2 min read February 2023 — Greater San Antonio has all the ingredients required for sustainable growth, as it continues betting on high-growth, catalytic industries to consolidate that growth. Michael Lynd, CEO of Kairoi Residential, spoke with Invest: and shared why he is bullish on the future of the region.
When you think about the past year for Kairoi and the San Antonio market, what has kept you the busiest?
Kairoi is made up of three different businesses: acquisitions, which invests in existing multifamily projects; development; and property management. Over the last five years, our investment and development businesses have sold 15,000 apartment units collectively. We felt the environment was highly and abnormally liquid. We took the opportunity to sell into that hyper-liquidity to generate some exceptional returns for ourselves and our investors. That has been the theme for us over the past couple of years: maximize the profitability and opportunity of selling into a hyper-liquid environment.
On the property management side, we have continued to grow and develop our platform while expanding our client base. We have added Weston Urban’s new high rise, which is under construction in Downtown San Antonio – a very exciting project. We have also added other marquee assets across not just San Antonio, generating momentum. We are focused on high-touch, high-level experience, triple A-class residential assets only. Our focus allows us to attract and train a homogenous skillset in terms of the type of people we are trying to attract to our platform. We have about 21,000 units under management today. Over the next year or two, we should be at 30,000-plus high-quality units.
Our development business continues to source some exceptional opportunities even in this challenging environment. Our pipeline of real projects stands at about $4.2 billion, and we have fully financed around $350 million of opportunities since the environment changed.
How would you characterize the state of the development landscape?
Things have gotten much more challenging in the development business. Costs continue to rise and the lending environment has severely pulled back. All of the large, money center banks are out of the lending business today for the most part; they will make loans only if they have to, for clients where they need to protect a relationship. Even the regional banks are pulling back. This is a time where relationships matter, as does performance and past performance. We are still able to get projects financed in today’s environment because of our brand. Great developers with good track records and solid performance can manage trying financial times, which in turn unlocks the possibility of delivering when there are far fewer projects getting built. Projects that are thinly capitalized, more fringe or developers newer to the business are really going to struggle to get projects done or they are going to finance projects with a capital stack that presents a lot of risk and or higher cost. Every project is more expensive to build today. Banks are lending at the 50% to 60% loan to cost levels today, a lot more toward 50% than they are toward 60%.
When you look at projects under construction, there are some pretty high numbers in place in all of the major markets, but when you look at permits, they really have fallen off a cliff. There is an ongoing reduction in appetite from equity as well as availability of capital from debt which is putting downward pressure on the ability to add supply. From a fundamental perspective, the business is still in really good shape, however, San Antonio specifically lacks an overwhelming amount of supply. It is very well spaced out geographically, there are several affordable projects getting built today, but I would not say there is any massive concentration of supply that threatens any specific submarket. However, we are seeing rents begin to retreat across the board.
How would you characterize San Antonio’s recent economic development?
San Antonio continues to be one of the fastest-growing population centers in the country. Economic development continues to be a huge point of emphasis for the entire community. Our rebranded regional economic development organization, greater:SATX, is continuing to have conversations with various auto manufacturers nationwide. Our workforce has a great presence of skill sets suitable for advanced manufacturing; San Antonio can play and win immediately in that industry. greater:SATX is also having several conversations with large semiconductor manufacturers as well, in the context of the Chips Act, a reshoring effort to mitigate risks related to the Taiwan and China dynamic is a real opportunity. We are hoping to compete in that industry as well. Both of these strategies align with our plan to create jobs with more economic mobility. Key to attracting those businesses is the availability of mega sites for large production facilities. We just do not have a whole lot of mega sites — 500 acres and up — with readily available water and power. There is a big opportunity there for us to attract these companies, but we need the sites improved in order to compete. We’ve missed a number of opportunities due to a lack of sites.
How does the continued growth of UTSA and A&M-SA attest to the attractiveness of the region?
The continued growth of UTSA is huge for our region as is the continued growth of Texas A&M. The key for us is being able to provide quality job opportunities for the graduates of those systems as they continue to grow and expand. UTSA Downtown is transformative for the region. What is being done at Texas A&M San Antonio will enable that campus to continue to grow. Talent production in San Antonio is one of the region’s biggest stories, given the expansion of our talent level with the number of associate degrees and bachelor’s degrees we are producing today versus how many we were producing. While our degree achievement stats do not look good in aggregate, those statistics do not really encapsulate where we are now and where we are headed. Between 2012-2017, we increased our output of associates and bachelor degrees by 49%. That put us at 5,000 less per year than Austin. A mere five years later, San Antonio graduates more in aggregate every year than Austin. We also have significant capacity in our higher-ed system to continue to grow those numbers. Talent is what attracts businesses as well as quality of place. Business is already attracted to the state of Texas; we just need to demonstrate that we are developing the type of educated talent that is going to allow them to locate their business here and be successful.
What does responsible growth look like for Greater San Antonio?
The question about our growth is whether we can generate the type of high quality growth we want, instead of unbridled growth, where you lack any control. In the past, San Antonio has focused on any job instead of those that provide economic mobility. Growth Industries and transportation are all part of the Greater San Antonio growth equation that we need to improve, and I’m specifically talking about air service.
Our success stories suggest we are taking the right approach and that our plan works. One such story is what is developing down at Port San Antonio which is part of our regional centers initiative. Winning the DeLorean headquarters was a direct result of our effort and a huge win for our region.
Cybersecurity and gaming are new areas of focus that are poised to become catalytic for our region. Those are segments that will continue to produce outsized growth opportunities.
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