houston multifamily trends & observations 3rd …€¦ · median home prices yoy % growth...

&MORAN & COMPANY

HOUSTON

MULTIFAMILY TRENDS & OBSERVATIONS

3RD QUARTER 2017

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&PAGE 3HOUSTON MULTIFAMILY TRENDS & OBSERVATIONS | 3RD QUARTER 2017

HOUSTON TRENDS TO WATCH

Post-Harvey Activity Accelerating Recovery: 215 apartment properties reporting damage of 15,662 Over 200,000 homes damaged including 15,000 homes destroyed Demand for apartments by displaced families along with an influx of recovery workers adding to

absorption Average effective rents have increased 1.5% post-Harvey Concession reduction seen throughout Houston submarkets

Caution is a Common Thread Due to Uncertainty: The length of occupancy for displaced homeowners and temporary workers implies future vacancy

from these renters. [Timing of these move-outs will likely coincided with the lowest number of new deliveries in the market since 2012.]

Timing of damaged units being repaired and made available again for lease is unknown. [It is likely that restoring these units will be done over time and not all at once.]

There is some concern whether or not job recovery will continue post Harvey. [Core industries like Medical and were barely impacted and Oil & Gas only temporarily affected.]

Disciplined New Development Will Cause Slower Growth in Supply: Uncertainty with future occupancies and rent growth is impacting debt and equity decisions for

investing in new starts Multifamily permits were only 400 units per month prior to Harvey Deliveries forecasted to continue to decline in 2018 and 2019 Occupancy Forecasted to be 95.1% by 2019

Positive Job Growth Sets a Foundation for Continued Recovery: Per US Bureau of Labor Statistics, Houston added an estimated 53,500 jobs annually as of August

2017. The Dallas Fed estimates annual job growth at 41,000 new jobs as of October September unemployment declined to 4.8% from 5.2% in August Energy industry gained 6,800 jobs since November 2016 signaling that oil-related job losses are likely over

Transaction Market Remains Robust with some Caution: Ample low cost debt and equity for all multifamily asset classes Value-add deals are still the darling of the investment market Cap rates are not materially different from other major Texas markets but lower rents producing

lower price per pound values There is continuing caution in underwriting rent growth in the near term due to uncertainties in the

market Some traditionally value-add capital is shifting its focus to newer, more stabilized assets chasing a

higher going in yield with lower capital risk Institutional investors are still cautious in the core space, but private investors fill the gapInstitutional investors considering suburban over urban core locations in attempt to find higher yields Sources: Axiometrics, Dallas Federal Reserve, Bureau of Labor Statistics, Texas Workforce Commission

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TOTAL UNITS UNITS ADDED UNITS ABSORBED

691,841 3Q YTD: 14,904 2017F: 20,508

YOY Q3:15,988

SEPTEMBER 2017F 22,353

CURRENTOCCUPANCY

PROJECTEDOCCUPANCY Q3 2018 INVENTORY GROWTH

92.5% 94.7% 2016: 3.4% 2017F: 3.0% 2018F: 2.0%

CURRENT AVERAGE EFFECTIVE RENT

EFFECTIVE RENT GROWTH SINCE 2010

EFFECTIVERENT GROWTH

$1,049 22%

YOY Q3 2017: - 1.2%

PROJECTED 2018: 3.7%

3RD QUARTER 2017 STATS AT A GLANCE

Source: Axiometrics, Bureau of Labor Statistics, U.S. Census Bureau, Natl. Asso. of Realtors, Fortune 500, & Sperling’s Best

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HOUSTON MULTIFAMILY TRENDS & OBSERVATIONS | 3RD QUARTER 2017

SEPTEMBER 2017WORKFORCE JOB GROWTH

SEPTEMBER 2017UNEMPLOYED

3,013,600 AVG. 2017 YOY:53,500

2010-2016:434,500+

HOUSTON: 4.8% U.S. 4.8%

CENSUS BUREAUJULY 31, 2016 POPULATION

2010-2016 POPULATION GROWTH

2010-2050 PROJECTED POPULATION GROWTH

6,772,470 13.9% 8,300,000+

RIG COUNTFORTUNE 500

FORTUNE 1000CLASS A OFFICESPACE Q3 2017

11/2016: 593 11/2017: 923

YOY INCREASES: 56%

FORTUNE 500: 20FORTUNE 1000: 38

143 MM SF $35+/SF

Q3 2017MEDIAN HOME PRICES

YOY % GROWTHMEDIAN HOME PRICES

COST OF LIVING INDEX SPERLING’S BEST PLACES

$233,900 7.6% HOUSTON: 102

CHICAGO: 111

DENVER: 128

SEATTLE: 177

BENCHMARK: 100

ECONOMIC DRIVERS AT A GLANCE

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0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Mul

