Oklahoma City Fundamentals Stable; Price Per Unit Increases

Oklahoma City, Okla.--The Oklahoma City market has seen strong demand for Class A and B apartments, according to Marcus & Millichap Real Estate Investment Services.

Oklahoma City, Okla.—The Oklahoma City market has seen strong demand for Class A and B apartments, according to Marcus & Millichap Real Estate Investment Services.

“Our economy hasn’t been hit that hard. [It’s an] energy-intensive market; [we have] oil and gas companies that are making a lot of money and pulling in a lot of people, [so we’re] seeing strong demand for apartment product,” though there are some issues with Class C assets, notes David Bohanon, senior associate in Marcus & Millichap’s Oklahoma City office.

“We still have quite a few of C properties that are out there on the market and have notes that are coming due in the not-too-distant future,” he notes. “A lot [of them] traded hands in the 2003-2007 period; they got high rates per unit and so they are going back to the banks or [owners have] to re-price those assets if they want to sell and take a loss.”

Bohanon tells MHN that the Oklahoma City market didn’t experience as much building during the real estate boom as many other cities. “We had a big economic bust in Oklahoma and Texas in the early 1980s, and a lot of the same developers who built apartments back then are still in the market, so they had a lesson learned—not to overbuild.”

Overall, apartment fundamentals are strong, with rents fairly static through the second quarter of this year. Over the past 12 months, vacancy increased 60 bps, to 10.2 percent, Bohanon reports. Meanwhile, asking rents increased 0.4 percent from the fourth quarter of 2009, with effective rents increasing 0.6 percent.

Edmond, Okla. had the lowest vacancy rate of the metro, at 7 percent, while West Central Oklahoma City had the highest vacancy levels, at 19.6 percent. At the same time, the East Oklahoma submarket had the steepest rise—160 bps—in vacancy.

Two developments, totaling 1,200 units, are currently under construction and are slated for completion during the second half of this year. An additional 1,100 units are in the planning pipeline, with no specific completion date yet known.

Transaction volume for the metro is down 30 percent from in the first half of 2010, compared to the previous six-month period. Average price per unit, however, actually increased 17 percent, to $37,000 per unit, Bohanon tells MHN, though he adds that this is across-the-board and may not truly be an “apples to apples” comparison.

Cap rates are currently in the low- to mid-8 percent range, which, notes Bohanon, is down 20 bps from one year ago.

“There’s about $30 million in apartment properties that are either delinquent or REO that can be sold at discounts in the coming quarters, [with] more distressed properties that may emerge in the next year,” says Bohanon.

Buyers seem to be a “combination of investors that are looking for stable assets in what is perceived nationally as a comparably stable market compared to the rest of the country.”