Hynes: The residential and land sectors are well positioned for outsized returns as there's limited supply and growing demand in most markets. They are fundamentally under-supplied because of the capital markets. The consumer mortgage industry is still not operating well and banking regulations, including the Dodd-Frank Act, have hampered regional and community banks from lending to land developers and home builders. On the demand side, an improving national job market and population growth in the Sunbelt states, especially Texas where we operate, have kept the demand for housing high.

GlobeSt.com: How does Rockspring Capital capitalize on land and residential?

Hynes: Rockspring is well positioned as a real estate private equity firm that invests in the high-growth Texas Triangle–Houston, Austin, San Antonio and Dallas/Fort Worth–with roots dating back to 1973. We acquire with all cash, allowing our team to quickly buy undervalued assets. Our local expertise gives us the edge when investing in Texas as it helps us to identify and acquire off-market properties before others in the market. In other words, we see deals well before others as we live right here in our markets, and drive these highways and roads every day.

GlobeSt.com: How will land and residential returns compare to the income-producing real estate?

Hynes: Most of our investment partners are being very cautious on new investments to income-producing assets as they are bracing for a decline in the returns of these properties as the flow of money slows and more normal conditions return. They believe they are ahead of the crowd now by investing in land and residential as these sectors are becoming an attractive alternative and will likely stand alone over the next few years as the most compelling real estate play.

GlobeSt.com: Where is the ideal place for investing in residential and land right now?

Hynes: I'm a bit biased so I will convey to you what a significant overseas partner tells me every time we speak as he scours real estate opportunities around the globe. The two key investment themes he looks for are 1) areas that have population growth, job creation, pro-business policies and low taxation, and 2) temporary supply/demand dislocations because of inefficient capital markets. Historically, these attributes have generated investment success for him. Now, I am not a native Texan but having worked in this state for more than 10 years now, I can tell you that Texas has both of these themes in spades.

HOUSTON—Global real estate investors are exploring overlooked US residential and land sectors positioned for sizable gains relative to traditional income-producing properties, says Rockspring Capital managing director Jim Hynes. He discusses these and other trends affecting returns in this GlobeSt.com exclusive.

GlobeSt.com: After years of solid yields, what are investors saying about returns from income-producing real estate?

Jim Hynes: Rockspring has trusted partners throughout North America and overseas, and we often hear they are concerned their real estate investments–traditionally multifamily, office, retail and office–are not going to generate returns near expectations going forward. For a variety of reasons, too many dollars are chasing too few deals, resulting in irrationally low cap rates and intense buying competition. These properties are simply too efficient on the buy side for opportunistic returns. When you look on the horizon, there's downward pressure on future values with the risk of an interest rate hike and potentially higher exit cap rates on sale. These issues are weighing heavily on our partners' minds.

GlobeSt.com: So what does an investor look to for opportunistic returns?

Hynes: The residential and land sectors are well positioned for outsized returns as there's limited supply and growing demand in most markets. They are fundamentally under-supplied because of the capital markets. The consumer mortgage industry is still not operating well and banking regulations, including the Dodd-Frank Act, have hampered regional and community banks from lending to land developers and home builders. On the demand side, an improving national job market and population growth in the Sunbelt states, especially Texas where we operate, have kept the demand for housing high.

GlobeSt.com: How does Rockspring Capital capitalize on land and residential?

Hynes: Rockspring is well positioned as a real estate private equity firm that invests in the high-growth Texas Triangle–Houston, Austin, San Antonio and Dallas/Fort Worth–with roots dating back to 1973. We acquire with all cash, allowing our team to quickly buy undervalued assets. Our local expertise gives us the edge when investing in Texas as it helps us to identify and acquire off-market properties before others in the market. In other words, we see deals well before others as we live right here in our markets, and drive these highways and roads every day.

GlobeSt.com: How will land and residential returns compare to the income-producing real estate?

Hynes: Most of our investment partners are being very cautious on new investments to income-producing assets as they are bracing for a decline in the returns of these properties as the flow of money slows and more normal conditions return. They believe they are ahead of the crowd now by investing in land and residential as these sectors are becoming an attractive alternative and will likely stand alone over the next few years as the most compelling real estate play.

GlobeSt.com: Where is the ideal place for investing in residential and land right now?

Hynes: I'm a bit biased so I will convey to you what a significant overseas partner tells me every time we speak as he scours real estate opportunities around the globe. The two key investment themes he looks for are 1) areas that have population growth, job creation, pro-business policies and low taxation, and 2) temporary supply/demand dislocations because of inefficient capital markets. Historically, these attributes have generated investment success for him. Now, I am not a native Texan but having worked in this state for more than 10 years now, I can tell you that Texas has both of these themes in spades.