Hey everyone, and welcome back for another deep dive. Today, we’re taking a look at commercial real estate. Ooh, CRE. CRE, exactly. Yeah. With a special focus on the US and. Especially Texas. Yeah, Texas. We’ve got a ton of sources here. Recent news forecasts, industry analyses. The whole shebang. Yeah, the whole shebang to give us a clear view of what’s hot and what’s not.

And what savvy investors should be looking at. Right, exactly. It’s interesting, you know, while some parts of the CRE market are, you know, hitting some bumps. Yeah. We’ll get into that. We will get into that. But Texas is really standing out. It’s true. It’s like a magnet for growth. It really is. The numbers are mind blowing, honestly.

Yeah. Texas added 562, 000 new residents. Wow. Just between July 23 and July 24. Just one year. It’s the fastest growing state in the U. S. Incredible. I know. It’s not just people moving from other states though, right? No, it’s not just moving vans. Yeah. It’s, uh, there’s strong natural population growth, too.

What does that mean? More births than deaths. So you combine that with folks relocating from other states. Especially those expensive coastal areas. Exactly. You’ve got this built in long term demand for real estate of all types. Yeah. You need places to live, places to work. Places to shop. Places to shop, exactly.

Oh, that’s obvious, but it seems like a recipe for CRE success. Yeah. What does this actually look like on the ground? So what are the specific sectors that are really being impacted by this? Well, the multifamily sector is a really good example. Okay. Then on a construction tear. Just trying to keep up.

Trying to keep up, accommodate all these new Texans. Makes sense. And forecasts suggest that things might cool down a bit in 2025, but that doesn’t mean demand is going away. Okay, that’s good to know. Yeah. But, um, one article mentioned something called first generation retail space. Oh! Hopping up in Texas.

Yeah. What is that? That’s a really interesting trend. So basically it means brand new retail spaces. Like, never occupied before. Never occupied before. Built in these high growth areas. Okay. And because Texas is seeing so much growth, these first generation retail spaces are Very in demand. Very in demand.

Makes sense. Yeah. They can’t have all these new people without new places for them to shop. Right. How does this play into the bigger picture for investors and businesses in Texas? So it creates this really unique opportunity, like a fresh start, you know, a chance to shape the retail landscape in a booming market.

That’s exciting. Yeah. And because demand is so high, investors are seeing this as a way to potentially get ahead of the curve. Interesting. To capitalize on Texas’s growth. So while other markets might be tapping the brakes. Right. Texas seems to be hitting the brakes. The gas pedal. Yeah. And I read a quote from the CEO of Jamestown.

Yeah. Jamestown, which is a big real estate investment firm. And he basically said that they see the sunbelt as a whole, like from the Carolinas to Texas. Yeah. All the way to Texas as a safe bet for long term CRE investment because of those demographics and growth. That’s a pretty strong statement. It’s a really strong endorsement.

Yeah. It really emphasizes How Texas’s growth is attracting serious attention from people with money, right? It’s not just hype It’s backed by real investment dollars. It’s real. Yeah, and you know, it’s spilling over into those fun quirky cultural aspects Yeah, you know those bumper stickers. I wasn’t born in Texas.

Oh, yeah the classic I got here as fast as I could Exactly. I wonder if they have one for, I’m building first generation retail space as fast as I can. That’s a good one. But in all seriousness, it really does capture that sense of momentum and opportunity that’s driving Texas right now. Absolutely. So Texas is booming.

We’ve established that. For sure. But even within a boom, there can be, you know, variations. I noticed an article talking about a slowdown in multifamily construction. Interesting. And some of the big Texas cities, Austin, Dallas, Fort Worth, Houston. What’s going on there? Is the Texas magic fading? Not necessarily.

It’s more of a rebalancing. Okay. I think, you know, those rising interest rates, construction costs, tighter lending are definitely impacting the pace of development. Makes sense. But that underlying demand is still incredibly strong. Because of the population because of the population growth. Exactly. Okay.

And Freddie Mac is even projecting that multifamily originations will actually increase in 2025. So it’s not that people aren’t interested in Texas multifamily. It’s just that the market’s kind of adjusting. Adjusting to the new realities. Yeah. Yeah. So maybe a little less pedal to the metal and a bit more like steady cruising.

