@Matthew J - I am a commercial mortgage broker here in Austin. I'll make a few comments relative to industrial & NNN-leased real estate here in town as I see quite a bit of this in my pipeline:
1) I think the macro-economics are excellent in the San Antonio-Austin corridor. Over the last 6-7 years, Austin has posted consistent job growth (3-4% TTM job growth is some of the best in the nation), outstanding population in-migration (I've read something like 150 people a day are moving to Austin), good civic leadership, a very aggressive economic development corporation here which is actively recruiting companies here (see the RECA site and Opportunity Austin 3.0 for more details via the Austin Chamber of Commerce), and some excellent structural advantages (i.e. flagship UT 50,000 + students, temperate climate, relatively low cost of living, music culture, etc.). I'm pointing all of this out to say that Austin has seen tremendous appreciation in part due to these factors but I believe they will persist. I don't have a crystal ball of course but we've got a lot of factors in our favor here.
2) Whether or not it is wise to purchase a commercial warehouse here is going to be highly deal specific and I don't think we could provide any substantive feedback until you have more information or a deal-in-hand. That said, some factors you should consider are as follows:
- Acquisitions are very competitive now in Austin. For smaller warehouses, you'll be competing with users as well as smaller investors. Sellers are very proud of their assets and are requiring more earnest money up front as well as shorter close time frames (30/30 is common but in some cases 30/15 with earnest money hard up front could be required).
- This will be a capital intensive endeavor. Consider the tenant improvement costs, leasing commissions, cap. ex requirements, and ongoing maintenance involved with warehouse properties. I can provide more feedback on these items when you've found your deal.
- Financing will be more difficult to obtain if this is your first commercial purchase. Assuming this is your first purchase and you are buying a warehouse sub $1 MM , I think lenders would require more equity up front (30% or more), a shorter amortization (20 years), and full recourse. Of course, the debt component will impact your cash flow and returns so bear this in mind.
3) NNN leased real estate is a much lower return proposition and in my opinion is more of a capital preservation tool and/or passive income play than something to build tremendous wealth with. The characteristics of a NNN lease are as follows:
1) Typically a credit-tenant.
2) The lease is long term in nature (10+ years) with multiple option renewal periods and rental-bumps structured throughout. The lease structured such that landlord has no responsibilities for property level expenses such as taxes, insurance , or CAM/maintenance costs and the tenant will manage the property/pay the expenses themselves. In some cases , LL is responsible for structural costs like roof/foundation but it is very limited exposure.
3) The cap rates and purchase prices for NNN leased assets are priced according to the terms of the lease, credit of the tenant, etc. and are often priced at a premium given how much perceived safety their is for the income stream. For example, you could buy a Dollar General Store and the cap rate would probably range from 6-7% depending on the location. Walgreens/CVS are some of the priciest NNN leased deals with cap rates from 4.50 - 5.75% depending on the location , necessitating either a large 1031-exchange or big capital outlay to acquire these assets. That said, it is true "mail-box" money.
Hope this helps! Let me know if you want any more data on the market.
