Affordability Shift San Antonio has been a steady market for multifamily developments over the past couple of years and the current wave of new construction shows no sign of giving in through 2007. In 2006, 22 projects with nearly 5,100 units were delivered. Through the third quarter of 2007, over 1,400 units have been completed and another 3,800 units are currently under construction.  Of the units completed this year, 604 are Class A market-rate projects, while 688 are affordable (rent-restricted) housing. The upcoming construction includes 1,993 units of Class A market-rate projects and over 1,600 units of affordable apartments. Submarkets seeing the most new tax-credit developments in the San Antonio area include the New Braunfels, Boerne, Lackland/Kelly AFB, and Randolph AFB sectors. New Braunfels currently has the largest number of tax-credit units under construction as two properties containing 362 units are underway. Within the Boerne sector, there is one property with 264 units currently under construction. The Lackland/Kelly AFB and Randolph AFB sectors have over a combined 500 units under construction in two projects. Construction remains active in the South Central and West sectors as well with a total of 470 tax-credit units being delivered in those submarkets.  Overall, the MacDonald Companies is currently the most active tax-credit developer in San Antonio, with a total of 374 units in the construction pipeline.  San Antonio Housing Authority is next with 305 tax-credit units under construction in two regions.  Key driving factors in the surge in construction of income-restricted tax-credit developments is the growing economy and middle-class employment.  According to the Texas Workforce Commission, the San Antonio MSA has added 14,400 jobs over the last twelve months, most of them in the working middle-class sectors, such as Mining & Construction, which added 800 jobs, Leisure & Hospitality employment is up 2,300 jobs, and Trade, Transportation, & Utilities added 1,800 jobs.  Tax-credit properties are often times the most affordable housing options available to these workers in the San Antonio area.  Current rental rates at the 77 operating area tax-credit properties average $0.752 per square foot (psf), which is considerably lower than the overall market rental rate of $0.840 psf.  Demand for this type of housing in the San Antonio area is high, as indicated by the fact that occupancy at the tax-credit developments currently properties averages 91.72% and has been at or above 90% over the last year.  By: Amanda Vasquez San Antonio Apartment Market at a Glance   Class A Class B Class C Class D Overall Qtr Yr Occupancy 92.55% 92.32% 89.76% 90.99% 91.44% ▲ ▲ Rent/Unit $922 $643 $596 $518 $677 ▲ ▲ Rent/SF $1.005 $0.839 $0.766 $0.697 $0.840 ▲ ▲ Absorption 522 378 -161 23 762 ▼ ▼

In This Issue Click on the following: Occupancy & Rent Trends Current and Historical Trends Absorption & Inventory Absorption, Current Market Inventory Economic Fundamentals Job Growth, Key Interest Rates San Antonio Market Map Submarket Boundaries Methodology Research and Reporting Definitions

Of submarkets with more than one project, highest Class A occupancy was found in the Downtown submarket at 100.00%, while the Randolph AFB submarket recorded the lowest at 85.15%.  The highest Class B occupancy was found in the Kerrville submarket at 97.43%, while the New Braunfels submarket reported the lowest at 71.11%.  Boerne reported the highest Class C occupancy at 100%, while the West submarket had the lowest at 80.41%.  Class D occupancy was highest in the North Central submarket at 94.87%, while the Northeast 1 submarket reported the lowest Class D occupancy at 70.00%.

Submarket Performance
The West submarket posted the strongest absorption figures following the third quarter, absorbing 143 units, followed by the North Central 2 submarket, which absorbed 140 units.  The weakest demand was found in the South Central submarket, which posted absorption of -66 units.

Class A absorption was highest in the North Central 2 submarket at 140units, while the weakest figures were posted by the Far Northwest, Kerrville, and Northeast submarkets at -1 units each.  The West submarket recorded the strongest Class B absorption at 175 units, while demand was weakest in the Far West submarket at -50 units.  The North Central 1 submarket posted the strongest absorption figures in Class C, absorbing 46 units, while absorption was weakest in the Northeast submarket at -62 units.  The Northeast 2 submarket posted the strongest absorption figures in Class D, absorbing 70 units, while absorption was weakest in the West submarket at -31 units.

Apartment Inventory
There are a total of 679 operating or under-construction projects (greater than 25 units) in the San Antonio metro market with a total of 137,136 units.  Approximately 24% of the total units are Class A, 38% are Class B, 31% are Class C, and 7% are Class D. The chart and table below display Greater San Antonio apartment market inventory by class.

