Macroeconomic Trends Affecting the Upside Avenue Portfolio

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Key stats and summary points:

  • San Antonio unemployment rate dropped from 6.5% to 4.8% over the last 12 months
  • Wages in San Antonio increased by 18% over the last 5 years
  • San Antonio population grew by 9% over the last 5 years
  • DFW unemployment rate dropped from 6.4% to 4.8% over the last 12 months
  • Wages in DFW increased by 25% over the last 5 years
  • DFW population grew by 9% over the last 5 years

 

Location! Location! Location! Whether you’re a novice or a seasoned real estate investor, you’ve heard it before. Location is a key variable in the performance of any real estate investment. This, of course, doesn’t mean purchase price, cap rates, debt/equity ratios, and other variables are unimportant. However, having a geographic presence in markets facing growing demand certainly helps to reduce the level of risk in a real estate investment portfolio. Many of the multifamily assets which the Upside Avenue Real Estate Investment Trust has an ownership interest in are in the San Antonio and Dallas-Fort Worth (“DFW”) metro areas. So, whether you’re an existing shareholder or a prospective investor, it’s paramount to know economic trends underlying these two markets.

 

How are employment levels changing?

The value of a commercial real estate asset is derived by the income it produces, which is partly a function of the lease rate and occupancy levels, among other factors. Every residential lease is backed by that tenant’s employment income, so high unemployment rates could be cause for concern. Twelve months ago, between 6-7 people were unemployed out of every 100 living in the San Antonio-New Braunfels metropolitan area according to the US Bureau of Labor Statistics as illustrated below.

FRED Unemployment Rate in San Antonio - New Braunfels, TX (MSA) | Upside Avenue

The pandemic spurred a lot of uncertainty and volatility in the labor markets initially, but the trend above shows a strong rebound. Fast forward to today, and the unemployment rate has dropped to less than 5%. Dallas/Fort Worth, graphed below, also shows a similar trend of decreasing unemployment. These trends indicate growing stability and security for the underlying assets that make up the Upside Avenue portfolio of apartment complexes.

FRED Unemployment Rate in Dallas Fort Worth - Arlington, TX (MSA) | Upside Avenue

Are stagnant wages an issue for Upside Avenue?

Given the healthy employment rates in our geographic positions, it should come as no surprise that most of the Upside Avenue REIT’s assets have generally achieved average occupancy rates of 95%. But more than ensuring our assets are being fully utilized, Upside Avenue creates additional value for its shareholders by increasing the lease rates of our multifamily assets. We do this by improving the living situations of our residents. Whereas previous owners of our multifamily assets may have neglected maintenance, the management team at Upside Avenue constantly looks for opportunities to deploy capital in the renovations of apartment complexes. Residents are willing to pay more for nicer, upgraded apartment homes. However, there is a ceiling to how much rent can be increased. While a myriad of factors contribute to how much rent is to be charged, the strength of the wages earned by the resident population plays a major role in determining the optimal lease rate, which in turn affects the level of expenditure on renovations. Owning real estate in areas facing loss of industry or declining economic activity can be problematic. Fortunately, incomes have been rising in both San Antonio and DFW, especially for employees paid hourly. On average, the private sector paid out $22 per hour to employees in San Antonio five years ago. This same figure grew to over $26 today which equates to a whopping 18% increase. Incomes grew even more in DFW, $26/hr to over $33/hr, a 25% increase over the last five years. Wage growth has been strong in the areas Upside Avenue is located, suggesting further opportunity to renovate assets and create more value for our shareholders, all while providing better living standards in the communities we operate in.

FRED Average Hourly Earnings of All Employees in San Antonio - New Braunfels, TX (MSA) | Upside Avenue

\FRED Average Hourly Earnings of All Employees in Dallas Fort Worth - Arlington, TX (MSA) | Upside Avenue

Are people moving into or out of our markets?

Employment levels and wage growth carry significant weight in the valuation of our assets, but population growth is a third macroeconomic variable that would be dangerous to overlook. To see what effect population changes have on real estate prices, let’s look at Baltimore, MD. At the peak of the economic cycle in 2007, the Case-Shiller index recorded $254,000 as the benchmark price for a home in Baltimore(1). At that time, Baltimore had a population of 640,150. Today, it’s population has declined to 586,131(2). What did this do to real estate prices in Baltimore? That same house priced at $254,000 would now only sell for $264,010(1). Surprisingly, real estate continued to appreciate, but at a rate drastically smaller than the rest of the country. The opportunity cost of foregone appreciation is substantial. San Antonio, in contrast, added 210,000 people to its population over the last five years. That’s a 9% net increase, see the graph below. Dallas grew from 7.05 million to just under 7.7 million, another 9% in growth over 5 years.

FRED Resident Population San Antonio - New Braunfels, TX (MSA) | Upside Avenue

FRED Resident Population Dallas Fort Worth - Arlington, TX (MSA) | Upside Avenue

 

Do I need to be an accredited investor to participate in Upside Avenue?

In summary, employment has been on a steady incline in areas Upside Avenue’s assets are located, providing a robust macroeconomic backdrop to further support the strong occupancy rates in our multifamily complexes. Additionally, overall wages in the San Antonio and DFW metros have consistently been rising according to the Bureau of Labor Statistics and the Federal Reserve. Last but not least, steady population growth driven by Americans flocking to our markets continue to push up the land value our assets sit on and owned by the Upside Avenue shareholders. For each aspect through which our assets generate investment value, there is a fundamental macroeconomic driver supporting the increased valuation, not just mere speculation.

Whether you’re a seasoned investor looking for passive, headache-free real estate investments, or a novice seeking a sophisticated investment vehicle with a personalized touch, Upside Avenue makes its wealth creation efforts available to all for as little as $2,000. Unlike other private investments, you do not need to be an accredited or high-net worth investor to gain access to the Upside Avenue REIT, which is managed by the Casoro Group and led by executives with a century of combined commercial real estate experience.

Schedule a prospective investor consultation today

 

(1) https://fred.stlouisfed.org/series/ATNHPIUS12580Q
(2) https://fred.stlouisfed.org/series/MDBALT5POP