Daniel Khalil and Israel Linares: 2024 State of the Union for Central Texas Multi Family

Foreign.

Welcome to the meetup that we have with the Texas Multifamily, Passive and Active Investors Meetup. We just got finished with our breakout groups and we're jumping right in to the State of the Union for Central Texas Multifamily. A little bit about our meetup. We do this on a monthly basis the fourth Monday of each month and we bring in speakers and a lot of times I'll I'll speak as well, but we'll talk about the active and passive side of the good, bad and ugly of multifamily investing. It's a place where we'll network and build relationships and participate in multi family investment opportunities. Against the fourth Monday of each month we do our networking breakout groups from 705 to 7:15ish and then we go into our guest presentation followed by Q and A. So a little bit about myself. Start off with my family and the photo to the left here. I updated it for those that I've been to our meetups before and I haven't updated in a while, but my wife Jennifer bottom left, my son Hunter, middle Lily and Emma and they are definitely my why and what we're doing in real estate investing. But I'm based out of Central Texas. We focused on value add, multifamily, RV boat and business storage. Along with that we also have a build to rent community that we're developing in Louisiana. So combined total we've got about 37 million assets under management. Previously to my real estate investing full time, I had worked with a commercial real estate company for the last 16 years or for 16 years managing office, retail and industrial. I've worked closely with dozens of real estate investors executing on strategic business plans. Thanks man. So we've worked with a lot of real estate investors over the last 16 years and excited for I guess the next 16 years to come. So for those that are learning about real estate investing, I have a podcast, the Untold Stories of Real Estate Investing. If you're looking to passively invest and want to learn more and dive deep, go to creipartners.com there you'll find a lot of informational educational pieces and then also a link to our passive investor coaching program. Or if you're interested in investing with us again, Creipartners.com so enough about me, let me transition this over to my friends over at costar. So first want to introduce Danny Khalil. Danny is costars of Group's Senior Analyst for San Antonio. His background in urban economics has spanned the public, private and not for Profit sectors. He has been quoted in the New York Times, San Antonio Express News, Austin American Statesman and other publications. He's a graduate of the University of Texas at Austin's Lyndon B. Johnson School of Public Public affairs, where he studied graduate level urban economics and earned his master's degree in public policy. And then I want to introduce Israel Leonardez as a senior market analyst with CoStar. Israel is a thought leader in the Austin commercial real estate market, transforming data into actual insights. His commercial real estate career began at CBRE where he empowered office and industrial brokers in Austin's in Austin with valuable market intelligence. And Israel is a graduate of Boston University and a native Texan, having spent his formative years in Corpus Christi. And with that I'm going to stop share and turn it over to Danny for him to share his slides.

Sounds good. Let me go ahead and see see if we can make this work pretty seamlessly here. Hopefully let see, You'll see. Can you all see the screen pretty.

Yes.

We showing up?

Well, yeah, it's showing up if you want to do. Yeah, from the beginning.

Perfect. Looks great on our side actually. Let's go ahead and switch this.

All right.

I think it's presenting the wrong screen.

And go to display settings. I think you should be able to toggle the the presenter versus presentation.

Oh, display. Oh, display settings. Yeah, we can just reverse it, right? Yeah. There we go. Perfect. Okay. Is this showing up well for everybody now?

Yeah, this is great. Danny.

Perfect. Okay, Israel, I'll give it to you to kick it off if you'd like.

