Houston—Marvy Finger is about to change this city's skyline as the longtime developer nears completion on One Park Place, the city's first luxury high-rise apartment building in more than four decades.

Much of the recent development in the area has been in the suburbs, but The Finger Cos. decided to go into the heart of the city and build up, with a 37-story tower that will hold 346 units.

“We've had a renaissance in downtown development,” says Finger, president and CEO of the Houston-based firm, adding that nearly 300,000 people work in downtown and provide a deep pool of potential renters.

The leasing office and show model are expected to open in mid-November, with residents moving into the $125 million development around March 2009.

Finger and his team drew some inspiration from the early 20th-century apartments in New York while adding their own stamp on the urban project. One Park Place, which has a distinct exterior comprised of rose-colored brick masonry and stone accents, overlooks Discovery Green, a 12-acre downtown park. The eighth level will feature a grand social terrace that faces the park.

While other downtown buildings were damaged by the winds and rains of Hurricane Ike in September, Finger says One Park Place, which remains under construction, held up well. “We were happy that we had no water penetration,” he says. The designer is Jackson & Ryan Architects, Inc., and Guaranty Bank is the construction lender.

Unfortunately, the firm's Village by the Sea community in ravaged Galveston took on 6 feet of water and will require several months of rehabilitation work.

After the hurricane

Two weeks after Hurricane Ike, about 400 people remained missing, and homes throughout the region were severely damaged, with walls flattened, roofs ripped away, and buildings flooded. The Texas Windstorm Insurance Association projected its claims from the hurricane to be $2.7 billion.

Houston will likely see some bump in apartment demand following Hurricane Ike as residents of Galveston and other hard-hit coastal towns temporarily relocate to the city. However, industry leaders do not anticipate a repeat of the “Katrina effect,” where people from New Orleans and other cities moved to Houston for two years or more. An estimated 100,000 Katrina evacuees remain in Texas.

When looking at the Houston apartment market, the statistic that leaps out is the huge volume of construction currently taking place. There are 16,282 units under construction, which is up roughly 12 percent from the total that were under way last fall, reports Greg Willett, vice president of research at M/PF YieldStar, an industry research firm. Dallas/Fort Worth was even higher, with 20,585 units under way.

The large amount of construction will be a big issue to watch. As a result of such aggressive building, the Houston occupancy rate is expected to come down as new apartments are delivered.

At this point, however, the city continues to see good demand, with about 8,900 units absorbed in the third quarter, according to Willett.

The area has maintained good job growth despite the nation's economic troubles, and the shadow market from the single-family sector seems to be lessening, says Willett.

The occupancy rate has been just under 92 percent, he adds. That's solid for Houston, which has a number of obsolete and abandoned properties. In addition, the area has seen a 3 percent gain in rents over the past year.

While the economy has tanked across the nation, Houston is the envy of many communities because it continues to enjoy good job growth in the energy field and other industries.

Total nonfarm employment in the metropolitan statistical area stood at more than 2.6 million in June, an increase of 54,100 jobs year-over-year, according to the Bureau of Labor Statistics. From June 2007 to June 2008, nonfarm employment rose 2.1 percent in the area compared to a 0.1 percent decline nationwide. As a result, Houston was top in job growth among the 12 largest metropolitan areas.

“Other markets are suffering, so slow and steady growth looks pretty good, and that's what we have had,” says Will Balthrope, senior director of the Balthrope Group of Marcus & Millichap in Dallas. “Because of those factors, we have healthy apartment market fundaments.”

Still, sales transactions are off by about 50 percent from the recent past, according to some estimates. “It is dramatically different than the last four years,” says Balthrope.

He cites a notable gap between the expectations of sellers and buyers. Many sellers are not under pressure to sell because the market is currently healthy and their properties are performing well. Simultaneously, buyers are moving cautiously at the moment because they are worried about paying too much and believe that prices may soften.

On a positive note, he says, Fannie Mae and Freddie Mac continue to fund loans, and multifamily housing remains one of the lowest risk classes in real estate.

Like Willett, Balthrope says Houston will have to contend with its supply pipeline. Still, he sees the positive momentum continuing and believes the seller-buyer gap will start to narrow next year.

“I think the sales market will slowly and steadily pick up as we move into the latter part of 2009,” says Balthrope.