Comment of the Day: The Shelf Life of Apartment Complexes

COMMENT OF THE DAY: THE SHELF LIFE OF APARTMENT COMPLEXES “. . . please drive by the Belmont Apartments on Bissonnet between Buffalo Speedway and Kirby. They were built in 1991 and pretty much kicked off the modern era of apartment development in Houston (post 80′s bust). They are in FINE condition at the ripe old age of 21 years. There are plenty more early 90′s vintage complexes around that are also going strong and aging well. Vanderbilt Square (1995). Inverness (1991). Pin Oak Green etc. (1991). City Scape. City Walk. And MANY more. There is nothing wrong with these 20 year old complexes. Finally, take a look at Westchase or Avalon Square and you’ll see 50 year old apartment complexes that are still fine places to live. Yes. Buildings age. And deteriorate over time. But well located assets in high demand sub-markets where the rental rates are high enough to finance proper maintenance can stand the test of time.” [Bernard, commenting on Apartments Replacing Park Memorial Condos in Rice Military: More than Triple the Density]

19 Comment

  • I might add that in Montrose, there are several properties own/ran by “In the loop” that were built in the 60s that are super well maintained. They look nice from the outside (new paint, gorgeous landscaping, “Class A” I might say) and they command pretty good rents. I say this not to kiss ass (the owner hates me so no reason to), I say it because it’s true. There are others in Montrose from that age that are well kept but I think theirs are the best example.
    And our stuff (admittedly, to a MUCH lesser degree as I have the design skills of a rock) is pretty well maintained and almost all of it was built in the 60s.
    So we’re talking about 2 story garden style wood frame properties that are mostly 50 plus years old still alive and kicking, doing well, not going anywhere anytime soon. Heck, I have places from the 40s doing just fine. In fact, I just sold my place built in the 20s (!) and it’s just fine. A nice triplex, updated, same floors from almost 100 years ago. Nuts…
    So assuming the stuff being built now is even *as* good and lasts *as* long, it’ll be here when all of us are gone.

  • Good point Bernard,

    I would say also look at Bayou Park which is at 4400 Memorial drive. The first sections were built in 1970-71. This place is old, but still packed. The demographics of the place is interesting cause you have some residents that have been there for 20+ years and lots of young professionals that realize a bargain. Also considering the direct access to the Buffalo Bayou parks and a pedestrian bridge over Memorial right by Waugh so you could walk to Whole Foods if you like. It is also just close enough to Washington Ave so you could walk and enjoy it but not have to deal with traffic.

  • Bayou Park sold a few years back, and they paid way too much to keep it as is. Same with Avalon Square. Their days are numbered.

  • You’re right, Bernard, that a well-sited apartment complex in a strong market will have staying power. I’m not worried by the new midrises in Midtown, Uptown, and other highly sought after locations.
    But I understand why Houstonians get nervous whenever they see apartments going up. Apartment developers have a terrible habit of overbuilding in the boom years here in Houston. They find cheap land way out in the suburbs and they throw up apartment after apartment, in search of quick profits. Then, when the profits dry up, most of them cut-and-run. They get to keep their money, and the apartments start a long, painful decline into slums. Gulfton. Alief. Greenspoint. They’ve all experienced this. And it’s not over. Take a drive out to the end of the Westpark Tollway, and look at all the apartments they’re putting up out there. Yeah, they’re nice now. But they’re 25 miles from downtown; they’re surrounded by other housing; and there’s only one way to get anywhere. Those are going to be slums in 20 years.

  • Yes, Bayou Park did sell a few years back. They buyers didn’t move forward with demolishing he site because of the economic downturn. Also, if they property was making a profit, the owner would likely sit on it for while.

  • But are they even over building?

