Fredericksburg Texas

Recent developments in the happenings of Fredericksburg, TX real estate have the tongues wagging and the rumor mill at full speed.  Our local Chili’s restaurant closed last week and has stirred a hornets’ nest of speculation, rumor and innuendo.  The simple explanation (usually the best one) is that they could no longer maintain targeted profitability while overspending to maintain adequate, affordable, responsible staffing.

How an experienced, publicly-traded operating entity like Brinker International with a net operating profit in excess of $200 million (‘07) can let a little thing like employee retention shut them down is a bit of a mystery.

While many Brinker outlets operate under franchise agreements, I seem to recall that the Fredericksburg location was a “company store”.  If, in fact, it wasn’t, I do know that the lease was guaranteed by Brinker.

What will happen next is anyone’s guess (though there are, no doubt, folks around who will tell you “they know”), I suppose the landlord/property owner will weather the storm.  Though they recently purchased the property (in large part due to the Brinker guarantee), Brinker will be obligated to “make them whole” until an acceptable replacement use is found.

The bigger picture begs the question why local merchants have such a hard time finding and keeping good, affordable employees.  Any local employer will tell you that their single biggest challenge is finding and keeping employees.

This all ties in to real estate due to the fact that most service employees making between $7-$10/hour simply cannot afford housing in Fredericksburg, TX.  The lack of affordable housing is threatening to strangle the life out of the very businesses that have made our growth so successful.  No housing- no employees, no employees-no businesses, no businesses-no growth, etc.

Any informed source can recount a small litany of businesses that they know would like to be in Fredericksburg, TX but have delayed (or shelved) their plans due to the chronic shortage of affordable employees.  This situation (among other factors) has attracted the attention of developers willing to gamble their resources on building “affordable” housing, both through private funding and/or state and federal assistance/tax credit assistance.

The combination of high land costs (and the low expected rental rates) and bureaucratic roadblocks (e.g. zoning and the “master plan”) have combined to make this a very long-term process promising minimum returns.  When these factors (real or artificial) impeded the efforts of the private sector to fill a clear demand, the original problem is further exacerbated.

The real estate industry holds the key to several of Fredericksburg’s most pressing issues (affordable housing, “chains on Main”, etc.).  Unless and until ALL the key players recognize the advantages to seeing “the big picture” and act together to creatively solve these “economy-stalling” problems, Fredericksburg will continue to frustrate the profitability and interest of even the most financially sound, market savvy businesses…the true life-blood of Fredericksburg TX Real Estate

1. Selection, selection, selection. There are about 1,200 properties on the market in the Gillespie County MLS at the time of this posting. Regardless of the price range a buyer desires, there are plenty of real estate options from which to choose. Just a couple of years ago the resale inventory dropped below 900 units. A buyer was forced to make compromises if they were going to locate the property of their dreams. Today there is a great selection of homes, acreage home sites, city lots and large and small ranches. There are plenty of options in this market.
   
2. No Bidding Wars. In 2005/2006 clients were often faced with making offers on more than one home. They often lost the first one to the 'feeding frenzy' that existed. Other buyers bid the properties up to substantially narrow the gap between the asking price and the eventual selling price. There is little or no competitive bidding in this buyer's market.
   
3. You can make an offer. A few years ago when you made an offer, the only question was how close to the list price could the buyer reach in hopes of being the best offer on the table. Today the list price vs. sold price ratio is dropping steadily in most property classes. Today, a seller will not be insulted if you 'make them an offer they can't refuse'.
   
4. Patience is tolerated. In the hot seller's market that existed everything was rushed. Find a house before other buyers did. Hurry up and make the offer.  Today a buyer can take their time. Look at several properties and think about their decision for a few days.
   
5. Due diligence is welcomed. In this market a buyer is encouraged to obtain a home inspection, termite inspection, and appraisal.
   
6. There are plenty of specs and newer re-sales. In the not too distant past buyers had to 'play games' if they wanted a new home or lot. There were lotteries and waiting lists in order to obtain prime properties. Today, builders and other sellers have dozens of properties ready for immediate occupancy.
   
7. Repair requests are welcomed. After a buyer completes a home inspection, they are allowed to submit a repair request to the seller. In the past a seller might insist the home was sold 'as is'. Many times, there were back-up buyers waiting for a primary buyer to upset the seller whose home was increasing in value almost daily.
   
8. Few, if any investors. It is estimated that twenty five percent of all sales in 2005/2006 were to investors. These non-owner occupied buyer caused the market to inflate and affordability to decline. Mortgage fraud became commonplace on the national scene. It's a great time to buy without having to compete with hundreds of prospective landlords.
   
9. Location, location, location. Today's buyers can find homes closer to work. In the past buyers looked to Stonewall, Harper, Mason or Llano in order to find affordable homes. In this market, reasonably priced homes are within biking or walking distance to schools, shopping, and relatives.
   
10. Real Financing is available. The 'wink, wink' zero down, no doc, adjustable, sub-prime loans are gone. Fixed rates are back. FHA financing, first time homeowner bond programs, special loans for teachers, and police officers are back in business. It's a great time to buy real estate!
    

Fredericksburg Texas real estate is being increasingly buffeted by the same winds doom and gloom that are affecting other markets throughout the country (see previous post on 2007 year-end sales).  The folks at Goldman Sachs are now openly predicting a mild to moderate recession (the “R” word) for the 2^nd and 3^rd quarters of this year.  While widely whispered on “the street” for months, Goldman’s outing of the “R” word sent the financial markets into a brief tailspin and has set the media talking heads loose to further talk down consumer confidence.

Though Goldman (and their brethren) are the same geniuses that brought us the current sub-prime lending mess that is, in large part, a reason for the looming recession, I have to agree with their reasoning and outlook (oil supply/demand, weakening dollar, etc.).  While these clowns make money whether the economy goes up or down (and, in fact, are increasingly important “movers” of the economy), you and I are left to figure out how best to weather the storm.

The two traditional stores of value in challenging economic times are gold and real estate.  Gold has the advantage of being easy to buy, easy to sell and presents substantially lower “buy in” costs.  Gold; however, is at records prices and likely to head further still so the dilemma is that you’re buying high, betting the economy will continue to struggle and hoping to time your selling before things recover (as they always do) and prices correct.  Real estate (on the other hand) is well into a “buyers market”.  As the cycle plays out, you’re able to buy on the downside, hold through the cycle and sell on the inevitable uptick (and enjoy tax advantages on certain asset classes in the meantime).  Remember Experience Matters