Multifamily Fundamentals Soar
Everything was coming up roses at HAAs annual state of the industry breakfast, where we snapped Greystars Stacy Hunt, Camdens Bill Sengelmann, Wallace Garcia Wilson Architects Jim Wallace, Orion Real Estate Services Kirk Tate, Institute for Regional Forecastings Bill Gilmer, and Apartment Data Services Bruce McClenny. Jim says land prices skyrocketed; in Q1 11, they jumped from worthless to $60/SF and by Q4 12 they were $100/SF. (Hello, Hollywood? We have a great rags-to-riches story about land prices.) Design-wise, hes seeing a trend to taller projects(almost all now are over five stories; in 08 the typical project was four) and more one-bedroom units in the mix (60% in 08 and 80% now). Average unit size has dropped 120 SF in four years to 830 SF.
Bruce says Houston rents rose 5.7% last year,across submarkets and asset classes. (A 2.5% increase is considered good.) Even Class-D, which is usually flat, rose 3.2%. Demand has outstripped supply by 10,000 units for three years, and our overall occupancy is 89.6%. Half of the 17,000 units absorbed last year were Class-C, filling our biggest availabilities. Bruce expects 13,000 units will hit the market next year but says those arent scary numbers considering demand--if we add 75,000 jobs this year, we'll absorb 15,000 units.
Stacy thinks well see resurgence in Class-B properties this year, including lots of value-add acquisitions and renovations. Theyre leading to substantial rent bumps; Chateaux Dijon increased rates 9% after renovating last year. Most investors have been settling for lower yield to build new because rents have been so high, but he expects this year well see solid investors do value-add for the first time in a while.
Bill says development yields are narrowing; typically theres about 150 bps between buying and building but now its only 120 bps. Thats good from an equity standpoint. Hes shocked at how high rents have become inside the Loop. He never thought hed see $2 rents in Houston, but Midtown is hitting that now.
We have to share Kirk's joke from the HAA event: A penguin walks into a bar and asks the bartender "have you seen my brother?" The bartender replies, "I don't know, what does he look like?" Send your news to Catie Dixon, catie@bisnow.com.
