─ from just south of the Canadian border all the way down to West Texas ─ are experiencing rapid population growth,” Thomas Mesenbourg, the Census Bureau’s senior adviser performing the duties of director, said in the Bureau’s Thursday statement. “There are probably many factors fueling this growth on the prairie, but no doubt the energy boom is playing a role. For instance, the Permian Basin, located primarily in West Texas, and North Dakota accounted for almost half of the total U.S. growth in firms that mine or extract oil and gas, during a recent one-year period.”

To view the Houston Business Journal article, click here.

Posted by: In: Industry Insights 04 Mar 2013 0 comments

(Houston Business Journal) Site Selection magazine has crowned the Houston area the “Top Metro” in the U.S. for 2012 corporate relocations and expansions, while Texas reclaimed the top spot in the states’ ranking.

This is the second consecutive year — and the third time in four years — that the Houston-Sugar Land-Baytown metropolitan statistical area took the No. 1 spot among the metro areas, the Greater Houston Partnership said in a Monday statement. The area recorded 325 new or expanded facilities in 2012, up from 195 the year before.

The Chicago metro area took the No. 2 spot with 311 projects, and the Dallas-Fort Worth-Arlington area was No. 3 with 224, the GHP statement said.

“One of the greatest strengths of doing business in Houston, and in Texas as a whole, is that we provide the resources and environment to help any company succeed,” GHP CEO Bob Harvey said in the statement. “We intend to continue to make Houston the most attractive place to locate or expand a business in the United States.”

Texas also reclaimed the magazine’s Governor’s Cup with 761 projects — 270 more than runner-up Ohio’s 491. The previous year, Ohio squeaked past the Lone Star State with a 34-project lead.

Atlanta-based Site Selection listed a variety of projects in five sectors — energy, chemicals, machinery manufacturing, professional services and data centers — as driving factors behind the state’s success. Many of the projects — including those from Exxon Mobil Corp. (NYSE: XOM), Anadarko Petroleum Corp. (NYSE: APC), Shell Oil Co. and Phillips 66 (NYSE: PSX) — were in the greater Houston area.

The Site Selection ranking is “further proof that Texas continues to be a beacon of opportunity for entrepreneurs and job creators,” Gov. Rick Perry said in GHP’s statement.

Site Selection’s analysis excludes retail, government, school and hospital projects. Projects must meet at least one of three criteria: at least $1 million in capital investment, at least 50 new jobs created or at least 20,000 square feet of new floor area added.

To view the Houston Business Journal article, click here.

Posted by: In: Industry Insights 24 Jan 2013 0 comments

(Austin Business Journal) Austin took the top spot for the third year in a row on Forbes’ list of “America’s 20 Fastest Growing Cities.”

The Capital City is an economic powerhouse thanks to the 51,000-student University of Texas at Austin, a bevy of Silicon Hills startups and the presence of mega corporations like Whole Foods Market Inc. (Nasdaq: WFM) and Dell Inc. (Nasdaq: DELL), the magazine wrote.

Houston and Dallas took the No. 2 and No. 3 spots, respectively.

Data from the U.S. Census Bureau shows more than 427,000 people moved to Texas between August 2011 and July 2012, Forbes reports. The magazine cites the state’s healthy labor markets, low unemployment rates and business-friendly regulatory environment among factors contributing to Texas cities’ high rankings on the list. San Antonio also made this year’s ranking.

Forbes’ analysis of the 100 largest U.S. metropolitan statistical areas was based on six metrics. Here’s how Austin measured up:

  • 2012 population growth rate: 2.8 percent
  • 2013 population estimated growth rate: 2.7 percent
  • Job growth rate: 3.1 percent
  • Unemployment: 4.9 percent
  • Gross Metro Product: 6.3 percent
  • Median salary for local college-educated workers: $63,200

To view the Austin Business Journal article, click here.

To view the Forbes’ list of “America’s 20 Fastest Growing Cities,” click here.

Posted by: In: Rockspring News 04 Dec 2012 0 comments

(The New York Times)  HOUSTON — Even first-time visitors here can tell that the city is growing rapidly. Construction cranes overhang office and apartment sites all along the Katy Freeway, a stretch of Interstate 10 that connects a string of booming submarkets west of the 610 Loop. This expanse includes the Westchase neighborhood and the Energy Corridor, home to an expanding cluster of energy companies.

The energy sector drives job growth and all manner of business activity here, with the greatest demand for office space concentrated in the west side where oil and gas companies are clustered, in the medical center just south of the central business district and in the Woodlands, a master-planned community 27 miles north of downtown.

“Houston is clearly a growth leader,” said Walter Page, director of office research at Property and Portfolio Research in Boston. “It was the first major economy in the U.S. to register more jobs than it lost in the recession.” Employment here is up 3.7 percent since August 2008, when it peaked before declining during the recession. That compares with New York’s gain of just 0.7 percent from its peak in April 2008 before declining, Mr. Page said.

The city’s office vacancy rate was 11.9 percent in the third quarter, down from 13.4 percent a year earlier, according to the CoStar Group, a real estate research firm in Washington. Developers are creating new space to meet that strong demand, completing 15 major office buildings in the first three quarters of this year alone. Of the 3.9 million square feet of office space under construction, more than 90 percent is in the western submarkets or in the Woodlands, Mr. Page said.

The energy sector accounts for 3.4 percent of the city’s employment, more than five times the national average of 0.6 percent, Mr. Page said. Despite that heavy concentration, the rest of the city’s economy is diverse and helps spread the wealth that energy brings into the community to other sectors.