Yeah. So thanks so much for having us. We are, yeah, looking forward to talking about what we're seeing in the multifamily market. We, I think we have an agenda on the next slide just to kind of break down a little bit about what we're going to talk about. Hopefully we'll take, I don't know, I'd say like the next 30 minutes and then hopefully leave some time at the end for Q A. But you know, essentially we like to start from, from a high level and work our way down into to more granular levels of trends and what we're seeing in each of our markets. But obviously want to start at a high level economic perspective and then look at some of the national multifamily trends that we've noticed as they relate to what we're seeing locally. And then we'll break down each market individually and then we'll kind of sum it up at the end and hopefully we go with some takeaways and Some, some outlooks for, for this year in early 2025. So yeah, let's jump into some of the economic and demographic trends that we've seen. So this just want to give you a picture, paint a picture of how our job market has performed over the last several years. So this chart basically just looks at the, the aggregate growth in jobs pre pandemic to now. And the blue bars just represent the nominal change or the number of jobs added during that period. And then the red dots just represent that percentage change. So post pandemic, you know, Texas markets, like many other high growth Sunbelt markets, were kind of the clear winners coming out of the pandemic. That really started a chain reaction of companies and workers, you know, moving at a more high cost of living areas into Sunbelt markets. And most notably Texas, we saw a lot of growth within our four metros within the state. You know, Austin, San Antonio saw relatively high level percentage growth of jobs added during those four years. And we could compare that to more established coastal markets like Boston, Louisiana, New York, where percentage growth was actually much more tempered. And even in nominal terms, you can look at DFW just head and shoulders above any other major metro in terms of jobs added. Austin was uniquely in a category of where you saw high level of jobs added as well as on a percentage basis. That really was as a result of surging migration of knowledge workers, the booming manufacturing scene, and construction workers coming to the area. But looking at it kind of on a year over year basis, this just looks at our main Texas metros and it just calculates the year over year change in jobs. And then it's benchmarked against the US Average indicated by that dotted line. You can see, you know, coming out of the pandemic surge, we saw that surge in corporate expansions and relocations that happen in 2021 and 2022. You know, that was much more prevalent. We had an environment of lower capital, lower interest rates that really spurred capital expenditures. Since that point, you know, as inflation increased and we saw greater uncertainty on the outlook and more companies were burdened by higher cost of operating their businesses. You know, we saw that job growth start to cool. You know, I think companies have been more cautious about budgeting and some have taken measures to reduce those labor costs. But you know, benchmark against that, us. You know, these major markets, including Boston, San Antonio, are still growing at a significant pace despite some of that cooling trend that we're seeing in the labor market. When we look at the year over year job growth rate ranked in the U.S. austin actually is seventh in the country among cities over 1 million people, and San Antonio ranks 10th. And so East Central Texas is still a hot hub for, for employment and economic activity. You know, some of the softening that we saw in Austin in particular was really in the information sector. You know, we've seen quite a bit of software tech jobs start to slow their headcount or even reduce their headcounts. You know, education and construction have also been positive spots in the Austin economy. For San Antonio, there are areas in education and health. And Legion Hospitalities are still showing robust growth over the past year. So, you know, it's. It's a very encouraging sign benchmark against, you know, a much slower rate of growth across the US So some of. Despite the these cooling trends, you know, our labor market still remains very robust. Our unemployment rate, so you can see indicated by the sort of orange bars in the middle there compared against the dotted line, which is the US Average, you know, unemployment still below the national average. You know, it's still seeing a very favorable market for employer employees. I think that one thing to highlight, I guess, as the counter to, you know, this very positive story in terms of our labor market is that we have seen an uptick in the last quarter in terms of layoff announcements. And that was most prevalent in Austin particular Q4. We saw a number of tech companies announce layoffs through the Warren System, which is Texas, you know, Texas ordinance. And we saw companies like VMware, which is a cloud computing company, Accenture LegalZoom, which is a smaller legal tech firm. Cognizant, another IT services firm, announced layoffs that contributed to that uptick. So despite some of those announcements, the labor market still seems very robust. But that is something I think to look out for in 2024, how that plays out over a longer period of time as many of these companies rebalance and restructure their organizations. So that's something to keep in mind looking forward and then switching gears, you know, as we kind of keep that employment framework in mind just to kind of highlight the trends that we're seeing in population side. This basically looks at the most recent data released by the Census Bureau last month. So it looks at the yearly change between the middle of 2022 and middle of 2023. And it basically just looks at it state by state and looks at the number of residents added in that period of time. And obviously, as you can see, Texas had the most favorable position for people looking to move and relocate from other areas. Even if we look at it on a Percentage basis, given the size of Texas, it's one of the most populous states in the country. It actually still ranked third on a percentage basis. So it's quite a substantial result of some of the more favorable tax environments and growing job opportunities that has continued to attract folks to the state of Texas, especially from those moving from high cost of living areas like California or New York. But if we look at it kind of on a percentage basis, you know, the census data tends to lag. So you know, we just got state level data in December. We're still waiting on that metro level data. But the most recent data that we have is based on that 21 to 22 period. And what we see is a pretty strong growth in Austin and San Antonio. Austin at that period of time by 2.5%. In San Antonio, just under 2%. So we continue to see this surge in migration, that post pandemic, particularly urbanization, people moving to the city from more rural areas, people seeking more affordability, more job growth. So that's been very key contributor to that growth. And looking at more recent information. So like I said, census data tends to lack. But we partner with a third party data provider called NuStar and they give us a sense, an estimate on the most recent data growth. We can kind of gauge how Austin is still. Austin and San Antonio are still faring up until this point. And based on those estimates, Austin is still leading the way nationally among major metros across the US Growing at about one and a half percent. And just keep in mind that the national average for growth is just about 0.3%. So it is growing at a really rapid pace. Similarly in San Antonio, still showing really strong above average growth, just under 1%. But if you notice, this is notable deceleration from that 21 to 22 period. You know, when we saw a surge in migration coming out of the pandemic, people were enabled, given work from home flexibility that allowed for a lot of that mobility within the US and switching gears a little bit, just talk about single family housing. I think it's important to keep this in mind when we think about the multifamily market as a whole. This chart just represents the Case Shiller home price index. That's the gray line. And when it's indexed to the year 2000, know prices have increased substantially, you know, up almost 300% over that 22, 23 year period. And so population, job growth have been really key parts of that increase that we saw, you know, in the middle of last year. And we saw that increase in house Formation, another fuel to that many people, you know, left their roommate or family situations in search of their own space. And that also contributed to that was the low interest rate environment. We saw that, you know, decreased the appeal of, you know, invited many people to purchase during that period of time. But, you know, I think that's been a hinder. One factor to consider in terms of fueling multifamily demand has been the unattainability of a single family home, particularly in a place like Austin where, you know, prices have really skyrocketed over the past several years. And then looking at what we're seeing in terms of inflation, you know, over the past couple years, untamed inflation really weighed on consumer sentiment. And we saw a dramatic pullback in household formation. Multifamily Demand, you know, 2022, as we'll get into a little bit later, know, we saw some of the weakest multifamily demand on record, you know. You know, based on consumer sentiment, you know, it really just measures how households really feel about the economy. It kind of gives us a pulse of where the general consumer is. And it actually reached its lowest level, you know, since the great financial crisis during that period of time. But now we're starting to see that inflation slow down. It's now hovering around 3%. You know, we're seeing fewer headlines about grocery stores and skyrocketing, you know, price of food and eggs in particular. I think we were talking about last year, insurance premiums going through the roof. So we're starting to see those, those concerns ease and a little bit more stabilization in terms of the consumer sentiment. So, yeah, we're starting to see that trend more favorably in the opposite direction and seeing a more encouraging sign. So I think that's going to. That's a really important kind of context to keep in mind as we move through some of the demand trends we're seeing in the multifamily sector. And then finally, the last thing I want to touch on, sort of this econ overview is kind of taking a look at the monetary policy of the last two years, year and a half. And we compared it against other periods in American history of tightening monetary policy going back to the 80s. And you really see this really stark contrast of how aggressive the Fed's response was in effort to attain inflation. And you can, based on, you know, what we saw on the last slide in terms of inflation, it really seems that so far the Fed has been quite successful in being able to ease inflation while not destroying the labor economy at the same time. And Then other contributors to that, we've seen a greater easing of the supply chain and that resilient consumer demand that's helped bolster the economy while still seeing this really aggressive tightening in the monetary policy and rising interest rates. So I think at this point we might jump into the national trends. I'll pass it back to Danny.

