transwestern The Apartment Report SNAPSHOT RENTS OCCUPANCY Overall occupancy improved by approximately 1% in the second quarter to 86.91%. There are 254 properties at 70% occupancy or less, while there are 1685 properties (65% of total inventory) at 90% occupancy or better. Effective rental rates increased 1.2% in Q3. Effective rents are still down 0.8% for the past year. ABSORPTION SALES DEVELOPMENT Strong positive absorption continued in Q3 2010 (5,140 per MPF / 5,101 per O Connor). Transaction volume was down slightly from Q2 2010, with 15 projects trading, 47% of these transactions represent a distressed sale. With Class A, infill product trading above replacement cost, developers are actively looking for quality infill sites. RENTAL RATES Effective rental rates in the market experienced meaningful growth in Q3 2010 with a 1.2% increase between June and September. However, for the year ending September 2010, rental rates are still down 0.8%. This is indicative of the deep discounts given over the past year. The largest rent declines exist in the Clear Lake and Southeast submarkets while the East Inner Loop submarket experienced the highest rent growth. Concessions continue to be prevalent in the marketplace as 62% of properties reported concessions. Ed Cummins Senior Vice President 713.272.1288 direct ed.cummins@transwestern.net Outlook: The current trend of increased rental rates should continue for the balance of 2010 as new supply fades and concessions are reduced. HISTORICAL APARTMENT RENTS/UNIT - QUARTERLY $800 Clint Duncan Senior Associate 713.270.3316 direct clint.duncan@transwestern.net $700 $612 $643 $657 $672 $688 3Q 2003 3Q 2004 3Q 2005 $707 $725 $740 $756 $766 3Q 2006 3Q 2007 3Q 2008 3Q 2009 3Q 2010 $600 $500 $400 lupe Olivares Senior Analyst 713.272.1290 direct lupe.olivares@transwestern.net $300 $200 $100 $3Q 2001 3Q 2002 HISTORICAL APARTMENT RENTS/SF - QUARTERLY $1.00 $0.90 $0.80 $0.73 $0.76 $0.78 $0.79 3Q 2002 3Q 2003 3Q 2004 $0.83 $0.85 $0.86 $0.88 $0.89 $0.80 3Q 2005 3Q 2006 3Q 2007 3Q 2008 3Q 2009 3Q 2010 $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 $3Q 2001
Occupancy Occupancy in improved in Q3 2010 0.7%. Annually, occupancy in has increased 1.1%. This was the first annual increase in occupancy in nearly 3 years and the biggest boost in more than 4 years. However, the Q3 2010 occupancy rate is among the weakest in the nation compared to other major metros at 87.3%. As with Q2 2010, properties constructed in the 1970s experienced the weakest occupancy at 87% while 1990s built apartments experienced the strongest occupancy at 92.7% slightly above properties built in the 2000s. Outlook: Occupancy will continue to improve for the balance of 2010 as strong apartment demand outpaces supply. 94.0% 93.4% 93.1% HISTORICAL APARTMENT OCCUPANCY - QUARTERLY 92.0% 90.0% 90.4% 88.6% 90.7% 90.2% 89.5% 89.2% 88.0% 86.8% 87.3% 86.0% 84.0% 82.0% 3Q 2001 3Q 2002 3Q 2003 3Q 2004 3Q 2005 3Q 2006 3Q 2007 3Q 2008 3Q 2009 3Q 2010 Absorption A total of 5,101 units were absorbed in the apartment market during Q3 2010. This demand lifted total absorption for 2010 to 13,587 units, an impressive tally. Approximately 20% of the absorption for Q3 2010 came from units built prior to 2000, a sign of expanding employment. Outlook: should absorb an additional 4,000 units through the rest of 2010. A total of 60,000 70,000 jobs are forecasted to be created for 2010, a number that has been revised upward from the 50,000 60,000 initially forecasted. HISTORICAL APARTMENT ABSORPTION - QUARTERLY 20,000 15,000 16,447 10,000 5,000 0 (5,000) 5,101 3,704 2,118 2,780 849 (88) (454) (1,276) (1,792) 3Q 2001 3Q 2002 3Q 2003 3Q 2004 3Q 2005 3Q 2006 3Q 2007 3Q 2008 3Q 2009 3Q 2010 The Apartment Report HOUSTON 2