Exactly. Yeah. Investors are playing the long game here. They’re in it for the long haul. Yeah, they see potential for really solid returns down the road even with these short term adjustments. So if multifamily is adjusting. Right. What about all that shiny new first generation retail space? So what’s the reality on the ground there?

Well, the data tells an interesting story. Okay, so Co star the real estate data experts gurus the gurus Yes, they say that Texas is actually leading the entire u. s. In newly built available retail space Wow, which is pretty remarkable that is impressive and Houston is the star performer within Texas Houston All right, go Houston.

This just shows that developers are incredibly bullish on the Texas retail market. Wow. High demand can create some, you know, unique challenges as well. Absolutely. And even major players like McDonald’s are feeling the squeeze. Really? I came across this quote from their senior VP of development. Oh, yeah.

Her name is Tabassum Zalatrawala, and she was talking about how hard it is to find prime retail space for new stores. Oh, wow. They’re having to get creative, explore different location strategies to adapt to this limited supply. It really shows that even in a booming market like Texas, securing the right location is still so important.

Yeah, it’s not just about building it. It’s about building it in the right spot. That’s exactly right. And that’s why understanding those nuances. Of each market. Of each market within Texas is so important. So it’s not one size fits all. No, it’s not. Okay, so we’ve talked multifamily and retail in Texas.

Right. But what about those other CRE sectors? Where are the investors looking next? Well, one area that’s attracting a lot of buzz is data centers. Data centers. The demand for data storage is just skyrocketing. Makes sense. Thanks to the rise of AI cloud computing. And of course, our insatiable appetite for streaming everything, everything, all the time, all the time, data centers in Texas.

Now, that’s an interesting connection. I hadn’t made. Yeah. Tell me more. I will. Well, it’s really a combination of factors. First, you have that massive surge in demand for data storage and processing we talked about. Right. But Texas also offers this attractive package, you know, a business friendly environment.

Right. Relatively low energy costs and lots of land. It’s like the perfect storm. It’s like a data center developers dream. Yeah. And on top of that, the federal government’s getting involved too. Yeah. President Biden signed this executive order making federal sites available for data center development.

Oh, wow. So it’s getting support from all angles. Interesting. So it’s not just Texas being Texas. There’s like a national push behind this too. Exactly. And you can see that play out in some of the major projects in the state. Like what? So Lincoln Property is developing this billion dollar data center campus south of downtown Dallas.

Wow, a billion dollars. Yeah. That’s a lot of money. Partnered with Gigabit Fiber and Tradition Holdings, that’s a serious investment. They’re not messing around. No, they’re not. Are there other big players making moves in Texas? Oh yeah, absolutely. Provident Data Centers is another one. Okay. They’re building a hyperscale data center campus.

Wow. In Grand Prairie, Texas. I’ve heard of that. With their partner, Powerhouse Data Centers, and these projects are massive. Yeah. Not just in terms of money, but also in terms of their physical footprint. It’s interesting. These data centers are huge. Yeah, they’re like these giant buildings. Yeah. Full of servers and stuff.

Yeah, it’s a different beast than like A shopping mall or an office building. Right. It feels like a real shift. It’s an evolution. In the CRE landscape. Yeah, for sure. And while those traditional sectors are graveling with some headwinds. Yeah. We’ll get into that in a bit. Yeah. Data centers in industrial spaces are showing a ton of momentum.

Yeah, and speaking of industrial. Okay, let’s talk about that. That’s another area where Texas, particularly Dallas, is making waves. Okay. So Dallas and Phoenix are actually leading the nation in industrial building completions in 2024. Those giant warehouses we see popping up by the highway. Yes, exactly.

That’s the industrial boom. That’s it, and it’s not just about storing stuff anymore. Oh, really? No. These facilities are increasingly hubs for advanced manufacturing driven by this push for reshoring. What’s reshoring? So, it’s about bringing manufacturing back to the U. S. Oh! You know, it’s tied to those economic and demographic tailwinds that we talked about.

Okay. People moving in businesses, expanding all those goods, needing a place to be made and stored. So, it’s like this whole ecosystem developing in Texas. TikTok. TikTok. TikTok. From the people, it’s all at the top. From the businesses to the buildings. Yeah, and that 1. 2 million square foot distribution building.

