Tampa-based American Landmark Apartments expanded its Houston area portfolio to 14 properties with the purchase of two suburban complexes.
The deal adds the 234-unit Newport on the Lake apartments at 1895 Barker Cypress Road in west Houston and the 250-unit Harbor View Apartments at 4855 Magnolia Cove Drive in Kingwood to its holdings.
With the acquisitions, American Landmark owns more than 4,600 units in Houston, about 15 percent of its 31,000 units in high-growth markets across Florida, Georgia, North Carolina, South Carolina and Texas.
“We are big fans of Houston,” said Chief Executive Joe Lubeck. “Although all the statistics indicate that rent growth in Houston has been relatively small compared to the national average, we believe that the population growth and job growth will continue to support the rental market and provides a good long-term investment.”
Apartment rents rose 3 percent in the Houston area in the past year, according to ApartmentData.com. That compares with gains of 7.4 percent in Austin and 5.1 percent in Dallas-Fort Worth.
Houston is more affordable and is trailing the rent growth of other markets in a fairly significant way, according to Bruce McClenny of ApartmentData.
“This lag can still be traced to the fracking bust and how we sat on the sidelines and stopped participating in the longest economic expansion on record during 2015 and 2016,” he said. “In addition, Harvey played havoc with our fundamentals of occupancy, rent and absorption with spikes up in late 2017 and slow wind-down in the second half of 2018.”
Despite those factors, Houston’s population has grown, and with an annual employment growth of 2.7 percent — or nearly 83,000 jobs — and a diverse economy, American Landmark saw opportunity.
“There was a time when Houston was solely based on energy,” Lubeck said. “It’s now a very diverse employment base that includes energy, medical, education and services. With all of those drivers, we think Houston has a solid economic future.”
While terms of the sale were not disclosed, the company has paid an average of $146,000 per unit for properties in the past couple of years for which pricing was available, according to Real Capital Analytics. Using that average, the two complexes totaling 484 units could be valued at about $70.5 million.
American Landmark typically holds investments for five years, according to Lubeck. IDB provided financing for the Houston properties, which are among $1.5 billion in acquisitions so far this year.
Cortland, an Atlanta-based multifamily owner and operator that has been ramping up its Houston portfolio, sold the properties in an off-market transaction.
“It’s a bit bittersweet to see Harbor View by Cortland and Newport on the Lake by Cortland go as these properties were our first two investments in Houston more than seven years ago,” said Ted Collie, Cortland’s executive vice president of investments. “We believed at the time that Houston represented a promising market for us and it is now one of our largest with more than 20 communities totaling almost 6,500 units. We remain bullish on Houston and anticipate continuing to grow our presence throughout the broader Houston market.”
Such off-market transactions — ones where the properties are not widely marketed by brokers — enable American Landmark to get better deals, Lubeck said. That’s especially important as properties are trading at peak levels.
Sales of apartments in a region that covers major markets in Texas and Oklahoma averaged $110,951 per unit this year, according to Yardi Matrix. The average price is up 4.4 percent from last year.
“The apartment investment market remains robust with many more buyers than available properties,” said Matt Guse, a senior vice president in the multifamily division at Colliers International, said of the Houston market.
Newport on the Lake, built in 2008, will be renamed Lakefront Villas, while Harbor View, built in 2010, will be named The JaXon. Renovations totaling $5.9 million are planned for the complexes. The upgrades will bring fresh countertops, cabinetry, flooring and appliances. Fitness centers with spin rooms, coffee lounges and pet amenities including a pet spa and park are planned.
Rents will go up by a nominal amount, Lubeck said. Occupancy is expected to reach the mid-90 percents for both properties early next year.
Publication: Houston Chronicle