7) ANOTHER POSITIVE FACTOR FOR HSB REAL ESTATE.  5/3/07.

8) CENTEX SELLS OUT ITS 4th CONDOMINIUM BUILDING.  5/10/07.

5) HSB’s TWO HIGH-END DEVELOPMENTS – ESCONDIDO/LAGO ESCONDIDO AND SKYWATER – HAVE ATTRACTED THE COUNTRY’s TWO MOST ACCLAIMED HIGH-END MARKETERS.

Brady Oman’s gave life to what we know today as Escondido in May 2004, when he acquired the 482-acre Dillion Ranch.  It is bounded by RR 2147, Lake LBJ, HSB Proper.  

It was subsequently subdivided the tract into 350 lots, most of which back up on a Tom Fazio Signature Golf Course that he brought on line in early 2006.  The course was recently recognized by the Dallas Morning News as Texas’ best new golf course for 2006.

Today, a short 35 months later, Escondido’s entire infrastructure is in place save for its Marina and Clubhouse.  Construction on both is set to commence this month. 

Even more extraordinary is the fact that about 80% of the development’s 350 lots have already been committed and 90% of those have been closed.  They’ve been taken down at the rate of 8 lots per month over the 35-month period.  Based on this monthly sales rate, the 50 or so that remain will be gone by this fall.

Capitalizing on HSB’s wonderful reception of his extraordinarily high-end Escondido product, he doubled down.  During a three-month period ending in March 2006, he acquired the 27-acre Granite Rock, the monadnock located on Lake LBJ immediately upstream from Applehead Island, in two separate transactions. 

This tract is being developed into an even more upscale, gated subdivision. Its lots are selling for an average price that is several times more than the average Escondido lot, not to put down Escondido. 

To the contrary, Brady Oman is owed a round of thanks from everyone in HSB.  He taught HSB a lesson regarding how to value HSB and its real estate.  We had been selling ourselves short, big time, and we still have a long way to go to catch up.

It was he who first drew attention to our undervalued real estate.  Escondido blew our unbelieving minds by asking and getting five times more for its golf course lots than we had been asking for those on HSB’s three extraordinary Robert Trent Jones Sr courses – all three of which rank among Texas’ top 23 public-accessible courses.

But Brady was merely the wise and experienced quarterback. He recognized the need to bring in one of the country’s top two professional real estate marketing teams to in sure success and did so by handing the marketing responsibility off to Traditions Management out of Dallas.

In just the past 4½ years, Traditions has marketed over $1 billion of high-end real estate.  As can be seen on its website, www.TraditionsManagement.Com, it has been involved with many of the country’s most prestigious projects during that period, although its focus has remained that of a Texas company.

In another master stroke, Sam Martin, along with partners Armand and Molly Biglari, are following the same marketing strategy with their Skywater project, where marketing begins officially on April 14th.   Skywater is a 1,618-acre, high-end HSB development bounded by HSB Proper on the west, RR 2147 on the north and Highway 71 on the south. 

It will house 1,000 home sites and features a Jack Nicklaus Signature Golf Course.  The course will be ready for play by the end of 2008 and be operated by the Resort as another HSB amenity.

Skywater’s three partners selected DMB Realty out of Scottsdale to handle Skywater’s marketing.  DMB differs from Traditions in that it is set up to function as both a developer and marketer.  DMB Realty is DMB’s marketing entity.  Check the company out at its website – www.DMBRealty.Com.

Besides undertaking Skywater’s marketing, DMB has developed and/or marketed several other developments in California and Arizona, and one in Colorado.  DMB Realty’s marketing expertise is in such demand nationally that it was asked this past year to market over 50 of the country’s premier real estate development projects.  The company knew it could only undertake two new ones and Skywater was one of the two chosen.

DMB Realty has a strong following from satisfied investors who have bought in and profited from investing in its other projects.  This pipeline to high-end California and Arizona investors will be an exciting new experience for HSB. 

Early indications from DMB personnel and early feedback from key clients closely track one another.  The early consensus is that both are really impressed with: 1) HSB and its setting; 2) HSB Resort and its amenities; and 3) our real estate prices, which they find exceptionally attractive.   

