THE COMING FLOOD OF NEW RIVER OAKS-AREA APARTMENTS IN MONTROSE Some local stats from research firm Axiometrics: 32 new apartment properties, holding a total of 8,700 units, are currently under construction in Houston. Of that total, 15 of them — accounting for 4,300 apartments — are in the “Montrose-River Oaks” area. Occupancy rates for similar existing properties in the same neighborhoods are currently in the mid-90-percent range; rents have been increasing at an annual rate of 9.1 percent as of January. [Real Estate Bisnow]
So food, energy, and rent are inflating at a massive rate.. but the official stat is still 2%, huh?
Sigh…there goes the neighborhood. The people who make The Montrose so interesting will soon not be able to live there anymore.
Rents are way too high in Houston and I expect them to come down as soon as these additional units are liveable. West Ave is over $2 per sf per month
Maybe they’ll go make another part of Houston interesting then. Riverside, Eastwood, etc.
@ Benny: I don’t think that the rents in Montrose are coming down for anybody anytime soon. Bear in mind that a lot of these new apartments are replacing older housing stock that was demolished, and also that the new money attracts new retail and service providers in such a way as creates a positive feedback on the system and demand for every category of housing, as well as for neighborhoods on the periphery.
Here’s what I am seeing in Montrose this year and last year:
Every nice garage apartment, side-by-side duplex, fourplex, etc brings on multiple applicants. (Sometimes renting for more than the stated price.) With several to choose from, the Landlord’s pick will have excellent credit and high income– a lot higher than you would expect for say a garage apartment.
These tenants could afford to live in those shiny new apartment complexes. Easily.
But they don’t want to.
They want to live in the neighborhood,on a residential street.
This doesn’t apply to every tenant- obviously there are more who want to live in the beehive.
But the demand for funky old Montrose housing isn’t diminishing- It is tighter than ever.
Harold Mandell, this may be part of the reason why:
Hellsing: And that’s pretty big for a studio (IMO). About 1/3 of our units in Montrose are studios, and they’re under 500SF. Though ours are $550 — not $1000 (then again, ours are not as nice as that one, so…)
While we try to make ours pretty nice inside, you can only do so much before the fact it’s in an older building is the turn off. At that point, there are giant diminishing returns from additional upgrades to the unit.
Now that more people are moving to Montrose…the hipsters will start migrating elswhere…why? thats just what they do..
Do you still need a car to live in Montrose?
I looked a couple years ago but was unimpressed with the bus options compared to the red-line.
Question: several of our tenants don’t have cars. We have far less spots than units yet our lot is 1/2 full (with 100% occupancy).
I have a car (and live in Montrose) but I put maybe 3k miles a year
according to Real Capital Analytics, “average apartment prices per unit, about $102,000 nationally, are near peak levels.”
the hipsters aren’t going anywhere, they’re all west u and memorial kids in reality.
Average apartment prices are mean nothing. They’re a function of (among other things)the quality of assets that are capable of transacting at arm’s length and the geography of transactions. If the economy and the capital markets got to humming along nominally once again, I’d fully expect that the average transaction price per unit would drop…which is a good thing for everybody!
TheNiche- i might be a freak but not at anything ending in -conomics. That being said, I feel I KNOW that supply will continue to go down and demand will continue to go up and prices wont go down for a long, long time. Am I wrong here? Missing something? At the same time however I guess, I see those Class A prices coming down as supply goes up and they have a difficult time getting absorbed. And THEN I see Class B/C Hipster places almost reaching Class A rents as there become less and less of them! 3 year waiting lists!!!! Oh, this is about to get good….
OK say I am real estate apartment developer and want to build $102,000 per unit complex for class A houston.. using a 20% loan 7% to the developer (me) the note is $790 per month, figure $250 tax and insurance, and $250 maintence and expensis (office peeps). this comes to $1290 per month cost, so I just dont see it happening in Houston. Of course there is a developer and bank out there willing to do this, but spreads too tight for me.
I meant 20 year 7% loan
@ JE: There are several factors preventing that scenario.
A Class A complex takes at least one contiguous rectangular-shaped acre unencumbered by easements to even approach feasibility, but such small sites have to be irreplacable. Developers really prefer having two acres or more. Developers also prefer that the sites be visible along a major thoroughfare, not off on a side street. There are only so many big older complexes on quality sites, and those are the ones that are biting the dust. The low-hanging fruit is rapidly exhausted, and that represents a long-term supply constraint, but it also means that much of the older housing stock will remain in place.
Throughout this process, lots and lots of new Class A supply is added, but a developer’s pro forma hold time is usually four or five years. By the time that they exit, the complex, the submarket, and the amount of construction should be stabilized…provided that there’s adequate local economic growth. (And if there’s not, then a lower tide grounds all ships…yours too.)
The smaller complexes on side streets (and there are lots of those) are sitting on townhome land; but every other kind of property like that is similarly situated also townhome land. You should expect that income-producing properties on townhome land will tend to take much longer to transition.
Affordability is also a limiting factor for the older complexes. By and large, the people who live in a crappy old complex can’t afford to wait three years to THEN pay Class A prices. They’re going to move away and settle into a different neighborhood. The folks that are left will compete with A-quality tenants (like myself) that have decided to ‘slum it’ because they’re frugal. But if A-quality tenants could get a new Class A apartment with central air, grounded receptacles, security, amenities, and better soundproofing between units for not much more, they’d move in a heartbeat. And that’s the dynamic that will play out. Rents will rise in Montrose for all types of apartments, but there will remain a spread between A, B, and C properties that reflects the relative quality of those places.
A valid criticism of my comments here would be that some people like having quicker access to the street or like having charming old architecture. My response to that criticism is that individuals with such preferences will be in good shape, but that MOST PEOPLE are RISK AVERSE and/or SHALLOW and/or IMPATIENT and/or IGNORANT. It’s illogical that apartments along a freeway feeder road should lease faster, but they do! It’s illogical that used cars should be so deeply discounted, but they are! For similar underlying reasons, filling highly visible new apartments in a hip neighborhood is like shooting fish in a barrel.
In the very long term, supply may be very nearly absolutely constrained and the demographic appeal will likely become broader and more family-friendly. At that point, you might see rental rate compression among various classes. But in the very long term, we’re all dead…with lots of recessions and probably one good solid energy bust along the way.