transwestern The Apartment Report SNAPSHOT RENTS OCCUPANCY ABSORPTION SALES DEVELOPMENT Effective rents declined 4.5% over the past 12 months, but just.2%in Q1. Market wide occupancy stands at 86%, the lowest level since 2005 (prehurricane Katrina.) Positive absorption in Q1 totaled 2,894 units, this trend should continues as new deliveries slow. Excluding foreclosures, 24 area properties totaling 6,551 units traded in the first quarter, 75% of the sales can be considered distressed. From April 2009 to March 2010, 63 new properties including 16,949 units were delivered to the market, placing 2nd in the nation behind only Dallas / Ft. Worth (18,200 units). RENTAL RATES Area effective rental rates for the year-ending March 2010 declined 4.5%, the largest decline in over 18 years however, the market appears to have stabilized with just a.2% decline from January to March 2010. The steepest declines were in the 1990 s vintage properties where A product was forced to compete with the lease-up of nearly 17,000 new units. The number of properties offering concessions increased from 45% in Q1 2009 to 64% in Q1 2010 with an average concession of 11%. Ed Cummins Senior Vice President 713.272.1288 direct Outlook: Many of the most active investors believe we have turned the corner and anticipate rent growth (mostly in the form of reduced concessions) of 4% to 5% in 2010. HISTORICAL APARTMENT RENTS/UNIT - QUARTERLY $800.00 Clint Duncan Senior Associate 713.270.3316 direct $700.00 $600.00 $601.89 $626.38 $649.88 $663.92 $682.66 1Q2003 1Q2004 1Q2005 $699.34 $712.41 $733.04 $748.56 $757.34 1Q2006 1Q2007 1Q2008 1Q2009 1Q2010 $500.00 $400.00 lupe Olivares Senior Analyst 713.272.1290 direct $300.00 $200.00 $100.00 $1Q2001 1Q2002 HISTORICAL APARTMENT RENTS/SF - QUARTERLY $1.00 $0.90 $0.80 $0.72 $0.75 $0.77 $0.78 1Q2002 1Q2003 1Q2004 $0.82 $0.84 $0.86 $0.87 $0.88 $0.80 1Q2005 1Q2006 1Q2007 1Q2008 1Q2009 1Q2010 $0.70 $0.60 $0.50 $0.40 $0.30 TRANSWESTERN HOUSTON MULTIFAMILY GROUP 1900 West Loop South, Suite 1300, Texas 77027 713.270.7700 telephone 713.271.8172 facsimile transwestern.net $0.20 $0.10 $1Q2001
Occupancy Occupancy in the area registered 86% at the end of Q1, the lowest level since 2005. Units built after 2000, suffered the mildest declines (.8%) as renters took advantage of specials and moved up to newer properties. Properties built in the 1970 s and 1980 s registered declines in occupancy of 4% to 5%. Outlook: With just 4,778 units scheduled to be delivered in the next 12 months and positive job growth, we would anticipate occupancy to improve slightly this year. In addition, we expect top tier properties to continue to outperform older vintage assets. HISTORICAL APARTMENT OCCUPANCY - QUARTERLY 94.00% 93.17% 93.30% 92.00% 91.46% 91.38% 90.00% 88.00% 86.00% 89.08% 87.05% 89.02% 88.99% 88.10% 86.04% 84.00% 82.00% 1Q2001 1Q2002 1Q2003 1Q2004 1Q2005 1Q2006 1Q2007 1Q2008 1Q2009 1Q2010 Absorption Absorption registered strong gains in 2000+ era product totaling nearly 3,000 units for the quarter and almost 14,000 units for the trailing 12 months. However, mid and lower tier properties suffered net move-outs of 1,600 units for in Q1 and roughly 15,000 units for the trailing 12 months. Outlook: Positive absorption of roughly 9,000+ units is anticipated for the next 12 months. Many experts predict the area will create between 40,000 and 50,000 new jobs by early 2011. Strong job growth combined with less than 1,000 new deliveries expected in the second half of 2010 should help to bring supply and demand into balance. Look for submarkets with highly rated school districts (Katy, Fort Bend, and Cy-Fair) to lead the way. 4,000 HISTORICAL APARTMENT ABSORPTION - QUARTERLY 3,000 2,000 2,111 1,608 1,868 2,894 1,000 593 331 0 (1,000) (505) (114) (2,000) (3,000) (2,534) (1,808) 1Q2001 1Q2002 1Q2003 1Q2004 1Q2005 1Q2006 1Q2007 1Q2008 1Q2009 1Q2010 The Apartment Report HOUSTON 2