With high-end, outside marketing assistance of this caliber, augmented nationally as it is by the professional efforts of Marriott, Centex Destination Properties, National Recreational Properties, Horseshoe Bay Resort and Horseshoe Bay Corp, HSB will soon be recognized across the country wide for what it is – one of the best high-end experiences in America, for a weekend or a lifetime.

There is no city of HSB’s size anywhere in America that is receiving such high-powered nation-wide marketing.  Year 2007 seems destined to be an extraordinary, record-setting year for HSB and its real estate – one of its most exciting, ever!

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6) ATTENTION HSB HOME OWNERS:  Add 10% More to Your Home Value!

And you say, “Christmas comes only once a year and this ain’t December; so, what’s up?”  Well, another reason has surfaced that will drive home prices up; that’s what’s up, and its up for a largely unexpected reason. 

The increase can be attributed to four factors: 1) HSB’s expanding national appeal; 2) the increased demand produced by the expanded appeal; 3) the local area’s lack of work-force housing; and 4) without that housing, a serious shortage of construction workers to meet the added local demand.

The net effect?  Housing costs will be up around 10% this year on increased labor costs, alone.  Adding that on top of the annual appreciation our HSB homes began receiving about three years ago should make for an especially rewarding year.

When central Texas finally awakened last year from a six-year economic slumber, dating back to the tech-induced stock market crash beginning in March 2000, construction projects began picking up across the area. 

However, HSB - the crown jewel of the universally appealing, laid back and friendly Hill Country portion of central Texas – saw its real estate prices improve well ahead of central Texas in general. 

HSB had been gaining momentum since early 2004, when a new breed of younger Texas oilmen began gradually appearing with plans to invest newly achieved profits in the immediate area.  Last year they showed up in droves – a trend that is expected to continue as long as the U.S.’s economy remains oil-based, which is probably at least three decades out.

Most were drawn back by wonderful memories of HSB dating back to childhood days, when they visited here with parents and friends of their parents who were involved in the oil business two decades earlier – during the last oil boom.  They remembered how HSB had grown rapidly during the earlier, prosperous period and that HSB had eventually reached the resort world’s top spot in late 1985. 

They remembered HSB had been driven there by a 12-year period of high oil prices and believed their business was in for another strong run - this one likely to last several decades.  Accordingly, they began buying second homes and undeveloped lots, especially on HSB’s lakefront, anticipating good returns, believing HSB would indeed return to the top of the resort world, and soon - likely within the next five years.

During the past seven years, investors who recalled HSB’s fabulous run anticipated this renewed interest and since March 2000 have announced 100 or so new development projects within what we’ve been calling the “HSB Triangle” – the 20 square mile area bounded by US 281 on the east, Texas 71 on the south, the Colorado River on the north and Sandy-Walnut creeks on the west.  A majority of the 100 projects are now underway, with a few actually having been completed.

These projects represent investment amounts that will approach $3 billion when ultimately built out.  However, a recent study found that the number doubles to $6 billion by merely adding a continuous five-mile-wide band around the perimeter of the Triangle.

Construction has just begun on two of the Triangle’s larger projects - Flatrock Springs and Skywater.  These two projects by themselves will represent two billion worth of construction dollars when totally built out.

Flatrock Springs is a 1,057-acre golf-course development destined to become an addition to the southern part of Marble Falls.  Although largely a residential development, it will also feature a large, up-scale shopping mall that fronts on the northwest corner of the intersection.  Planning for the Flatrock Springs Mall, whose rights are owned by a developer from Bee Cave, is in the late-design stage.

Skywater is a 1,618-acre development located between highways 71 and 2147, being immediately adjacent to the western boundary of HSB Proper.  It is another golf-course development and is being marketed by DMB Realty out of Scottsdale, Arizona. 