  • Many of these apartments look “fine” from the outside, but get inside, and you see the layers and layers of paint, dated fixtures and finishes, hear the creaking floors, and in most pre-1970 cases, have no washer and dryer. Like ZAW mentioned above, apartments are thrown up cheaply, the owner gets the money while they are new, as they age, they sell and it becomes the neighborhood’s problem. What is interesting is, as the focus turns to granite counter tops and stainless steal appliances, you see developers spending more money on the inside at the expense of the outside. I live next to two developments by The Morgan Group, 3333 Weslayan and 2121 Midlane. You would think they also own a wood siding company. They have a nice facade at the leasing office, but 75% of the rest of the structure is literally just floors and floors of the cheapest plain siding you can find. It will be interesting to see how these complexes deteriorate. You would hope these areas are nice enough to keep the apartments full and maintained, but 2121 Midlane replaced San Felipe Court, which had become a total slum.

  • Chris: Guess it depends on the market. In Montrose, there is a large mix of quality in the same generation of apartment. Some owners do a lot of upgrades to maximize rent, some are fine keeping upgrades to a minimum and keeping rents low. It allows people that can’t afford top-of-the-line to still live in the area.
    We try to take a balanced approach. At a point, additional upgrades simply don’t provide the same return. But there are often small upgrades that give a large bank for the buck (painting the building/units, adding central air, new flooring, etc.)

    While the neighbors would love A+ all over the place, that would drive out a lot of people that couldn’t afford A+ rent. I remind myself of this as I drive by “slums” in otherwise nice areas, that the people live there live there because nicer places cost more so they’ve made an economic choice that’s best for THEM.
    We’re going to buy a building soon in Montrose that’s (currently) a total dump. I’m sure in fixing it up the neighbors will be happy, but the people paying $500/month for a 1bd won’t be, as financials of making that property nice don’t work with $500/month rent. So those people will move on to another ‘slum’ that people complain about (yet tenants are happy exist)

  • Chris: I think we’re talking about two different things. Apartments are built to their markets. There are finishes and features that you’ll find in high-end apartments, that you won’t find in mid-range or low-end apartments. At the same time, curb appeal is important, so they will make the parts of the building that you can see and touch nicer than the ones that you can only see, which in turn are nicer than the ones you can’t see. This is true in single-family housing as well, and has been for 200 years now.
    What I’m talking about is this: It’s not that difficult to build, and lease, a new apartment complex almost anywhere in the Houston Metro area. All you have to do is make sure the rents are competitive; and make sure it’s either the only complex around, or it’s as nice or nicer than neighboring complexes. The real test of a complex comes in 15 or 20 years, when the newness has worn off, when the area’s built up and there’s traffic; when the economy has gone through a boom/bust cycle. If the complex still commands good rents, still attracts good tenants, and still has good occupancy rates – you know they hit it right. If not – the developers screwed up.
    The trouble is, by the time we realize they screwed up, the developers are long-gone. So if we live near their mistakes, we sell our homes at a loss, and move far away, hoping that a new crop of apartments doesn’t show up in our new neighborhoods.

  • I “heart” my slumlord.

  • ZAW, have you ever built and leased a new apartment complex anywhere in the Houston area (or anywhere)? What is your basis for claiming that it is an easy endeavor?

    I suspect that you have none.

    And has it ever occurred to you that developers (whose core competency is development) develop apartment complexes for long-term investors and operators? What you refer to as cutting and running is actually just an element of their business model. It is a hand-off of ownership from one entity preferring stability to another that demands it. Neither entity is assured of stability, however.

    A developer can’t pretend (with a straight face) to know what is in store for a nation, a metropolitan area, or a submarket over a five-year period of planning, permitting, financing, construction, the first year of lease-up, the second year of burning through concessions, and the third year of stability so that they can generate a reliable set of T-12 profit and loss figures.

    As it turns out, they have to make an educated guess about the future, close their eyes, hold their nose, and jump in.

    The business model may be different, however the same lesson is analogous for subdivision developers and home buyers, too. They can only try their best to make the right decision, then hope for the best. But eventually…they all sell. Everybody sells. The only consequential purpose in owning real estate is to be able to sell it. If selling something is cutting and running, then our entire society is founded on cowardice.

  • “As it turns out, they have to make an educated guess about the future, close their eyes, hold their nose, and jump in.”
    Does swamplot have a sentence of the day? :)
    Markd, where do you live if you don’t mind my asking (you don’t have to be specific). I’m curious as to your sarcasm level.