Apartment Sales Sales activity in the area is picking up as the bid - ask gap narrows. The anticipated glut of lender owned assets with RTC type discounts has not emerged and many investors feel that we have reached the bottom. Underwriting has become more aggressive resulting in recent cap rate compression of up to 150 basis points. Replacement cost, supply constraints and demographic trends appear to be driving pricing. Sales of distressed assets account for over 75% of the transaction activity. Outlook: We expect the positive trend in transaction activity to continue to improve for the balance of 2010. Several class A multifamily transactions are in the works as owners rush to take advantage of the recent cap rate compression. In addition, the growing volume of distressed CMBS debt as well as increased pressure on banking institutions to resolve problem deals should result a greater transaction velocity. HOUSTON AREA SALES - 1/1/10-3/31/10 Apartment Submarket Class Units Built Sale Date Status Beamer Place Gulf Freeway B 328 1981 3/30/2010 Distressed Ella Square Brookhollow C 64 1964 3/23/2010 Distressed Green Tree Place Champions - East B 196 1983 3/18/2010 Distressed Oaks of Baytown Baytown D 248 1969 3/1/2010 Distressed Quay Point Pasadena D 134 1963 3/1/2010 Distressed Tierra Del Sol Alief C 284 1983 2/26/2010 Distressed Gables Memorial Hills Museum District A 308 2010 2/19/2010 Stabilized Legacy Park Steeplechase A 304 1995 2/5/2010 Stabilized Apache Springs FM 1960 East B 296 1983 1/29/2010 Distressed Champions Forest Champions - West B 200 1968 1/29/2010 Stabilized Memorial Far West B 192 1968 1/29/2010 Distressed Park at Country Place, The Far West C 169 1975 1/29/2010 Distressed Plaza on Westheimer, The Galleria B 643 1965 1/29/2010 Distressed Sugar Ridge I Sugarland/Fort Bend B 74 1985 1/29/2010 Distressed Sugar Ridge II Sugarland/Fort Bend B 176 1997 1/29/2010 Distressed Westway Spring Branch B 316 1971 1/29/2010 Distressed Woodbridge Crossing Alief B 384 1984 1/29/2010 Distressed Wyndham Oaks Far West B 279 1980 1/29/2010 Distressed Fannin Street Station I (fka Archstone Medical Center) Fannin Street Station II (fka Archstone Medical Center) Medical Center A 360 1995 1/19/2010 Stabilized Medical Center A 318 1997 1/19/2010 Stabilized Villa Nueva Brookhollow D 98 1969 1/12/2010 Distressed Wood Forest Glen Northshore/Woodforest B 336 1979 1/11/2010 Distressed Palms Of Lake Jackson, The Brazosport D 184 1971 1/8/2010 Distressed Stoney Brook Galleria B 113 1972 1/6/2010 Stabilized Timbers of Inwood Forest Inwood C 376 1982 1/5/2010 Distressed Park Hollow Pasadena C 171 1971 1/4/2010 Distressed TOTAL 6,551 The Apartment Report HOUSTON 3
