Albuquerque, N.M., apartment owners have a lot to be thankful for. While neighboring Sun Belt cities have been hard hit with vacancies and suffered through deep shadow markets of unsold condo units and single-family foreclosures, the Albuquerque metro has remained largely sheltered from the storm.
In part, this is due to limited capital resources, which would typically be an unwelcome situation. In Albuquerque, however, a lack of development financing over the past several years has kept it from following its neighbors into a state of significant overbuilding. Albuquerque can also thank its government for the stabilizing effect of its steady payroll. Compared to other, less recession-proof industries, the government—as Albuquerque’s largest employer—has provided a counter balance to the ebb and flow of the economic downturn.
Indeed, government is the largest employer in Albuquerque, making up more than 20 percent of the workforce in the greater metro area. In addition to the 4,800 military personnel employed at Kirtland Air Force Base, the facility employs another 35,690 civilian employees and contractors, including the 8,400 working for Sandia National Laboratories.
Meanwhile, other sectors are fueling the apartment market with a steady base of new residents. The University of New Mexico and Albuquerque Public Schools employ a total of 28,700 people, while health care providers such as Presbyterian Health Services, Blue Cross Blue Shield of New Mexico, Cardinal Health Shared Services, and Ethicon Endo Surgery, to name a few, provide considerable, and growing, employment opportunities as well. Additionally, Albuquerque’s booming film industry is a boon to the city’s economy.
Albuquerque also commits to recruiting and retaining high-tech, solar, and other green manufacturing enterprises that are on the cusp of market demand and doing their part to keep the job market fresh and stable. Intel, in neighboring Rio Rancho, N.M., employs approximately 6,000 employees and contractors. Hewlett-Packard has just moved into a new facility, also in Rio Rancho, and has plans to expand, indicating they will be hiring a total of 1,350 employees over the next two years.
Weathering the Recession
Despite high employment rates, during the second half of 2009, Albuquerque’s overall rents softened slightly. Some feared the market would follow national apartment market trends into the shadows. However, by the end of the first quarter of 2010, that trend appears to have stopped, with the average effective rent stabilizing at $667.00 per month, according to New York-based research firm Reis. Some sources are even claiming positive rent growth of up to 3 percent. In reality, if those rents were tempered with the concessions being offered by the majority of apartment owners, we would see that actual revenues appear to be flat.
First quarter vacancies are being reported at 6.4 percent. Indications are that they will remain so for the rest of 2010. However, this is a fair rate of survivorship, particularly when compared to the national apartment vacancy rate, which is at 8 percent and higher yet in the more distressed markets such as Las Vegas at 12 percent.
Although financing remains tight, limited apartment construction continues throughout the Albuquerque metro. One bright spot in the apartment market is ABQ Uptown Village, developed by El Paso, Texas-based Hunt Cos. ABQ Uptown Village sits adjacent to Hunt’s highly successful ABQ Uptown retail project, which has been recognized as the city’s first lifestyle retail center. ABQ Uptown Village is made up of three-story buildings with 198 urban-style loft apartments. The property’s amenities include covered parking, a pool, granite countertops, specialty lighting, and mountain views.
According to Terri Brown, president of Southwest Real Estate Advisors, which manages the project, the ABQ complex began lease-up in June 2008 and was stabilized in 12 months. The property is now operating at 98 percent occupancy, with average rents of $1.35 per square foot and no concessions. This is well above the city average of $0.85 per square foot.
Recently, The University of New Mexico entered into an agreement with American Campus Communities of Austin, Texas, to build a $42 million, 864-bed student housing complex. The 18.5-acre project is being built on land leased from the University for a 40-year period to help meet growing housing demand. The University is anticipating a June groundbreaking, with completion in mid-2011. When completed, the project will offer furnished private bedroom/private bathroom units, with four rooms joined by a central living and learning area. The project is being built according to LEED certification standards.
Another project poised for success: Silver Gardens, a 66-unit, LEED Platinum-certified tax-credit project designed to “provide a model of green, mixed-income, affordable housing to revitalize downtown.” The project was developed by Romero Rose, an affiliate of New York-based Jonathan Rose Cos., in partnership with non-profit social services provider Supportive Housing Coalition of New Mexico. The four-story, 77,212-square-foot building sits on previously vacant land across from the renovated Alvarado Transportation Center. Opened in April 2010, Silver Gardens has already achieved 65 percent occupancy.
Clouds with Silver Linings
On the transaction side, there has only been one substantive sale in excess of 100 units in the past 17 months in the greater Albuquerque area. This leaves sales comparables still non-existent and requires creative, subjective evaluation by investors, brokers, appraisers, and lenders.
The sole transaction, which closed in December 2009, involved a 189-unit, 30-year-old mid-rise complex. The property sold at a 7.92 percent cap rate, or slightly lower than $62,000 per unit. In the past three years, the per-unit prices in Albuquerque have spanned across a wide spectrum, ranging from $30,500 to $111,000.
A lack of transaction volume, however, cannot overshadow the compelling reasons for investors to consider apartment ownership in Albuquerque. First, the area has boundary constraints on three sides of the city: Cibola National Forest and Sandia Mountains to the east; Kirtland Air Force Base and Isleta Pueblo to the south; and Sandia Pueblo to the north. As a result of these restraints, most of the land in Albuquerque’s metro area that could be developed, has been developed. This leaves most potential new construction as re-development or infill projects, both of which tend to have little or no negative impact on occupancy as compared to new construction in markets in which boundaries are unrestricted.
Additionally, Albuquerque’s MSA has a stable and diverse economy; an annual population growth projected in excess of 2 percent annually; and higher returns on cap rates because of its standing as a tertiary market. As a result, investors can expect a higher return here than in many other markets, while enjoying a reduced risk on investment among today’s still-looming economic storm clouds.