tifam

ily P

erm

its

Popu

latio

n

Population MF Permits

HOUSTON MULTIFAMILY STARTS

Fewer permits with almost twice the total population vs. the 1980sMultifamily starts seeing a dramatic decline

on a much larger base of units and population

HOUSTON POPULATION PROJECTIONS 2010 - 2050

2010 – 2050 (Estimate) = + 10 million peopleAt 2.7 people per HH = 3.1MM HHs

= 77,000 HH per year

2,195,147

3,628,588

5,826,108 6,772,470

14,221,267

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

1970 1980 1990 2000 2010 2020 2030 2040 2050

2016

1985

2009

1970

2050

Source: U.S. Census Bureau/Real Estate Center at Texas A & M University

Source: U.S. Census Bureau, Real Estate Center at Texas A&M University, Texas Demographic Center

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13.9% 13.5%

9.8% 9.9%9.0%

6.6%

5.3%

3.8%

1.8%

0.5%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Houston (5)

Dallas-Fort Worth(4)

Washington DC(7)

Atlanta(9)

Miami(8)

New York(1)

Boston(10)

Los Angeles(2)

Philadelphia(6)

Chicago(3)

2010-2016 POPULATION GROWTH OF TEN LARGEST US METROS

Population increase Houston 2010-2016 = 825,670Average = 117,953/year

20%

18%17% 17%

13%

11% 11%

10%

8%

6%

0%

5%

10%

15%

20%

25%

Dallas-FortWorth

(579,000)

Miami(389,800)

Atlanta(391,700)

Houston(434,500)

Los Angeles(676,300)

Boston(271,200)

New York(9836,600)

Chicago(408,400)

WashingtonDC

(243,300)

Philadelphia(172,200)

2010-2016 YTD JOB GROWTH TO TEN LARGEST U.S. METROS

September 2017 T12 = 19,500 Jobs Added - 0.7% Year-Over-Year Growth Rate

HOUSTON JOBS CREATED2010 - 2016

434,500+

Source: Real Estate Center at Texas A&M University

Source: Bureau of Labor Statistics

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PUBLIC & PRIVATE CAPITAL INVESTMENT

21%

17%

12%12%

11%

8%

8%

6%4%

2% Trade, Transportation, and Utilities (768,000)

Professional and Business Services (612,000)

Education and Health Services (441,000)

Government (416,000)

Leisure and Hospitality (391,000)

Financial Activties (294,000)

Manufacturing (273,000)

Mining, Logging, and Construction (211,000)

Other Services (128,000)

Information (82,000)

EMPLOYMENT BY SECTOR – 3,013,600 JOBS – September 2017

Source: Bureau of Labor Statistics

I-35 CORRIDOR DISCOVERY GREEN

CITYPLACE SPRINGWOOD VILLAGE

SH 99 GRAND PARKWAY

GENERATION PARK

MIDTOWN PARK

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BILLION $ COMPANIES AMONG HOUSTON’S FORTUNE 500/1000

2017 Fortune 500 / 1000

RANK REVENUE(Billions)

34 Phillips 66 72.357 Sysco 50.3

115 ConocoPhillips 24.3122 Enterprise Products Partners 23141 Plains GP Holdings 20.1173 Haliburton 15.8201 Waste Management 13.6215 Kinder Morgan 13261 Group 1 Automotive 10.8278 Occidential Petroleum 10.3285 Baker Hughes 9.8289 Huntsman 9.6344 Anadarko Petroleum 7.8355 Quanta Services 7.6356 EOG Resources 7.6362 CenterPoint Enerby 7.5375 National Oilwell Varco 7.2400 Calpine 6.7402 Targa Resources 6.6488 Apache 5.3507 Westlake Chemical 5519 Spectra Energy 4.9536 Marathon Oil 4.6543 FMC Technonogies 4.5 561 Dynegy 4.3567 KBR 4.2596 Crown Castle International 3.9653 Noble Energy 3.5667 Tailored Brands 3.3685 Buckeye Partners 3.2703 Southwestern Energy 2.4726 MRC Global 3729 Service Corp. International 3805 Crestwood Equity Partners 2.5871 Oceaneering International 2.2910 NOW 2.1935 Stewart Information Systems 2974 Par Pacific Holdings 1.8

