HOUSTON—In the search for higher yield, investors have branched further outside of gateway/major MSAs of Houston, Dallas, San Antonio and Austin. Secondary markets with strong activity include the Rio Grande area (McAllen/Edinburg/Mission), El Paso and Corpus Christi/Kingsville. Tertiary markets with strong activity include Beaumont/Port Arthur, College Station, Waco, Longview, Odessa/Midland, Coastal Bend area (Victoria) and Lufkin.

Cap rate spreads over core market assets have tightened but many secondary/tertiary deals are trading at a 50-100 basis point difference from primary markets. While secondary or tertiary cities where one or two dominant industries can significantly influence occupancies and financing can be difficult to obtain, most Texas submarkets have well-diversified economic drivers.

This type of diversification, lower supply and availability of debt financing via agencies, CMBS and bank loans has spiked investor demand. According to ARA Newmark, there are more local and regional buyers than institutional in the market at present. Private buyers are snapping up class-B and C assets for value-add plays. Institutional buyers are eyeing class-A acquisitions and new construction.

ARA Newmark has closed more than 30 deals in these markets in the last 18 months. It represented the seller in the disposition of Broadstone Ranch, a boutique class-A asset built in 2011 in College Station, TX. College Station was recently ranked number one in Texas and number five nationally on Forbes' list of best places for businesses and careers in 2015. With a growing population of approximately 107,000 and an extremely low unemployment rate of 3.5%, the city will continue to show economic growth for years to come.

Broadstone Ranch was an opportunity to acquire an institutional quality asset located less than one mile from Texas A&M University, with an enrollment of 59,129 students. Broadstone Ranch is located on the Texas A&M shuttle route, allowing student residents quick and convenient access to campus. The property also sits less than a mile from Post Oak Mall, which has 125 stores with anchor tenants that include Sears, Dillard's, Bealls, Macys and JC Penney. Additionally, residents can walk to Wolf Pen Creek Park to access walking and running trails. HEB Grocery Store is also less than a mile from the property.

The asset features Whirlpool stainless steel appliances, granite countertops, large maple wood cabinets, full size side-by-side washers and dryers, reserved parking spaces, expanded cable and Internet, new flooring in living areas, slate tile backsplashes and ceramic tile floors in kitchens, programmable thermostats in each room and upgraded lighting packages. There are also six floorplans to accommodate different space requirements.

The city of College Station has an extensive planning and zoning process, making it tougher for developers to get new projects approved, and most of the land in close proximity to Texas A&M has already been developed.

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In Search of Higher Yield, Investors Branch Out

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