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Posted by: In: Industry Insights 29 Mar 2012 0 comments

Rockspring Capital’s Jim McAlister talks with Bisnow’s Catie Dixon on the company’s recent 200 percent return from a non-performing note…

Many investors today get nervous thinking about land acquisitions. But maybe they’d change their minds if they got wind of this deal: Rockspring Capital nabbed a 200% return a mere 30 days after acquiring a note secured by land. (That’s a very different 30-day return policy than most people are used to.)

Rockspring CEO Jim McAlister tells us his firm acquired a non-performing note secured by a six-acre land parcel in the Med Center. 30 days later, it received a payoff resulting in more than a 200% net internal rate of return, one of the highestin the firm’s 40-year history. Jim says banks don’t like holding non-performing loans, especially when secured by non-income producing land assets. That means investors (especially ones like Rockspring who can move quickly with cash) can buy notes like this one at good discounts.

There’s treasure somewhere on this map. Jim says the situation is a win-win for Rockspring. Once it buys a discounted note, it’ll either receive a payoff and a solid return for its investors, or (even better) it’ll foreclose  and own the site outright. Rockspring’s target: Direct land or “special situation” investments. Jim says he needs enough of a discount to get solid returns if the borrower pays it off but a site worth owning if it forecloses. Rockspring prefers to turn sites around within two years.

Click here to see Bisnow’s video of JIm discussing an interesting dynamic in Houston’s land market today!

To view the Real Estate Bisnow Houston story, click here.

Posted by: In: Rockspring News 01 Mar 2012 0 comments

Rockspring Capital, a privately-owned real estate investment firm, today announced that it received payoff on a discounted note it acquired from a bank on Jan.13, 2012 on behalf of an affiliate of Opportunity Land Fund No. 7, LP.

The mortgage was secured by a 6-acre land parcel in Houston’s Texas Medical Center adjacent to another property owned by the same affiliate on Grand Boulevard, just south of Old Spanish Trail.

“This discounted note purchase exemplified Rockspring Capital’s creative investment strategy of understanding the value of the underlying land collateral, thoroughly underwriting the risks associated with the borrower and acquiring the investment with all cash in a short amount of time,” said Jim McAlister IV, President and CEO of Rockspring Capital. “This transaction allowed our investors to realize a nice profit and a more than 200 percent net internal rate of return, one of the highest in the 40-year history of the company.”

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About Rockspring Capital

Rockspring Capital is a Houston-based land investment company founded in 1973 whose strategy is to acquire opportunistic land parcels and residential lots in high growth areas.  It also makes special situation bridge loan and note purchases on land related assets.  Rockspring Capital acquires with all cash in markets within the “Texas Triangle” – Houston, Austin, San Antonio and Dallas/Ft. Worth.

Posted by: In: Rockspring News 09 Feb 2012 0 comments

Rockspring Capital, a privately-owned real estate investment firm based in Houston, announced today the purchase of 117 finished or fully entitled residential lots in New Braunfels, Texas by one of its affiliates.

The investment was made on behalf of Rockspring Capital’s seventh fund, Opportunity Land Fund No. 7, L.P. The nearly 40-acre land parcel containing the residential lots is located near the intersection of Seguin Avenue and Klein Road.  The company will invest an additional $700,000 to complete the second phase of residential development, which will make the lots ready for homebuilders.

“Residential lots are in scarce supply and high demand throughout Texas. Yet, we were able to secure this deal because of our proven local land market expertise and the fact that the transaction was in all cash.” said Jim McAlister IV, President and CEO of Rockspring Capital. “This investment will allow our investors to realize a cash flow return soon, as we are already in discussions with a number of excellent homebuilders that desire to acquire lots from us to commence building immediately.”

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About Rockspring Capital

Rockspring Capital is a Houston-based land investment company founded in 1973, whose strategy is to acquire opportunistic land parcels and residential lots in high growth areas.  It also makes special situation bridge loan and note purchases on land-related assets.  Rockspring Capital acquires with all cash in markets within the “Texas Triangle” – Houston, Austin, San Antonio and Dallas/Ft. Worth. For more information about Rockspring Capital, visit www.rockspring.com.

Posted by: In: Rockspring News 07 Feb 2012 0 comments

Rockspring Capital, a privately-owned real estate investment firm based in Houston, announced today the purchase of a non-performing note secured by a six-acre land parcel in Houston’s Texas Medical Center by one of its affiliates.

