Patrick Foley

As I have posted time and again (though not in a few months), Central Texas has been very lucky in how the economy has fared in relation to other parts of the country. That said, I've also posted time and again about how the growth in available sublease space and new office space are precursors to lower lease rates in the Austin area.

Has it happened, yes. Rates and sales prices have definitely come down. Subleases continue to become more prevalent. Landlords and building owners are having to settle for less, or offer more incentives. Is it because the economy in Austin has suddenly soured? What about the dramatic drop in gas prices, isn't that supposed to amount to a huge stimlus to the economy? Well, I believe the problem lies elsewhere:

• People Are Scared - Business owners don't know how to react in these very uncertain times. They aren't sure if they will be expanding, contracting, or closing their doors in 6, 12, or 18 months. They don't want to buy a new office building or lease a new expensive Class A office. With what rates are doing, can you blame them? I can't really find fault in the logic. That being said, I think there is tremendous opportunity to lock in great rates and incentives for tenants and buyers right now.
  
• Oversupply - As I have preached for well over a year, there is too much supply being that has either come on line, or will be completed in the next 12 - 18 months. This was shaping up to be a problem before the brunt of the economic crisis began to hit us in recent months. Now, it is certainly going to have an even greater impact. Logic would tell you that with steady or shrinking demand and increased supply, rates will have to come down. Unfortunately, to break even, landlords and developers can only go so far, thus rates in new buildings haven't necessarily dropped as much as you would think.
  
• Slowing Economy? - It is certainly possible that things have begun to get bad in Central Texas. Perhaps there are not being jobs created (though I think there still are, though we are pretty stagnant), and perhaps companies are declaring bankruptcy. All of this would certainly lead to demand destruction for commercial space in the area.

What to Do?

• Be Agressive - You have to be more agressive in marketing you, your firm, and the difference you can make in a turbulent market.
  
  
• Network - Making a personal connection with a potential client dramatically increases the odds of you signing them to a representation agreement. If you are less busy than usual, spend your extra time networking. Consider social clubs, rotary clubs, or going to conventions/trade shows to meet prospective clients.
  
  
• Be Knowledgable - It is even more important than ever to be the most knowledgable person about your market. Clients pay us for our expertise, make sure you are THE expert. This will help you gain and retain your clients.
  
  
• Use All Resources - Use the craigslists, zillows, and active rains of the world. Get your name and listings out there as much as possible, as cheaply as possible. Try to work smarter and not harder, because there are plenty of other things to focus on in these difficult times.

I'm by no means an expert, but these are principles that are helping guide me through the current times. Best of luck to everyone!

When you hear the word sublease, what comes to mind? Probably an apartment or office space. These are certainly valid thoughts. However, I want to challenge you to expand your horizons.

In Austin, the industrial market is hot. Warehouses, flex space, and R&D space is leasing like mad. If you have a warehouse with a dock high door from 2500 SF and higher and it isn't leasing, call me right now at 832.659.5076 and we will get it leased in nothing flat. Sorry, I didn't mean to digress. Since industrial space is going crazy, there isn't a ton of sublease space available right now but it does certainly exist. It's important to look at these spaces because of the savings you get on rates.

When demand is greatly outpacing supply, as it is in the Austin industrial market right now, it can become difficult to negotiate a rate down. So how do you save money on an equivalent space? Find a sublease space.

Having a tough time finding a commercial sublease? Here are some tips:

• Search Craigslist. There are a lot of subleases on here, though they are mostly office.
• Google it. Austin commercial sublease or Austin industrial sublease for example.
• Get a copy of a sublease report. I have a report that I can send you, just contact me at 832.659.5076 or patrick.foley@bulshodge.com and I will be happy to send our most updated version.
  

Being a native Houstonian, I could certainly appreciate this e-mail I received today, so I thought I might share it with everybody else.

Rules of Houston , H-Town, 3rd Coast, Bayou City , The Dirty 3rd, or
whatever you wanna call it.

1. You must learn to pronounce the city name. It is "Hue-stun," not
"Ewe-stun", or "house-tun" Oh yea, the street is pronounced "San
Phil-ee-pay," not" San Phil-eep" (San Felipe). Enunciate, you idiots!

2. Forget the traffic rules you learned elsewhere. Houston has its own
version of traffic rules...Hold on and pray. There is no such thing as a
dangerous high-speed chase in Houston . We all drive like that.

3. All directions start with, "Go down to Loop 610".... which has no
beginning and no end.

4. The Chamber of Commerce calls getting through traffic... a " Scenic
Drive .."

5. The morning rush hour is from 6:00AM to 10:00AM . The evening rush hour
is from 3:00PM to 7:00PM . Friday's rush hour starts Thursday morning.

6. If you actually stop at a yellow light, you will be rear-ended, cussed
out and possibly shot. When you are the first one off the starting line,
count to five when the light turns green before going, to avoid getting into
any cross-traffic's way.

