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Houston Multifamily Experts Remain Cautiously Optimistic

Plummeting oil prices are indeed impacting new development, absorption and rental rates. But get over it. Greystar's Stacy Hunt (standing, speaking before the Houston Apartment Association this week) reminded everyone of the dire straits multifamily was in between 1984 and 1990, when over 500 complexes foreclosed here. During Houston’s last multifamily downturn between 2005 and 2007, most developers remembered the pain of the past, and stayed focused on fundamentals to ride it out. Stacy believes the industry has learned much from these previous swings, enough to be in better shape to endure the current market. Perhaps he is optimistic because Greystar is well underway in raising $1B for its national value-add fund.

Greater Houston Partnership VP Patrick Jankowski laid out the employment data in the context of declining oil prices. He noted that Houston will only create 22,000 jobs this year. If Houston returns in 2017 to its long-term average of 60,000 jobs per year, and that's a big "if," it would have taken the region three years (2015 to 2017) to equal the job creation of 2014. The US Energy Administration and leading international lenders are “all over the place” in their predictions of when oil will creep back to $40 a barrel. Given the extreme uncertainty, Patrick suggested Houstonians change their thinking about oil pricing, considering it a governor rather than a driver.

Camden CEO Ric Campo kicked off his remarks with an Eagles (the band, not the No. 2 team in the NFC East) analogy. When the Eagles reunited after a publicly bitter 14-year split, their first release was “Get Over It.” Ric urged attendees not to worry about what’s out of their control, and focus on business excellence. “This is an opportunity for strong competitors to step up and differentiate themselves,” he said. His other tips: don’t overleverage, focus on customers every single day, and smile. Ric was still smiling, even as he reported that Camden’s planned downtown apartment tower is on hold indefinitely.

Apartment Data Services president Bruce McClenny begrudgingly followed Ric with a precursor to his comments, calling himself “Bruce the Bummer.” Between 2013 and 2015, 50,000 new units delivered while occupancy remained flat and rents continued to rise. At the end of 2015, occupancy stood at 90.6% and rents averaged $966/month or $1.10/SF. 102 properties with 29,000 units are under construction, concentrated in the Inner Loop/Galleria in high-end properties. For 2016, Bruce estimates occupancy will dip to 89.3% and rent growth will be 2.5% to 3.5% due to the lower number of jobs expected. He expects flat to mildly negative (-1% or -2%) rent growth in Class-A, mild to positive growth for Class-B, and strong growth in Class-C/D.

Alliance Residential Houston managing partner Cyrus Bahrami shared Ric’s optimism, citing the current market as an excellent opportunity to invest in distressed properties and possibly develop select sites where delivery might be timed with a recovering market. He pointed out differences in the current slump vs. the '80s recession that should give the industry hope—multifamily developers built in the current cycle because of strong fundamentals while development in the early '80s was driven by tax breaks and incentives. Developers have also applied significantly less construction loan leverage this cycle, greatly reducing the financial risk on their properties and corresponding balance sheets. Alliance is continuing development of Broadstone Tinsley Park and expects delivery in Q1 2017.