Call it the post-Katrina effect. When Camden Property Trust recently decided to adjust its Houston portfolio by selling a few of its older properties, it encountered a level of interest it hadn't seen in years. "Instead of seven or eight offers, you're getting 14 or 15 offers," says Ric Campo, chairman and CEO of the Houston-based apartment REIT, who says the company moved quicker than planned on the dispositions in response to the market. "It's definitely a good time to sell, so we sped it up as a result of that."
Campo isn't alone. Brokers report that a number of multifamily owners with properties in Houston have recently decided to sell. The main reason: the occupancy jolt they received from Katrina evacuees, which is boosting demand and prices for Houston apartment properties. "A lot of the sellers are coming off the fence," says Russell Jones, a broker covering Houston and eastern Texas for Marcus & Millichap. "A lot of people are deciding the time is right to sell."
But Katrina isn't the only factor driving sales. Earlier last year, prior to Katrina, buyers scared of high price tags in Southern California and elsewhere moved into Houston in search of deals on Class A properties. For the most part, brokers and apartment owners think such high-end properties should hold their value if there's an exodus of evacuees, but many–including owners, operators, and brokers–wonder what will happen to their rents, values, and the Houston apartment market if the newcomers run out of money.
Matthew P. Rotan, principal and co-founder of Apartment Realty Advisors in Houston, scoffs when he sees "the East Coast press" criticize Houston. Even before Katrina hit, the city was undergoing resurgence, Rotan says. "We've added about 30,000 jobs on a 12-month basis," he says. "We have a small [amount] of [apartment] supply relative to the past. With no concessions and 93 percent occupancy, Houston is in better shape than I've seen in my 20 years."
Why? The city's economy has become more diversified, and its key industry–oil and gas–has evolved. "Houston has changed its risk profile relative to oil and gas," Rotan says. "[In the 1980s] it was 80 percent energy-dependent. Right now, it's 48 percent energy-dependent. The oil and gas business is much more technical. It's a completely different industry."
But those aren't the only reasons behind Houston's rebound, particularly regarding Class A properties. "The California guys are looking for places to put their money," says A. David Lynd, COO of The Lynd Co. in San Antonio. "You can't find anything on the coast that makes any sense. That forces them to go to markets where they normally wouldn't go."
Houston's bargain prices have attracted tenant-in-common partnerships (also known as TICs), condo converters, and 1031 exchange buyers, according to Bob Meek, a senior advisor for broker Sperry Van Ness in Houston.