8 Comment

• TheNiche March 3, 2015 at 9:50 am

  Re: Finger’s portfolio. This premise that apartment developers should never again build at anything other than a ‘Main and Main’ location has been embraced by the entire industry. But there’s a problem with that. ‘Main and Main’ is used as an analogy for something that is broader in scope. 1900 Yorktown isn’t Main. Nothing on Yorktown is Main. Dunlavy isn’t Main. Crawford isn’t Main. There are roads that are better than Main. The analogy is kind of crappy to begin with.

  Of the tens of thousands of apartment units presently under construction or having recently delivered, most of them fit the criteria of the analogy such as it has been applied by developers in order to obtain financing. But if everybody is chasing after the same specious criterion, then that makes it anything but special. It turns a strength into a vulnerability. A developer might be better off developing near Kingwood, except that they shouldn’t bother trying because they won’t generate interest among equity partners or from prospective lenders — it may have +97% occupancy and there may be no new supply, but its still not ‘Main and Main’. It’s not in the bubble. And that should serve as a red flag for what actually IS in the bubble.
• ZAW March 3, 2015 at 10:11 am

  Re: Finger CEO/ Apartment Slump: Marvy Finger is probably right. As was the case in the 1980s, well-sited apartments will fare better than apartments that are not well sited. I really hope it’s not as bad as the 1980s, but apartments off I-10 and in suburbs like Katy could face a precipitous drop in occupancy, and all the problems that follow.
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  My only hope is that Houston and it’s suburbs get their bull whips out. As much as it might make apartment owners mad, now is the time for a crackdown on multifamily code violations. It’s too easy for maintenance and safety to get lost in the shuffle as owners struggle to pay debt service and keep apartments occupied. Hitting them with fines would add a sense of urgency that might not be there otherwise.
• joel March 3, 2015 at 10:37 am

  so TheNiche covered locations and why “main” doesn’t mean much of anything if everyone else is building in the exact same corridor and zip code. Likewise, nearly all of the apartments being constructed appear to be chasing the exact same target demographic. There’s a lot to show that this is still a shrinking demographic once you cut out the cyclical anomaly’s since the last recession. As he said though, will be interesting to see how it all comes together in a couple years time.
• Higher Density March 3, 2015 at 11:06 am

  Finger has his finger on the pulse, he uses the phrase “Main and Main” in genreal terms. Houston does not have a single Main and Main, nor do most cities. Finger is not like the majority of developers in town, unlike the merchant builder, Finger is in it for the long haul and tends to be slightly contrarian in the timing of his developments over the past 10 – 15 years. The Yorktown and Dunlavy locations are great locations that will perform over time and Finger has the stomach for slashing rent and concessioning out for months. While I am sad to see the inner loop change, it is also quite exciting and it ain’t over yet.
• ZAW March 3, 2015 at 11:35 am

  But Niche, apartments DID go up in the suburbs. Even the exurbs got new apartments in the last few years. Look what they did along 59 in Richmond, and at the end of the Westpark Tollway, and in Katy.
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  It is true that the suburbs weren’t the center of gravity for apartment development this go around. We should all breathe a sigh of relief for that because, hopefully, it will play some positive role in mitigating the downward spiral of apartments in the next few years. But it’s wrong to imply that nobody could build out in the suburbs.
• ShadyHeightster March 3, 2015 at 12:38 pm

  re: Finger-If housing prices in Houston come back down to earth because of weakening demand, I’d think that some of the young people renting $1500 1 bedrooms at “Main and Main” might start looking at buying a house for less of a monthly outlay. So, Marvy could end up losing the demographic he desires. At the end of the day, there’s a whole lot more poor and middle class people in Houston than $60k millionaires, and those are the people that will be leasing apartments. It will be interesting to watch.
• Old School March 3, 2015 at 12:43 pm

  The “Main and Main” locations hold up over hard times because they can pull in people from less desirable locations with rent concessions. I used to live in a stinker of a complex out west of the Galleria. During a downturn, I moved inside the loop to a great location thanks to some good rent concessions. That phenomenon will just become more pronounced with the quality of life improvements inside the loop (shorter commute time, more restaurants/shops/bike trails/parks/etc.). The fact that there are more and more apartments being built in the “Main and Main” locations will not diminish people’s desire to live in these areas. it just creates greater demand for retail and restaurants, which in turn makes the areas more desirable. If anything, this will cause a “tale of two cities” because the multifamily in the non-Main and Main areas will get hit the hardest and go through the all to familiar decay spiral or “Harwinization”.
• TheNiche March 4, 2015 at 12:22 am

  @ Higher Density: The phrase “Main and Main” or “irreplaceable” used to describe a site has been used by developers in their promotional literature at least since financing got tough in 2008. I was in multifamily development then, and I myself used it then. Using those phrases became a sort of prerequisite to attract any interest at all. With capital getting antsy again, here they are again. I mean no disrespect to him, but Finger didn’t invent these phrases. They aren’t his. This strategy, likewise, is not his. He is doing what the industry is doing. He is saying what the industry says. Yes, many props to him for making One Park Place happen. I wouldn’t quite call OPP an example of him being contrarian, rather than that he had a vision, conviction, and no small amount of luck. However, visionary investments are not his bread and butter. Most of his projects are fairly conservative and within the parameters that are most attractive to investors and lenders. If I am critical, really its not the developers that I’m critical of. Its the institutional money — that’s what developers respond to. That is the proximate cause of my concern and that tinge of cynicism.

  @ ZAW: There are a few suburbs, mostly west Houston (an Energy Corridor play), that picked up a lot of new multifamily development in this cycle, but the pace of suburban development throughout this cycle has been eerily limited in spite of strong fundamentals. Tax credit activity has also fallen off.

  @ Old School: Your perspectives on this pattern of development seem to blur effects that will occur over different time horizons. The retail and other quality of life factors that come as a function of greater population density (of an affluent character) take quite a long time to achieve, and retail in particular isn’t going to go through a renaissance during a downturn. If you’re a developer or especially a limited partner on one of these projects in the “urban core” — that’s what I call it — then brace yourselves. Its gonna get rough. If you’re a renter and have job security, then localized deflation is tremendously good news. If your interests are geeky and peripheral, for instance you take some sort of personal enjoyment from watching the city become something, something, something, and something else, and so forth, and you wrap your personal identity around that, then yeah this boom cycle has been an unmitigated blessing…it’s still hell for a lot of other Swamploters, though.

  Also, if I say that Kingwood is doing great and is undersupplied, that is not to imply that Kingwood is only being propped up by the high price of apartments inside the loop; the people that live in apartments in Kingwood have plenty of other options available that are just as boring, just as affordable, and closer to the city. They want to live in Kingwood for other reasons (reasons which make ZAW uncomfortable). That is not analogous to your personal example of moving from west of the Galleria to an Inner-Loop complex, and actually it elucidates the truth that the Houston market is a tale of numerous cities, not merely the two that are most visible to you and your social circle.