Archives

Real Estate

December 7, 2018

Volume 40, Number 35

Its common these days for glowing national articles to be written about Austin.  So when an opinion piece in a respected national publication criticizes actions by Austin, you need to be aware of what is being said.  Within the past week, The Wall Street Journal (WSJ) wrote the City of Austin risks becoming the San Francisco of the South an expensive playground for wealthy progressives.”  And it cited examples.

 “It would be hard to find a better example of left-wing naiveite in municipal affairs than what transpired here in November,” wrote the WSJ in its opening sentence.  “Voters in the Lone Star State’s progressive bastion overwhelmingly approved a $925 billion bond package, but rejected a simple ballot initiative for an independent audit of city spending.” “The defeat of the audit wouldn’t be so galling if the new bonds didn’t so obviously demonstrate the need for an independent review of Austin’s books.  Spending in the Texas capital is more like what one would expect in some profligate California city,” observed with WSJ.  “With this new bond package, Austin has been reduced to using debt to fund parks, public safety and sidewalk repair instead of paying for them out of its $4.1 billion annual budget.”

It cited other examples saying Austin “spends too much of its steadily growing budget on dubious social programs and utopian schemes, financed by a steadily growing tax burden.”  It ticked off actions such as mandatory paid sick leave “with an exemption, of course, for union shops.”  A solar-ready requirement for all new homes and commercial buildings was another example, as was “exorbitantly high development fees that get passed on to consumers.”

The priority of the citys ultraprogressive political establishment is to serve the interests of the wealthy, ultraprogressive white people who fund and elect Austins insular political class,” claims the WSJ opinion piece.  “As living here gets more expensive and as the city’s elite dig in to protect their left-wing haven from disruption and change,” it becomes more like San Francisco.  Tough talk.

Let’s put this in perspective.  Readers of the WSJ can agree or disagree with this assessment.  This is not the point.  The pointthis review of the City of Austins governing policies is now out there for all to see.  In a respected publication. Read More

November 30, 2018

Volume 40, Number 35

Dear ,

As we move into December its time to look ahead to 2019.  This is especially true when you single out real estate an essential portion of the Austin economy.  It also affects personally so many residents of the fast-growing 5-county Austin metro area.  So, what can you expect to happen next year?

The Urban Land Institute and PWC’s Emerging Trends in Real Estate:  2019 gives high marks to the Austin area and to Texas’ major metros.  In fact, Austin ranked #6 in the study, but it took a back seat to #1 Dallas/Fort Worth.  San Antonio ranked #20, while Houston ranked #37 in the review of the nation’s major markets.  These strong Texas cities have a significantly higher percentage of a younger population than the rest of the US.  This means there should be strong labor force growth and productivity.

As a result, demand for housing in these Texas markets is expected to remain strong through 2019,” Dillon Cook, founding partner and COO with Range Realty Advisors (RRA), told GlobeSt.com.  “Also Millennial demand for housing in these Texas markets is expected to continue for many years as a growing share get married, attain higher income levels and have children.”

There’s more to this positive real estate outlook than just demographics.  “Housing demand continues to be fueled by relatively low interest rates, low unemployment and continued economic growth,” Cook pointed out.  And Austin is among the nation’s leaders in these categories.

Yeah, but, what goes up must come down, right?  This may be true, but it’s all relative.  Range Realty Advisors points out “the ups and downs of economic cycles can vary substantially globally, regionally and by state.”  Cook says it is entirely possible the next nationwide economic downturn will look and feel very different in Texas compared to other states. In previous economic downturns, there have been several causal factors – rampant speculative development for oneIn Austin most speculative real estate development is leased/sold as soon as its finished.  There are other national and international factors that are not currently apparent.  Conclusion:  “Add to this strong economic and job growth, high level of consumer confidence and business investment, and many believe Texas will continue to be a magnet for real estate investors and developers for years to come,” notes RRA. Read More

November 9, 2018

Volume 40, Number 32

Austins reputation as a home for heavyweight companies of the future is well-recognized and well-deserved.  After all, when you start calling the roll of Austin majors Dell, Google, Apple, Facebook, Indeed, 3M, etc., its hard to know where to stop.  The list is long and impressive.  But what about smaller enterprises that could be the biggies of the future?  Where does Austin stand as the site for startups?  New information late this week:  startups accounted for a larger share of businesses in Austin than in nearly all major US metros in 2016.

Young companies account for a larger share of businesses in Austin than in nearly all other major US metros.  So, it’s important to note that for the first time, the Survey of Business Owners compiled as part of USCensus Bureau data, included data regarding the number of years a firm has been in business.

Here’s how the numbers break out.  Take the newbies, those firms with less than 2 years in businessAustin with 4,444 companies, or 11.6% of all employer firms, ranks #3 in the nation, behind #1 Las Vegas and #2, Orlando.

