Houston Business Journal – Paul Takahashi
Since the oil crash, multifamily developers have been slow to announce new projects in Houston. Dozens of deals fell apart as financing for new apartment projects dried up and developers shifted focus to other markets.
However, more than six months after oil prices began to plummet, multifamily developers are returning to the Houston market, according to Kyle Drake, founder and president of Drake Realty Group LLC, a Houston-based commercial real estate firm specializing in land brokerage and investment advising for some of the largest apartment developers in town.
“Every week, I have a growing list of people who want to be in Houston, who say they have the capital and board sign-off for new deals,” Drake said. “They’re cautiously observing the market and carefully choosing what they do and where, but they still believe in Houston.”
During the energy boom, multifamily developers rushed to build thousands of new units for the influx of thousands of new residents moving to capitalize on Houston’s thriving economy. Now that job growth projections have been scaled back, developers are taking a slower, more cautious approach to new development opportunities, Drake said.
Developers must be well-financed and experienced to get a new apartment off the ground these days, Drake said. To ensure a successful project, these seasoned developers are scrutinizing the location of new projects more closely than ever, looking for “main and main” locations, he added.
Here’s where multifamily developers are looking and not looking to build in Houston during the oil downtown, according to Drake:
Strong “Core” Markets
Submarkets in Houston’s core have been resilient to the oil slump, Drake said. Four inner-610 Loop neighborhoods in particular remain hot for multifamily development:
- Greenway Plaza/Upper Kirby
- Museum District
- Rice Village
These tried-and-true neighborhoods have solid rent growth, strong employment bases, desirable demographics and are highly walkable, Drake said.
Hot, But Less Exciting Markets
Some hot markets have become less exciting for multifamily developers amid the oil slump, Drake said. These neighborhoods include:
- The Heights
- Texas Medical Center
There’s still interest in these neighborhoods, but these neighborhoods tend to be smaller and tough to find really great locations, Drake said. Some gentrifying areas are riskier to develop in, he added.
Suburban apartment deals have seen the least interest from developers amid the oil slump, Drake said. That’s because projects in these outlying neighborhoods are riskier for developers to underwrite, he said.
“Katy is a great market, but it’s harder to do a deal there now. People don’t want to play ball west of CityCentre,” Drake said. “The main focus now for deals to get done is a main and main location in a core market.”
View this article in the Houston Business Journal.