Investors Eye Houston-Area Apartment Redevelopment

Houston-area employers will expand payrolls by 2.1 percent (or 54,000 jobs) this year.

Dees Stribling, Contributing Editor

Houston–The latest Houston apartment market report by Marcus & Millichap posits that investors are, or will soon be, focusing their attention on infill redevelopment opportunities in the Houston area. The main reason is that employers are expected to begin hiring in earnest again in Houston before the year is out, which will inspire modest demand growth for apartments.

In fact, Houston-area employers will expand payrolls by 2.1 percent this year, or 54,000 jobs. That compares with 98,600 Houston-area jobs eliminated in 2009.

At the same time as demand grows, however modestly, Houston-area apartment supply growth will nearly grind to a halt in the last two quarters of 2010. “Through the end of 2010 and into 2011… demand will grow at double the pace of supply additions as government home buying incentives expire and financing for new multifamily construction remains limited,” the report notes. “As a result, vacancy rates will begin to decline after the second quarter, led by submarkets near major office districts.”

Still, it will be some time before momentum fully returns to the investment market, says Marcus & Millichap, perhaps as long as 12 months. Many buyers and sellers are still on the sidelines, but there are those who are willing to bring cash to the table to seek out redevelopment opportunities, especially those inside Loop 610 (Interstate 610, which circles through the metro area).

Inside the Loop, where the price of land is the main factor in most purchases, is starting to see a proliferation of REO listings for apartment properties, according to the report. Many such properties were returned to lenders by out-of-state owners as operation issues materialized.

“Owners facing near-term refinancing or those unwilling to retain assets over the next three years will likely begin marketing properties more frequently as the year progresses,” the report predicts. “Operators able to offer seller financing as assumable debt will generate the most attractive bids, with cap rates in the low-8 percent range.”

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