7. Kuykendahl Road can ONLY be pronounced by a native Houstonian.(
kirk-en-doll)

8. Construction on I-10, I-45, US 59 and Loop 610 is a way of life and a
permanent form of entertainment.

9. All unexplained smells are explained by the phrases, "Oh, we must be in
Pasadena !" or "God, I hate Baytown !" or "Mmm, smell that Texas City !"

10. If someone actually has their turn signal on, it is probably a factory
defect.

11. All old ladies with blue hair in a pink Cadillac have total
right-of-way.

12. The minimum acceptable speed on Loop 610 is 85 mph. Anything less is
considered downright sissy. In turn, the minimum speed on Westheimer is at
least 45mph...

13. The wrought iron on windows in east Houston is NOT ornamental.

14. Never stare at the driver of the car with the bumper sticker that says,
"Keep honking, I'm reloading." In fact, don't honk at anyone.

15. If you are in the left lane, and only going 70 mph in a 60 mph zone,
people are not waving when they go by.

16. The Sam Houston Toll road is our daily version of NASCAR.

17. If it's 100 degrees, Thanksgiving must be next weekend.

18. When in doubt, remember that all unmarked exits lead to Louisiana ..

22. If you live in Katy and I live on the south side of Houston we'll never
hang out.

23. The best thing about being drunk between 2-5 am is Whataburger will
serve both breakfast and normal menus.

24. You are always able to be pulled over by any police vehicle, even if
you were just given a ticket.

25. You don't have to wait for an exit to get off a freeway, just follow
the ruts in the grass to the feeder like everyone else. This is how Houston
residents notify Texas Department of Transportation where exits should have
been built.

26. Else-where, they are called frontage roads... Here in Houston , they
are called FEEDER roads, so don't look stupid when we say "Exit the feeder
road and use the loop-d-loop"

If you don't live here, most of this will sound utterly insane, but to all
of us who call this home..nothing but the truth and you know it!!!

You'll Make More Money - It's that simple!

Why?

When you turn on CNBC or the nightly national news, what are some of the major stories? Oil is getting more expensive, Steel is getting more expensive, Copper is getting more expensive, Gas is getting more expensive, etc... I think you get the idea.

Not only is inflation on the rise, but more importantly, the input costs for new construction are going up. It is only going to be more expensive to build, whether it's a house or a commercial property.

One of the ways of valuing commercial property is through replacement cost. Simply stated, how much would it cost me to build an equivalent structure? As construction costs rise, the replacement cost rises, and property values go up.

Want more net operating income and higher capitalization rates (NOI/Price)? This is also coming down the pike. As we already see in Austin, lease rates are going up in part because of the new supply coming online. As these buildings are completed, they have to ask high rates because of the construction costs they faced. With these new buildings becoming more expensive, people will be driven to existing structures that have cheaper rates, thus driving up demand, and in the end driving up price for these places. Voila, you have higher NOI and a higher cap rate. It's all simple supply and demand.

How to Profit

The further you are in front of the curve, the more likely you are to benefit. Sure, the market may turn down temporarily, but it will bounce back. Even if you don't buy at the bottom, you may miss the move and have to buy much higher than you would right now. Either way, you are likely to be set with an investment by purchasing today.

Naturally, if you have any desire to invest in Austin commercial real estate, I'm your guy. Give me a call or send me an e-mail.

This is just my personal opinion, as all postings in my blog are, but you can mint money by investing in real estate right here and right now. To be a little more specific, you can mint money by investing in student housing close to college campuses. Living in Austin, and working in real estate, it's hard to ignore this. Unfortunately, I don't have the capital to make the investment, but if I did, you could bet the farm that I would.

Going around the campus area, it would seem that you can buy 1 BR apartments for as cheap as $85,000. Considering the outrageous rents that landlords command as a result of the lack of supply and increasing demand, you can likely get $550 - $800/month for this apartment. Assuming a 20% downpayment and a 15 year note at 6%, you have an investment that requires very little cash inflows. After 15 years you are free and clear, have seen significant appreciation, and are probably garnering quite a bit more a month in rent. You can pay a management company 10%, and you don't even have to deal with the property. Does it get any better?

Yes it does! You can purchase a brand new 3/3 for $385,000 and charge $2500/month in rent, plus $100/month for a parking spot. Again, you won't cash flow much for the first few years, but you have an asset that will likely begin to cash flow after 5 years or so, and after the note is paid off, you have a gold mine.

I think that the better option is to go around and purchase older condos because there isn't a ton of difference in pricing of rents, and you may have the opportunity to sell out to a developer at a pretty premium due to the ever-increasing focus of large corporations on student housing opportunities. If they are going to get rich from it, why shouldn't you?

Unfortunately, I don't represent buyers looking at student housing, but if you are a developer looking at buying land for a large complex, I'll be jumping to answer the phone. Regardless, I hope all of my readers have the opportunity to take a look at this oft-overlooked segment of investing in real estate. Go out there and mint some money, and when you do, don't forget who told you about it :-)