Thanks, Israel, for that national economic overview. It's important, I think, to talk about all of that because it helps frame our conversation about real estate and multifamily real estate in particular. Right. And I'm going to go ahead and dive in again from the national level on these national multifamily real estate trends that we're currently seeing here at costar. So now if you look at just the construction picture, which is often where we start, the supply side of the supply demand fundamental equation, if you will, it's really looking pretty heated for the most part in a lot of the country to include Central Texas. So what you can see here in green is our major Texas metros, Austin and San Antonio there, as well as Dallas and Fort Worth, you can see the total supply wave, as we're calling it, over the past year, as well as what's currently under construction. So what's delivered over the past four quarters and what's currently under construction, without even controlling for the size of these two markets, these markets, especially Austin, are punching well above their weight in terms of what multifamily supply is being brought online here, here in Central Texas. So, so that's important to note. There's a lot of growth here, of course, in terms of population, which Israel mentioned, and we'll dive in a little bit deeper into that in terms of jobs and incomes, at least, you know, outside of the current environment where the Fed is raising its policy rate, you know, there's a lot of growth here. And so as a result, supply is, is, is rising to meet that, that level of growth here in Texas. And when you control for the size of the markets, looking at, you know, kind of how much existing inventory there is in Austin and San Antonio, Dallas and Fort Worth, you can see here in Green, you can see that, you know, for the most part, these are, these are very rapidly growing markets. So what we're doing here is we're taking what's currently under construction and what delivered over the past year and dividing it by the existing inventory in that market. So for San Antonio, for example, it's about 210, 220,000 units in the entire eight county area. And when you look at that, you know, Austin's five county area, San Antonio's eight county area and all these other markets and their, their MSAs. You can see that, you know, here in Texas we are growing at a relatively quick pace. This is a surprise to very few people. As many people know, we build a lot here in Texas, especially central Texas. But this helps put some numbers to a lot of the anecdotes we hear. So you can, if there's one thing you can take away from today's presentation is that there's a lot of multi family supply, excuse me, en route to market today. Fortunately, a lot of this construction is beginning to, to taper. So that's, that's good to, to see for the fundamental balance of supply and demand that I alluded to earlier. Right. So what you're looking at here is a stacked bar chart with the big four Texas metros, Austin and Blue, San Antonio and Green, and their construction starts. So what, what they have begun in terms of construction over the course of a calendar year. So in 2022 in Texas, we were seeing really just incredible levels of groundbreakings for multi family properties and really all kinds of commercial real estate properties. 21 and 22, 23 was a bit of a pullback. We're continuing to see that to this day. Even, even what we're seeing currently in January, for the most part, you know, we're easing off the gas pedal a little bit with construction. You can see here that in total in the big four Texas metros are hovering at around 60,000 units that were started last year in 2023. So that's, that's all we started last year, which is like a pretty typical year for Texas. Honestly. It's kind of similar to 2019 and 2018 and 2017, 2020. But you know, we're definitely pulling back from that level that we were building or kicking off to build in 2022 and 2021, which is again, it's good, especially considering the fact that demand has become a little bit more lukewarm in some pockets of the state, in some sub markets. So it's important that we kind of keep that balance of supply and demand. Right. And rent growth has pulled back due to this. You know, currently where rent growth is today, we're talking about where it is, you know, over the past 12 months. You can see that annual asking rent growth pretty much all around the state, except for Houston I believe is in the red. So that's, that's between January of last year and January of this year. So this is a lagging indicator, right but we can see that, you know, towards the right over there. Austin deep in the red at the moment. San Antonio, pretty in the red. In the middle of the. That, that right hand side there, right next to dfw and then Houston, a little bit positive. And that's because honestly there's not as much construction in Houston on a relative basis as there is in dfw, San Antonio and Austin. So I believe actually Marshall has raised his hand. I don't know how to answer that in zoom. Yeah. But feel free to unmute yourself and ask you. Yeah, that's a question.