Source: Fortune

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HOUSTON APARTMENT MARKET FUNDAMENTALS TODAY - Q3 2017

EFFECTIVE RENT GROWTH AND OCCUPANCY

HOUSTON-THE WOODLANDS-SUGARLAND Q3 2017 FORECASTQ3 2018

FORECASTQ3 2019

Existing Apartment Units 691,841 705,952 716,509

Units Added Annually 23,697 14,111 10,557

Units Absorbed Anually 12,011 28,718 14,297

Average Gross Occupancy 92.6% 94.7% 95.3%

Current Period Effective Rent $1,073 $1,095 $1,140

$800

$1,063$1,101

90%

95%

87%

88%

89%

90%

91%

92%

93%

94%

95%

$500

$600

$700

$800

$900

$1,000

$1,100

$1,200

2010 2011 2012 2013 2014 2015 2016 2017 (P) 2018 (P)

Rent Occupancy

2010 – 2018 (projection)22% Rent Increase 2010 to Year-End 2017

Source: Axiometrics

Source: Axiometrics

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TOTAL HOUSING PRODUCTION

HOME OWNERSHIP

7,631

6,643

16,586

10,468

20,312

4,709

25,044

19,798

9,054

25,617

51,202

22,369

34,543 38,3193536733,248

51,271 52,642

66,935

32,897

59,587 58,117

44,421

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Hous

ing

Perm

its

Multifamily (5+) Single Family Total

Total housing production still below peakHouston added 850,000(+/-) people since 2009

0

2

4

6

8

10

12

14

16

160,000

180,000

200,000

220,000

240,000

260,000

Avg Price Months Inventory

Dearth of affordable single-family homes as prices rise and inventory declinesCurrent 3.4 month inventory

Building fewer homes and at higher price point

Source: U.S. Census Bureau

Source: Real Estate Center at Texas A & M University

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WHERE IS THE PIPELINE CONCENTRATED? THINK JOBS!!!

HOUSTON DEMAND EXPECTED TO EXCEED SUPPLY 2017-2018

Current lease-ups and projects under construction

88%

89%

90%

91%

92%

93%

94%

95%

0

5,000

10,000

15,000

20,000

25,000

30,000

2010 2011 2012 2013 2014 2015 2016 2017 (F) 2018 (F)

Occup

ancy

Units

Supply Demand Occupancy

Demand and Occupancy Expected to Strongly Rebound in 2017

Source: Axiometrics

Source: Axiometrics

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Source: Real Capital Analytics

APARTMENT SALES

0

50

100

150

200

250

$0

$1,000,000,000

$2,000,000,000

$3,000,000,000

$4,000,000,000

$5,000,000,000

$6,000,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Volume # of Properties

Property or Portfolio Sales $10 Million or Greater70 Properties

$1.33 Billion Total Volume$19.1 Million Average Deal Size

166 Properties$4.5 Billion Total Volume

$26.8 Million Average Deal Size

LOWEST # OF PROPERTIES UNDER CONSTRUCTION SINCE 2012

Houston Oversuppplied - Think Again......

0

20

40

60

80

100

120

140Se

p-12

Nov

-12

Jan-

13M

ar-1

3M

ay-1

3Ju

l-13

Sep-

13N

ov-1

3Ja

n-14

Mar

-14

May

-14

Jul-1

4Se

p-14

Nov

-14

Jan-

15M

ar-1

5M

ay-1

5Ju

l-15

Sep-

15N

ov-1

5Ja

n-16

Mar

-16

May

-16

Jul-1

6Se

p-16

Nov

-16

Jan-

17M

ar-1

7M

ay-1

7Ju

l-17

Sep-

17

Lease Up Under Construction

Source: Axiometrics

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LEASE-UP ABSORPTION

LEASE-UP ABSORPTION & RENTS

September lease-up properties experience highest absorption rate 2,500+ Units Absorbed

1400

1450

1500

1550

1600

1650

1700

0

5

10

15

20

25

Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17

Houston Rent & Absorption

Absorption Rent

Increased Demand For Temporary Housing led to Rent Increases in September23+ Units Absorbed Per Property

Source: Axiometrics

Source: Axiometrics

0

500

1000

1500

2000

2500

3000

Jan

13

Mar

13

May

13

Jul 1

3

Sep

13

Nov

13

Jan

14

Mar

14

May

14

Jul 1

4

Sep

14

Nov

14

Jan

15

Mar

15

May

15

Jul 1

5

Sep

15

Nov

15

Jan

16

Mar

16

May

16

Jul 1

6

Sep

16

Nov

16

Jan

17

Mar

17

May

17

Jul 1

7

Sep

17

Houston Total Units in Lease-Up Absorbed by Month

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GROWTH INDUSTRIES IN HOUSTON

2016 TOP HOUSTON AREA CAPITAL INVESTMENT PROJECTS

2016 - Texas received its fifth consective Governor’s Cup fromSite Selection Magazine which recognizes capital investment with the state.