Construction From March 2009 through March 2010 delivered 16,949 new units ranking 2nd in the country to the Dallas / Ft Worth with 18,200 units. However, building permits in the metro area are down 78% from the previous year and only 381 units were permitted from Jan to Feb 2010. Going forward, four submarkets (Katy, Inner Loop, NW / Champions and Montgomery County) will account for 79% of all new units in the next 12 months. Outlook: The anticipated lack of new development in the foreseeable future has many investors bullish on rent growth in the local market which has traditionally been tempered by new supply. But recent feedback from a few local developers suggests that institutional debt and equity sources will likely be looking at new development deals here in the second half of 2010. Currently Under Construction or in Lease Up SUBMARKET CITY APARTMENT UNITS PROPERTY TYPE construction TYPE Brazosport Alvin Melbourne Senior Apartments, The 110 Senior Tax Credit Garden Style Brookhollow Orchard at Oak Forest, The 118 Senior Tax Credit Garden Style Champions - East Northgate Oaks 312 Conventional Garden Style Champions - West Palazzo at Cypresswood 363 Conventional Garden Style Clear Lake/League City Voyager at the Space Center Apartments 313 Conventional Garden Style Conroe Conroe Woodside Manor 220 Senior Tax Credit Garden Style Deer Park Deer Park Glenwood Trails 114 Tax Credit Garden Style Galleria 2121 Midlane 329 Conventional Midrise Galleria North Post Oak Lofts 330 Conventional Garden Style Greenway Plaza 33 ThirtyThree 528 Conventional Mixed Use Greenway Plaza Gables West Ave 390 Conventional Midrise Gulf Freeway Pasadena Preserve at Baywood 336 Conventional Garden Style Heights Irvington Court Tax Credit Garden Style Katy Katy Legends at Cinco Ranch Apartments 180 Conventional Garden Style Katy Katy Villas at Grand Parkway, The 330 Conventional Garden Style Kingwood/Lake Kingwood Harbor View at Kings Harbor 250 Conventional Garden Style Kingwood/Lake Atascocita Wentworth Senior Housing 90 Senior Tax Credit Garden Style Midtown CitiPlace 185 Conventional Midrise Montrose/Memorial Heights Legacy at Memorial 330 Conventional Highrise Museum District Venue Museum District 224 Conventional Midrise North Loop - East Sakowitz Apartments 166 Tax Credit Garden Style Pearland Pearland Carrington Place At Shadow Creek Ranch 360 Conventional Garden Style Pearland Pearland Discovery at Shadow Creek, The 345 Conventional Garden Style Pearland Pearland Pearland Senior Villages 126 Senior Tax Credit Garden Style Spring Branch Fountains at Memorial City, The 114 Conventional Highrise Sugarland/Fort Bend Missouri City Reserve at Colonial Lakes, The 222 Senior Conventional Garden Style Texas City/Dickinson Texas City Costa Mariposa 252 Tax Credit Garden Style Texas City/Dickinson La Marque Highland Manor Senior Housing 141 Senior Tax Credit Garden Style Woodlands The Woodlands Millennium, The - Waterway Ave 393 Conventional Garden Style Woodlands Spring The Village at The Woodlands Waterway 116 Senior Conventional Garden Style TOTAL 7,431 The Apartment Report HOUSTON 4
Proposed Construction SUBMARKET CITY APARTMENT UNITS PROPERTY TYPE CONSTRUCTION TYPE Alief Park Lane Apartments, The Tax Credit Garden Style Braeswood Floral Gardens 100 Senior Tax Credit Garden Style Brazosport Clute Casa Brazoria 36 Tax Credit Garden Style Brazosport Lake Jackson Jackson Village Retirement Center 96 Senior Tax Credit Garden Style Brazosport Lake Jackson Residence at Lake Jackson Ph II, The 60 Conventional Garden Style Champions - East Mariposa at Ella Blvd 180 Senior Tax Credit Garden Style Champions - East Ventana Pointe 96 Senior Tax Credit Garden Style Clear Lake/League City League City Maplewood Village (Maplewood Crossing Ph II) 80 Senior Tax Credit Garden Style Clear Lake/League City League City Riverbend on Clear Creek Apts & THs 402 Conventional Garden Style Clear Lake/League City League City Villas at Tuscan Lakes, The 206 Conventional Garden Style Conroe Conroe Sktyop Apartments 200 