Even as the apartment market here softens, with property managers offering concessions and new construction slackening, out-of-state investors are beginning to discover Corpus Christi.

“Prices have escalated in San Antonio, Austin, Houston, and Dallas, and some investors are looking to another market in which to buy where there is still some value,” said Diane Miramontes, principal with Grubb & Ellis/BRE Commercial in San Diego. “Corpus Christi is a little jewel.”

More than half of the inquiries for properties in Corpus Christi, as well as Austin and San Antonio, are from potential buyers from outside the state, said Ernest Brown, executive vice president and managing director of Grubb & Ellis in Austin and San Antonio.

“Corpus is the last coastal frontier in the country,” he said. “Values in this area are a fraction of what they are on the East and West coasts or anywhere else in the world.”

December 2005 to the present, a little more than 1,000 Class A units closed in Corpus Christi with an average sales price just below $70,000 per unit. About 1,700 Class B and C units have traded hands since the middle of 2005, with an average sales price of roughly $36,000 per unit, according to research from the Austin, Texas, office of Apartment Realty Advisors, an investment advisory brokerage firm.

The overall occupancy rate in the second quarter of 2007 was 93.6 percent, essentially unchanged from 2006.  The average monthly rental rate for the city is $655, $10 more than in 2006. Still, not a lot of new construction is taking shape in Corpus Christi at the moment. A half dozen market-rate deals currently are under construction, and approximately 650 units will be delivered in the next six to 12 months.

“We are starting to see banners going up for specials, what you would normally see in a softening market,” said Matt Cravey, president of NAI Real Estate Services in Corpus Christi. “I’m not seeing any new product other than what has already been committed to,” said Cravey. He said the apartment market is softening primarily due to a strong single-family market.

Sluggish downtown development

The product in the downtown area is primarily rehabilitation projects, with the exception of Bay Vista, owned by Houston firm Sage Properties. That development is the first conventional, Class A apartment community to be built in the downtown area in a long time, said Jeffrey Patterson, vice president of the secondary markets team for Apartment Realty Advisors in Austin. He said development has been slow downtown, as the majority of people live on the city’s south side, where more than half of Corpus Christi’s retail space is located. Still, the downtown has potential, said Cravey.

“There are a lot of older office buildings downtown. The office market is really soft. It’s never recovered from the ’80s real estate crash. We don’t have a lot of housing for people that work downtown. Most drive in,” he said.

Cravey pointed to the recent purchase of the Nueces building, a 10-story building downtown. A San Antonio developer wants to use historic tax credits to convert the building into market-rate loft-style units. “The Nueces building was acquired below replacement cost, and you could spend a substantial amount of money and still be below replacement cost,” Cravey said. “The credits make it an attractive deal, if you can attract tenants.”

Most transactions and construction are taking place in the south section of the city, on and around South Padre Island Drive. Locals refer to the strip as S.P.I.D. The area is close to the waterfront and Texas A&M-Corpus Christi.

The hottest properties in town are affordable housing projects and student housing deals, said Cravey. About 375 tax credit units are either in lease-up or under construction, according to Apartment Realty Advisors. A 312-bed off-campus student housing project is under construction and is slated for completion in August.

No college is an island

The student housing could hurt the rest of the multifamily market, Cravey suggested.

“The university is full, and I know too many owners who have students living in their projects,” he said. “It hasn’t really been touched on, but I think a lot of kids are going to leave those projects and move to the new student housing once it’s built. I think that will soften the market even more.”

With increasing enrollment, the university, situated on a 240-acre island, is looking to expand. However, the garden-style apartments it built on campus have limited the space it has available.

A treasure by the sea

Still, rising enrollment may eventually spur increased apartment demand. And on top of that, the city’s waterfront and its port are viewed as positives for the multifamily market overall.

“Corpus Christi is getting better and better, and it’s definitely on the upswing,” Miramontes said.