2015 & 2016 Texas ranked #1 for the highest total # projects with 642 in 2016.

Company City Product $US Millions

ExxonMobil Corp Beaumont Petroleum Refineries 1200Meglogbal Americas Freeport Chemicals 1000Lyondellbasell Industries N.V. La Porte Chemicals 700Ineos Americas Alvin Nitrogenous Fertilizer 550Raven Petroleum Freer Petroleum Refineries 500Gunvor USA Houston Petroleum Refineries 500Howard Midstream Energy PartnersRobstown Industrial Supplies 500Chemours Co. Ingleside Chemicals 230Air Liquide La Porte Engineering Services 230Targa Terminals Channelview Consulting Services 140Rangeland Energy II Corpus Christi Petroleum Refineries 100

Source: Conway Projects Database

MEDICALMedical industry drives employment - Currently over $5 billion in new development for medical facilities

$1.5 BillionNew 30-acre campus

$650 MillionMH Expansion in TMC

$540 MillionNew Tower in TMC

$506 MillionExpansion in TMC

PORT OF HOUSTONPort of Houston Upgrades and Infrastructure improvements

Traffic at Houston Port expected to grow with expansion of Panama Canal

1stIn Import Tonnage

2nd In Total Tonnage

Largest Gulf Coast

Container PortPETROCHEMICAL DEVELOPMENT PROJECTS

$32.7 B New EastHouston Plants

$6.7 B For Natural Gas Liquification Plants

For Exports

$4.7 B New Refinery Projects

$3.7 B New Natural Gas Processing Plants

Houston has theLargest export market

in the U.S.

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WE AREMORAN & COMPANY

––––––––– With over 22 years in business, we are the team you want on your side. –––––––––

We are... Nationally recognized leader in providing disposition, capitalization and advisory services

... Exclusively serving the multifamily industry

... Passionate client advocates with seasoned, dedicated professionals

... Capable, offering national coverage provided by 12 highly experienced partners operating from 8 regional offices

... Regarded as a dominant intermediary for transactions in excess of $100 Million and for ex-ecutions requiring higher levels of senior expe-rience and focused attention

THOMAS F. MORAN

FOUNDER & CO-CHAIRMAN

MARY ANN KING

CO-CHAIRMAN

DAVID MARTIN PRESIDENT | WESTERN REGION

PETER EVANS

PRESIDENT | EASTERN REGION

Moran & Company––––––––– National Leadership –––––––––

Moran & Company Southwest––––––––– Regional Team –––––––––

Paul Harris Managing Partner Southwest Thad Wetterau

Director - DallasGreg Smith

Director - Dallas

Jeffrey SkipworthDirector - Houston

Eric Calub Director - Dallas

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SOUTHWEST LEADERSHIP

Education• SOUTHERN METHODIST UNIVERSITY, M.B.A. (2005)• AUSTIN COLLEGE, B.A. (1999)

Work Experience • MORAN & COMPANY - BROKERAGE (2006-PRESENT)• FIDELITY INVESTMENTS - FINANCIAL & TAX ANALYSIS (2005-2006)• FIDELITY INVESTMENTS - INSTITUTIONAL MANAGEMENT (1999-

2005)

Jeffrey SkipworthDIRECTOR | SOUTHWEST

Jeffrey Skipworth is the Director for Moran & Company in Houston, an office he opened with Paul Harris in 2011. Jeffrey started his career with Moran & Company in 2006, and has worked on $1 billion of real estate during his tenure at the firm. Jeffrey has extensive experience at all levels of the marketing process including underwriting, marketing presentation, research and investor solicitation. Prior to joining Moran & Company, Jeffrey was a senior analyst and relationship manager for Fidelity Investments, where he represented a num-ber of billion dollar companies in large investment transactions in addition to conducting tax analysis for large multinational firms. He is a licensed real estate broker for the state of Texas.

Education• TEXAS TECH UNIVERSITY, B.A. (1977)

Work Experience • MORAN & COMPANY (2003-PRESENT)• ARCHON GROUP (1994-2003)• NORTHCORP REALTY ADVISORS (1989-1994)

Professional Affiliations• NATIONAL MULTIFAMILY HOUSING COUNCIL• DALLAS REAL ESTATE COUNCIL

Paul HarrisMANAGING PARTNER | SOUTHWEST

Since opening the Dallas office in 2003, Paul has been responsible for all marketing assignments and client re-lationships in the Southwest Region with particular emphasis on the major Texas markets. Paul and his team have closed over $4.4 billion in multifamily dispositions and recapitalization since joining Moran. Prior to joining Moran, Paul was Director of Multifamily Investments for Archon Residential, a Goldman Sachs subsidiary, with responsibility for Archon’s national multifamily acquisition and disposition efforts. During his eight years with Archon, Paul completed the sale of 255 multifamily properties comprising over 56,000 units in 32 states with $3 billion in value. Paul has focused exclusively on multifamily transactions since 1995 and he is active in the National Multi Housing Council (NMHC).