The investment was made on behalf of Rockspring Capital’s seventh fund, Opportunity Land Fund No. 7, L.P. The parcel is adjacent to another property owned by an affiliate of Rockspring Capital on Grand Boulevard, just south of Old Spanish Trail.

“The Texas Medical Center is one of the fastest growing employment centers in the U.S., and the bank sold the note to us because of our ability to close quickly with all cash, our local market expertise and our existing land ownership in the area,” said Jim McAlister IV, President and CEO of Rockspring Capital. “Once resolved with the borrower, this creative acquisition will provide a nice profit for our investors.”

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About Rockspring Capital

Rockspring Capital is a Houston-based land investment company founded in 1973, whose strategy is to acquire opportunistic land parcels and residential lots in high growth areas.  It also makes special situation bridge loan and note purchases on land-related assets.  Rockspring Capital acquires with all cash in markets within the “Texas Triangle” – Houston, Austin, San Antonio and Dallas/Ft. Worth. For more information about Rockspring Capital, visit www.rockspring.com.

Posted by: In: Rockspring News 07 Feb 2012 0 comments

(The New York Times) In most cities, companies are holding tight, mothballing office expansions and delaying new hires. But not in Houston.

Powered by a rise in oil prices and a shale exploration boom, Houston is the first major metropolitan region to regain all the jobs it lost in the recession. The region added about 76,000 jobs last year, according to the Texas Workforce Commission, and is on pace to pick up tens of thousands more this year.

Oil and gas companies, from the biggest names like Exxon Mobil to the smallest independents, are dusting off plans to expand, relocate or put up new buildings. Last year, 1.8 million square feet of commercial space was vacuumed up, and real estate brokers expect the same or greater this year. “No question, it’s energy,” said Jim Arket, a senior vice president at Grubb & Ellis in Houston. “That’s been the plus multiplier of Houston.”

The resurgence can be partly tied to the lifting in fall 2010 of the government moratorium on deepwater drilling in the Gulf of Mexico after the BP oil spill. The bulk of the gulf’s drilling and profits comes from those offshore waters. Shale drilling has also bolstered balance sheets.

Nexen, a Canadian company, is moving its American headquarters from Plano, Tex., to Houston after it received permits to restart deepwater drilling in the gulf. “Houston is quite clearly the place to be for a deepwater operator,” said Grant Dreger, the vice president for finance and administration at Nexen Petroleum U.S.A. “You have loads of deepwater talent, and it’s home to the majority of our joint venture partners.”

The office sales market, often a harbinger of future conditions, has picked up. After bottoming at an average $58 a square foot in 2009, sales prices for office buildings climbed to an average $224 a square foot last year, the highest in the last 10 years, according to Real Capital Analytics, a research and consulting firm. That is still low compared with Manhattan, where sales prices average $470 a square foot, and Washington, at $476 a square foot.

A Canadian real estate investment trust made local history in December when it purchased the Hess Tower downtown for $442.5 million, or $524 per square foot — the highest amount ever paid for a Houston office building. The 29-story tower, which was completed in June and had been leased to the Hess Corporation through 2026, was among the top 15 sales in the country last year, according to Real Capital Analytics.

“It matches up perfectly with what we’re doing,” said Thomas J. Hofstedter, chief executive of H&R REIT, the Toronto company that bought the Hess Tower. “Our focus isn’t energy; it’s high-quality tenants and long-term credit leases.”

Speculative construction has perked up, too, with more than a million square feet under way at year-end. There was little new construction for the last few years because of abundant space.

After a year’s delay, the Swedish construction giant Skanska broke ground in December on a 302,000-square-foot office tower, without a signed tenant. The 20-story tower, now scheduled to open in mid-2013, will cost $60 million to $90 million.

Skanska, which also bought a downtown office building and a suburban office campus last year, can afford to gamble because of its deep pockets. In four cities with strong leasing markets, Skanska said, it is investing at least $279 million in putting up office buildings without a tenant.

“Clearly, the story about the attraction to Texas is job growth,” said Michael Mair, an executive vice president and regional manager at Skanska in Houston. “Everyone is looking at Texas for opportunities, quality of life and affordability, and Houston is off the charts for every one of those items.”

