Flex Space Feasibility Study in Texas

Texas investor buildings: big loans, then a stop

Texas ranks 2 of 51 among states for SBA loans to nonresidential lessors, the owners of flex, office and retail investor buildings, with 129 approvals and $162.2 million from FY2017 to FY2026. The class ranks 21 of 39 within Texas and the location quotient is 1.13x. Our screen picks out the median: at $922,200 it is 1.54x the national median for the class and clears the test against Texas lending across every class and against lessor lending nationally, on margin and on noise. The quartiles run from $452,300 to $1.6 million, so these are building loans, not working capital.

The FY2024 stop and who lent before it

This record belongs mostly to the years before FY2024. SBA came to treat most lessor businesses as passive investors that its programs do not serve, and the Texas trend shows it: 35 loans for $45.4 million in FY2021, then 2 loans for $5.2 million in FY2024, 1 for $350,000 in FY2025 and 2 for $150,000 in FY2026. Before that, the lenders were Enterprise Bank & Trust with 14 loans and $15.6 million, Wallis Bank with 11 and $12.6 million, and Fifth Third Bank, Plains State Bank and Randolph-Brooks FCU with 6 each. SBA 7(a) carried 125 loans and SBA 504 only 4, and a franchise flag appears on 11.6%. Harris County leads with 27 loans, Bexar and Dallas follow with 17 each, then Tarrant with 10 and Collin with 6.

On outcomes, the Texas lessor loans funded over FY2017 to FY2021, 86 of them, carry a charge-off floor of 0.00%, and 0.00% inside five years. Cancellation after approval is 12.7% for FY2017 to FY2024 approvals, at both floor and ceiling. For a lender, a building loan with a clean record still says little about a new deal, because the program door for passive owners has largely closed.

What a Texas flex study now has to answer

Because SBA lessor lending has nearly stopped, a feasibility study for a Texas flex or office building first has to establish the financing route: conventional bank or life company debt for an investor, or an owner-occupied structure in which an operating business occupies the space. Demand means absorption, vacancy and asking rents for comparable flex or small office space in the submarket, from Harris to Collin. Cost means land, shell and tenant improvement budgets. Debt service coverage has to be built on signed or likely leases, with downtime and re-leasing costs, and the appraisal will rest on income capitalisation and comparable sales. One code covers flex, office, retail and banquet hall rental, so this record cannot isolate flex buildings from the others.