Those Austin companies that have been in business a little longer, but less than four years, break out this way:  10,807 Austin businesses, or 28.1% of employer firms, place Austin at #2 in the nation, behind #1 Las Vegas.

And the oldies?  Austin firms in business less than six years15,077 Austin businesses, or 39.3% of firms, place Austin at #2 in the nation, behind #1 Las Vegas.

How did other major Texas metros fare in this review of the 50 largest metros in the US, in business less than 6 years?  The Dallas-Ft. Worth metro was 5th in the nation, Houston was ranked #10 and the San Antonio metro was 13th in the US.

In the past, Austin has been noted as a good place to start a company.  After all, Dell started in a UTAustin dorm room.  But, this is the first report putting precise numbers to the entrepreneurial environment in this area.  This late report came to us from the Austin Chambers VP/Research Beverly Kerr.  Her analysis goes much deeper by the way.  For instance, she breaks it down by women-owned firms, minority and veteran entrepreneurs.  And she reports on Austin’s #4 US 2016 ranking for firms receiving significant funding from outside investors. Read More

October 19, 2018

Volume 40, Number 29

UTAustin is without doubt one of the Austin areas most important economic engines.  (Years ago we made a speech titled If you want to stop growth in Austinmove the university to Amarillo!”)  So,how is UTAustin doing?  Especially, how does it compare with other peer institutions?  In the world?  How about this UTAustin rose ten points to be ranked #39 worldwide by one of the most respected global rankers of universities.  Impressive.

The editors of Times Higher Education World University Rankings (THEWUR) singled out Yale University and UTAustin for making major advances this year.  It attributed UTAustin’s leap to “significant increases in its institutional income and research volume.”  The ranking relies on a combination of reputation surveys and quantitative metrics in five areas:  teaching, research, research citations, international outlook and industry income.

It’s difficult to get detailed information on the specifics underlying THEWUR’s ranking but, according to UTAustin, it “correlates with recent expansions in research funding, research reputation and academic reputation.”

UTAustin ExecVP/Provost Maurie McInnis said investments in faculty compensation and interdisciplinary research, combined with the addition of the new Dell Medical School, are enhancing UTAustins research impact.  (If memory serves us correctly, UTAustin’s rankings have suffered in the past because most peer institutions boasted medical schools.)

And UTAustin’s future appears even brighter.  McInnis said “by placing greater emphasis on doctoral programs and strategic hiring, the university aims to become even stronger in years to come.”

Other Texas universities placing in the ranking include Rice University (#86), TexasA&M (#159) and UTDallas(lumped into a range of #201-#250).  UTAustin has done well in several other global rankings:  Center for World University Rankings, #31 … USNews&World Report’s latest ranking of Best Global Universities (#32) and Nature Index’s ranking of #23 in the world for scientific research. As its stature grows nationally and worldwide (and this growth is expected to continue surging), UTAustin enhances much of what makes Austin, Austin. Read More

October 12, 2018

Volume 40, Number 28

Its a rare sight in Austin:  powerful activist environmental interests disagreeing among themselves.  Usually the environmental community leaders in Austin publicly march in lock-step -- fighting for or against the same issues.  Not now.  Distinct lines have been drawn over an issue that will be on Austin ballots November 6th.  Which side prevails may go a long way toward defining the shape of Austins growth.

The ballot item is Proposition J.  Huh?  What’s that?  Simply put, it would require any comprehensive change to Austins land use rules go to voters for approval.  Just getting on the ballot was controversial.  It took a grass-roots effort to bypass the Austin City Council to get Prop J on the ballot.  This grew out of the CodeNEXT development rules process that inflamed such strong opinions, it was ultimately abandoned. So, how has this pitted Austin environmental leaders against each other?  We need to credit Mose Buchele, an award-winning reporter for KUT-FM, for bringing this to our attention through his writing in Austin MonitorIt boils down to differing environmental philosophies as they relate to growth and climate change.  How so?

If Proposition J passes, then the voters will have the right to check the Councils work if we resurrect CodeNEXT and we have a comprehensive rewrite of our Land Development Code,” longtime environmental activist Bill Bunch argues.  Arguing against passage of Prop J is the director of Austin-based Environment Texas, Luke Metzger.  Where do they differ?

Bunch opposes development being shoved into the Central city where you would “scrape our existing city neighborhoods and try to force it on top of existing communities.”  He doesnt like adding density in downtown Austin and wants growth moved away from the city core.

Metzger disagrees:  “Are we going to increase sprawl, increase traffic, or are we going to do it in a much more walkable, transit-friendly way and bring people into the city core?”