Sure. Uninformed question here. Just trying to understand it. Does that mean that like Austin rents. Like is a way to interpret that is like rents have decreased 5%. Is that from year over year from last January.

I'll let Israel.

I'll take that one specifically. Yeah. So that basically just takes the average asking rent across the market and then just compares it year over year. So that's inclusive. Inclusive of all quality buildings. Inclusive of all. It just takes the entire average of all multifamily 280,000 units and then. And then just compares that. That year over year. I don't know if that answers your question.

Yeah, I mean it's. We're seeing all the growth, but now when you have all the growth, that means there's more competition. Is that why you start to like, is that why you would ask for less or something like that?

Yeah, that's essentially it. You know, I think that we're coming off of this tremendous highs that happened in 21 and 22. And so, yeah, with greater competition, you know, concessions can only do so much. So eventually, you know, owners, property managers had to lower their asking rents.

Gotcha.

Back down to reality.

Okay, thanks. Definitely something we're seeing here in San Antonio as well. You know, demand is positive, absorption is positive. But you know, if you're a tenant and you see all these new brand new apartment complex is coming online, your lease is up for renewal. Maybe you feel you'd like to give the other one a try. Especially if the rents, you know, especially if the Delta is not that much between what you're currently paying and maybe what that new luxury apartment complex is asking. Now that's, that's a generalization. That's just a hypothetical. Right. That's not everybody's situation. I think Israel gave the most accurate explanation when he basically said, you know, it's looking at average asking rents one year ago and comparing it to today. You know, each scenario varies considerably, of course, but that's that's an example of, of possibly what we're seeing in some segments of the market, if that makes sense. DFW is another kind of supply heavy place. A lot of these places that have not added a lot of supply of late. Again, we're not experts in these markets, but you know, Detroit, you know, Boston, for example, I mean, they have added supply, but just not as much as Texas has. On a relative basis. You're seeing rent in the black over there. Right. As opposed to where some of these higher growth markets are. And that's kind of why Houston's a bit above water for the most part, you know, and it's, it's not something. A dynamic we envision, you know, continuing forever. It's a bit of a unique situation to find ourselves in in an environment where rents are retreating. Right. That's not normal, you know, for the most part, or else no one would build multifamily or invest in it.

Right.

If rents were constantly in the red. So, you know, we're, we're seeing in our base case forecast right now that rents will probably rebound, especially in some of these markets, especially Austin, where it's negative five. It's not going to be negative five from, you know, here to 2025 to 2026. Eventually there will have to be some sort of normalization and correction that would happen. Right. So you can see here in our forecast, looking across the big four Texas metros, we're likely going to see market asking rent growth over the course of this year and probably next year begin to normalize along something more typical, maybe like a 2% figure or something like that. I'm generalizing, of course, because we're talking about many different markets with many different dynamics, but hopefully this kind of provides a little bit of some context of what we've been seeing for rent growth over the past few years and what we might see in the future. You know, that that'll probably keep investment interested to an extent to. Investment interested to, to an extent. As I alluded to earlier, investment is important for multi family so people can buy properties, invest in them, engage in value add, whatever strategy they've got. But, but that's all an important component of the multifamily market. Right. So, you know, we're likely to continue to see investment in Texas. All four of the big four Texas metros, even given where they are today in terms of supply and rent growth, are in the top 20 for the, for the country in terms of multifamily investment over the past, I believe this is the past quarter, so. Excuse me, this is the past year. So you can see here San Antonio over there, number 20, Austin, about number 14 or so. Then Houston and Dallas up there, close to number two. Pretty much all of them, except for Houston are punching above their weight in terms of where you would imagine they are based on their population alone. So San Antonio's the 24th largest metropolitan statistical area, for example, but it's the 20th largest multifamily investment market. Austin is even smaller than San Antonio in terms of population. But I believe on this chart here, it's about number 14 in the nation for. For estimated sales volume. So. So that's important to note to provide some context there for investment. With all that being said, I'm going to hand it off to Israel now. We're going to get into the markets themselves. He's going to kick it off with Austin and then I will finish up with San Antonio.

