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DALLAS-With the exception of San Antonio, the Texas metros are primed for gains in 2006 in the multifamily market. The burning question for industry experts is why rents aren’t rising.

“It’s all about rent growth for the coming year,” Greg Willett, vice president of research for Carrollton-based M/PF YieldStar, told the 270 brokers, developers and investors attending the annual Texas Apartment Markets Conference held yesterday at the Adam’s Mark Hotel in Downtown Dallas. By and large, property owners are relying on the elimination of concessions to add to their returns rather than hike rents, he says.

Occupancy is up; jobs are being added; the threat of renters becoming homeowners is dissipating; and construction has slowed enough to get supply and demand back in check. Willett says 2006 will be a good year “if people do what they need to.” He believes Dallas/Fort Worth could support hikes of 3% to 4%; Houston, 5%; and Austin, 6% to 7%. As for San Antonio, a rising red flag due to overbuilding means rents could drop as much as 2% next year, he said.

“I’m very confident that rent growth is back in a very significant way,” Willett said. And, the positive dynamics aren’t all due to Texas metros opening doors to vast numbers of hurricane evacuees. In fact, he and other professionals agree, that it’s simply too early to tell how many will stay or go back to their homes. At the third-quarter close, Texas’ Big Four had occupancies ranging from 92.2% to 95.5%; the national average was 95.8%.

What Hurricane Katrina did mean to Houston was it shored up a recovery that was already in progress and set the stage for the elimination of concessions. “Since the storm, we saw an almost instant cessation of concessions,” said David Hannan with Houston-based Morgan Group. “If the city ever had an opportunity to lease a unit or renew a unit without giving something away, now was the time.”

The conference’s one panel of experts agrees it’s time to take concessions off the tables–industrywide. “We have an entire generation of on-site leasing staffs that have never leased a unit without saying, ‘let me tell you about our special today,’” said Roseanne McAdam with Dallas-based FirstWorthing Co. She and her peers are advocating retraining professionals and building their confidence so that the long-standing practice can be eliminated.

“It’s not essential to give something away to make someone happy,” Hannan stressed. He says it wasn’t easy at first, but the owner of luxury multifamily properties has hit a renewal rate of 48% and no concessions.

Post Properties Inc.’s Tom Wilkes said his teams are talking in terms of absolute rents these days. Both new tenants and existing ones are accepting 5% rent hikes without dickering for one and two months’ free.

In order for rents to universally go up in the state’s major markets, single-family housing prices will have to increase, said Raymond G. Torto, principal and chief strategist for the Boston-based Torto Wheaton Research. Still, Torto’s number-crunching shows “Texas markets are expected to outperform the nation in 2006.” The leader of the pack, he predicted, will be Austin.

Still, Austin’s multifamily property owners have been holding back on rent hikes. With 9,000 units in the 2007 pipeline, the time to act is now, according to Willett. His calculations show Austin rents citywide went up 3.5% in a year-to-year comparison versus a 5% hike in Phoenix, which has overwhelming similarities in market dynamics. “You can get higher rents in Austin than you’re achieving right now,” he said, forewarning the window of opportunity isn’t going to be open much beyond 2006.

The multifamily sector isn’t the only category suffering from flat rents, Torto said. Pipelines are filled for all product types, but developers “have not pulled the trigger not because of construction costs, but because the rents aren’t quite there yet,” he said.

Despite the positive prognosis, there are dark clouds hanging overhead for the multifamily industry. Increased property taxes, utilities and insurance top the list.

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