With little construction and large blocks of space disappearing from the market, overall vacancy fell to 14.8 percent in the fourth quarter from 15.1 percent during the same period in 2010, according to Reis Inc. (Gains in the Class A market were affected by companies’ giving back Class B and C space and expanding.) Shell’s renewal of its lease for nearly 1.3 million square feet downtown was the biggest lease signed nationwide last year. BP added 305,000 square feet to accommodate employees relocating to Houston from outside Texas, among other things.

Small independents are also moving apace. Noble Energy, the first company to get a deepwater drilling permit in the gulf since the spill, is consolidating three offices into one with 400,000 square feet. An extra 100,000 square feet will accommodate future growth.

Still, Houston’s office market has not entirely regained its prerecession levels. At $24.33 a square foot in the fourth quarter, average asking rent has barely budged from the end of 2008, according to Reis. Vacancy at the end of the fourth quarter was higher than the 12.7 percent in the same period in 2008. Mr. Arket said the commercial real estate market usually trailed the overall market by six to 12 months and that vacancy would fall further, barring another downturn.

Energy companies are also being drawn north of Houston to The Woodlands, a 28,000-acre development with office, retail, medical and residential space. Over the last year, companies like Newfield Exploration and Talisman Energy have expanded offices or relocated there to be closer to employees.

But the blockbuster deal came from Exxon Mobil, which began erecting a campus on 385 acres abutting The Woodlands for the bulk of its local employees. The move will consolidate 8,000 workers in one spot when the estimated four million-square-foot campus is finished in 2015.

The land was purchased from CDC Houston, a subsidiary of the Coventry Development Corporation, which began construction on its own neighboring development, Springwoods Village, shortly thereafter. The 1,800-acre development is expected to have more than eight million square feet of commercial space, 1.5 million square feet of retail and hotel space and 5,000 residences.

“Obviously, Exxon’s selection of the land really validates the location,” said Keith Simon, a senior vice president and director of development at CDC Houston.

To view The New York Times article, click here.

Posted by: In: Industry Insights 03 Feb 2012 0 comments

(Houston Business Journal) Companies are shopping for land and moving forward with big development plans for new home lots to meet demand created by Houston’s thriving job market.

Developers of master-planned communities and residential subdivisions and homebuilders are getting active as the Houston market faces a diminishing supply of home lots in desirable areas, such as Katy, The Woodlands and Sugar Land, real estate sources say.

“There are no lots sitting around,” said Will Holder, president of Trendmaker Homes    in Houston. “They’re committed before they’re even developed.”

Five residential projects with 600 acres or more are currently on the drawing boards of five different developers, said land broker Kirk Laguarta of Land Advisors Organization    , who noted these are not extensions of existing master-planned communities. Another eight to 10 smaller residential subdivisions, with 200 acres or less, are also in the works, he said.

“The market is coming back big-time,” Laguarta said.

Developers are being cautious, but a lot are eager to get back in the game, said Ed Taravella, principal with Houston-based Taracorp.

“This is like a year of awakening,” Taravella said. “I’m working with some developers who are looking at bigger tracts.”

Once job figures are revised, Laguarta expects Houston will have added 100,000 jobs in 2011 instead of the 80,700 that were reported.

If Houston adds another 80,000 jobs this year, it will need approximately 30,000 to 32,000 new single-family homes and 12,000 to 15,000 new multifamily units to accommodate the growing population, said Laguarta, who speculates the current level of new job activity is bringing 140,000 to 150,000 people to town each year.

The Houston region had 18,500 home starts in 2011, but only developed 13,500 home lots — a deficit of 5,000 lots, according to Houston-based Metrostudy research firm. That followed a shortfall of 10,000 home lots in 2010. And Metrostudy projects 20,000 new home starts in 2012.

“There are currently not enough lots under construction to meet current demand,” said David Jarvis, Metrostudy’s Houston director. “We need these deals to get done.”

It takes 12 to 24 months to get a new lot ready from the time the land is purchased.

“Keep in mind, we’re making sausage,” said Laguarta. “It takes a year to make sausage.”

Some of the projects in various stages of development:

• Cane Island, an 820-acre tract in the Katy Independent School District, is under contract to an undisclosed developer. David Minze, the primary landowner of the acreage, has done entitlement work on the property, said Lance LaCour, CEO of the Katy Area Economic Development Council. Minze created a land plan for a community called Cane Island that would have nearly 2,000 single-family homes, an elementary school and commercial acreage. The Katy area was called “Cane Island” before it was the city of Katy.