Construction on three other smaller Triangle projects began this winter.  They are:  1) Villa Del Lago, the 64-unit lake view condominiums now under construction at Rocky Road and 2147, overlooking Lake Marble Falls; 2) Terramark’s 26 high-end condos underway off 2147 on Lake Marble Falls lakeside; and 3) Phase 1 of Marley Porter’s Castle Rock development, located on the western edge of Cottonwood Shores, consisting of 18 acres of master planned development.
 
Castle Rock’s Phase 1 involves 30 three to six story condos overlooking HSB and Lake LBJ from the corner of 2147 and Wirtz Dam Road.  Several other residential and commercial structures will follow in later phases - all to be designed like Mr. Porter’s One World Theater in Austin, which features Old World architecture.

This Castle Rock project, which has been in the making for the past three years, brings another upscale development to the Triangle.  The Beacon will be doing a special feature on this extraordinarily interesting development in the next few weeks.

Parties familiar with the construction demands of the HSB Triangle report that its projects need as many as 1,200 more construction workers than currently available.  The area’s labor demands are not being met due to a shortage of affordable housing for the Triangle’s work force.

Building sites for work-force housing are currently available in Cottonwood and HSB South, but developers have been slow to address the need.  But that is changing.  Demand for affordable housing is today so strong that several parties are looking at addressing the need. 

For example, the developers of Skywater recently acquired a 480-acre tract fronting Highway 71, and much of it is currently targeted for work-force housing.  The tract is located about three-fourths of a mile east of HSB’s airport.  Flatrock Springs will also devote a large portion of its 1,057 acres to work-force housing.

However, in the interim, the Triangle’s immediate need for 1,200 more workmen can basically be realized only by inducing Austin and San Antonio workers to commute here.  But they won’t come without sizable bonuses to offset their additional travel time, travel costs, time away from their family, et cetera. 

With construction labor being an important portion of housing costs, the additional labor costs are expected to raise the price of new housing significantly, which of course lifts the price of HSB’s existing housing. 

Local authorities believe the labor shortage will add 10% to the area’s construction costs.  Chalk this up as another HSB free-be! 

Christmas does indeed sometimes come more than once a year - usually a function of being in the right place at the right time.  The time is right for HSB!

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7) ANOTHER POSITIVE FACTOR FOR HSB REAL ESTATE.

During the 18-year period prior to 1973, crude oil’s price per barrel averaged a mere $15 per barrel, as measured in 2006 dollars.  The thought of building a HSB-like resort out of Llano-Burnet county goat pasture had little cause to germinate. 

But Norman and Wayne Hurd did so during the latter portion of the period, timing the oil market perfectly when making their move to develop HSB, beginning in 1970. 

In the 12-year period 1973 through 1985, when HSB went from aspiring to be a resort to the country’s very best, the price of crude averaged around $50 per barrel. 

Most of you know that after HSB’s sprint to the top, crashing oil prices had the unbelievable effect of setting Texas’ economy back to practically pre-1973 levels. HSB took a crushing blow.

During the following18-year period, from early 1986 to early 2004, oil prices fell back to uneconomic levels, averaging around $22 per barrel.

During that same 18-year period, promoting HSB real estate took on the likes of beating a dead horse.  Local realtors of that day will tell you that neither coaxing, stroking nor beating helped. 

Dead horses don’t move.  And neither did HSB real estate during that period.

What a difference a few more years make!

More accurately, what a difference $50 oil once again makes to an oil-price sensitive community like HSB.  Actually, over the past three years, crude oil has done better than that, averaging about $55 per barrel.  By the way, all pricing used herein is in 2006 dollars.

This sharp increase has had a huge impact on HSB’s real estate prices.  Although we’ve issued several reports on how HSB’s real estate prices have picked up during this period, there’s more to report on the subject.

In early April, 2007, the International Monetary Fund (“IMF”) came out with its “World Economic Outlook.”  Its report predicts that “the world economy should grow at a robust 4.9% in both 2007 and 2008.  And it indicated that this rate should hold even if oil goes to $75 per barrel.”

Considering OPEC members are well connected and have ready access to all such reports, you can consider the report a license steal – pardon me, scratch that, a license to raise their price. 

In early April, oil was selling in the high $50s.  Its price at press time was around $65 per barrel.  Prepare yourself for $75 oil by mid-year! 

