Apartment experts fear too much building in Victoria
Nov. 9, 2011 at 5:09 a.m.
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To determine Victoria's 97.8 percent overall apartment occupancy rate, the Texas Apartment Association surveyed 4,340 of the city's 6,250 units, according to the Texas Real Estate Center.
Everyone agrees Victoria's apartment complex sector is more than ripe for growth. The numbers resoundingly point to the need for more units.
Some real estate professionals worry, however, too many investors will overdevelop the market.
Those with this concern point to a 120-unit complex under construction now, another 244 units in the pipeline and rumblings of several other potential competitors.
Others say not to worry. The city today needs plenty more apartments. Besides, investors and the lenders who fund them will stop developing once the market becomes saturated, they say.
Clearly, investors of all types are keeping watchful eyes on this bustling city. Growth, though, is rarely perfect. Will the apartment industry suffer its share of hiccups?
Nancy Garner, a real estate broker, property manager and apartment complex owner, plans with partners to expand the Whittington, a complex off Loop 463, by about 100 units. If everyone who has showed interest in building a new complex actually does, it could hurt the market, she said.
"I have been contacted by financial institutions and brokers who have clients who want to develop apartment complexes dealing in over 200 units," Garner said.
If those developers build, it could flood the market by as many as a several hundred more units, she said.
While Garner readily admits part of her concern stems from a desire to protect her investments, a much larger issue remains, she said. Overdevelopment can force vacancy rates to increase, and, in doing so, lead to maintenance and aesthetics problems. Investment properties that don't make money often are neglected or worse.
"I'm just concerned that Victoria is one of the few places where it's a good opportunity to invest, and this could be too much of a good thing," she said.
Mark Dotzour, the chief economist at the Texas Real Estate Center at Texas A&M University, said Victoria and Texas are amid a perfect storm, one that certainly suggests the apartment complex market will explode with new buildings.
"This is almost a once-in-a-lifetime occurrence," Dotzour said by phone last week.
Because of problems in the banking system and credit markets, lenders have for the last few years held a tight grip on money, severely limiting apartment complex development. At the same time, Texas' population soared and so did job growth. Demand is biting at supply's heels.
Now that lenders are loosening their grip on loans, Dotzour expects a surge in the market.
"The state bird of Texas is the construction crane," he said, laughing. "When the market opens up for an opportunity, it gets flooded. If there's room for eight good deals, they'll build 15. That's called capitalism. If Victoria is like the rest of America, they'll build more apartments than the city needs."
The data seem to support his contentions. Victoria's apartment occupancy rate is 97.8 percent, according to numbers shared by Dotzour and determined by the Texas Apartment Association.
By comparison, that rate by percent is 97.2 in San Angelo, 97.6 in Nacogdoches and 96.2 in Texarkana. Many of the state's apartment buildings already bulge at the seams.
John Kaminski, the city's planning director, counts 6,250 multi-family units in Victoria - based on data from the 2000 Census plus building permit records from that year to present.
Developers are now building a 120-unit complex on John Stockbauer Drive; another group submitted its formal plan to the city for a 244-unit complex on Ben Wilson Street. That plan is under review, and developers could receive a construction permit in coming months, barring any issues with the application.
Five developers not linked to projects already mentioned in this story also inquired about building a multi-family complex in Victoria, Kaminski said. But because those developers have not filed formal plans, the details of those potential projects remain confidential, he said.
"At least right now, there's a pretty clear demand for multi-family units," Kaminski said. "Could the city be overdeveloped? Maybe. But if the market can't handle the additional units, investors will likely have a hard time getting projects financed."
Ray Perryman, a Texas economist, said Victoria's building permit data suggest there is no risk today of overdevelopment. Anything is possible, he added.
"There is usually a high demand for multi-family housing in areas supporting oil and gas activity, and it appears you are just seeing some catch-up for the Eagle Ford Shale," Perryman said. "For now, I'd say take a deep breath and enjoy the good things that are happening."
Garner, the real estate professional who worries developers could overbuild the market, agreed Victoria's growth remains positive, especially considering economic struggles elsewhere.
Still, she can't shake a nagging feeling. Because planning for and building an apartment complex can take 18 months or more, many projects could receive approval and lending based on today's high occupancy rates and not tomorrow's market reality.
"If all those projects come to fruition, we're in trouble," she said, wondering aloud if those who contacted her about building a complex add to - or are the same - as those who contacted Kaminski at the city. "I hope that's not the case."