Real Estate Forum - April 2012

NEWS FRONT
Moving Toward a Greener Texas

AUSTIN, TX—Mention the word “Texas” and what might come to mind are cowboys, wide-open spaces, dry heat...and oil derricks. Texas is known for bringing oil up from the ground—but experts point out that Texas also has a focus on sustainability initiatives and, to an extent, alternative fuels.

Austin is at the forefront of a sustainable vision for the Lone Star State; in 2007, the city’s controversial mayor Will Wynn oversaw passage of a resolution dubbed the Energy Conservation and Disclosure Ordinance. This outlined sustainability mandates for everything from homebuild-ing to energy use in commercial real estate to use of alternative fuels. The goal is a 35% use of renewable energy by 2020.

John Sutton, BOMA Austin’s Energy
Sustainability Committee chairman, says
that even before these issues were formal-
ized through a municipal ordinance, conser-
vation was on everyone’s mind. “Before it
became popular, we had groups intent on
protecting the Edwards Aquifer,” he says.

Sunbelt Land Trends: Mixed Signals, Infill Hot

Hints of growing confidence in the US economy offer hopeful signs across many real estate segments, including land. Even so, restoring balance to the oversupply of development-ready land will require smart development decisions, as well as time.

Land transactions have gained momentum, especially across the major metro areas of the Sunbelt. Some properties in play are distressed; many are not. Underlying demand is driving long-term landholders, who have been waiting for a positive turn in the market, to put their land in play—especially throughout Texas, Tennessee, Georgia and the Carolinas. Furthermore, infill tracts are the hottest land category.

The strong preference for infill development stems from multiple factors, one of which is current available capital. Financial partners and investors want results from projects as soon as possible, and infill land provides those results as it is, more often than not, infrastructure ready. As an asset class, land is generally out of favor with most large, federally-regulated banks as the FDIC seems to be pressuring them to push land off their books. Still, specialty land lenders, such as Stratford Land for larger deal financing and community banks for smaller parcels, are more likely to be receptive to business plans for infill development.

The most powerful determinants driving large-scale land utilization are housing demand supported by job creation and consumer confidence. Though employment numbers and resulting consumer sentiment suggest slight improvement, housing signals are mixed.

Fourth-quarter 2011 GDP growth was revised upward as con-

By David Moore

sumer confidence increased to its highest level during the year, according to ULI’s Real Estate Business Barometer. In the single-family industry, both permits and starts reached a 20-month high. More recently, reports point to stronger employment and growing consumer confidence, suggesting that the housing market might be coming to life.

Despite this, the number of first-time home buyers continues to lag behind the six-million-per-month level many economists consider to be normal, due at least partially to more stringent qualifying requirements for mortgages. Consensus about housing market momentum is further blurred by reports that new home sales actually dropped 1.6% in February, a decrease of nearly 7% since December, as published by the US Department of Commerce in March 2012. Clearly, the housing market has not yet stabilized nor recovered, though there are modest hints of coming improvement.

Because of these mixed signals on the housing side, widespread stabilization of land development on the commercial side (as well as the residential side) will require years. Land usage is the most basic component of any development cycle, but the seeming simplicity of investing in land is deceptive, particularly facing such contradictory fundamentals. More than ever, the future for land investors and developers relies heavily on the quality of their acquired assets, the strength of their specific markets and the amount of leverage used, as well as their creativity, patience and staying power.

David Moore is director of investments for Georgia, Tennessee and the Carolinas at Stratford Land, based in Dallas. He may be contacted at dmoore@stratfordland.com. The views expressed here are the author’s own.