Market Spotlight: Amarillo, Texas

Market Spotlight: Amarillo, Texas
The "Bomb City" is Poised for More Expansion in 2020

Amarillo, Texas, has a history of resisting economic downswings. For example, during the Dust Bowl of the 1930s while other markets were suffering from severe drought, Amarillo became a tourist destination thanks to a central location at the junction of U.S. Routes 60, 87, 287, and 66. In more recent history, the city's most recent economic downturn occurred in the early 1990s and set the stage for a growth trend extending into and beyond the present day. The ongoing nature of this growth is due, in large part, to 90s era deterioration in the downtown metro area that has now become a focal point for redevelopment and reinvestment for public and private organizations.

"Amarillo is a tertiary market, but that gives it the unique advantage of having an economic environment much like that of Dallas-Fort Worth but without the compression on CAP rates," said Merrill Kaliser, shareholder in and founder of Kaliser & Associates, an Amarillo law firm, and founder and CEO of Axiom Workforce Fund LLC, a Reg D 506(c) fund focused on sourcing, analyzing, purchasing, and operating multifamily assets. Axiom is active in the Amarillo market, Kaliser said, "because the city is under the radar but is growing rapidly with a diversified employer base."

"The Amarillo market provides a fairly steady stream of opportunities for real estate investors," said Auction.com vice president of market economics Daren Blomquist. He added, "Median sales prices in the Amarillo market are more of the slow-and-steady-wins the race variety," noting that the Amarillo residential market did not demonstrate "the sharp drop around the Great Recession that we see in most markets."

Steady Growth Since 1970

One of the things that makes Amarillo particularly noteworthy for self-directed investors looking to make long-term investments in the area is a strong population growth trend. In fact, according to U.S. Census data, the city has experienced only one population decline since 1890. That decline was noted in the 1970 Census.

Given that nearly one-third of that steadily growing population is between the ages of 25 and 44, the city boasts a strong potential for ongoing demand for multifamily assets both inside and in close proximity to the Amarillo metro area. The city's relatively low rate of homeownership (61.2 percent) also bolsters the likelihood demand for this type of development will continue.

"We bought three assets in Amarillo over a period of just 40 days," Kaliser recalled, noting that shortly after his acquisitions one of his clients also bought in the area, already at a higher dollar value than his firm had paid. "I avoid being too heavy in any market, but I can't help liking the economics in Amarillo," he said.

Kaliser's fund uses proprietary technology to create heat maps to analyze economic conditions and market activity in order to pinpoint relatively small areas of interest for acquisitions. "Part of Amarillo is currently in a hot spot," he explained, noting that the market's size makes it ideal for doing off market deals. "We find many times our best transactions happen when we identify a property of interest, then just contact the property owners and make a deal. In this type of market, there are not as many games played," he said.

Amarillo may also fly under the radar in part because media coverage of housing markets is still very flip-centric, and this city may not be a friendly one to the traditional fix-and-flipper. "Slower and less predictable home price appreciation in the Amarillo market make it a bit tougher environment for home-flippers," Blomquist said. Although nearly three dozen properties hit the foreclosure auctions each month in the Amarillo market with average discounts of about 55 percent, average flipping returns are sporadic. Blomquist noted that some months, like November 2019, flippers average losses in gross home flipping profits. November posted an average gross flipping ROI of -5 percent.

A Positive, Lasting Convergence

As if to further emphasize just how exciting the Amarillo market is for investors, the city started 2020 by being named Motley Fool's top pick for the best places to buy rental property in 2020. Explaining the best places to buy rental properties will have affordable housing, wage growth, low unemployment rates, population growth, rising property values, and sound rental yields, Fool analyst Liz Brumer-Smith called Amarillo "a great market for receiving an above-average rental return."

Kaliser agreed, although he emphasized the "buzz" about Amarillo may actually obscure some of the better things about the market since most media outlets focus on single-family investments.

"Tertiary markets [like Amarillo] offer continued growth. Even when the market changes, they are pretty consistent," he said. "For projects like ours, where we can usually add value almost instantly by putting in organized property management, making basic improvements, and bringing up your occupancy, Amarillo is a perfect fit. Like many tertiary markets, it is going to be one of the best markets to be in when the economy corrects itself."

The Amarillo Basics

-- 14th most-populous city in Texas
-- Largest city in the Texas Panhandle
-- Estimated population for the city proper: 199,826 (2017)
-- Estimated population for the metropolitan statistical area (MSA): 276,020 (2017)
-- Freight and rail hub: Interstate 40 and Highway 66 both pass through the city
-- Nicknames:
   -- Helium capital of the world
   -- Rotor City USA (for the V-22 Osprey hybrid aircraft assembly plant)
   -- Bomb City (for the only nuclear weapons assembly and disassembly facility in the country)
-- 6 Universities and Colleges, including Texas Tech branches and a satellite campus for Texas A&M

Amarillo Employment & Employers

Amarillo's unemployment rate was less than 3 percent as of the end of 2019 according to economic data from the St. Louis Fed. This placed the city second only to Midland, Texas, in for low unemployment at the end of year. This was lower than the statewide rate of 3.4 percent and the national rate of 3.7 percent. Local policies encouraging public-private partnerships between the city and developers have successfully brought in businesses and educational facilities. For example, the Amarillo City Council offers about $1.25 million to support company plans to create jobs in the area via its Business Asset Protection Unit.

The downtown area of the city continues to be a value-add environment conducive to large- and small-scale investments. Nearly all existing commercial space in buildings like the FirstBank Southwest Tower, which lost about half of its occupants in 2018, has been filled, and additional economic development zones are bringing in additional businesses to fill new sports complexes, mixed-use developments, and entertainment venues.

The city also recently restructured its Strategic Action Plan (SAP) in order to facilitate more than $50 million in public and private investments in 2019 alone. In 2020, SAP funds will be focused in The Warehouse District, which has benefitted from the inaugural season of the city's minor league baseball team, the Sod Poodles. 400,000 people came to the metro area to watch the Sod Poodles during their first year of play.

by Carole VanSickle Ellis

Carole VanSickle Ellis is the editor-in chief of Self-Directed Investor Magazine. Read more about self-directed investing at SDIMagazine.com or email Carole directly at [email protected].

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