  • Most of the 1990s apartment complexes that are still getting top rents have had significant work done to keep them competitive with the new builds. I used to live in a complex that was built in the late 1990s. While I lived there, they gutted the exercise room, computer/business lounge (the place with the free internet computers, fax/copy machine etc.) and rental office/club house. By the time I left, they were gutting each apartment when it turned over to put in new flooring, granite/stainless, etc. And this complex was barely ten years old when I left (they also had to do a significant structural repair to the garage, redo the pool area and get rid of the old pool drains that were a drowning hazard).
    If the market gets saturated and a renter’s market ensues, no one will be willing to put up the capital to keep these complexes in good condition. Instead, they will drop the rents to keep them filled and do the minimal maintenance to keep the City inspectors at bay. I saw this when I lived out in the Galleria. I lived in an older garden style apartment that had undergone a couple of significant rennovations over the years. When I moved in, my neighbors were all professionals. The market for apartments in the Galleria saturated with a mini-building boom in the area. New owners took over the complex. No more criminal background checks, no income verification, pools turned green, security gates were broken all the time and so on. There was a murder, a swat stand off (separate incidents) and I regularly saw an Asian gang do drug deals in the parking lot.
    The main reason these complexes are so susceptible to boom bust cycles is that they are just housing. They do not create neighborhoods that are desirable to live in. They often come in after an area has become desirable for quality of life reasons. What people want to see is for these apartment complexes to make a contribution to the neighborhoods by having some ground floor retail and sidewalk culture. If you strung together enough Post Midtown complexes, you would have a great neighborhood. But, if you put a bunch of apartment boxes together, you just have a bunch of housing.

  • Old School, what can a few shops and restaurants do to make a place more desirable to live in? I just don’t understand how ground floor retail works its unicorn magic in your world.

    And sidewalk culture is never going to exist in Houston. Houston has a miserable climate.

  • Spoonman – as a midtown resident I agree with Old School on the Post comment. Sidewalk culture does exist here and midtown is a shining example of it. The 2-3 months a year that it’s super hot we might spend most of our time in the A/C. But outside of the July/Aug/Sep period we have 9 months of great outdoor weather!
    Midtown is developing into a neighborhood with some staying power as investment keeps trickling into the area. I certainly don’t see it going anywhere, especially if further investment can take care of some remaining elements that are impeding growth (Greyhound station, west end of 4th Ward to name two).

  • Excellent point, Old School. I would just note that every neighborhood is different. First-floor retail may not be an appropriate addition to every neighborhood. ‘Contributing to the neighborhood’ along Brays Bayou, for example, might mean providing a safe link to the Hike and Bike Trail for the public. In another part of town it could mean something else completely. It’s a case by case thing.
    To be fair, the same goes for single-family subdivisions. Compare The Woodlands to the FM-1960 corridor. In The Woodlands, subdivisions link up to walking paths and other public greenspace for everyone (not just the residents). They work together to form a cohesive whole. Along FM-1960, everyone’s doing their own thing. You dont have walking paths. You dont have any kind of cohesion. Granted, in The Woodlands everything is controlled by The Woodlands Development Company, but still – is there any mystery as to why property values are more stable in The Woodlands than they are along FM-1960?

  • I have to go with Spoonman here. I’ve always wondered who all these folks were that would constantly be walking to the “ground floor retail” that some whine about all the time.

    I own a now classic sporty convertible that I bought brand new in my youth. Silly me. I have kept it, maintained it, and can only drive it for a couple of weeks in the spring and a couple of weeks in the fall.

    Houston does have a miserable climate.

  • Cody – I stay in the Winlow Place section of the hood. Ten years now. Prior to that I was on the other side of Westheimer, in the Park Civic Association territory since about ’86.

    Been lucky to have always enjoyed WAY under market rent for very decent places. Have had a couple great landlords who’d stay out of the way and also keep their places in good order.

  • markd: ah, cool area. We have some places on the 1800 block of w main and 1400 block of Marshall. I don’t think either of those are IN Winlow but we have you surrounded :)
    There is some stuff there I’ve tried to get. Not easy though.