They both cite strong, passionate environmental reasons for their approach.  Itll be interesting to see which approach prevails in this environmentally-centric Austin community. Read More

September 28, 2018

Volume 40, Number 26

Dear ,

Within the next few weeks, Capital Metro is planning to unveil an ambitious, long-term plan to bring high-capacity public transit to the Austin metro area.  What form will it take?  Well, thats what will be revealed.  Project Connect could include any, or all, autonomous buses, light rail, extensive expansion of the existing MetroRapid bus service, or other rapid bus service.  It could be a big deal.  And highly controversial.

Big – because the plan would probably propose a system so large it will provide a major alternative transportation mode attractive to motorists who currently drive city streets.  Controversial – because it will likely result in the removal of car lanes.

Underlying whatever is proposed may be the biggest concern of all:  which routes will the system run along, and importantly, what dedicated right of way will be needed?  Remember Capital Metro doesn’t have jurisdiction over roads their vehicles use.  In other words, CapMetro can’t dictate what happens to acquire needed right-of-way.  These roads either belong to the city, county or state.

Why right-of-wayWithout it, buses simply line up in the same slog cars get bogged down in.  Okay, what about light rail?  Well, in most cases, you would probably convert vehicle lanes to rail lanes.  You would likely also build boarding platforms in the middle of roadways.  Again, right of way problems.

For a transformative transit system to be successfully instituted, you will need leaders of differing governmental entities heavily involved, making serious decisions – and, in some cases, probably angering some of their constituents.  Complicated?  Oh, yeah.

And cost?  No estimate yet.  But local leaders like to look to Seattle and other similar cities for examples.  Seattle committed several billion dollars to convert a major downtown artery entirely to bus serviceIt runs as many as 200 buses an hour on the roadway.  It worked.  Seattle has seen a major reduction in car use.  But, at what price in dollars and to auto mobility?

What can you expect?  First of all, this is – as we said – ambitious planning and it is very, very long-term.  CapMetro will likely take the first public step within a few weeks to begin a more extensive planning and coordination effort.  The implications are huge.  Stay tuned. Read More

September 14, 2018

Volume 40, Number 24

The Texas economy especially as it impacts the Austin area is so strong it has triggered an action not taken in 30 years.  State government, so important in Austin, is benefitting significantly from what is happening throughout the state not to mention the impact of the red-hot Austin economy.  All this is due to better-than-expected economic and revenue growth around Texas.

We’ve long maintained the Austin area is uniquely positioned economically.  Steady government paychecks provide a solid underpinning for the area.  In general, these jobs are not subject to ups-and-downs or twists-and-turns of the private sector.  So, add to this, the Silicon Hills of Austin is right now riding the crest of tech-driven private sector job growth, that is the envy of the rest of the nation.

Consider this:  the sky-rocketing Austin private sector tech economy is set to get a rocket-boost from normally-staid state government.  What?  How’s this?  The Texas Legislature that sets budget parameters for the many state agencies in Austin doesn’t even meet for almost four months.

Texas Comptroller Glenn Hegar, by law, is the state official who decides money guidelines the legislature must follow.  He says to legislators “this is how much money you will have to spend during the next two years of the biennium and you cant spend any more than that.”  Last October, he issued his forecast for fiscal year 2019.

For the first time other than a legislative session in 30 years, the State Comptroller has increased his certified revenue estimate he made last October.  And it was a big increase.  Remember, the Texas Legislature meets only once every two years for 140 days.  So its a big deal for setting a two-year budget.

His reason for saying state agencies will have more money to spend starting in 2019 than earlier predicted are several fold:  sales tax revenue is up 10.5% over FY 2017 … oil/gas natural gas production tax revenue is up 56.1% … general revenue-related revenue, up 9.3%, etc.

The legislature will have more money to dole out.  If state agencies get bigger bucks, it will mean bigger paychecks circulating through the Austin economy.  A nice future boost. Read More

September 7, 2018

Volume 40, Number 23

For a year now, the Austin area has been considered one of the favored locations for Amazons 50,000-person second headquarters, Amazon HQ2.  Still no public word on when Amazon will announce its next step.  A $5 billion investment in the HQ2 city, spread over 10-20 years, has many cities salivating.  In fact, it has been said a prosperity bomb will be dropped on the ultimate HQ2 city.  How can the Austin area prepare for such an event?

Austin’s proposal has not been made public, but several cities have revealed proposals that have incentives valued up to a billion dollars.  Hey, they probably figure, if we invest a billion dollars for a $5 billion returnits worth it.  Don’t know if this was their logic. But it emphatically emphasizes the humongous aspect of Amazon HQ2.  Amazon estimates it generated $38 billion in economic activity in its home base of Seattle between 2010 and 2016.  Okay, so HQ2 will be big.  Really big.

Washington, DC-based think tank Brookings Institution in a new study examined how the city that wins Amazon HQ2 could ensure its arrival does not rapidly drive up housing costs – an important element in the Austin area economy.

