Developers See Growing Opportunities For Multifamily In Suburbia, Master-Planned Communities

Houston’s outer suburbs have seen huge gains in popularity over the past year, as budding homebuyers have opted to leave the crowded urban core, boosting single-family home sales into record territory.

Suburban multifamily properties in Houston have also benefited, as healthy leasing activity and rent growth indicate a shift in renters looking for bigger apartments at a more affordable price, as well as access to more outdoor amenities.

Multifamily developers, already betting on Houston’s expanding population, are increasingly examining the potential for more product in suburbia. And for some, master-planned communities are the perfect location to build, thanks to expansive amenities and the prospect of employers looking to set up shop nearby.

Rising multifamily rental values in Houston’s suburbs over the past year have offered a more cheery outlook for developers than Class-A multifamily in Houston’s urban core, which is generally considered overbuilt. Average apartment rents across Houston were $1,110 in January 2021, down 0.4% from a year prior, according to the latest report from RENTCafé.

In contrast, suburban areas experienced rent growth in 2020. Howard Hughes Corp.’s master-planned community The Woodlands had the highest multifamily rents in the city in January, averaging $1,493 — a 2% increase from a year prior. Pearland rents averaged $1,359 in January, up 1.1% from the previous year. 

Missouri City, Sugar Land, Katy, Friendswood, Spring, Stafford, League City, Rosenberg and Conroe all showed rents above the Houston average in January, despite their distance from the 610 Loop.

Howard Hughes Corp. National Multifamily Asset Manager Crystal Bledsoe said the firm saw a noticeable increase about six months ago in the number of new multifamily tenants citing the coronavirus pandemic as a primary factor in why they were looking to leave Houston’s urban core.

“Probably end of Q3 2020, beginning of Q4, is kind of when we started seeing probably 20% of our traffic saying, ‘Hey, you know, the city is just not for us anymore. The lifestyle has changed, we have to think it's going to change long-term,’” Bledsoe said.

Howard Hughes Corp. operates three master-planned communities in the greater Houston area: The Woodlands, The Woodlands Hills and Bridgeland. Within those communities, the firm has eight completed multifamily properties and a ninth on the way. That property, Starling at Bridgeland, is slated for completion in summer 2022.

Bledsoe said that historically, the two largest groups of multifamily tenants have been empty nesters and millennials. Both typically seek ease of lifestyle, quality of life and a one-stop-shop where they can live, work and play. But renter demographics have fluctuated over the past year as more people have sought a speedy move to the suburbs.

Many of these new renters in Howard Hughes Corp.’s master-planned communities don’t know what they want long-term, but are primarily looking for a high-quality lifestyle outside of the urban core, Bledsoe added.

Amenities are the biggest draw that master-planned developers use to attract tenants from urban areas, and communities like The Woodlands and Bridgeland have plenty: miles of walking and biking trails, retail and restaurants, good schools, hospitals and medical offices, along with a plethora of employers in the area.

But the main reason Howard Hughes Corp. multifamily properties have performed so well during the pandemic is that the firm has carefully studied the kind of amenities that renters are leaving behind in the city, Bledsoe said. The goal for years has been to duplicate those amenities in its complexes, which in turn will hopefully keep those people in their communities long-term.

“We have really spent more time making sure that we're going to be able to accommodate the needs of people coming in from a more urban setting to the suburbs,” Bledsoe said.

Howard Hughes Corp. is in the business of building large communities that have everything, including their own multifamily product, but other firms see the benefits of building either within or close to master-planned developments.

Multifamily developer, investment and management firm Allied Orion Group is building a 324-unit apartment complex called Granary Flats within Johnson Development Corp.'s Harvest Green master-planned community in Richmond, a small town almost 30 miles southwest of Downtown Houston. The complex will be the first multifamily development in Harvest Green.

The firm broke ground on Granary Flats in October, after purchasing the site in September 2018, according to Allied Orion Group Investment Associate Ashley Zubizarreta. Groundbreaking was initially planned for spring 2020, but the pandemic forced the firm to push back its timeline.

“Richmond is growing like crazy. Everything along the [State Highway] 99 corridor, there's been a lot of retail that's been recently added,” Zubizarreta said. “And then there's a lot of great amenities that are moving out there too. Messina Hof has a new winery in Richmond, just down the road and within walking distance from our site.”

Richmond’s exponential growth is expected to continue, partially thanks to Amazon and Trammell Crow’s announcement in June that the e-commerce giant is building an 850K SF fulfillment center in the area. The building is expected to bring 1,000 jobs to the local community and will open in 2021.

“In general, having a big corporate tenant like that across the street will also bring more retail and shopping to the area. So I think that also brings more jobs. It just helps to make an area flourish,” Zubizarreta said.

There’s another reason that the firm is so bullish on suburbia: economics.

Multifamily development in many of Houston’s popular inner-city areas is a difficult undertaking right now, thanks to depressed rents, high construction costs and even higher land prices. For Allied Orion Group, it makes more financial sense to aim for opportunities further out, where growth is clearly strong, Zubizarreta said.

“We're looking at jobs, corporate relocations, where people are moving. Those are the places that we want to be at, where people are moving and there's new jobs and new opportunities,” Zubizarreta said.

The multifamily complexes under construction by Howard Hughes Corp. and Allied Orion Group were already in the planning stages when the pandemic hit. But the optimism for multifamily in the burbs has only grown, and both firms see Houston’s outer areas as the ideal setting for future complexes.

Zubizarreta said Allied Orion Group is looking for more opportunities in the greater Houston area, particularly in neighborhoods like Richmond, Katy, Pearland and Fulshear. Being co-located within a master-planned community is nice, but not strictly necessary.

“The population in Texas is growing. And so I think there's going to be demand for people who may be moving from other states or other areas looking to live in an apartment before purchasing a home,” Zubizarreta said. “So we're still very bullish on that, even though there are a lot of single-family homes being built. We do think there's going to be demand.”

Bledsoe said that for Howard Hughes Corp., the goal is to always be considering a project. If the project pencils internally and makes sense, then the firm aims to have that project underway as fast as possible. With Starling at Bridgeland under construction, Howard Hughes Corp. is already heavily working on another Houston-area multifamily project internally.  

“We want to get a project out of the ground every 24 months,” Bledsoe said.