San Antonio is working hard to expand its economy, and it is achieving impressive results. The luxury multifamily housing market is thriving alongside the city and is creating opportunities for investors to enter a rising market.
San Antonio Rolls Out the Welcome Mat
On December 6, 2017, San Antonio city officials were delighted to announce that locally based Fortune 500 financial services giant USAA would expand its workforce in the city by 1,500 people and move 2,000 more employees into buildings it already owns in the city center. This comes on the heels of the decision by Santa Monica-based streaming television service Hulu to open its viewer experience operations headquarters in San Antonio, which will create 500 jobs.
Both moves were encouraged by financial and tax incentives. USAA will receive a $4 million economic development loan and a tax abatement of up to $2 million. In turn, the company has agreed to make $70 million worth of improvements to its buildings. Hulu received a six-year, 100% tax abatement worth about $279,000, as well as a ten-year, 90% county real and personal property tax abatement worth an estimated $403,000. The state-funded Texas Enterprise Fund also pledged to give the company a $1.28 million cash grant. Hulu will invest upward of $13 million in its new headquarters. According to a company executive, Hulu had considered 23 cities before choosing San Antonio, which was “in the top group of cities from the beginning.” The city is tracking toward 3% job growth in 2017.
Although San Antonio has a long history of incentivizing development, the process has gathered steam as the city’s population and economic activity increases. San Antonio has been growing at about 2% annually since 2012. It boasted the third largest numerical population growth in the country in 2016, adding 24,473 people for a total population of 1.5 million. The city is taking wide-ranging measures to accommodate further growth. Water mains are being laid, for instance, in areas not yet developed.
San Antonio Multifamily Housing Market Sets New Price Records
Multifamily real estate developers have also enjoyed the largesse of incentives. In a notable example, a developer received $5.9 million in tax reimbursement, $1.1 million in fee waivers, and a $1 million potentially forgivable development loan in the summer of 2017 to build a 21-story mixed-use building across from City Hall, with 305 luxury apartments and condominiums valued at $83 million. Construction of this project, Kallison Square, is set to begin in the spring of 2018.
The city also offers incentives for environmentally friendly building practices. Those incentives amounted to $100,000 for one luxury multifamily building going up in central San Antonio, which included such features as greenery on the walls above the entrance.
In November 2017, 16 communities totaling 4,397 units were under construction in the San Antonio metropolitan area, and 25 more totaling 6,971 units were in the planning stages. Activity was centered in the far northwest end of the city, including in the affluent Boerne. Major redevelopment is planned in the historic but threadbare Government Hill neighborhood, northeast of the city center, where a 23-acre site will feature office and retail space, restaurants, residential buildings and parks. The new development “will be transformative for all of San Antonio,” a development executive said.
The average rent citywide for November 2017 was $914, or $1.07 per square foot. That represents an increase of 2.7% year-on-year. Rent for Class A units can be much higher. Kallison Square, for example, will rent for $2.75 per square foot. Rent in the top-priced communities in the city exceeds $4.00 per square foot.
“We feel the community could absolutely support this,” said the developer of one downtown luxury building. He mentioned the building’s prime location on the Riverwalk, the renovation of nearby Hemisfair Park, new hotel construction, and the strengthening office market as factors contributing to its success.
There is a very active acquisitions market in San Antonio as well. Multifamily assets changed hands to the tune of more than $780 million from January to July 2017, and Yardi has predicted that such transactions in the metropolitan area will surpass $1 billion by the end of the year, for the third year in a row. This is an exciting time for San Antonio and its investors, as the city grows and becomes more economically diverse.
CWS Capital Partners owns six properties in San Antonio.
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