Oh, wow. That was recently finished in Bulch Springs, Texas. That’s a prime example. That’s huge. Massive. Okay, so we’ve painted this picture of Texas as this CRE hotspot. Population growth, multi family retail data centers. Industrial development? It’s a lot. It’s a lot to take in. It is. But like any market, there’s got to be another side to this story.

Right. What are some of the challenges that are maybe lurking beneath the surface? Yeah, you’re right. It’s not all sunshine and roses. Yeah. The CRE sector is facing some serious headwinds. And at the top of the list, I would say, is the impact of those rising interest rates. You know, REITs, Real Estate Investment Trusts, they’re feeling the pressure and it’s just becoming more expensive for buyers to finance deals.

So it’s making everyone a little more cautious. Yeah, those interest rate hikes can really throw a wrench in the works. It can. And it’s not just interest rates that are causing concern, right? No, definitely not. What else? Inflation is another big worry. Yeah, CEOs are talking about the potential for increased inflation, which could lead to higher production costs and make development projects more expensive.

Right. It’s this ripple effect that can impact the whole industry. It’s like this delicate balancing act. Yeah. Trying to keep those projects profitable with all these outside factors. It really is. Yeah. And then you add on this layer of global uncertainty. Oh, yeah. The world is kind of crazy right now.

It’s a little unpredictable. Some CEOs have even mentioned trade tensions and geopolitical risks as major concerns. That makes sense. It’s hard to predict how those will play out. Yeah. So it makes investors hesitant, right? And we can’t forget about labor shortages and rising labor costs that are affecting the entire construction industry.

It’s true. Finding skilled workers is getting tougher and more expensive, which adds another layer of complexity. Yeah. It sounds like navigating the CRE market right now requires some serious foresight and adaptability. It does. But amidst all these challenges, surely there are some opportunities emerging as well.

Yeah, absolutely. Okay, good. It’s not all doom and gloom. Phew. There are some interesting glimmers of hope. Like what? So, for example, we saw public REIT fundraising actually rebound in 2024. Oh, that’s good. Which is a signal that investors aren’t completely shying away from CRE. Okay. They’re being more selective, but they still see the potential for growth.

So maybe a bit more cautious optimism than outright exuberance. I think that’s a good way to put it. Okay. And banks are starting to feel a little bit more optimistic about lending. Good. Especially as those commercial property loan portfolios are improving. Okay. So the financing tap is maybe opening up a little bit.

Maybe a little bit. That’s encouraging. So if investors are still interested. Right. Great. And financing is becoming a little bit more accessible. Where are they focusing their attention? What are those bright spots in the CRE landscape? Well, we’ve already talked about the strength of data centers and industrial spaces.

Right. They’re doing their own thing. They seem to be doing well. Yeah. Those sectors are expected to remain strong, even with those broader economic uncertainties. But what about retail? That sector always seems to be facing an uphill battle. Yeah, it does. Is there any hope for those struggling malls and shopping centers?

I think so. Okay. It’s all about adaptation. Okay. There are these really interesting opportunities for what they call adaptive reuse. Okay. Repurposing existing retail spaces. So like turning those empty storefronts into something completely different. Exactly. Wow. And we’re seeing creative examples of this popping up everywhere.

Like what? Macy’s, for example, is shifting its strategy. Right. By focusing on these smaller format stores. Okay. And expanding its off price backstage concept. Interesting. It’s a way to stay relevant. To adapt. In a changing retail landscape. It’s not just about building new. Right. It’s about reimagining what’s already there.

Exactly. And that kind of outside the box thinking is becoming increasingly important in the CRE world. I can see that. You gotta be adaptable and willing to embrace change. Yeah. But even with those opportunities. Mm. There are still risks involved. Of course, what are some of the specific risks investors should be aware of in this environment?

Well, one example that highlights those challenges is the case of Jamison Properties. Okay. They’re facing some scrutiny over a loan on a Los Angeles office tower. Oh. And it’s causing these ripples in the CMBS market. That stands for Commercial Mortgage Backed Securities. Oh, okay. It’s a complex financial instrument, but basically it shows how one shaky loan can have this ripple effect throughout the market.

So even if things are looking up in some areas. Right. Yeah. There are still those potential pitfalls that investors need to watch out for. Yeah, it underscores the importance of thorough due diligence and careful risk assessment. Don’t just jump into any deal. Exactly. You got to understand the potential downsides.