Awesome. Great. So I think I heard from Wayne that there's maybe some folks out of state or maybe nationally. So just to kind of COVID my bases, I thought I'd just kind of give a little bit of a geographical point of reference on what we're looking at in terms of Austin msa. So, yeah, Austin MSA is comprised of five counties. Williamson, Travis, Hays, Bastrop and Caldwell. And basically what this looks at is it looks at that percentage change in population by municipality between that middle of 2021 and middle of 2022 period. This is the latest data we have from census at the municipal level. And I know it's a little bit dated, but I think it just kind of gives an important backdrop in terms of where we're within the city or, sorry, when within the metro we're seeing that kind of growth. And so the size of the dot just represents the percentage change on that municipal level, as you can see. And probably no surprise, most of that growth within the municipalities are happening outside of Travis county, which is, you know, the urban core of Austin. So you see, to the north in Williamson county, you're seeing a lot of growth. You know, Georgetown is at sort of the center of Williamson county on a percentage basis, grew by 14% over one year period. That was equivalent to about 11,000 residents. And that was the fastest growing municipality within the metro. But you also start to see in sort of that. That satellite, a constellation of other cities, much smaller towns outside of that, the furthest point north, you see, Jarrell grew by 70%, you know, 60, 70% over that one year period. It's a. It's a town of 2,000 people. So it grew, it grew by, you know, added over 1200 residents. But you're starting to see more and more residents populations moving further and further out to the periphery as they seek more affordability. But you know, I just wanted to highlight this. I think this really sets the backdrop in terms of, you know, where we see multifamily demand happening in this, in the metropolitan area, what we've seen over the past year. And then just as a point of reference, the city of Austin itself grew by half a percent over that period of time. So you kind of see where these, how impactful these double digit percentage growth numbers, you know, compare. So just kind of taking a picture of a demand overall, this basically just looks at absorption, which is essentially the change in occupancy over 1, a one year period of time. And you know, this is a trailing 12 months. So it just aggregates all four quarters of absorption for each quarter. And so on the, on the right side, you see the end of 2023, we saw about 8, 800 units absorbed over that 12 month period of time. And I wanted to compare that against what we are typically seeing pre pandemic. I think establishing a sort of baseline that doesn't include the anomaly that was 2021 and 2022, just to kind of set a benchmark for how we, you know, how this past year went, you know, actually outperformed just slightly over that 8,400 unit average, five year average pre pandemic. Most of that growth is happening, you know, within the class A segment. That's mostly because the majority of what's getting built is, is class A. And so as these projects get leased up, you know, we start to see more stronger absorption numbers among that class of product. But you know, I think what this really tells is that these drivers of growth that we've been talking about, population jobs, are continuing to fuel that demand for multifamily housing. You know, I think when residents do that cost benefit analysis of considering whether to move to Austin, I think it's still very much in favor of that benefit, despite many of the increases in cost of living that, you know, Austin's been playing with and kind of been notorious for in terms of how much it's increased and really challenged household budgets over the last several years. And you know, some of those compelling reasons are the diversity in jobs and industries. Tesla, for example, you know, when they initially announced that they were opening an operation, announced 10,000 workers that they were going to try to get. Now they're at 20,000, you could see that, you know, increasing even further. And so it really just highlights the type of growth that we're seeing from an industrial manufacturing point of view. And you know, as, as inflation cools and we start to see improved, you know, sentiment, you know, we should start to see, you know, that, that improvement take up. So basically this just kind of highlights the relationship between consumer confidence. This is published by the conference board and it measures, they, they survey Texas residents every month. And you see, you know, I wouldn't say it's a direct correlation, but there's definitely a relationship between the two. As you can see by the blue line and the red, the, the yellow line just represents the absorption numbers that we saw in the previous slide. And so as we start to see that inflation cool, we start to see people's outlook on the economy improve. You know, that's, that's giving confidence in terms of people moving out on their own, people moving out of their roommates place. And so, you know, I think that bodes well. That's one of the key drivers that we're looking at for that improved demand that we're expecting in 2024. And then just kind of breaking down, you know, where we're seeing that demand. Just kind of harking back to that map I showed you earlier about population growth. You know, we see a pretty good relationship between those high growth areas and where residents are moving to. And this, this demand that we're seeing in terms of apartment leasing. And a lot of the growth, unsurprisingly, has been centered around Georgetown and Leander. And Pflugerville is another one of those high growth suburban areas. In Austin's northeast, northeast area, you may notice a more established. Submarket like the Northwest. It's actually the biggest submarket in our, in our msa. And so we've seen a notable exodus out of that submarket. There's a lot of aging inventory there. Nothing has really gotten built. And it's kind of lost that competitive edge to some of the more newer, luxurious, you know, high, high amenity places that you can much more easily find in other competing suburban markets. And so the next slide, I kind of just want to highlight that difference between demand we see in the suburban areas compared to the urban areas. So this just aggregates the net absorption, but then I divide it by the size of the inventory to kind of do an apples to apples comparison just based on the different sizes of the inventory. And basically what we see is that, you know, suburban demand or leasing has, has really Been carrying this market for the greater part of the last eight years. You can see by the red line that represents suburban absorption and it really just highlights the growth of the suburbs as folks seek, you know, you know, greater affordability, you know, relief from some of these high cost of living areas and within the city center. And as we see that improved confidence, we should, you know, we're seeing, starting to see that, that outpacing of demand in the suburban areas. And it's also been in a developer favor as you see more availability of land, you know, lower, lower barriers to entry in terms of the cost of land. You know, so that, that's really been some of the drivers behind that trend. And then switching gears to look at construction. You know, I think this is, you know, as Danny mentioned, you know, if there's one thing you can walk away with, this should probably be it. This just represents the number of units under construction in Austin. And you know, we are still at historic highs over 40,000 units. One of the national leaders for both units under construction and units delivered. So we know we've seen a little bit of relief in terms of, you know, the number of the number of units under construction since the start of 2023. As we've seen a 60% decline in construction starts compared to 2022 levels. As we see, you know, lower loan to values, lenders requiring more equity, higher borrowing costs, it's all impeded developers financial viability of these projects. And so, you know, we're going to start to see that decline even further. And so that should help relieve some of these, you know, supply side pressures on vacancies that we'll get into in a little bit. And then just really quickly in the next slide, I just kind of want to give you a sense of where that development is happening. Essentially it's just happening in most areas other than the west side where there's a lot of, you know, water restrictions. It makes, it makes development much more difficult there. So yeah, it is quite, quite dispersed and quite evenly distributed. It's about a 60, 40 balance between suburban and urban development throughout Austin. And so finally, kind of just to summarize, you know, when we look at supply and demand together, you know, we saw 2023, a substantial outpacing of demand, and it's very similar to the trend we saw in 2022 that led to a really sharp escalation in the vacancy rate that's now reaching close to 13%. But you know, if we look to the forecast, if you want to just scroll through that, Dan you had a couple of highlights there. Yeah. So, you know, you see the comparison of blue, which is deliveries, and yellow, which is absorption. You know, supply is just simply overwhelming despite, you know, positive trends in terms of demand leading to that, you know, quick escalation in vacancies. But you know, if we look towards the horizon going forward, we start to see, you know, those number of delivery starts tapering while demand continues to improve. And so essentially we start to see a little bit more balanced market, you know, in 2025 and beyond. But that still leaves a lot of units in excess that are, that are, need, need to get leased up in order to start seeing those vacancies start getting drawn down. So, you know, we're expecting to see heightened vacancies over the near term, but you know, more favorably is if we start to see those, the deliveries decline, that should help in that, in that, in that trend. And then just to kind of give you a context of, you know, Austin's vacancies at all time highs for this market, you know, actually ranks third in the country at 13%. And that's simply as a result of an extraordinary level of construction happening over the last several years. And then I know we're getting a little late here, so I'm just going to quickly run through rents. You know, this measures again year over year, changes in asking rent growth, but it's broken down by the class of buildings. So I think just want to highlight the red line. It is the four and five star or class A as we call it. You know, we rate it equivalently in costar and it's really been the most impacted by the surge in your supply since as I mentioned earlier, most of what gets constructed is in that upper quality four and five star type building. And so we're starting to see, you know, the most negative decline in asking rents over the past year. And you know, again here it's, it's been quite impacted. So this just puts it into context in terms of how rents have progressed over the last four years. But so that's my update for Austin.

