During a period of prolonged uncertainty in the commercial real estate market that has forced many investment managers to the sidelines, Austin-based Palladius Capital Management (“Palladius”) has been actively acquiring assets and originating debt along the I-35 Austin-San Antonio (“ASA”) Corridor. While the firm is no stranger to investing in the region, having deployed hundreds of millions of dollars across equity and debt strategies over the past decade, it believes now is the most opportune time to put capital to work.
“The pattern of growth we’re seeing in the ASA Corridor has strong parallels to the explosive growth of the Mid-Cities in Dallas-Fort Worth in the early 2000s and of LA-Orange County in the 1980s,” said Nitin Chexal, CEO of Palladius. “You had major metros connected by a primary traffic artery that became the natural path for population and real estate growth, creating a merged metropolis. We recognized these parallels early on in the ASA Corridor and anticipate the metro will become America’s next megalopolis. Given the compelling market fundamentals, we believe the next few years will be good vintages for deploying capital in the region.”
In addition to strong fundamentals, Palladius’ conviction in the 75-mile stretch that connects Austin to San Antonio is supported by dislocation in the market and the experience of its leadership team, which has invested and lent more than $550 million in the area since 2014. As early-cycle investors, the team recognized the potential of the fast-growing region and secured assets at attractive valuations before investors began driving up prices. To date, these investments have paid off for both the Palladius team and its investment partners. During this current period of uncertainty and market volatility, Palladius is accelerating its investment strategy in the region to position itself to generate continued strong risk-adjusted returns.
In analyzing investment opportunities across a variety of property types, Palladius believes there is a short-term supply bubble within the multifamily market, especially as merchant builders face maturing construction debt, which should lead to compelling acquisitions of Class A assets at a discount to replacement cost. Additionally, there has been continuous industrial and retail development to meet the demands of a growing population, leading to numerous opportunities to originate debt, particularly as traditional lenders like regional banks have been forced to the sidelines.
“Many of our traditional institutional peers have raised meaningful capital but are hesitant to move, creating an environment with limited competition but plentiful opportunities,” said Marko Velazquez, Senior Managing Director at Palladius. “We want to take advantage of discounted investment opportunities before that capital moves off the sidelines and once again runs pricing up. Over the next couple of years, we believe well-capitalized firms like Palladius have a window to buy low today and sell high in the future.”
Palladius’ recent investments along the ASA Corridor include dislocated Class A multifamily assets like the 342-unit Chloe Kyle in Kyle, TX. The region’s population and wage growth – which continues to outpace national averages due in part to the strong job market and the state’s zero income tax environment – supports the firm’s multifamily investments and also factors into its thesis on student housing. The expanding population has led to a jump in enrollment at universities like Texas State, where Palladius acquired multiple student housing communities. Beyond residential housing, Palladius is originating debt for newly built industrial assets in San Marcos, which sits in between Austin and San Antonio and has become a primary logistics / distribution hub for both MSAs.
“We believe our many years investing in real estate and cultivating relationships with investors, brokers, lenders, and local authorities along the ASA Corridor provides us with a unique competitive advantage as we look to put more capital to work,” said Manish Shah, Senior Managing Director at Palladius. “In our view, there is currently no better place to invest in real estate, as owners or lenders, when you consider the explosive growth of the area’s main metros, the aggressive expansion plans of state universities along the corridor, and the well-documented dearth of financing options. We are excited and well positioned to ‘buy the dip’ and acquire great assets in the process.”
About Palladius Capital Management
Palladius is a diversified real estate investment manager that leverages institutional best practices, technology and operational expertise to drive value creation for institutional and individual investors. Led by a team of commercial real estate, finance, and corporate operations veterans, Palladius pursues value-add and core-plus strategies targeting multifamily, student housing, hospitality and other thematic investment strategies through its affiliates. Palladius also originates debt investments through its non-traded REIT, Palladius Income Fund. Based in Austin, TX, Palladius manages and operates approximately $800 million of real estate across the U.S. and is focused on building a highly progressive platform that promotes diversity and inclusion. To learn more, visit www.palladius.com.
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