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DALLAS-As storm clouds gather over Texas, multifamily property owners are experiencing an occupancy windfall from this year’s hurricane season. Class A product in Houston is practically full and Dallas/Fort Worth isn’t lagging by much.

“The top tier is completely full,” Greg Willett, vice president of the Carrollton-based M/PF YieldStar, told yesterday’s crowd of owners, brokers and lenders attending Cushman & Wakefield of Texas Inc.’s third annual “Market Vision” breakfast held at the Hotel InterContinental in Addison. The impact on class B and C properties has yet to be determined, he added.

With the influx of evacuees to Houston, its overall occupancy spiked to 95% from 90.5% in June. “At midyear, it was the nation’s softest market,” Willett said. “There’s not a vacant class A unit left in Houston today. It was an overnight transformation.” The impact on Dallas/Fort Worth wasn’t nearly as pronounced, with the latest tally putting occupancy at 93% versus about 90% four months ago.

Real-time stats aren’t available in all categories, but Willett offered optimism for the multifamily market’s performance indicators in all four metros. Houston and Dallas/Fort Worth’s effective rent prediction is a 3% to 4% gain in the coming year while Austin could pick up 5% to 6% in rent growth and edge up to 95% occupancy from today’s 94.1%. San Antonio, with 93.9% occupancy at midyear, was the least affected by the state’s open-door policy for evacuees. Willett said the future is a 1% gain in rent for the coming year in a market with 6,000 units under construction or nearly triple the annual delivery–and no red flag rising high from the extra development.

On the investment sales side, the average replacement cost jumped from $65,000 per unit to $85,000, said Will Balthrope, C&W’s senior director of the multi-housing group. Amid falling cap rates, there are more listings than closings although the gap is narrowing as the year plays out, his calculations show. In Q2, more properties were brought to market than in all of 2004, he said.

Don Ostroff, also a C&W multi-housing senior director, reported NOIs are on the rise as are the class A per unit values, now resting at $90,000 or $20,000 more than last year. With concessions factored in, he said “the average economic occupancy in the typical class A deal has become a value-add.”

For buyers like Hugh Caraway of San Antonio-based Internacional Realty Inc., class A value-adds suit the TIC group just fine. He said he’s been closing, on average, one deal per month for three years. “The reason I like the TIC structure is it’s a source of income to me and it’s a cheap source,” he explained, citing the warming up of the financial markets to the buying strategy.

C&W’s other featured speaker, Ted Hamilton, president of locally based Hamilton Properties Corp., gave the crowd a sneak preview of what lies ahead for Dallas’ Main Street District, an eight-block revitalization at the epicenter of the CBD. Hamilton, a leader of the in-town rebuilding, foresees a CBD with 6,000 units and 200,000 sf of filled retail. At last count, the Main Street blocks have 1,425 units, another 461 under construction and 1,393 proposed to start in 2006 and 2007. Meanwhile, neighboring pockets aren’t sitting idle: Farmers Market will be getting 900 more units and the West End, 300. Plus, he said, “four or five” new residential high rises will be announced for the Arts District.

As for the condo market, there are mixed reviews across the state. Houston and Fort Worth, as local market watchers know, are showing strong condo sales. But it’s clearly not Dallas’ strong suit. In recent days, a third converter has pulled a project from this year’s docket.

Balthrope said 35% of multifamily sales nationwide have been closed by condo buyers. “It’s not really affected Texas,” he said.

What is working in Texas is the stats show a “return to fundamentals,” Balthrope said. “The change is starting.”

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