July 2022

industry

More Good News for Central Texas?

Leave a Comment / Social Issues of Central Texas / By
  • Samsung has allegedly filed tax incentive applications to expand its foothold in Central Texas.
  • If the applications are correct, Samsung will invest another $192 billion building additional factories in Central Texas.
  • This further highlights the need for more dense housing in the area.

First I want to apologize for not writing an article last week. I was on vacation with my family and then got sick and just was not able to get one out. I can’t imagine the disappointment to our dozens of readers.

But we are back with a vengeance this week. And while I was gone, it seems like Central Texas potentially got some good news. As we all know, this area has been extremely hot. Lots of companies, people, and jobs have moved here in the last few years. But, as I wrote a couple of weeks ago, its possible we are seeing the beginnings of a recession coming across the country. And it was unclear how that would affect Central Texas.

Well thanks to some investigative reporting in town, it looks like Samsung may help insulate Central Texas from a recession. It appears to have some big plans for the area. And that’s what we talk about this week.

Samsung May Expand Beyond Chip Plant

 

I have written a few times in this blog about Samsung’s plans for a chip plant in Taylor. It was investing approximately $17 billion to build a large plant that will employ upwards of 1800 people. I have not been out there to see, but it has apparently broken ground and begun construction on the plant.

Well now, according to some tax incentive applications that it has filed, Samsung may be interested in building a lot more than that. According to the applications, it would look to not only expand its Taylor campus but also additional sites throughout Central Texas.

All told, Samsung is potentially looking to invest up to an additional $192 billion. This could bring up to 10,000 additional jobs – between its Taylor campus and at an existing manufacturing campus it has in North Austin. It would include the construction of eleven fabrication plants in the coming decades, with the first scheduled to be completed in 2034.

It appears, therefore, that Samsung is planning a long-term, major investment in Central Texas. And, as always, that is good news for the area. Because not only does Samsung bring jobs, but of course, there are suppliers and vendors that bring jobs to the area also.

Where is Everyone Going to Live?

 

And while this is undeniably very good news for Central Texas, it raises the same question we have been grappling with for years now – where is everyone going to live? These plans highlight the drastic need for more housing. And with Samsung building in Taylor, that is only going to expand the Central Texas footprint out that way. As a result, not only do we need much more housing in Austin, we will need it in Pflugerville and Hutto and Elgin and Taylor.

So this is another call for our City Council and for the County Commissioners to create the right conditions where developers can build. We need more housing. The best way to do that is through increased density. To do that, we need (to name a few things):

  • smaller minimum lot sizes;
  • more duplexes, triplexes, etc.;
  • less restrictive compatibility requirements;
  • fewer minimum parking requirements; and
  • more streamlined and less expensive permitting.

Regardless of whether some folks want it to happen, people are coming to Central Texas. And that is not going to stop any time soon. I mean – it’s a great place to live and work. So we better be prepared and ready to meet the needs of a lot more people in this area. And to do that, we need to start now.

More Good News for Central Texas? Read More »

crash

What’s in Store for the Next Year?

Leave a Comment / Texas Commercial Markets / By
  • These are economic perilous times with inflation, rising interest rates, and lots of uncertainty.
  • The economic indicators suggest that a recession may be on the horizon.
  • For a well-positioned investor, however, a recession can provide lots of investment opportunities.

There has been a lot of talk about the economy recently – and understandably so. Its weird out there. Inflation is rampant. Interest rates are increasing rapidly. And there has been a lot of talk about a potential looming recession.

But nobody seems to know exactly what’s going to happen. And while this is nominally a commercial real estate blog, obviously our industry is heavily impacted by what’s going on in the world around us.

So that’s what I’m going to write about this week. What is going to happen in the near future in the economy and how will it affect the real estate world? Are we heading to a recession? Lets find out.

Economic Peripherals Point to Some Trouble

 

As I wrote above, and as everyone has been talking about, we are seeing some pretty severe inflation throughout the country right now. I am writing this the morning the new inflation report came out and we hit a new high in June. The consumer price index rose 8.8% compared to last June. That’s the highest increase since 1981. And anecdotally, you do not need me to tell you that prices are increasing. And there does not seem to be an easy end to supply chain issues increasing prices. Both the war in Ukraine and COVID caused severe distress to supply chains and I’m just not sure when those will be resolved.

And that means that the Fed is likely going to continue to aggressively raise rates. It has already signaled a 75 basis point hike at its next meeting. And if the numbers continue like they are, that will not be the last hike. As a result, while commercial real estate investors could get rates in the 4s a few months ago, now we are looking more in the 6s.