Brooking’s Joseph Parilla said this “should include not only stimulating new market-rate development through zoning, but also setting aside some of the tax revenue generated by Amazon to fund and preserve affordable housing.”

Other than housing, Parilla said Amazon should invest in local business initiatives, such as a startup accelerator and should source services and goods from resident suppliers.  And, the new HQ2 city should prepare existing residents to take advantage of employment opportunities created by Amazon.  In other words, the “diversity of the entire region” should be brought into play in business planning around Amazon.

Back to housing for a moment.  In Amazons HQ1 city, Seattle, the cost of housing has outpaced wage gains.  While the income of families at the 20th percentile of the earnings distribution grew by 14% between 2014 and 2016, rents increased at 19%, according to Zillow.  Sound familiar?  If Austin is selected for HQ2, Amazon will be on familiar territory and should work with Austin to alter such an imbalance. Read More

August 24, 2018

Volume 40, Number 21

Things are going so well in the Austin area right now you might be tempted to pinch yourself to see if youre dreaming.  This is especially true if you happen to remember two past disruptions that caused some serious damage the dot-com bust and the real estate recession.  They occurred in Austin less than 20 years ago.  And, they were like a slap upside the head.  A lot of people and companies were seriously hurt or even destroyed.

This report is not intended to be a downer.  And it’s not a dull recitation of local history.  But, there are so many new residents in the area, it might be helpful to remind them they have arrived at a great time.  Those who have lived/worked here for at least twenty years have vivid memories of when times were not-so-great.  And, more importantly, many of those who survived those times are responsible for Austin’s economic success stories today.

Think about this.  Roughly a million people have moved into Austin and the surrounding areas in the 5-county metro during the decades following the two downturns.  They didn’t experience the hard times.  All they’ve seen is one of the most amazing periods of expansion experienced by any major world city.

Many of these new residents are pulling down compensation greater than those who were hammered by the downturns.  A lot of them are living and/or working in gleaming, modern towers downtown – or, in new office buildings, apartments and homes outside the Central Business District.

The downtown newbies probably can’t comprehend “see-through office buildings, where three million square feet of office space had to go begging – even though the spaces were cut-rate subleases from leases businesses committed to prior to the recession.  This is as much space as six Frost Bank Towers!

Here’s one example that vividly illustrates the contrast between then and now.  Drive to Fifth and San Antonio Streets downtown.  Marvel at the architecturally-significant Federal Office Building that will still be standing on that site a century from now.  At one point, global semiconductor chipmaker Intel started building a $124 million tower on that site.  Then as the dot-com debacle hit, Intel pulled the plug half-way into the project in March 2001.  For six years, the “Intel Shell” reminded all of what might have been.  The takeaway:  Recent residents will do well to understand what they have inherited.  This is a special place. Read More

August 10, 2018

Volume 40, Number 19

If you look at the calendar with eyes that have some economic development expertise, you can logically assume Amazon will soon publicly announce the next big step in the selection of a city that will be its choice for its second headquarters, Amazon HQ2.  In January, 20 cities including Austin were told they made the cut from 238 original submissions.  Since that time, Amazon has made no public utterance.  But, its self-imposed deadline is nearing.

Don’t expect Amazon’s next announcement to be the city.  Amazon initially said it will decide the HQ2 city in 2018.  But, if Amazon follows standard site selection procedure, a handful of finalist cities will be revealed a Final Four,” or some small manageable number.  Winnowing down the smaller number to the “winner” will probably include further site visitations, negotiations and a comparative analysis.  This could take a few months.  And by this time, Amazon’s own deadline will be upon them.  For these reasons, you can expect the final cut of cities should be announced sooner rather than later.

Amazon earlier confirmed site selection teams visited all 20 cities.  The visits were very private.  Even some city officials didn’t know they were in town.  And those who met with the site selectors were asked to sign confidentiality agreements.  Even the HQ2 team members didn’t reveal their full names.

This, by the way, is the norm for most economic development visits, though usually it is to make sure the company’s competitors are not aware of their plans.  However, in this case there are no competitors.  Amazon announced it would invest about $5 billion in the chosen city, and HQ2 would grow to about 50,000 new high-paying jobs over the years.  Amazon HQ2 has no peer.

The Austin and Dallas regions were the only two Texas sites among the 20 that made the first cut.  And, an Amazon team not only visited these sites, they also met with the Texas governors office to gauge the states role.  So, make no bones about it, Texas’ no-income-tax, low-regulations, business-friendly-leaders add tremendous clout to local presentations.

A final note about Austin’s chances:  from Day One, Austin Chamber of Commerce officials who guided the Austin effort, have used the phrase Austin Region” – not City of Austin.  So, if Austin makes the “Final Four” – and it is considered one of the favorites – dont be surprised if the physical location is outside Austins city limits. Read More