Why Delivering 12,000 Units Isn't a Problem
It’s commercial real estate's boogeyman—everyone’s worried overbuilding is going to creep up in the middle of the night. But despite the 12,000 units delivering this year alone, panelists at yesterday’s Bisnow fifth annual Houston Multifamily Summit are confident that fundamentals are sustainable enough to keep it away. (That's not to say you shouldn't still check under your bed before going to sleep.)
HFF senior managing director Todd Marix says Houston was projected to add 65,000 jobs this year, but we’ll be closer to 110,000 added. He hasn’t heard of a development not hitting its projected rent and lease up. And although capital sources are regularly asking him about overbuilding, more keep flocking to Houston—he says four years ago, Freddie Mac had 80% of our market share, but now it’s spread out among all types of investors. Above, 375 attendees joined us bright and early at the Houstonian.
That said, Todd (snapped between Monogram Residential’s Larry Sloan and Apartment Data Services’ Bruce McClenny) says there might be a slowdown on the horizon—public companies often precede the private sector, and REIT stocks have taken a hit lately. Bruce tells us his firm just got new money and new management structure and is gearing up to expand out of Texas.
Deverick & Associates managing director Deverick Jordan says Houston is leading the nation for multifamily development, but we actually have less than Austin and Dallas on a population basis. Put simply: “When you have the economy we do, supply isn’t concerning.” Plus, the raw data doesn’t consider that many projects are being torn down, so we’re netting fewer units. He’s been amazed at the returns on development lately—one Houston developer recently got a $75,000 profit per unit, and with the way our economy is trending, the property’s buyer will probably also net well.
KeyBank Real Estate Capital regional exec Clay Sublett is a little more concerned about supply, especially since we have a propensity to overbuild. He says we need to be careful of the development lag time and not just keep building because things look great at the moment. Besides, when you’re speeding at 90mph, a blowout or any unforeseen trouble is disastrous. He’s also seeing some frothiness in the capital markets, like people putting down earnest money before doing due diligence. He doesn’t think it’s time to pull back yet, but some signs are definitely there to put him on the alert.
ARA founding principal Matt Rotan says multifamily is in the 6th inning of an extra-innings game. He says besides our job and population growth, he sees more demand drivers coming down the pipeline, like the Panama Canal expansion, insufficient single-family lots (we’re down to a 2.1-month supply in Houston), and preleased office development. He thinks our market will get more liquid before it gets less. And he’s less concerned about that frothiness Clay sees—he says putting hard money on day one can be the only way to win a deal, and it makes sense for people who already own substantial footprints in Houston and know what they’re doing.
Our moderator, NorthMarq managing director Kerry French (here between Dienna Nelson Augustine’s Pete Dienna and Novare’s Jim Borders), asked our panelists to ID the best opportunities today. Todd says 98% of our development is on the west hemisphere of the metro, but with $35B going into Port improvements, he thinks developers should start looking east. It can be hard to fight through zoning to get deals done, but the fastest lease up in our metro lately was a Baytown community. Clay thinks there’s room for returns in value-add deals, and Matt suggests looking at seniors housing.
We snapped our sponsor CenterPoint Energy’s Ana Hargrove, Matthew Goodson, and Josh Tingler. Josh tells us the firm’s Gas Advantage Multifamily Program is busier than ever—it now has 40% of the market on natural gas instead of electricity. Gas cooking is very popular now among residents, and major developers like Dinerstein, Finger, and Hines are using it for all their projects. CenterPoint gives incentives to cover installation, and Josh says tenants will love hearing that they can cook like a pro.
Our sponsor Bury’s Steve Eklund, Damita Fedor, Tonya Carvajal, Ziad Kaakouch, and Jason Atkinson are busy in the multifamily realm. They engineered Post Properties’ upscale project in the old Holiday Inn site across the street from the Galleria, which recently broke ground. Bury also worked on PMRG’s Weslayan Tower (it’s topped out) and the project at Buffalo Speedway and Richmond that’s underway. Jason tells us the latter is a very busy site with lots of utilities, a normal challenge for these inner city developments. (The underground right-of-way is crowded, and civil engineering on these infill sits is very complex and time consuming.)
Congrats to the lucky winners of our sponsor PCG's drawing! Owner Jing Johnson tells us the Pappas gift cards go to Hoar Construction's Scott Evans ($100), Howard Hughes' Coy McKinney ($50), and Telios' Arlis Brodie ($25). PCG creates high-quality 3D renderings, and is is one of Houston's fastest-growing HUB and WBE-certified graphics firms.