Apartment Sales Apartment sales continued their momentum in Q3 2010 with 14 arms length transactions occurring in the market. Distressed assets accounted for 46% of sales activity in Q3. Outlook: Transaction activity will increase in Q4 2010 as lenders under pressure to remove distressed assets will sell and investors look to take advantage of historically low interest rates. HOUSTON AREA SALES - 7/1/2010-9/30/2010 APARTMENT SUBMARKET CLASS UNITS BUILT SALE DATE STATUS Westhollow Park Far West B 404 1980 9/14/2010 Distressed Mason Park Apartments Katy A 312 2008 8/31/2010 Stabilized Mid-Towne I & II Tomball B 78 1985 8/5/2010 Stabilized Uptown Post Oak Galleria A 392 2008 8/4/2010 Stabilized Del Mar Gulf Freeway C 544 1978 8/3/2010 Distressed Retreat at Cinco Ranch Katy A 268 2008 7/15/2010 Stabilized Alexan Upper Kirby Museum District A 230 2008 7/13/2010 Stabilized Mesa Ridge Braeswood C 259 1970 7/13/2010 Distressed Bender Creek North Loop - East C 110 1971 7/9/2010 Distressed Camden Yorktown Bear Creek/Copperfield A 306 2008 7/8/2010 Stabilized Falcon Ridge Spring B 234 1983 7/8/2010 Stabilized Forrester Ph I & II Northshore/Woodforest B 458 1981/1983 7/6/2010 Distressed Hunterwood Northshore/Woodforest C 255 1971 7/6/2010 Distressed Fairfield Creek Gulf Freeway B 428 1984 7/2/2010 Stabilized TOTAL 4,278 The Apartment Report HOUSTON 3
Construction New apartment deliveries are slated to drop to the lowest level seen in more than two decades. Of the 4,232 units scheduled for delivery through 2011, only 61% of these units are from conventional deals. The balance of the units scheduled for delivery represents tax credit properties. Multifamily permit approvals in are down 33% from a year ago. Outlook: With Class A, infill product trading above replacement cost, developers are actively looking for quality infill sites. Currently Under Construction or in Lease Up SUBMARKET CITY APARTMENT UNITS PROPERTY TYPE construction TYPE Braeswood Floral Gardens 100 Senior Tax Credit Garden Style Brazosport Lake Jackson Jackson Village Retirement Center 96 Senior Tax Credit Garden Style Brazosport Alvin Melbourne Senior Apartments, The 110 Senior Tax Credit Garden Style Brazosport Clute Casa Brazoria 36 Tax Credit Garden Style Brookhollow Orchard at Oak Forest, The 118 Senior Tax Credit Garden Style Clear Lake/League City League City Villas at Tuscan Lakes, The 206 Conventional Garden Style Conroe Conroe Woodside Manor 220 Senior Tax Credit Garden Style Conroe Conroe Skytop Apartments 192 Tax Credit Garden Style Deer Park Pasadena ClearPointe Crossing 288 Conventional Garden Style Far West Beechnut Oaks 144 Senior Tax Credit Garden Style FM 1960 East Humble Sierra Meadows 90 Senior Tax Credit Garden Style Galleria Place Vendome Redevelopment 321 Conventional Garden Style Galveston Santa Fe Heritage Crossing 72 Senior Tax Credit Garden Style Greenway Plaza 33 ThirtyThree 528 Conventional Mixed Use Gulf Freeway Pasadena Preserve at Baywood 336 Conventional Garden Style Gulf Freeway Sterling Court Senior Residences 140 Senior Tax Credit Garden Style Heights Avenue Terrace 144 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 Katy Katy Legends at Cinco Ranch Apartments 180 Conventional Garden Style Katy Katy Villas at Grand Parkway, The 330 Conventional Garden Style Katy Katy Trebah Village 128 Senior Tax Credit Garden Style Kingwood/Lake Atascocita Wentworth Senior Housing 90 Senior Tax Credit Garden Style Midtown CityPlace 185 Conventional Midrise North Loop - East HomeTowne on Wayside 128 Senior Tax Credit Garden Style North Loop - East Sakowitz Apartments 166 Tax Credit Garden Style Northline/Aldine Northline Apartment Homes 172 Tax Credit Garden Style Pearland Pearland Carrington Place at Shadow Creek Ranch 360 Conventional Garden Style Pearland Pearland Discovery at Shadow Creek, The 347 Conventional Garden