Thanks Israel. And I'll, I'll also be be brief here. Obviously we've talked a lot on the Austin side and the economic side and the national multifamily market side. So there's not much that, that I probably haven't already stated or Israel hasn't already stated in terms of trends. However, there are a couple of nuances to this market that I think it's important to, to, to walk away with as well. So population growth very High here. Bexar county is the central county where San Antonio is located. No surprise there. This was the most recent data we have from the Census Bureau from 2022. Again, it's always a year out of date. Now it's about a year and a half out of date. We'll get pretty much in the coming months here an updated picture in terms of county year over year population growth. But here you can see, I think it was number 10 or or so in the country, within the top 10 fastest growing counties in the entire country. So Bexar county has definitely grown a lot, as have a lot of other Texas counties, which you can see here in light blue. Harris, Collin, Denton, that's Houston and Dallas Fort Worth respectively. San Antonio also tends to have slightly lower than average median household income figures. This has been changing lately. So if you look at this graph over the past five years between 2018 and 2023, you can see based on those gray bars right there, the shrinking of the gap between the national average and the metro wide average here, San Antonio's average. You can also see the growth in median household income locally and nationally. So local would be in blue right there and then nationally would be that red line. So for the most part, median household income growth in San Antonio has been outpacing the national average. So high population growth, pretty high income growth. That makes for an environment where a lot of developers are eager to build and many lenders, at least up until this, this rate hike cycle, were eager to lend on projects. And so that led to a construction pipeline in south central Texas that was pretty diffuse, pretty diverse and really spread throughout the eight county area. A lot of these projects are still coming online, right? We talked about construction starts kind of tapering off, but this supply wave still has yet to fully hit the market. You're looking at a heat map right now of multi family construction in the San Antonio area. Downtown really kind of like many cities right now, kind of standing head and shoulders above a lot of other sub markets in terms of the density of multifamily construction in that area. But it's important not to discount the northwestern arc of growth for San Antonio, which is really between that far west side and between i35 on the way to Austin. You can see a lot of apartments coming online there. And that's because those areas downtown in the far suburbs tend to have the highest demand for multifamily at least of late. So construction is being built there partially as a result of strong absorption figures in those sub, in those submarkets. And here's some example of recent construction stuff that's currently under construction and stuff that recently delivered. You know, there's a lot of different, there's a lot of different types of multi family products being brought online today. The Floodgate, you know, well, starting from the top left, Carolina Brooks is an example of a mid rise four star product. That's a lot of what's being built in the area today. But, but it's, it's important to highlight that because it shows the continued momentum in Brooks, which is on the southeast side and one of the growth nodes for San Antonio especially as far as multifamily is concerned. Abacus west is another example of a three star garden style apartment, which is a lot of, also a lot of what's being built today and that's pushing kind of past 1604 in the far west submarket. A lot of that development is. So that's, that's a great example of what's going on there. Utsa, this is a student dorm. I just wanted to highlight it as an example of what's being built. Not something that's multi family per se, but it's an example of, you know, a lot of the inventory coming online here and how there's a lot of investment here, both public and private, as well as a lot of construction in the Pearl District, which you can see based on this, these townhomes that were built here recently next to the Pearl, which is kind of the premier mixed use node in the city, just north of downtown. There's a lot of investment happening there as well as downtown, where Floodgate is and then Vera Mindy in New Braunfels. So there's a lot of, a lot of multi family investment and in construction that have happened over the past year that has happened over the past year in the New Braunfels area, which is kind of, it is the city's largest suburb, but it's kind of on the way to Austin, northeast of the urban core itself. So a lot of construction really all over the A county area. And it's important to kind of highlight that diversity, I think to fully understand the picture of what's going on here. You know, there's a lot of construction, but demand hasn't necessarily kept pace with all that construction. Demand has been positive. And when we talk demand in multifamily, we're talking about absorption in terms of units. So absorption is just the change in occupied units over time over the past 12 months, which is mostly how we, how we measure absorption. Annual Net absorption is Just change in occupied units. So you can see for the San Antonio market, we're not in the top 20 there. So I added it all the way at the end. Positive and again, you know, pretty good, but not, not as high as construction levels are for this market. So 3,300 units were absorbed over the past 12 months here. It's good, but it's not enough to keep up with supply. And I made this little map of the sub markets, you know, in, in the San Antonio metro. And you can see that the sub markets that are overperforming in term of terms of absorption