The acreage is being marketed by Laguarta and Duane Heckmann of Land Advisors Organization.

• A 1,100-acre tract, the former clay mining site for cement-maker Texas Industries Inc.    (NYSE: TXI), is back on the market after an attempt to develop the property as TerraVista Lakes did not come to fruition. Laguarta, who represents the land owner with Heckmann, said he is negotiating a letter of intent with a buyer on the 627-acre residential portion of the property. Grubb & Ellis Co.    has the listing on the approximate 470 acres of property earmarked for commercial use.

The Fort Bend County land is between Harlem Road and FM 1464, south of the Westpark Tollway and east of the Grand Parkway.

• Legacy Trust Co. NA owns a 1,100-acre tract poised for future development in the Magnolia area. Houston-based Legacy Trust was originally created by the family of Hugh Roy Cullen, the Houston wildcatter and entrepreneur who became one of the richest men in America. But the firm has evolved into a full-service trust company with $1.5 billion in assets that also manages other people’s money.

Legacy Trust added the large land tract into Magnolia’s extraterritorial jurisdiction late last year, said Deborah Rose Miller, economic development coordinator for the city of Magnolia. Two upcoming road projects by the Texas Department of Transportation    will increase mobility to the property.

“Legacy Trust is not moving forward currently with the development,” said consultant Roger Galatas, who spent 20 years working with The Woodlands Development Co.    “They’re waiting on the market to come back.”

• McKenzie Park is a new residential community in The Woodlands area being built by KPS Land Investment. Home lot development is scheduled to start in April or May, with delivery planned in December. The 193-acre development, which will have 294 homes lots, is west of Springwoods Village and north of the future Grand Parkway.

“McKenzie Park is in a very hot area,” said Perry Senn, president and owner of KPS Land.

• Lennar Homes of Texas Land & Construction Ltd. bought nearly 110 acres in the Katy area in December from Woodcreek Green Meadows 1 Ltd. The tract includes the former Green Meadows golf course in Katy that closed in the 1990s.

Robert Anthony with Landstar Realty Advisors Inc. represented the seller, while Lee Jones with Betz Commercial Brokerage Inc. represented the buyer.

Lennar plans to do a single-family development on the site, said Jones, but final plans are not complete.

• Austin-based Legend Communities is paying an undisclosed amount to BBVA Compass bank    for Harborwalk, a stalled residential development in Hitchcock. The 9-year-old property was originally designed for 700 homes, but fewer than 70 have been constructed, according to Philip Jalufka, president of Austin-based Legacy International Resort Properties, which will market homes in Harborwalk for the new owner.

After the acquisition closes this month, Legend plans to spend more than $2 million on new amenities and increase the number of boat slips at the marina from 167 to 400, Jalufka said.

To view the Houston Business Journal article, click here.

Posted by: In: Industry Insights 18 Jan 2012 0 comments

(Houston Business Journal) Houston not only beat every other large metropolitan area in the U.S. in terms of the world’s fastest-growing economies, but it also topped all other large metropolitan areas in the eastern hemisphere, according to a report from the Brookings Institution released on Wednesday.

Houston ranked No. 19 on Brooking’s Global MetroMonitor report, which analyzed large metropolitan areas’ gross domestic product, employment, income and population rates.

Although Houston fared well — the report found income increased 5.5 percent and employment increased 2.5 percent since 2010— almost all other North American markets fell in the rankings.

This is part of a worldwide trend, as more market growth shifts to developing economies in Asia and Eastern Europe, the report found. Surprisingly, half of the 40 weakest metropolitan markets were either in the U.S. or the U.K.

Dallas was the only other U.S. market to get a strong economic growth ranking at No. 36.

The other markets that beat Houston were mainly in China, Saudi Arabia and Turkey, which all had multiple cities in the top 10 ranks.

To view the Houston Business Journal article, click here.

Posted by: In: Industry Insights 25 Nov 2011 0 comments

(Real Estate Center at Texas A&M University’s Tierra Grande by Ali Anari and Mark G. Dotzour) While making presentations across Texas, Real Estate Center researchers frequently are aware of high-networth investors in the audience. These people may live in New York City, Miami or San Diego, but they invest in Texas real estate.