Style Pearland Pearland Pearland Senior Villages 126 Senior Tax Credit Garden Style Steeplechase Cypress Greenhouse Place 140 Senior Tax Credit Garden Style Texas City/Dickinson La Marque Highland Manor Senior Housing 141 Senior Tax Credit Garden Style Texas City/Dickinson La Marque Horizon Meadows 96 Tax Credit Garden Style Woodlands The Woodlands Millennium, The - Waterway Ave 393 Conventional Garden Style Woodlands Spring Village at The Woodlands Waterway, The 116 Senior Conventional Garden Style TOTAL 6,395 Properties highlighted in green are new additions (vs. prior quarter lists) The Apartment Report HOUSTON 4
Proposed Construction SUBMARKET CITY APARTMENT UNITS PROPERTY TYPE CONSTRUCTION TYPE 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 Newport at Marina Bend 402 Conventional Garden Style Deer Park Deer Park Providence Town Square 252 Senior Conventional Garden Style Galveston Galveston Holland House 157 Senior Conventional Highrise Gulf Freeway Tarrington Court 153 Senior Tax Credit Garden Style Hwy 288/Almeda Cypress Creek at Fayridge 152 Tax Credit Garden Style Inner Loop West Zion Gardens 70 Tax Credit Garden Style Inwood Parkway Ranch II 45 Tax Credit Garden Style Inwood Chelsea Senior Community 144 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 Vista Grand Parkway 200 Conventional Garden Style Kingwood/Lake Kingwood Tuscany Place 152 Tax Credit Garden Style Medical Center Cambridge Tower 200 Conventional Highrise Midtown Midtown Grove 51 Conventional Garden Style Midtown Post Midtown Square Ph III 136 Conventional Midrise Museum District Fairmont Museum District Ph II 250 Conventional Garden Style Northshore/Woodforest Cypress Gardens 100 Senior Tax Credit 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 TOTAL 4,232 Properties highlighted in green are new additions (vs. prior quarter lists) The Apartment Report HOUSTON 5
Construction by Submarket Proposed Units (Total = 4,232) Under Constr. Units (Total = 6,395) Braeswood Brazosport Brookhollow 60 100 118 242 Champions - East 276 Clear Lake/League City Conroe 402 412 206 Deer Park 252 288 Far West FM 1960 East 90 144 Galleria 321 Galveston 157 72 Greenway Plaza 528 Gulf Freeway Heights 153 144 476 Hwy 288/Almeda Inner Loop East Inner Loop West Inwood 152 108 70 189 48 Katy 716 638 Kingwood/Lake Medical Center 152 200 90 Midtown Museum District North Loop - East Northline/Aldine 187 250 294 172 185 Northshore/Woodforest 100 Pearland Richmond/Rosenberg 238 248 833 River Oaks 430 Steeplechase 140 Texas City/Dickinson 237 Woodlands 509 0 200 400 600 800 1,000 1,200 1,400 1,600 The Apartment Report HOUSTON 6
Source: O Connor & Associates The Apartment Report HOUSTON 7
The Apartment Report Estimated Construction Costs Building type Cost per S.F. Notes 3-story Garden 2-story Big House 4-story or 4-story e-urban 4-story wrap 4-story podium High Rise $65 - $67 $68 - $70 $72 - $74 $92 - $94 $110 - $115 $160 200 units or more, 900 SF avg unit size or higher All garages Including surface parking, 40-45 units per acre 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. INTRODUCING TRANSWESTERN HOUSTON S MULTIFAMILY INVESTMENT SALES GROUP LOCAL PULSE. NATIONAL RESOURCES. PERFORMANCE ADVANTAGE CLINT DUNCAN Senior Broker 713.270.3316 METHODOLOGY SHANNON BEDINGER Marketing Director 713.272.1285 QUARTERLY MARKET REPORT ED CUMMINS Senior Vice President 713.272.1288 TRACY SHIRAH Marketing Assistant 713.270.3354 LUPE OLIVARES Senior Financial Analyst 713.272.1290 PRESS RELEASE The information in this report is the result of a compilation of information on the MSA multifamily market. Transwestern obtained the information from a variety of primary and secondary sources, including O Connor & Associates and M-PF Research. www.transwestern.net/houston The Apartment Report HOUSTON 8