Conventional Garden Style Deer Park Pasadena ClearPointe Residences 288 Conventional Garden Style Far West Beechnut Oaks Senior Tax Credit Garden Style FM 1960 East Humble Sierra Meadows 90 Senior Tax Credit Garden Style Friendswood Dixie Gardens 148 Tax Credit Garden Style Galveston Santa Fe Heritage Crossing 72 Senior Tax Credit Garden Style Galveston Galveston Holland House 157 Senior Conventional Highrise Gulf Freeway Sterling Court Senior Residences 140 Senior Tax Credit Garden Style Hwy 288/Almeda South Acres Ranch II 48 Tax Credit Garden Style Inner Loop East Kennedy Place (Redevelopment) 108 Conventional Garden Style Inwood Chelsea Senior Community Senior Tax Credit Garden Style Katy Katy Cinco Terrace Apartments 316 Conventional Garden Style Katy Katy Legends at Cinco Ranch Ph II 80 Conventional Garden Style Katy Katy Mason Apartment Homes 120 Senior Tax Credit Garden Style Katy Katy Trebah Village 128 Senior Tax Credit Garden Style Katy Katy Westbrooke 252 Conventional Garden Style Medical Center Cambridge Tower 200 Conventional Highrise Midtown Midtown Grove 51 Conventional Garden Style Museum District Fairmont Museum District Ph II 250 Conventional Garden Style Northline/Aldine Northline Apartment Homes 172 Tax Credit Garden Style Pasadena La Porte Preserve at Taylor Bayou 180 Conventional Garden Style Pearland Park Avenue at Boulder Creek Ph II 200 Conventional Garden Style Pearland Pearland Residences at Pearland Town Center Ph II, The 238 Conventional Garden Style Richmond/Rosenberg Richmond Westpark Apartments 248 Conventional Garden Style River Oaks West Dallas Apartments 430 Conventional Midrise Texas City/Dickinson La Marque Horizon Meadows 96 Tax Credit Garden Style Tomball Cypress Greenhouse Place 140 Senior Tax Credit Garden Style TOTAL 6,040 The Apartment Report HOUSTON 5
Construction by Submarket Alief Braeswood Brazosport Brookhollow 100 192 118 110 Champions - East 276 312 Champions - West 363 Clear Lake/League City 688 313 Proposed Units (Total = 6,040) Conroe 200 220 Under Constr. Units (Total = 7,431) Deer Park 288 114 Far West FM 1960 East 90 Friendswood 148 Galleria 659 Galveston 229 Greenway Plaza 918 Gulf Freeway 140 336 Heights Hwy 288/Almeda 48 Inner Loop East 108 Inwood Katy 896 510 Kingwood/Lake 340 Medical Center 200 Midtown 51 185 Montrose/Memorial Heights 330 Museum District 250 224 North Loop - East 166 Northline/Aldine 172 Pasadena 180 Pearland 438 831 Richmond/Rosenberg 248 River Oaks 430 Spring Branch 114 Sugarland/Fort Bend 222 Texas City/Dickinson 96 393 Tomball 140 Woodlands 509 0 200 400 600 800 1000 1200 1400 1600 The Apartment Report HOUSTON 6
Estimated Construction Costs Building type Cost per S.F. Notes 3-story Garden $65 - $67 200 units or more, 900 SF avg unit size or higher 2-story Big House $68 - $70 All garages 4-story or 4-story e-urban $72 - $74 Including surface parking, 40-45 units per acre 4-story wrap $92 - $94 4-story podium $110 - $115 High Rise $160 Cost per Gross SF, including parking * All estimates above include GC overhead and profit, no land or soft costs. Source: Humphreys & Partners Architects, L.P. Big House and e-urban are registered trademarks of Humphreys & Partners Architects, L.P. CLINT DUNCAN Senior Broker 713.270.3316 SHANNON BEDINGER Marketing Director 713.272.1285 ED CUMMINS Senior Vice President 713.272.1288 TRACY SHIRAH Marketing Assistant 713.270.3354 LUPE OLIVARES Senior Financial Analyst 713.272.1290 * All information gathered from O Connor & Associates and MPF Research. The Apartment Report HOUSTON 7