El Paso, Texas—With roughly 1,000 apartment units in the pipeline, this border city is poised to see more multifamily housing development than it has in many years.

The growth is driven largely by the U.S. Army’s planned expansion of Fort Bliss. Many U.S. and foreign companies also have hundreds of factories, known as maquiladoras, in nearby Juarez, Mexico, making it one of the largest border communities in the world.

Because of its location and demographic makeup, El Paso is unlike any other market of its size, according to Winston Black, a senior investment adviser at Hendricks & Partners, who has been doing deals in the city for more than 30 years.

On a per capita basis, El Paso has very few apartments, Black said, explaining that the metro area has roughly 750,000 people but fewer than 30,000 apartments. In comparison, Colorado Springs, Colo., has 500,000 people and 40,000 units.

El Paso’s location along the Mexican border is a big factor in making the city unique. With an abundance of labor, construction costs are still low, and entry-level housing remains affordable, explained Black.

The Hispanic culture has also favored single-family homes. As a result, the multifamily market has never been very big in El Paso.

Several experts, however, see the city’s apartment market on the upswing. Fort Bliss, which is already a major presence in the area, is expected to expand by about 15,000 more troops in the next several years. Many of them and their families will live off the Army base.

“We’re going to have to build,” said Jerry Carlson, who has been executive director of the El Paso Apartment Association for 25 years.

He said his latest survey shows that the overall city vacancy rate is about 7 percent, and monthly rents average about $562.

Those figures are in line with recent findings from M/PF YieldStar, a Texas-based real estate market intelligence firm, which found that the overall occupancy rate in El Paso was 95.7 percent in June, 1.4 points off the March level and 0.3 points below the mid-2005 reading.

Most of the apartments sampled by the firm dated from the 1980s or the 1970s. The 1980s-era communities registered 97 percent occupancy in June. For the units that date back to the 1970s, the occupancy rate was 95.9 percent. M/PF YieldStar reported that rental rates averaged $557 per month.

Across the border

The other big economic driver in El Paso is the maquiladora industry, which is beginning to rebound after a significant decline earlier in the decade. In 2000, there were 308 plants in neighboring Juarez, but the number fell to 268 in 2003. These factories employed 193,928 workers. This year, the number of plants is at 289, with 239,925 workers, according to reports.

Some of the plant supervisors live in El Paso, but the maquiladoras are important to the city for other reasons. They often purchase goods and materials in El Paso, and they contribute to transportation, storage, and other jobs on the U.S. side of the border.

The civilian unemployment rate in El Paso dipped slightly to 6.8 percent in September compared to 7.1 percent in August. However, it remained the highest of the metropolitan statistical areas in the state, according to the Texas Workforce Commission.

Projects in the pipeline

The major national apartment developers have yet to break ground on any projects in El Paso, according to Black. Instead, the city’s apartments have been largely developed by local or regional developers from Texas or nearby states.

A good number of the transactions that Black has handled in El Paso in the last two years have been Sec. 1031 exchanges with property owners from California.

That trend, however, has recently started to slow, which Black attributes to the overall slowing of the market in California. One notable project under development is Tuscany at Mesa Hills. The 369-unit luxury development by Investment Builders, a local firm, is located on the city’s west side. The 132-unit first phase was expected to have its certificate of occupancy in mid-November, said Robert Sanderson, senior vice president of construction. The $25 million project will have a 6,000-square-foot clubhouse, an exercise room, a theater, a conference room, and two pools.

Investment Builders has also been active in developing affordable housing in the region. It started construction in August on North Mountain Village, a 200-unit affordable development that uses low-income housing tax credits. The first units are expected to be completed in March 2007.

The two projects will help provide needed housing for families at different ends of the market, Sanderson said.

With new projects coming on the market, there is some speculation that El Paso’s market will soften next year. But Black doesn’t see that happening; instead he believes the addition of new rental units will be balanced by a slowing of single-family home sales.

The apartment association’s Carlson added that he thinks there will be some rent increases next year. Many owners recently saw increased valuation on the properties, which meant higher property taxes. As a result, they’ve got to raise rents, he said.