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Education• TEXAS CHRISTIAN UNIVERSITY, M. B.A. (1997)• TEXAS A&M UNIVERSITY, B.B.A. (1989)

Work Experience • MORAN & COMPANY (2005-PRESENT)• GOLDMAN SACHS / ARCHON GROUP (1997-2005)• TEXAS COMMERCE BANK (1995-1997)• THE WALT DISNEY COMPANY (1992-1995)• COOPERS & LYBRAND CPA’S (1989-1992)

Professional Affiliations• NATIONAL MULTIFAMILY HOUSING COUNCIL• URBAN LAND INSTITUTE• DALLAS REAL ESTATE MINISTRIES (DREM)

Greg SmithDIRECTOR | SOUTHWEST

Greg’s responsibilities include business development, economic underwriting, marketing, and due diligence for assignments in the Southwest region. Prior to Moran & Company, he managed investment sale transactions for Goldman Sachs of all property types. Gregory is a licensed CPA and real estate broker and also has experience in commercial banking and public accounting, along with positions at two Fortune 500 companies. Greg graduated as a Neeley Scholar from the Masters of Business Administration program at Texas Christian University and cum laude with a BBA from Texas A&M University.

Thad WetterauDIRECTOR | SOUTHWEST

Since joining Moran & Company in 1999, he has completed over $3 billion in multifamily transactions, pri-marily in Texas, but also in major markets across the southeastern U.S. He brings to bear his background in institutional real estate research, development consulting, appraisal, and transactions on every investment assignment. His current responsibilities cover the entire multifamily investment sales process, including cli-ent service, relationship management, deal management, property valuation, economic analysis, marketing and due diligence.

Education• BAYLOR UNIVERSITY, M.B.A. (1988)• BAYLOR UNIVERSITY, B.A. (1986)

Work Experience • MORAN & COMPANY (1999-PRESENT)• LEND LEASE (1998-1999)• L&B GROUP (1997-1998)• AMRESCO (1996-1997)• M/PF RESEARCH (1994-1996)• COMMERCIAL REAL ESTATE APPRAISAL (1989-1994)

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Education• UNIVERSITY OF MICHIGAN-ANN ARBOR, B.B.A.

Work Experience • MORAN & COMPANY• PASSCO COMPANIES, INC• THE KISLAK ORGANIZATION• BERKSHIRE REALTY• WALDEN RESIDENTIAL• THE PRIME GROUP

Professional Affiliations• NATIONAL MULTI HOUSING COUNCIL• THE REAL ESTATE COUNCIL - DALLAS

Eric CalubDIRECTOR | SOUTHWEST

Eric has spent most of his career in the multi-family sector on the principal side as both an Acquisitions and Dispositions officer in addition to asset managing a portfolio of properties. Eric has worked for both large public entities (Berkshire Realty and Walden Residential - REITS) and smaller private companies (The Kislak Organization and Passco Companies – TIC/DST sponsor). Eric has over two decades of experience include executing transactions involving single asset entities and portfolios of core, core-plus, and value-add properties, as well as performing and non-performing loans. Throughout his career Eric has successfully closed acquisitions and dispositions in excess of $2 billion.

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Paul Harris Managing Partner Southwest

D: 972.764.8490 M: 214.232.8689

[email protected]

Thad Wetterau Director - Dallas D: 972.764.8491 M: 972.754.5420

[email protected]

Greg Smith Director - Dallas D: 972.764.8499 M: 817.313.7081

[email protected]

Jeffrey SkipworthDirector - Houston D: 713.425.4942 M: 214.533.3322

[email protected]

Eric Calub Director - Dallas D: 972.764.8492 M: 972.567.3560

[email protected]

DALLAS OFFICE 5440 Harvest Hill, Ste. 146

Dallas, TX 75230 972.387.2500

HOUSTON OFFICE 12 Greenway Plaza, Ste. 1100

Houston, TX 77046 712.425.4942

SOUTHWESTDALLAS, TX

HOUSTON, TX

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Moran & Company Offices

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houston multifamily trends & observations 3rd …€¦ · median home prices yoy % growth...

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