Why do investors find Texas so attractive? Let us count the reasons: (1) Texas is leading the United States in the current economic recovery, (2) Texas’ economy is big and growing, (3) Texas’ economy is profitable, (4) Texas has a growing population, (5) Texas’ economy is an international economy, (6) the tax burden is less in Texas, (7) Texas has an affordable housing sector, (8) Texans have entrepreneurial spirit, and (9) Texans are mobile.

1. Texas Leading Nation in Economic Recovery

The Great Recession ended in June 2009, according to the Business Cycle Dating Committee of the National Bureau of Economic Research. The committee noted that “a trough in business activity occurred in the U.S. economy in June 2009. The trough marks the end of the recession that began in December 2007 and the beginning of an expansion.”

The Texas economy suffered less in terms of lost jobs and outputs in the Great Recession than the nation as a whole. The duration of the recession, measured by the number of months of job losses, was shorter for Texas while the intensity, measured by the highest job loss rate in the trough month, was smaller for Texas than for the nation.

While the U.S. economy experienced its first month of job losses in May 2008, Texas continued to create jobs for eight more months, until January 2009. The state’s economy posted job losses for 16 months, from January 2009 to April 2010, compared with 28 months for the nation, from May 2008 to August 2010. The largest year-on-year annual job loss rate for the United States was 5.1 percent in August 2009; it was 4 percent for Texas that month.

The state’s private sector suffered 17 months of job losses with a trough of 5 percent job loss in August 2009 compared with 28 months of job losses and a trough of 5.9 percent in June 2009 for the nation.

Academics and policy makers will be debating the causes of the Great Recession for many years. Increases in the Federal funds rate from 1 percent in 2003 to 5.2 percent in 2007, the increase in international crude oil prices from $20 per barrel in 2001 to more than $130 per barrel in 2008, the housing price bubble, misguided macroeconomic policies, and the collapse of the U.S. financial system have all been suggested.

Whatever the causes, consumers and producers responded to the recession by postponing their investment and consumption plans and waiting for signs of economic improvements. After all, past economic recessions and depressions have ended in periods of economic recovery, and the recent recession, no matter how deep, is not an exception.

The postponement of investment and consumption has created pent-up demand for goods, services and quality investments, not just for distressed properties. In the short run, meeting this demand for goods and services can lead to a consumption boom, resulting in more investments in various parts of the U.S. economy. If this leads to more employment, that is, if employers increase output by employing more people, then the short-run gains in the economy can lead to economic growth in the long term.

Several indicators suggest that Texas is a promising region for more investment, economic growth, and higher profitability thanks to a combination of favorable human resources, natural resources and its legal and policy environment. The state’s economy proved resilient in the Great Recession, and now is leading the U.S. economic recovery. From August 2010 to August 2011, the U.S. economy added 1,282,000 jobs, 271,400 of which, or 21.1 percent, were generated in Texas.

2. Texas’ Economy is Big and Getting Bigger

With a gross domestic product (GDP) of more than $1.2 trillion, Texas’ economy was the 14th largest in the world in 2010. It was the second largest economy in the nation in 2010, larger than New York’s. The state’s GDP accounted for 8.3 percent of U.S. GDP compared with 13.1 percent for California and 8 percent for New York.

A growing economy offers more job opportunities and attracts more population, leading to further growth in the regional economy. By offering more investment opportunities, a growing economy can further promote growth and development. Revenues generated by a growing economy enable local and state government to impose lower taxes.

Texas’ share of U.S. GDP increased from 7.3 percent in 1997 to 8.3 percent in 2010. The state’s share of total personal income (wages, salaries, interest and dividend incomes) generated in the U.S. increased from 6.7 percent to 7.9 percent during that period.

Higher output growth rates mean more jobs. Texas’ share of the nation’s nonfarm employment increased from 7 percent in August 1997 to 8.1 percent in August 2009.

3. Texas’ Economy is Profitable

An economy’s pro!tability on a macro level can be measured in terms of a macro pro!t margin. Private sector GDP consists of compensation of employees, taxes and subsidies, and gross operating surplus (pro!ts). The percentage of private sector GDP accounted for by gross operating surplus is an important indicator of pro!tability of an economy.

In 2009, gross operating surplus in Texas accounted for 40 percent of the state’s private sector GDP compared with a national average of 37.5 percent. This means Texas businesses are more pro!table.

