HOUSTON—Tightening vacancy and strong rent gains were apparent last year as rising demand tipped the scale in favor of apartment owners reinvigorating the Houston apartment market. Investors' attitudes are shifting to a more bullish outlook, though many will be mindful of property locations and expected increases in insurance costs, according to a report from Marcus & Millichap.

Investors in search of value-add deals in the metro could find some unique opportunities. Houston's strong demographic trends, diverse economic base and healthy job creation will remain attractive to investors and encourage investment activity. Before Harvey, concerns of overbuilding in specific pockets of Houston had many financial sources targeting areas where the threat was much more limited. However, tightening vacancy as residents seek temporary housing while existing stock is restored has many agencies re-evaluating parts of Houston where they were not as actively involved, opening up additional financing opportunities for investors.

Overall sales activity was flat during the trailing 12-month period; however, sales of properties priced above $20 million posted a notable increase. The average price in the metro reached $100,700 per unit during the annual time frame. First-year returns compressed 10 basis points during the past four quarters, with the average in the high-6 to low-7% range, says the report.

A couple of transactions hit the sale column in the last few weeks of the year, further bolstering the case for rising demand.

The Remington Katy, now known as Luxe at Katy Apartments, is a 352-unit multifamily community at 22631 Colonial Pkwy. in Katy, TX. The Valcap Group purchased the asset from Katy Remington LP, a development sponsored by Conti Street Partners LLC, for an undisclosed price. Built in 2013, the property is 97% occupied and consists of individual units averaging 940 square feet.

Michael Thompson, executive vice president with CBRE's debt and structured finance, arranged financing on behalf of the buyer in this off-market multifamily property. Matt Phillips and Clint Duncan, both senior vice presidents with CBRE in Houston, represented the seller in the transaction.

“Off-market transactions continue to be prevalent in today's market and this is a trend we expect to see more of during the first half of the year,” said Duncan.

Phillips added that there was a low transaction volume of newer multifamily assets in Houston last year.

In a Spring, TX financing transaction, Greystone provided a $36.4 million bridge loan for the acquisition of Parkside Place Apartments. The loan was originated by Donny Rosenberg of Greystone's New York office for Ilan Investments, led by Charlie Yalamanchili. The loan for Parkside Place carries a two-year term with two six-month extensions. Greystone's bridge loan platform is suited for acquisition financing with a permanent exit in mind with either HUD or Agency financing. The 384-unit multifamily community was completed in 2015 and will be managed by Adara Communities.

Finally, PGIM Real Estate recently completed the purchase of Mosaic at Hermann Park, a class-A apartment community in Houston. This deal was done in a joint venture with Houston-based Hanover Company, and the property will be renamed Hanover Hermann Park. In addition to its ownership stake, Hanover has assumed responsibilities for the leasing, operation and management of Hanover Hermann Park.

Hanover Hermann Park is a 29-story 396-unit apartment community on 2.35 acres, with 20,087 square feet of ground-floor retail space, direct access to major throughways and nearby public transportation, and unobstructed views of the 445-acre Hermann Park.

The purchase follows on PGIM Real Estate's purchase of the mixed-use lifestyle center LaCenterra at Cinco Ranch in November, marking its second Houston area deal in as many months.

Instant Insights /

Off-Market Transactions Continue to be Prevalent

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