ULI Austin Monthly Breakfast Series Recap:
Capital Markets: Investment Realities to Watch in 2018
November 15, 2017 Provided by Hahn Public Relations Platinum Underwriter:
- Sean Coghlan, Senior Vice President and Head of Investor Research at JLL
- Kyle W. Turner, Vice President, Director of Investments at Equus Capital Partners, Ltd.
- Warren de Haan, Managing Partner at ACORE Capital
Moderator: Douglas Opalka, Senior Managing Director at HFF
- Globally, capital is flowing in all three regions. Given the late stage of the real estate cycle, researchers expect to see activity dropping by about 10 percent.
- Deal fatigue is also at work: over the last five years, 20-25 percent of product has changed hands. Deal fatigue has driven a 60 percent decline in transactions, or about half a billion dollars.
- High cost of living, high barriers to entry and high prices are driving people and jobs away from traditional core markets, such as New York, Washington, D.C. or San Francisco, and toward secondary markets. Real estate investment opportunities follow people and jobs.
- Market forces are combining to drive investment in secondary markets, including Austin. Austin is well-positioned relative to other Texas cities, thanks to higher density and higher barriers to entry.
- Austin has managed growth at a sustainable pace, without flooding the market.
- Historically, investors have turned to secondary markets for high-yield investments. Given these dynamics, investors are now increasingly looking for true growth opportunities in secondary markets.
- The late stage of the real estate cycle is prompting investors to take a defensive posture, while continued high prices make real estate a too-good-to-pass-up investment. Investors are showing discipline as a counter to a potential future market correction: they want lower leverage, flexible terms and precise timing.
- Amazon’s HQ2 proposal process continues to draw speculation about the headquarters’ ultimate destination. Panelists proposed Atlanta, Dallas, Northern Virginia or Philadelphia as potential locations.
- Amazon’s HQ2 is expected to bring 50,000 jobs, equal to the number of jobs Austin gains each year.
- Talent wars were mentioned as a reason Austin continues to be attractive to employers. While the cost of living rises increasingly close to the Bay Area, employees tend to stay with their companies up to 50 percent longer in Austin, according to one anecdote.
- The quality of commercial tenants in Austin has improved over the early 2000’s. Today’s tenants are more likely to be the types of companies which attract service providers and startups, who bring additional jobs and occupy additional space.
- When asked about their concerns and optimism for Austin’s future, panelists listed cost of living increases and the approach of full employment and corresponding slowing of demand for real estate as concerns. However, these concerns were tempered by optimism about the continuing flow of people and jobs to Austin, and an increase in residential opportunities and maturing investments.