The 2007 Review Following a solid three quarter start to 2007 highlighted by a spectacular second quarter, San Antonio’s fourth quarter 2007 apartment market demand came back to earth, as -629 units were absorbed over the quarter.  This absorption hiccup still left San Antonio absorption 73.7% higher than in 2006.  Leading the way in terms of quarterly absorption were the Class A and B markets, a good sign as new Class A market-rate and Class B tax credit complexes continue to be built.  The Class C market ended the year with positive demand (166 units) due to strong absorption in first and second quarters. However, Class D ended up in the red (-76 units) as a weak second quarter (-118 units) proved to be too much to overcome. 2007 ended the year with strong overall occupancy of 90.85%, 0.72% higher than the year end 2006.  The Class B market led the way with 91.95% occupancy while Class A posted a strong 91.33%.  With over 12,000 units either proposed or currently under construction, 2008 will have to enjoy continuous steady demand in order to maintain current occupancy levels.  Of the units either under construction or proposed, 10,133 are Class A projects with an additional 1,821 being Class B.  New projects under construction are scattered all over the city, yet the Far Northwest (1,783 units), North Central 1 (1,600 units), and Downtown (1,445 units) submarkets are leading the way. While construction continues at a steady pace, the market is certainly not becoming overbuilt.  Tighter lending standards have increased the pool of renters for Class A and B market complexes.  Market fundamentals such as unemployment and job creation are strong and still paint San Antonio as an advantageous market for both developers and residents.  Therefore, 2008 looks to be another strong year for the multi-family industry in San Antonio.   Overall occupancy in San Antonio will remain stable with Class A and B falling to around 91% over the course of the year.  Class C and D demand could potentially witness a slight increase in occupancy as the fall-out of the foreclosure markets from single family residential search for alternative housing. By: Stuart Showers San Antonio Apartment Market at a Glance   Class A Class B Class C Class D Overall Qtr Yr Occupancy 91.33% 91.95% 89.22% 90.78% 90.85% ▼ ▲ Rent/Unit $936 $648 $599 $521 $686 ▲ ▲ Rent/SF $1.019 $0.845 $0.771 $0.701 $0.849 ▲ ▲ Absorption -308 -93 -210 -18 -629 ▼ ▲

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

Submarket Performance
The Northwest submarket posted the strongest absorption figures during the fourth quarter, absorbing 143 units, followed by the New Braunfels submarket, which absorbed 68 units.  The weakest demand was found in the Medical Center submarket, which posted absorption of -339 units.

Class A absorption was highest in the Randolph AFB submarket at 28 units, while the weakest figures were posted by the North Central 1 submarket at -210 units.  The Northwest submarket recorded the strongest Class B absorption at 137 units, while demand was weakest in the Northwest 1 submarket at -98 units.  The Northeast 2 submarket posted the strongest absorption figures in Class C, absorbing 37 units, while absorption was weakest in the Medical Center submarket at -182 units.  The Northwest submarket posted the strongest absorption figures in Class D, absorbing 18 units, while absorption was weakest in the North Central 1 submarket at -23 units.

Apartment Inventory
There are a total of 681 operating or under-construction projects (greater than 25 units) in the San Antonio metro market with a total of 133,971 units.  Approximately 25% of the total units are Class A, 37% 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.

Under Cons. Projects Units Class A 7 1,792 Class B* 4 941 Class C 11 2,733 TOTAL** 7 1,792 Operating Projects Units Class A 124 31,702 Class B 222 49,223 Class C 252 41,063 Class D 72 9,325 TOTAL** 670 131,313

* 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 3.9%, while the total number of nonagricultural wage and salary jobs increased to 837,300 in November 2007, according to the Texas Workforce Commission.  This month’s total is 15,500 jobs more than at this time last year.  Of the nonagricultural employers, Professional & Business Services gained 4,100 jobs; Leisure & Hospitality is up 3,900 jobs over the previous 12 months; Trade, Transportation & Utilities gained 2,300 jobs; Education & Health Services gained 2,100 jobs; Financial Activities added 1,100 jobs; Government is up 1,000 jobs; Other Services and Mining added 700 and 300 jobs, respectively; Information added 100 jobs over the year; Manufacturing remained the same; The only industry to lose jobs over the year was the Construction sector, with -100 jobs.

Interest Rates
The yield on the 10-year Treasury note fell to 4.03% in December 2007, up 0.68 points from its 4.71% yield one year ago.

The 30-year fixed-rate mortgage (FRM) averaged 6.10% in December 2007.  One year ago, the 30-year FRM was at 6.14%.  The average for the 15-year FRM in December was 5.75%, down 0.13 points from a year ago.

The Prime Rate in December was reported in the Wall Street Journal at 7.25%, the same level 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.

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