4. Texas’ Population is Growing

A growing population, particularly if well educated and sporting an entrepreneurial spirit, is an important part of the economic infrastructure. On the demand side, a growing population boosts the need for goods and services, especially housing units, which in turn leads to more economic growth and higher pro!tability.

On the supply side, population is the source of labor inputs for an economy. A growing population means the availability of more labor inputs and fewer constraints on economic activities.

The share of U.S. population living in Texas has increased from 7.4 percent in 2000 to 8.1 percent in 2009. Population studies at the Real Estate Center have shown that the annual growth rate of the state’s population is expected to exceed the national average in the foreseeable future. State demographers have estimated that the Texas population could grow by 12 million from 2010 to 2030.

5. Texas’ Economy is International

Texas is an important player in the nation’s international trade. Total exports via Texas in 2009 were nearly $163 billion, accounting for 15.4 percent of U.S. exports.

The state alone exported more than $1 billion to 25 countries in 2009. Mexico received 34.4 percent of Texas exports in 2009 followed by Canada (8.5 percent) and China (5.5 percent).

6. Tax Burden is Less in Texas

In 2009, state and local taxes paid by Texans accounted for 7.9 percent of the state’s per capita income, compared with 9.8 percent for the nation.

7. Texas Has Affordable Housing

The average price of an owner-occupied housing unit in Texas in 2009 was $125,800, about 68 percent of the national average. Affordable housing is an important factor in attracting population to the state and expanding the state’s economy. The lower cost of living allows wages to be lower, which helps Texas businesses remain globally competitive.

8. Texans Have Entrepreneurial Spirit

New business creation and expansion of existing businesses through innovation and creativity drive economic growth. The percentage of adult, nonbusiness owners who start a business each month is a signi!cant measure of entrepreneurial activity. Another key measure is the number of entrepreneurs per 1,000 adults.

According to the Kauffman Index of Entrepreneurial Activity, Texas ranked tenth in entrepreneurial activity (400 per 100,000 adults) in 2010 compared with 340 for the nation.

9. Texans are Mobile

Free movement of labor and capital not constrained by language and cultural barriers in various regions of the U.S. economy promotes balanced economic growth and development. One measure of labor mobility is the percentage of people one year or older who lived in a different house in the United States one year ago. In 2009, about 17.4 percent of Texans one year and older lived in a different house one year ago compared with 14.9 percent for the nation.

High mobility makes it easier for people to move away from places with fewer economic opportunities to places where opportunities are greater.
Texas is Built for Business

Texas is an attractive place for real estate investors. It works hard to stay “business friendly,” and the state’s economic environment supports businesses as they compete in the global economy.

Dr. Anari (manari@tamu.edu) is a research economist and Dr. Dotzour(dotzour@tamu.edu) is chief economist with the Real Estate Center at Texas A&M University.

To view the Tierra Grande story with its figures and tables, click here.

Posted by: In: Industry Insights 23 Sep 2011 0 comments

(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.

To view the Houston Chronicle story, click here.

Posted by: In: Newsletter 15 Sep 2011 0 comments

By Jim Hynes

Managing Director                                                                                                                            

We have been traveling the country these past months making the case for investing in Texas land.  Obviously we are biased, but when you step back and look at the two basic criteria of any investment decision – supply and demand – Texas land is a very compelling investment.

As illustrated in the graph below, prepared by our third party economist at Metrostudy, Texas land is currently at a point where most investors dream of – the bottom of the barrel for supply with demand still increasing at a rapid pace.

index

The supply side of the equation, depicted by the black and red lines, shows vacant lots delivered and then absorbed by builders for residential construction.  It reveals that these lines are not only highly correlated with each other, but also with population.  In 2006, there was a significant drop in supply due to the national mortgage meltdown and inability of home builders and buyers to get loans.  Then in 2008 these metrics inverted, resulting in the unique situation of more land being absorbed by builders for new homes than lots being delivered – an incredible shortage of supply!

The demand side of the equation denotes the state’s population increasing each year over the past decade and how it is projected to continue through 2015 and beyond.  You would think from the graph that millions of people just packed up and moved out of Texas, but it was not the case – the growth has not slowed down one bit, resulting in a pent-up demand for quality land.

We are very confident that land will return to its historical correlation levels with the explosive population growth in Texas.  These fundamentals are at the core of our investment strategy – opportunistically buying well-located land sites from distressed sellers