Tesla announced last month that Austin, Texas, will be the site of the carmaker’s next production site: the "Gigafactory," which will produce its Cybertruck and semi-truck as well as Model 3 and Model Y vehicles.
The huge facility -- which is already springing up from the ground -- will also employ about 5,000 people, adding more heft to the appeal the Lone Star State’s capital city has long held for young tech workers and other millennials, many of them fleeing crowded, hyper-expensive markets like San Francisco and New York.
For some perspective on what the Texas Gigafactory means to the Austin real estate market, we turned to Ari Rastegar of Rastegar Property Company, which already acquired 11 properties there this year.
Rastegar’s Austin-based company says it "specializes in acquiring complex or undervalued assets with opportunities to create value through repositioning, redevelopment, and/or improved operational efficiencies."
The company has co-invested in or directly owns and operates more than 13.8 million square feet of real estate across projects in 13 states and 35 cities. Ari Rastegar has a lot to say about his hometown, Austin.
What impact do you think the Tesla announcement will have and why?
When you look at the trend of big-name companies investing in Texas, which includes Google, Apple, Dell, Oracle, and Facebook, all of that combined points to the powerhouse that Austin is becoming. Because of that new Tesla Gigafactory, Del Valle is going to become one of the fastest-growing cities in the entire United States.
Those familiar with Texas will see the similarities to Kyle, Texas. Both towns are very close to the city, meaning there’s huge potential for residential growth, followed by commercial, retail, and all sorts of mixed-use properties.
By having the industrial component with Tesla, and the workforce it’ll require, coming to the area, it's just going to further that growth of Del Valle, just like in Kyle. Additionally, all the companies that support Tesla, and all the ancillary mechanical parts that go into building the Gigafactory products, is all going to contribute to a surge in jobs as well as in real estate prices in areas that didn't have them in the past.
What else makes Austin an attractive area for industrial real estate investment right now?
In Austin, the area just off of State Highway 130 is already undergoing a large-scale resurgence. We've already seen a plan for over 10,000 rooftops that are being proposed or are already in progress throughout that corridor. There's no question that the area is going to continue to grow tremendously over time.
We believe all of this recent activity will shape up to be the industrial backbone of Austin.
Increasingly we're seeing more industrial developers with their eye on that area. While it's just outside of Austin proper, it’s in good proximity, and further south on 130 offers great access to the airport. As demand for distribution and for supply chain logistics increases, along with being close to the airport, that corridor is really ripe for that type of development.
Which categories of real estate are most attractive right now and why?
Millennials are often renters and in burgeoning economies, like Austin, although very well diversified, people want to have value in their space, while being close to all the attractions. So, it becomes imperative to find well-located apartment complexes near large developments, where we can provide a better value to our end user.
By improving the standard of the amenities and renovating the interiors, investors are able to create something of value at a lesser cost, and that is what really drives the demand and the long-term value creation.
Particularly now, as we approach a post-COVID-19 market, vintage-style apartments are an excellent option for investors. Tenants enter the apartment from the outside, with no lobby acting as a funnel, which increases personal safety from contact with others.
Usually these vintage-style apartments are only two- or three-story structures. Given the limited number of people living on the premises, these apartments have an inherent social-distancing component that results in a lot more safety. Tenants also get the feeling of safety every day walking to their apartment door in the fresh air, as opposed to being crowded in an elevator going up a big high rise.
How does Austin fit into the overall trend of work-focused migration?
Due to the pandemic and extended work-from-home opportunities, young professionals and families are exploring life outside of the United States’ largest cities.
With more space, and lower costs of living, the suburbs are becoming more appealing to those in the rental market displaced by the pandemic. With concerns around crowded public transit, and cramped living spaces, many are considering a move to other parts of the country.
Particularly in areas across the Sunbelt, we're seeing renewed interest with large companies creating new job opportunities and lowered costs of living tempting young people away from traditionally popular cities.
Investors looking to seize the opportunities created by the pandemic should look at the Sunbelt to capitalize on this trend as it begins to take off.