have that blue arrow right there. The ones that are underperforming in terms of, in terms of absorption have a, have a downward facing purple arrow. And then the ones that are kind of doing about average in terms of a multifamily absorption have a yellow kind of sideways arrow there. So for the most part, a lot of what we're seeing in terms of positive, positive absorption that's, that's outpacing that of the metro on a relative basis is in the urban core. So downtown area, midtown area, as well as the new and emerging suburbs. A lot of those areas, no surprises Israel alluded to earlier, tend to outperform, tend to out, tend to outperform the market wide average. So you can see there, Comal county, where New Braunfels is, you know, we're seeing above average absorption there on a relative basis, Bernie, same thing. And the north kind of northwest ish of the metro as well as the southwest side. And then some sub markets are, are kind of underperforming, underperforming that that average and then others for the most part are, are kind of kind of doing where we would expect for, for this metro and where we are today. And those are the ones with the, the yellow sideways errors. So I mean it's, it's important to, to restate I think this, this fact that supply side pressures have had their effects on rents here, you know, and San Antonio is not a high rent market to begin with. So right now we're at a dollar and 45 per square foot, just under that in terms of our market wide average for multifamily, it's still an affordable market and that will continue to draw people and continue to, you know, it will continue to, to help the city recruit new residents and, and lead to all kinds of other economic benefits and tailwinds for this metro. But for the most part, when we're looking at multifamily fundamentals, you know, it's just the Supply side is outweighing the demand side right now. And that's having an effect on rents, a very tangible effect. Rents have kind of been treading water since about, you know, late last year, fall of last year, kind of close to that $43 mark. We do again anticipate the rent growth will resume here in the future, but for now kind of treading water and below the high water mark for this market as it was in a lot of markets around 2022 and 2023. This is again the case with Austin and a lot of other metros. For the most part, rents have kind of taken a little bit of a, of a back seat in many markets around the country. And that's, that has affected transaction volume there. There is less smaller, I guess you could say there's a smaller quarterly estimated sales volume in this market than there was here prior and the year before that as well. We're below our pre pandemic average, which is that that line right there, that dotted line, Q3 was right about where it should be, but Q4 definitely not about $160 million worth of multifamily assets traded hands. That is below what you would have seen in a typical pre pandemic quarter. And the definition for that for this slide is 2018 to 2019. So that's, we're taking the average of that and we would have expected to see something a little bit closer to 500, $600 billion worth of assets trading hands. We're still a bit off from there. And a lot of that again has to do with the difficulty in obtaining financing currently. You know, our current forecast is that, you know, as we move into the latter part of the year, there may be some, some rate cuts in the future that would very much affect this, this chart that you're seeing right here, transaction volume. But as of right now, where the market sits today, we are definitely below that 2018, 2019 figure. And I'm going to go ahead and talk about forecast and the key takeaways we, we've got here for, for Central Texas. So I know we're 10 minutes, 10 minutes over right now. So I want to make this brief. You know, Austin and San Antonio, they're in blue. You can see currently year over year, red rent growth in the negative. But you know, looking at the, our forecast, which is, which is the bars right there. So San Antonio and Austin again in those light blue bars on the right hand side, other markets in red, red bars. We're, we're imagining that this will resume a positive Trajectory in the Future, closer to 2% or 3% depending a little bit on the market. Right. Austin has a little bit more supply side pressure than San Antonio, but for the most part we're imagining the four year average is going to be a little bit closer to 2 or 3% for these two markets in the future. And just kind of highlighting Austin and San Antonio along with Dallas, Fort Worth and Houston, just to kind of draw some comparisons here. You can see that I'll talk first about San Antonio and then let Israel talk about Austin. You can see that, you know, Vacancy is probably going to be a little bit higher here locally than it's going to be in Dallas, Fort Worth and Houston, at least over the medium term. Maybe not quite as high as Austin again because it's a different supply side situation. But, but that's probably what's going to be the picture for the next two, three years is a little bit above average vacancies here in San Antonio. That's pretty normal in a lot of even pre pandemic times because you know, in previous, prior to 2020 and previous years San Antonio was still a high growth, high development market. So Vacancy always ran a little bit high here and a lot of other markets where they're building quite a bit. So, so that's probably what's going to be the medium term forecast here. And then looking at rent growth, it's a pretty similar outlook. Again, once you get to 2026, you're kind of seeing a lot of these markets start to converge. But that's because a lot of the current supply wave will have been absorbed and things will probably get a little closer to something we would call a stable or more of a normal dynamics in terms of the fundamental balance of the market. So I'll let Israel talk a little bit about Austin now and then I think we will be done.