Brisk commercial real estate sales reflect investor interest in the market. This year, an affiliate of the Houston-based Enterprise Products Company bought the Shell Plaza, a 1.8 million-square-foot office complex in the central business district, for $550 million, CoStar reported. The seller was a fund operated by Hines, a Houston-based developer that built the property in the 1970s. Last year, Shell renewed its leases for nearly 1.3 million square feet at Shell Plaza.

Hines developed much of the city’s commercial real estate. Today the company’s projects here include multifamily construction in the shadow of office buildings that it developed in the Galleria, a group of office towers, hotels and retail on the southwestern rim of Loop 610, with a skyline that rivals downtown’s.

Mark Cover, Hines’s chief executive for the southwest region, said that energy, the medical center and the Port of Houston are the three largest engines driving the economy here. “The global energy industry is headquartered here,” he said. “It’s not just oil and gas, it’s alternatives, too. Intellectual capital in the energy field is heavily concentrated here.”

In the only major city in the United States without zoning laws, developers can, in theory, build virtually anything, anywhere in the city. In practice, however, understanding and catering to local industries is a critical element in site selection, Mr. Cover says. “When you really get down to it, the city is market-zoned, because land prices are not based on zoning rights, they’re based on purely capitalistic, highest and best use value,” he said. “If you build the wrong product or build in the wrong place, the market is going to severely punish you.”

Market forces shape the city’s development in hubs, says Jim Knight, who heads land development in Texas for Bury & Partners, an Austin-based engineering firm.

Refineries and distribution centers cluster near the port, while energy companies and other major employers tend to establish a presence, either downtown or in a submarket, and stick to that area indefinitely.

Employees generally move close to work rather than make long commutes in the city’s heavy traffic, so apartments and single-family housing grow around major employers, eventually attracting retailers to service those populations.

Exxon Mobil is defying that pattern by building its new campus here on 385 acres near the Woodlands. Beginning in 2014, the company will bring about 10,000 jobs there, chiefly relocating from several million square feet in north Houston and downtown. Also moving to the new campus will be business units from Fairfax, Va.; Akron, Ohio; and a refinery southeast of the city, in an effort to increase collaboration and innovation.

“In my lifetime, Exxon Mobil is the first company of that size in any major city of Texas to relocate far enough away that it potentially would affect the drive times of its employees,” Mr. Knight said.

Indeed, the migration of businesses and residents to the Woodlands in recent years has surprised many longtime city residents. Opened in 1974, the community is home to more than 100,000 residents and 1,755 businesses, according to the Howard Hughes Corporation, which acquired the 28,000-acre project in 2011.

“It’s all about quality of life,” said Paul Layne, Howard Hughes’s executive vice president for master-planned communities. “People can live here, have their offices here and play here.” Woodlands Town Center is oriented to pedestrian traffic, with large plazas and sidewalk restaurants, night life and entertainment venues, and connections to a network of hiking and bike trails.

New office projects range in size from the 23,000-square-foot Woodlands Gateway, under development by Jorge Molina Hill, to a 31-story, 550,000-square-foot office tower that Anadarko Petroleum Corporation is building next to its headquarters in the Woodlands Town Center.

The Woodlands Development Company, a subsidiary of Howard Hughes, is building the speculative office building 3 Waterway Square across the street from Anadarko, and the developer has also broken ground on a 197,000-square-foot, speculative office building in a new mixed-use project in the Woodlands called Hughes Landing on Lake Woodlands.

“The Woodlands is really an island that doesn’t necessarily compete with the other marketplaces,” said Scott Martin, executive managing director at Granite Properties. The Houston developer has several local projects in the works, including one near the Woodlands. “People either want to be there or they don’t; it’s not much of a commuter market.”

Mitsuhiko Tatsuno, an investor whose family-owned company has owned five office buildings in the Woodlands since 1990, says occupancy in the properties has increased to nearly 100 percent, from about 60 percent in 2010.

“Of the whole U.S. market, Texas and Houston are very good,” said Mr. Tatsuno, who is head of corporate planning at Tatsuno Corporation in Osaka, Japan. “And in Houston, the Woodlands is one of the best markets.”

Harold Holliday, an executive vice president in the debt and equity finance group at CB Richard Ellis, said he could not remember a better time here for arranging commercial real estate financing.

“We are very fortunate to be plying our craft in this city,” said Mr. Holliday. “We are seen as a city where you can get paid for taking risk, and in a lot of the gateway markets, you can’t.”

To view The New York Times article, click here.

Posted by: In: Industry Insights 17 Oct 2012 0 comments

(Austin Business Journal) Austin has been ranked as one of the top five markets to watch across the country by the Urban Land Institute’s Emerging Trends in Real Estate Forecast, which was released Wednesday.

Austin comes in at No. 4 behind major megalopolises such as San Francisco, New York City and San Jose, Calif. Houston logged in at No. 5.

“In 2013, Austin looks set to continue to impress individuals and attract institutional investors,” the report states. “Expansion of commercial real estate in Austin looks likely with a population increase of 2.3 percent anticipated next year, pushed by the echo boomer demographic that makes up 17.3 percent of the total population and has increased in number by over 25 percent during the past 10 years.”

Austin is considered a “leading” secondary market, according to the report, along with Charlotte and Raleigh-Durham, N.C., Nashville, Tenn. and San Jose.

The Capital City ranks No. 1 for Gross Metro Product per capita, which measures productivity based on size. Economic production, the report states, “is a driver of real estate.”

Austin ranks fifth for migration behind Raleigh, Phoenix, Tucson, Ariz., and Las Vegas.

Despite the lofty rankings, the Emerging Trends report suggests that Austin is still a volatile market and points to the city’s mediocre industrial rating.

“Great opportunities exist in Austin, but reviews are much more mixed than they were last year,” the report states.

San Francisco takes top honors for reasons that include walkability, a strong transit system and a skilled workforce.

To view the Austin Business Journal article, click here.