2019 Texas Real Estate: Cloudy, With Occasional Confusion


Welcome to 2019.

We would've gotten this up to you sooner, but a rash of property sales in the last several months disrupted our progress. Herewith our takeaways on the weather ahead:

With malls getting crushed, lodging in a nose dive, wild swings in the stock market and a half closed government, we won't blame you for thinking recession. But to cut through any confusion on the big picture, Warren Buffett's emotional intelligence says there's plenty of runway left in this economy.

Now that Mexico and Canada made nice with the U. S. on trade, Heatley Capital will have to go with Buffett on the economy, with one caveat: we may have to scratch harder for worms. To cut through any confusion on precisely our thinking, our whiteboard for 2019:

Ground-Up Developments: make lease up targets easier to hit with downsized footprints and projects scaled to preserve cost efficiency. This exactly is the formula applied to the two 6,000 square foot medical office buildings we are developing in Forney, TX on our corner wrapping a 7-11 store. That they are 6,000 square feet only appeals to a much larger universe of buyers compared to a 10-15K square foot building: the magnet is affordability. And, that they are shells only is another profit booster -- there's just not enough money in tenant finish out. And, two buildings instead of one keeps cost efficiency in line for a sweeter ROI.

Target Markets: the neglected, where the bar is so high, others pass on it for easier environments. Case Studies: took seven months to get Racetrac's deed restrictions removed before gaining construction privileges on Independence Parkway in Frisco, TX. Now, Frisco MOB is one lease away from being 100% leased, one of our most successful investments ever. Corsicana MOB is right behind it. Building C was our least-likely-to-lease space, so we left it out of the proforma. But a nonprofit is looking at taking half the space for an unexpected bonus in cash flow. Our developer says we are in first place and should know by March, but a nice surprise on the ugliest building ever we've put into inventory.

Products: single family and multifamily shine bright, but medical office, assisted living and student housing are our go-to food groups. Land and value-add income properties are a safe place to be, but in a booming market, you'll have to ferret out sellers in situations -- financial, divorce, bank repos -- to buy right. If your network does not include off-market sources, you're in for one tough slog in this seller's market.

For Current Inventory: kill debt, sell everything. We did, and tons of it. In the last five months, HCC killed $12.3M in debt and put $25.6M of property under contract, of which $16.4M closed. A record year for liquidating HCC inventory looms.

Sum: we subscribe to "working smarter beats harder," but 2019 may take bot