Yeah, so I think just to recap, you know, Austin's multifamily market at all time high vacancies, we're expecting to hit a peak at around the midpoint of 2024. So as a result, rent growth is going to be challenged, continue to be challenged for 2024. We currently rank last in terms of percentage change in asking rent growth.

At.

One of the 50 largest multifamily markets. And we're expected to keep that, that place over the coming year. So that's going to mean a challenging market operationally for many landlords in Austin to keep those occupancy levels up just given the extraordinary amount of competition out there. So you know, we're continuing to see declining rents up until the end of 2024. So that's, that's kind of my key takeaway for Austin.

Sorry I couldn't find the unmute button for a moment, you know. But we'll be here if you have any questions. We'd like to thank you for your time. Thanks for having us on, Wayne. But yeah, if anybody has any questions, we're here to answer a couple of the, if anything's pressing.

Danny Israel, thank you so much for, for this content. I'm glad y' all went over the time because there's so much, so much to be said about these two markets and it's crazy. Just the last two years, I mean, when y', all, when y' all were on or Danny was on a couple years ago giving this update how things, you know, have changed. But I think if you got anything out of this, there's a lot of supply and it will take a few years for it to even out to get back to better rental and absorption. So does anybody have any questions? Go ahead and unmute and feel free to ask questions. Or if you want to use the chat box, I will read out your question and go from there if that's preferred. You know, I, I have a question, but I don't. It, it's not really Austin, San Antonio related, but Temple, Do y' all have any insights of on Temple? I'm sure there's another co star regional looking at Killeen, Waco, Temple area. But what are your, if y' all have any thoughts on Temple, what are your thoughts on it?

So I, I actually cover Temple and Colleen. It's interesting, you know, I mean they're, they're definitely not facing the kind of pressures that, you know, some of the larger markets are not adding as much new supply. So you know, they're not, they don't have that same threat to fundamentals. I guess you would, you would imagine that they would based on other Texas markets. It's, it's one of those markets that, you know, I would put maybe like Brownsville kind of in this category, maybe McAllen, El Paso, where it's like they're just kind of more one of the mid sized Texas markets and so they have steady population growth, it seems, but not that same level of new 4 and 5 star product being brought online. So there's not that injection of luxury apartments that's kind of altering things dramatically there. So it's kind of interesting, you know, seeing all that especially on the Temple side. You do see some apartments, especially on Temple compared to Cleen, you see some new apartments that are four and five star. But, you know, it's. It's a much more moderate case of growth. Growth for sure. Yeah.

Well, I think about all the growth in Georgetown because I grew up in Austin and you know, living in like, the thought of people living out in Georgetown just seems so far out. But all the storms and hail. My brother lives out in Georgetown and he just stopped getting his car repaired because it hails so much in that area. And Gerald, I remember as a kid that huge tornado, F5, you know, went right through Gerald. So it's crazy to think the population growth, but with that, you know, insurance is going to be going crazy because you're, you know, there's a lot of heavy storms that go through that area.

So.

Well, any, any questions? If not, I really appreciate Israel, Danny Yalls time. We are going to re. Convert this into our podcast and YouTube and such. So I'll send y' all the recordings and such, but really grateful for the. The time to speak about the Central Texas markets.

All right, thank you for having us.

Yeah, thanks so much.

You all have a great evening.