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Apr 11, 2023

Torres: Developers building industrial warehouses in upper RGV deserve property tax cuts

MCALLEN, Texas – A well-known customs broker in the Rio Grande Valley says local

MCALLEN, Texas – A well-known customs broker in the Rio Grande Valley says local cities should lower property taxes to help developers and investors looking to build industrial warehouses.

Jorge A. Torres, president and founder of Interlink Trade Services, says local banks could also help by lowering interest rates for investors borrowing money to build warehouses.

Torres voiced his concerns from the audience at a recent luncheon hosted by the law firm of Atlas, Hall & Rodriguez in McAllen. One of the keynote speakers was Carlos Telles, first vice president broker in CBRE's McAllen office. Telles spoke about the shortage of industrial warehouses in the upper Valley.

The Rio Grande Guardian International News Service interviewed Torres after the event had concluded. He said:

"As Carlos mentioned, there is not enough warehouse space in our region. We have talked about it before. And the base rates are high due to the lack of space. It is basic law of supply and demand."

According to Keith Patridge, president and CEO of McAllen Economic Development Corporation, the lack of industrial warehouse space is becoming more and more acute. Speaking at a recent luncheon hosted by the McAllen Citizens League, Patridge said that in the McAllen metro area, the vacancy rate is around 1.3 percent, with class A industrial-grade buildings virtually all occupied at a 0.08 percent vacancy rate.

In his interview with the Guardian, Torres said developers of industrial warehouses in the upper Valley are being hit hard by increased construction costs, high interest rates and property taxes.

"We have what we call the triple net, which is the cost of insurance, taxes, and maintenance for a property. And out of that, I will say that 90 percent of it is property taxes. We are talking about 12 cents, 13 cents, per square foot. So you add that to a rent of 70 cents, plus maintenance; so we’re talking about close to $1, getting to the 90 cents range."

Torres said companies that lease in the upper Valley are used to having a triple net of 38 to 42 cents per square foot.

"So, now we’re going to double that rent? A lot of companies do not want to commit to signing long term contracts or leases for that space. So that's another issue that we have for developers, the uncertainty. How much are we going to build and how much are we going to invest? And how long is it going to take us to start getting a return on the investment?" Torres said.

"We need some sort of assistance, especially with the property tax. I know the interest rates are eventually going to go down. But the property tax, that's an area that we would love for the government to help us out with, especially the county and city governments."

Torres is looking to build his own industrial warehouse because of the increased trade occurring with Mexico. Asked if he and other developers have expressed their concerns to city and county leaders, Torres said: "We have had some preliminary conversations about it, but that's a topic that is going to be touched on at the next warehouse summit. The Pharr International Bridge is going to have another warehouse summit soon and those are some of the topics that are going to be discussed. Now that we want to start developing, how can the government help us?"

By government, Torres said he was referring to local, state and federal.

In his presentation, CBRE's Telles spoke about industrial warehouses being built on spec, knowing that in today's market the buildings would be almost certainly filled upon completion. Asked about this, Torres said:

"Spec buildings, as you know, they stopped pre-pandemic or during the pandemic. Now, it seems logical that if a spec building is built, they will come. But, because of all the factors that I mentioned, investors, developers, are a little bit hesitant. So, if we can get those incentives going, that would be the fuel for developers to build."

And those incentives should be property tax cuts, Torres was asked.

"Property tax cuts and some sort of financial relief in the sense of interest rates, which again, bankers, I know they’re working on it and a lot of that is external to them. But we do see that within a year or so interest rates are going to start coming down so that might not be as big of a factor anymore. But, property taxes and some of the inflationary pressures on material costs and labor, those are there."

It was put to Torres that much of the near-shoring occurring in northern Mexico is currently happening in Nuevo León, not Tamaulipas. And so the main beneficiary of that in South Texas would be Laredo and not the Valley.

Torres responded: "There is no secret that we’re missing out. So we need to work as a region, all the Rio Grande Valley, to get together all the EDC's. I know there are meetings going on towards that. We now have the Donna Bridge, the Pharr Bridge expansion, the Anzalduas Bridge, so we have three bridges that are going to be commercial pretty soon and one of them (Pharr) is already commercial, it's going to expand.

"So, we have much more to offer than other cities in South Texas. We need to kind of get together and promote our region because, unfortunately, the state of Tamaulipas is not doing that great of a job and, I want to say that up front, I don't care. To promote the region we need to take that and run with it.

Asked if the date of the next Industrial Warehouse Summit has been announced, Torres said, not yet. "I know Luis Bazan (director of the Pharr International Bridge) is working on it."

And asked when he would be putting on his next international trade webinar in association with McAllen EDC, Torres said: "We’re probably going to have one before the end of the year. We’re looking at probably the September timeframe. We are waiting on some things to happen."

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