The IMF report will shield OPEC from world criticism when the cartel raises its price to that level because it has wide credibility.  They’ll need no other excuse.  It will absolve them from responsibility for causing harm to the world’s economy.  

Seventy-five dollar oil amounts to a 36% increase over oil’s past three-year average.  The only reasonable expectation from such an increase is that HSB’s real estate is in store for another significant rise.

Next week, we’ll point out that the IMF report was designed to measure economic trends and does not take into account geo-political considerations.  We’ll present a compelling case, based on the latest from that front, that we’ll be looking at $100+ oil by that time.

Hang on to your hat and your wallet.  While brooding over $4 mid-year pump prices and the need to increase credit card limits, don’t lose sight of the fact that this price action lifts Texas’ economy and that of the adjacent oil-patch states at the expense of the rest of the country. 

And also don’t forget that as Texas gets lifted in general, Texas’ sweet spots get lifted even more due to targeted demand for its select areas, and HSB is the sweetest, most select spot of all!

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8) Centex Sells Out Its 4th Condominium Building.

The BEACON has been looking to catch up on what’s going on with Centex Destination Properties’ (“CDP”) local lakefront condominium project, known as “The Waters,” thinking the community would like an update. 

We caught up with Tim Welsh, its local Manager, earlier this week.  He is a very open, cordial, hands-on person who is well thought of by his associates - and by The Resort’s leadership.

Welsh reported construction on CDP’s first three units, located immediately northeast of the Yacht Club, is practically complete.  They contain 114 condominium units that typically range in size from 800 to 1,200 square feet.  They sell for between $325 and $375 per square foot. 

Work will start soon on the its covered boat slips.  The first phase will be located on the shoreline in front of Building #3, the one with the western exposure.  CDP will be selling these slips separately from the condos.

Its three completed buildings are seven stories tall.  In each case, the lower level is for parking.  The upper six levels contain between 36 and 42 separate condominium units.

He reports that its fourth lakefront building, scheduled to house 24 condos and now under construction about a block southeast of the HSB’s Yacht Club, is essentially spoken for.  A fifth, to house 28 condos, may be starting this summer depending on pre-commitments. 

CDP’s policy dictates that buildings must generally be 90% or more pre-committed before starting construction.  The policy is serves to protect investment values by not bringing on product faster than it can be absorbed.

Both of these buildings will be only five stories tall, two stories lower than CDP’s first three buildings.  In turn, considering the five-story buildings are under far less vertical stress than the taller ones, they’re being built using wood studs in lieu of metal ones.  Accordingly, CDP has brought in a different contractor, Sendero Construction, to handle this construction technique.

Welsh reports that among more than 60 divisions operated under the umbrella of Centex Corporation, CDP’s parent company, the HSB operation is one of its top-performers, being somewhere among its top 15%.  Centex Corp is one of the nation’s five largest home builders and CDP is its high-end building subsidiary.

The Austin American-Statesman reported in its April 28th issue that “U.S. economic growth was at a 4-year low,” and that “economic growth slowed to a near crawl of 1.3 percent in the first three months of 2007, the worst performance in four years.”

This nationwide economic decline is consistent with the BEACON’s reports and forecasts. The high oil prices currently lifting the nation’s oil-patch are damaging our nation’s overall economy.  As the price of oil goes up, oil-patch states like Texas that produce the product see their economies rise at the expense of the rest of the country.

In that regard, Centex acknowledges it’s been challenged by the nation’s overall real estate downturn, as have the rest of its competitors.  But it has taken steps to be first out of the gate when the housing slowdown turns around.

It’s been through many downturns in the past and knows they’re best addressed by preserving resources.  They also try not to overbuild, cutting back on delivering product while maintaining property values. 

In that regard, it raised a billion dollars during its past fiscal year, ending March 31st, and intends to raise another billion during its current fiscal year.

With HSB among its top sellers, Centex and CDP remain totally committed to the local project.  Better yet, they are grateful having had HSB and their two other Texas projects to help offset the sharp downturn going on outside the oil patch. 

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