* Class B also includes Affordable Housing developments
** There are additional Unclassified (Class U) projects

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Economic Fundamentals

Job Growth
The civilian labor force unemployment rate in the eight-county San Antonio MSA increased to 4.0%, while the total number of nonagricultural wage and salary jobs decreased to 828,800 in August 2007, according to the Texas Workforce Commission.  This month’s total is 14,400 jobs more than at this time last year.  Of the nonagricultural employers, Leisure & Hospitality gained 2,300 jobs over the previous 12 months; Education & Health Services gained 2,300 jobs; Professional & Business Services is up 2,800 jobs; Government is up 900 jobs; Manufacturing is up 700 jobs; Trade, Transportation & Utilities gained 1,800 jobs; Financial Activities added 1,800 jobs; Construction added 600 jobs over the year; Other Services and Mining added 1,200 and 200 jobs, respectively; The only industry to lose jobs over the year was the Information sector, with -200 jobs.

Interest Rates
The yield on the 10-year Treasury note fell to 4.58% in September 2007, down 0.05 points from its 4.63% yield one year ago.

The 30-year fixed-rate mortgage (FRM) averaged 56.38% in September 2007.  One year ago, the 30-year FRM was at 6.40%.  The average for the 15-year FRM in September was 6.05%, down 0.03 points from a year ago.

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San Antonio Market Map

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Methodology

Data Collection
Our in-house research team continuously updates over 100 fields of data for nearly 6,000 apartment complexes in our database. We update at least 90% of properties on a monthly basis to generate accurate market trend reports on rents, concessions, occupancy, etc. Our monthly surveys also update other property-specific data such as fees, policies, management, and owner information. On a less-frequent basis we update amenities, schools, and other data fields that change rarely. We perform current and historical data audit after we close each month's survey to identify any data inconsistencies or incorrectly keyed values.

Research
We monitor various news media, press releases, marketing materials, web-sites, CAD records, permit issuance, and other sources to capture new construction, planned projects, financing, and sales. Our researchers conduct phone interviews with relevant developers, brokers, or lenders to gather information on new construction and sales. We add properties to our database on a regular basis to ensure we offer the most up-to-date and complete apartment database.

Market Coverage
Our online apartment database covers all four major Texas metro markets - Austin, Dallas-Fort Worth, Houston, and San Antonio. The Austin market includes Caldwell, Hays, Travis, Bastrop, and Williamson counties. The DFW market covers Dallas, Tarrant, Wise, Denton, Collin, Hunt, Rockwall, Kaufman, Ellis, Johnson, Parker, and Erath counties. The Houston market includes Harris, Montgomery, Fort Bed, Brazoria, and Galveston counties (Brazos county is also included in the database but excluded from the trend reports). San Antonio includes Bexar, Comal, Guadalupe, Kendall, and Kerr counties.

We subdivide each market into submarkets (see map above): Austin has 23 submarkets, DFW has 50 submarkets, Houston has 53 submarkets, and San Antonio has 26 submarkets. The submarkets are based on neighborhood-style areas with defining boundaries such as major roads and other factors that establish a neighborhood. This approach allows the user to view distinct areas of properties that have evolved into their own sections of town and can be identified together.

Glossary
Absorption = Change of Occupied Units, including new construction. Absorption is a proxy for demand.

Occupancy = Percentage of physically occupied units on property.

Pre-leased = Net of percentage of units that have been pre-leased but not yet occupied and units on notice to be vacated.

Rents = Market rents (excluding concessions).

Class = Properties are classified as A, B, C, D, or Unclassified (U) based on various factors, such as age, location, amenities, curb appeal, overall condition, rents, etc. Class A properties are generally less than 10 years old, have excellent amenities, prime location, and great appeal, thus they tend to have the highest rents. Older properties built in early 1900s that were converted from warehouses or office buildings, or older apartment projects that have had major renovations may also be classified as A. Class B properties are generally 10 to 20 years old, have good locations, good level of amenities, are somewhat less appealing than Class A projects, and are in overall good condition. New affordable projects are also classified as B. Class C projects are usually 20 to 30 years old, have few amenities, are in poor locations, and are not well maintained. Class D projects are generally more than 30 years old, in poor condition, have no or limited amenities, are in poor locations, and have poor curb appeal. They tend to have the lowest rents per unit (although per-square-foot rents may be high since the units are usually small). Unclassified or Class U projects are senior housing, student housing, or other properties that have unusual lease terms, include meals with the rent, or other services, so their rents and occupancies are not representative of the actual market. We exclude these from our statistical reports as they skew the averages for the other classes.