With a 2015 population growth rate of 3.15 percent, Austin, Texas, is the fastest growing large city in the U.S. It's consistently ranked high on lists of the best places to live. Major draws include a vibrant music and culture scene, a robust high-tech industry, and the University of Texas.
“I do think Austin is a good market,” says Nick Nelson, CCIM, principal at Longbow Real Estate Group in Austin. “One interesting component: Millennials represent approximately 24 percent of the Austin MSA, according to Esri. As they move into homes, they need to furnish them, and that helps retailers focused on those products, as well as restaurants and other businesses.
“There are many fearless entrepreneurs here. That creates opportunities for technology companies to come in and thrive.”
CIRE: Can you discuss some challenges in Austin's current market?
Nelson: One of our biggest is real estate tax increases. Since 2015, our county appraisal offices have become more aggressive about getting the tax values closer to the market value.
In some of the hotter areas of Austin, retail tenants are concerned because of these massive tax increases. We put together a prospecting campaign earlier this year to get feedback from owners.
One of my clients had to move three retail tenants out of his shopping centers; the tenants just couldn't pay the increase, which was as high as 50 to 70 percent during the last two or three years.
If you've got a tenant who expects to pay per a rent schedule, its margins are in balance with that. If you give the tenant a 50-percent increase in property taxes, the retailer just can't handle it. In all candor, base rents in hot areas have to flatten a little bit.
CIRE: You work with a lot of 1031 exchanges. How does that work in this market?
Nelson: Many properties have been traded during the last few years in Austin, resulting in a limited supply for sale now.
Most properties that have not traded this cycle have been held under current ownership for multiple cycles. Although the properties have significantly appreciated during the years, owners will not consider selling without a 1031 replacement property locked down. Considering what they originally paid for the property, many owners will not pay close to market value in Austin.
I've proposed investors trade some of this equity for cash flow and consider income-producing property in Dallas or San Antonio, Texas, for instance. But some investors don't want to buy outside of Austin, which further limits the supply.
CIRE: Can you discuss how you've used CCIM resources to deliver better value to your clients?
Nelson: Texas is a nondisclosure state. To find real property comps in Austin, you just have to know people or buy property.
With CCIM, however, we have access to ArcGIS online through Site To Do Business, which I used to create a map with all the commercial properties in Austin. I styled the map according to year-over-year increase in property taxes. It's not the magic bullet, but it opened the door to more property owners with relevant market information.
No data supplier provides that. We've got 101 fields we're tracking throughout 608,000 parcels in the Austin MSA, and that helps clients plan and execute better investment strategies.
CIRE: How else have leadership roles at CCIM and earning the designation helped your business?
Nelson: I was a general contractor building houses and got hurt in the Great Recession. I called the CCIM Institute, booked all four classes, finished all four in four weeks, and just fell in love with the culture and the CCIM family. It's all about forming that network - that community. I tell people: Don't be afraid to step outside your comfort zone and get involved. Ultimately, nobody can do this alone. But if we can work together - and CCIM is an amazing platform to do that - we can all win more business together. And have more fun.