By Katie Burke, San Antonio Business Journal
As far as other central business districts go, San Antonio has been behind the curve in terms of new development and investment activity for quite some time. But thanks to a pipeline full of projects and acquisitions made by large institutional investment names within the past 24 months, the city’s downtown area earned a spot as one of the five best office markets to put money into.
According to the National Real Estate Investor, CBDs across the country are one of the most popular investments to make. Cities such as San Antonio, St. Louis, Baltimore, Raleigh and Indianapolis — in that order — were listed as markets on their way to becoming the next hotspots. Based on rising expected returns for cost of value-add properties, the research, done through a partnership with CBRE, showed that San Antonio is one of the best values in the country.
For Class A, value-add properties, the expected return on a property in the city’s CBD averages between 8 and 9 percent. But for stabilized Class C investments, that return can be as much as 10.75 percent. Cap rates on stabilized office properties in San Antonio’s CBD range between 6.50 and 7.50 percent. Todd Mills, CBRE’s executive vice president for capital markets and institutional properties, told me that with all of the activity around the Pearl and Southtown, investors “have a lot of eyes on the CBD market,” and with the last two significant transactions made by USAA Real Estate Co. and Clarion Partners, the city has “two really strong institutional investors.”
USAA Real Estate Co. and Clarion Partners “came to San Antonio looking for yield, and they were ahead of the curve,” Mills said of the firms’ purchase of the One Riverwalk Place and the Bank of America Plaza, respectively. “We haven’t had institutional names in the CBD market until now, and it will bode well for the future.”
And that future will be boosted by plenty of development in downtown San Antonio’s pipeline. Hemisfair’s Yanaguana Park, Rivercenter Mall, the Frost/Weston building, along with a slew of others will not only bring more bodies to the downtown area, but also drive up interest among investors. Mills told me that new multifamily development will push the market up, and that increase in residential product will help resolve the chicken-or-the-egg phenomenon that has long plagued development in San Antonio’s city center. In other words, the question of whether more residential or office product will help activate the downtown area is starting to be addressed with a mix of both.
“We’re starting to see new institutional capital in San Antonio, and I’m expecting cap rates to drop significantly as new office product is built or new assets come to market for sale,” Mills said. “Groups that invested early will be well rewarded. You can feel a different energy in downtown San Antonio versus five years ago … downtown San Antonio is coming of age.”
Developers of Alteza Residences above the Grand Hyatt were pioneers in Downtown San Antonio. The luxury condominium residences were built during the height of the economic downturn. In 2015, sales of the urban chic apartments have increased significantly. Bolstered by the scheduled opening of Hemisfair, Alteza will be the only property overlooking the park that will be available for sale in a sea of rental communities. That fact has not been lost on homebuyers who are scooping up the remaining inventory at this world-class address. Latest sales figures released by the developer include 110 condominiums sold and just 37 remain available, including two extraordinary, multi-level penthouses.
Click here to preview the Penthouse floorplan.