(Read more on the multifamily market.)

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HOUSTON-First-quarter numbers in the region's multifamily marketseem to be at odds. Local reports put occupancy down slightly yetrents are on the rise.According to statistics from ALN, occupancywas 88% at the first quarter's close, down 3.6% from Q1 2006. InM/PF YieldStar's latest report, occupancy was 91.9% area-wide, also2% lower than a year ago. The region's inventory is 473,028units.

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Local multi-housing experts aren't concerned about the drop. Forone thing, the so-called "Katrina factor," involving people movingfrom New Orleans in the wake of Hurricane Katrina is no longer anissue when it comes to occupancy--and hasn't been for awhile. "Ifthere's a Katrina factor left, it's in the Cs," says CraigLaFollette, executive vice president for CB Richard Ellis Inc. inHouston.

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With hurricane evacuees either returning home or moving on, themarket has settled more or less back to its pre-Katrina days, whichwasn't really all that bad. "Evacuee impact is about over in themarket place," says Greg Willett, vice president for M/PFYieldStar. "What we'll likely see is occupancy heading back up inolder product, but heading down in the top-end apartments." He sayspart of the reason for the potential hiccup, particularly high-endproduct, is the 10,157 units that are under construction.

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"If there's a question mark with the buildings, it's probablywith the infill or close-in locations," LaFollette says. "The costto build new is somewhere around $150,000 to $170,000 per unitinside the loop." To support that type of cost, he says owners willneed to get $1.70 per sf in rent. As a result, renters might movetoward well-managed class B and class C apartments.

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In addition, the sub-prime lending situation has tightened upunderwriting criteria for home buying amid rising foreclosures."People being foreclosed are coming back to the apartments,"LaFollette says. The socio-economic background of the formerhomeowners, he adds, dictates they'll return to apartments they canafford like class B and class C complexes.

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Willett says older product might get an occupancy uptick in thecoming months, but it's not going to be across the board. "Ourforecast over the next year is for occupancy to stay pretty muchwhere it is," he adds. "It might drift down two-tenths of a point,but that's about it."

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