So what does this mean? Is a recession imminent? Or could we even go back to stagflation of the 1970s?

A recession is two consecutive quarters of negative economic growth. The causes are plenty, as we are currently seeing. They can include:

  • A sudden economic shock – surely COVID and the war, as discussed above, would qualify here.
  • Excessive debt – When individuals or businesses take on too much debt, the cost of servicing the debt can grow to the point where they cannot pay their bills. Growing defaults and bankruptcies then hurt the economy.
  • Asset bubbles – We’ve all seen the drastic increase in housing prices the last few years. Is that a bubble or a resetting of the market?

I do not have any clear answers. I hope we are not cruising towards a recession. But it is certainly possible that one is around the corner.

Recession does Present Opportunity

 

I want to be clear when writing this section that I am not being Mr. Burns-ish here. I do not want a recession to come. But most of us are real estate folks and sometimes when a recession comes, opportunity follows. And it would make me happy to see y’all make the best of a bad situation.

So as we discussed above, interest rates are on the rise and there is not a quick end in sight to that. That may make it difficult to refinance some projects. And it will have to increase cap rates. Because a buyer’s costs necessarily increase.

As a result, there may be some distressed assets out there that are available to acquire. And a savvy investor may be able to make some wise purchases. The flip side of that, of course, is there seems to be a lot of money on the sidelines. So while there may be opportunities out there, I think we are likely to see a lot of groups still going after those opportunities.

Well as you can probably tell, in a great lawyer tradition, I do not have any definitive answers. But the next couple of years are going to be interesting times. And if you are well positioned, it could be a good time to invest.

What’s in Store for the Next Year? Read More »

home purchase

We Strenuously Object to that Title

Leave a Comment / Property Purchase Process / By
  • Title insurance is a necessary protection when buying commercial real estate.
  • It protects the property owner against any defects in title.
  • Once the owner gets a title commitment, its lawyer should review the commitment and send the title company a title objection letter.

I hope everyone had a fantastic Fourth of July weekend. Its my favorite holiday. I enjoy the time spent with friends and family, the celebration of our country – all of it.* So I hope you enjoyed it as much as me.

But we are back to work and back to doing deals. Because that’s what we all love in real estate – the thrill of closing deals. So this week we are going to talk about another part of the closing process – finalizing title insurance. We have talked about pieces of this before but this week we are going to talk about the overall policy itself.

A title report has a lot of information in it. And that’s why its especially important to have a lawyer review it. So lets talk about that this week.

Why Title Insurance is Important

 

First we briefly want to talk about title insurance. As you probably know, title insurance protects lenders and property buyers from financial loss sustained by a defect in title to the property. The protection is extremely important because a title defect in title can put ownership in dispute and ruin your investment.

When closing a commercial real estate deal, the title company will send a title commitment that explains the basic of what the policy is and what it covers. Importantly also – it specifically lists a number of exclusions to that policy that will not be part of the insurance coverage.

Its very important, therefore, to review the policy commitment and make sure it provides sufficient coverage.

Why a Title Objection Letter is Vital

 

This is why a good lawyer is essential. Exclusions in a Texas title insurance policy are listed in  Schedule B. And Schedule C lists a number of issues that must be resolved prior to closing. These Schedules specifically reference a number of recorded documents that affect the property. These can be easements, covenants and restrictions, liens, etc. It is essential to have a lawyer review all of those documents to make sure they do not hinder your plans for the property.

Once your lawyer reviews all of those documents, he or she should send a title objection letter to the title company. A title objection letter details all of the terms in title insurance that a company disputes, as well as changes to the policy that the owner wants. Both the property owner and lender will likely send title objection letters.

Once the lawyer send the letter, that often begins the negotiation process with the title insurer This can sometimes take a while. Of course not every issue needs to be fixed to the title company – the seller needs to cure some of the identified defects.

Finally, as stated above, Schedule B lists specific exclusions to the policy. This can include, among other things, tax assessments, restrictive covenants, liens, leases, etc. Your lawyer needs to review all of these and object to the ones that he or she does not think are legitimate. Determining which exceptions should be removed directly affects how much coverage the policy provides to the property owner.

Once your attorney and the title company are finished with the negotiations, you should have a title policy that fully protects you against any defaults in title. And you can go forth with your plans with little concern over whether title defects will harm your investment.

 

 

 

 

*Can we all agree, though, that fireworks should stop at some point – at least by midnight? Especially when the Fourth is on a school night. Oh and – STAY OFF MY LAWN! #shakesfistatnothing

We Strenuously Object to that Title Read More »