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Investors Want Houston's Multifamily Product, But There Soon May Not Be Much To Offer

Investor appetite is strong for Houston multifamily product, but an unfavorable seller’s market combined with a dramatic slowdown in new construction means buyer demand may outpace supply.

Berkadia Senior Managing Director Chris Curry said investors want a piece of Houston’s multifamily market, particularly with significant rent growth forecast for the next few years, and he expects buyer interest to remain high despite limited liquidity. 

In a March 3 Houston multifamily outlook, Curry reported that Berkadia’s Houston office closed 183 multifamily sales in 2022 for a cumulative deal volume of more than $5.6B, a record for the office.

But most of those deals happened in the first half of the year. Now, no one wants to sell in this market unless they have to, Curry said, so 2023 will be a slower year due to scarcity of product and capital.


About half of what Berkadia sells is workforce housing or product in that midrange price range, Curry told Bisnow.

“Houston has a ton of workforce housing here,” he said. “If you're not participating in that as a brokerage firm, you're probably missing a good bit of the market.”

The report said deal flow slowed down during the last two quarters of the year, but investor appetite for Houston multifamily product shows no signs of retreating. As of early March, Berkadia had more than 300 confidentiality agreements from interested parties for the two garden-style suburban offerings (The Boulevard at Deer Park and Latitude at 2976) it started marketing in mid-January.

Those are likely getting more interest than dense, urban complexes because of the size of the transactions, Curry said.

“With loans, with equity sidelined, we kind of adjust to this new interest rate environment,” Curry said. “The larger the transaction, the less interest there is.”

Some transactions could come from debt maturing, or “folks who may not have any other options at this point,” he said.

“Right now, it's a need-based transaction. You would not want to sell anything into this market,” Curry said. “You will do everything that you possibly can to avoid that situation, just because we've seen such a backup in value.”

Rent growth turned positive again this month, according to a new report from Apartment List. Its national rent index increased by 0.5% over the course of March. Year-over-year rent growth stood at 2.6%, the lowest level Apartment List has recorded since April 2021. 

Curry said rent growth in Houston will vary by type of multifamily product, with Class-A holding steady or growing, while workforce housing may “compress” more. 

But a dramatic slowdown in construction will likely keep renter demand consistent, he said.

“If you look at what's under construction, in Houston we live and we die with our supply pipeline here,” Curry said. “[There is only] one thing that I know consistently moves the needle on apartment rents, and that's the amount of apartment buildings that we're delivering to the market at any given time.”

Houston is no longer in the top 10 markets for units under construction, according to Berkadia’s report.

The region has about 20,000 units underway, meaning between 10,000 and 15,000 units will be delivered this year, Curry said. Houston averages about 14,000 to 15,000 units delivered per year, he said. 

Most of those projects were capitalized before interest rates started moving the way they did, Curry said. For the past eight months, not many projects have been initiated, Curry said, so 2024 and 2025 will be very low delivery years. 

“Which could mean that rents could grow dramatically at that point,” he said.

Add on supply chain issues slowing down delivery of projects — Curry mentioned a serious shortage of transformers necessary to bring multifamily projects electricity — and rents may be only looking up in the near future.