Yes. Okay, so we’ve covered a lot of ground here, the highs and the lows. We have. For the CRE market. Yeah. What are some of the key takeaways? What do listeners really need to understand about the state of CRE today? I think the big picture is that the CRE sector is at this crossroads. Okay. There are some big challenges interest rates Right.

But there are also some really exciting opportunities emerging. That’s good. Yeah. Texas remains this hot spot. With multi family industrial and data centers showing strong momentum. Okay. But investors need to be aware of those challenges. Be smart. And approach the market with a healthy dose of caution.

So it’s a time for careful consideration. Yeah. And strategic decision making. Absolutely. A lot to digest for sure. It is. But understanding these trends and challenges is crucial. It is. For anyone involved in CRE or even just interested in the forces shaping our communities. Right. And our economy. It’s about more than just buildings and deals.

It’s the bigger picture. Exactly. Awesome. Well, I think it’s time for that thought provoking question that you mentioned earlier. Something to leave our listeners pondering as we wrap up this deep dive into commercial real estate. Okay. What’s the big question we should all be asking ourselves? So, given all these evolving economic and geopolitical factors, the question that comes to mind is this.

Okay. What strategies can CRE investors and developers adopt to navigate both the challenges and the opportunities? Yeah, it’s like we’re standing at a crossroads trying to figure out which path to take. Exactly. And there’s no single right answer, no magic formula. Right. It’s about being adaptable. Okay.

Strategic and maybe even a little bold. Right. So what did that actually look like in practice? Well, one approach that’s becoming more and more common is diversification. Instead of putting all their eggs in one basket, yeah, investors are spreading their bets across different asset classes, geographic markets, and even strategies.

So don’t just bet on Texas, bet on the whole Sunbelt. That’s the idea. Recognize that different markets will perform differently at different times. Okay. And within those markets, different sectors will have their own unique dynamics. So diversification is key. It’s a big one. What else? Another important strategy is focusing on what they call value add opportunities.

Value add. Yeah. So taking those existing properties that might be underperforming or outdated and finding ways to improve them. Like renovations and upgrades. Exactly. Renovations, upgrades, repositioning. Interesting. It’s about finding those hidden gems and unlocking their potential. So it’s like taking something old and making it new again.

That’s a great way to put it. Breathing new life into these underutilized spaces. Exactly. And this can be especially relevant In retail. In the retail sector, yeah. Where we’re seeing so much change. Makes sense. Adaptive reuse is all about transforming those spaces to meet the needs of today’s consumers.

Okay, so we’re talking about challenges, we’re talking about strategies, but I’m also curious about Yeah. Where are those potential bright spots that investors should have their eye on? Well, one area that’s really interesting is the rise of what they’re calling niche sectors. Niche sectors. Okay. Things like senior housing, student housing, self storage facilities.

Interesting. These sectors are often driven by demographic trends. And cater to very specific needs that aren’t as impacted by those broader economic swings. They offer a little bit more stability and predictability in uncertain times. So it’s like finding those pockets of resilience. Exactly. Within the market.

Yeah, it’s about recognizing. That there are always opportunities out there. That’s good. Even when the overall market is facing some headwinds, it just requires a little bit more digging. And creativity. And a willingness to think differently. Well, I think we’ve given our listeners a lot to think about today.

I hope so. It’s clear that the CRE landscape is constantly evolving. It is. Navigating it successfully requires knowledge, adaptability, and a bit of strategic vision. Absolutely. And I think The key takeaway here is that understanding the forces that are shaping the CRE market, those economic trends, demographic shifts, technological advancements, that’s crucial for making informed decisions.

It is. Whether you’re an investor, a developer, or just someone interested in the world around us. Right. These trends matter. They do. Awesome. Well, that’s a great point to end on. So, to our listeners out there, we encourage you to keep exploring, keep asking questions, keep learning. Yeah. About this crazy world of commercial real estate.

Absolutely. There’s always something new to discover, a new opportunity waiting to be unlocked. So true. The future of CRE is full of surprises. Full of possibilities for those who are ready to embrace the challenge of that. Well said. Thank you so much for joining us on this deep dive. Yeah, this was fun into commercial real estate.

Thanks for having me. Of course, we’ll be back soon with another deep dive into a new topic. So stay tuned. Sounds good.