Houston Apartments Still in Demand

Since the start of the recession, the U.S. has lost more than 3.6 million jobs. Real estate investment volume and values have fallen dramatically, a reflection of the liquidity crisis and the uncertainty that are plaguing the financial system. Throughout the down cycle, however, some markets have proven more resilient. Houston’s economy finished 2008 with positive job growth of 54,000 and gross domestic product growth of 1.2 percent. To be sure, recent compression of oil prices is starting to take a toll; tightening expenditures in the energy sector will lead to a slowdown in capital expenditures from large oil companies and reduce consumer spending overall. Based on that, GDP growth for 2009 is projected at negative 1.5 percent. However, while most investors still equate Houston with the oil sector, the region’s economy is more diverse now than it was during the last recession, which should keep overall job growth positive or flat and support stronger market fundamentals.Forecast for vacancy in the apartment market looks bright as the recent credit crisis has virtually eliminated new construction starts. Houston’s bulging 21,000-unit construction pipeline for 2009 delivery will be greatly reduced to a controllable level under 5000 units in 2010 and part of 2011.Since the beginning of the year, active investors have been flocking to Houston to snap up deals with the expectation of yields  that are higher than the national average. owing to the large number of aggressively highly levered transactions that resulted over the past 24 months, distressed sales are now entering the market. The most recent example was a Class A bank sale out of receivership, marketed at 40 percent occupancy, that drew 30 offers.Despite broad U.S. and global economic woes, opportunities and demand remain abundant for multi-family properties, particularly in Houston. In contrast to last year, more sellers have come to accept the shift in market conditions and are considering offers that reflect  real cap-rate expansion of 100  to 150 basis points.Houston has many opportunities to purchase stable assets at attractive cap rates or distressed sales at substantial discounts. Investors that are willing to analyze fundamentals on a market-by-market basis will uncover the opportunities.