3/23/16 BISNOW: Class-B Picking up While Houston Multifamily Lags

March 23, 2016 by Will Schnier P.E.

By Catherine Meredith, Bisnow, Texas

Read original article here

Published March 23, 2016

Class-B properties are a bright spot in Houston’s rather flaccid multifamily real estate market. The buildings tend to be smaller and older, but for investors they aren’t as much of a risk to build or acquire, and for consumers, they don’t cost as much in rent.

BIG RED DOG Engineering president Bob Brown has developed several Class-B projects and says business is gaining momentum; he has three projects that have either broken ground or are in permitting.

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While luxury has slowed, lending has also slowed significantly, and there just isn’t funding for inventory. But individuals who own property in less desirable areas are on the cusp of a golden age.

The built-in owner equity is very attractive, Bob says. Most of these properties were snapped up a long time ago for not very much money, and now those owner/operators are ready to react to the market. The only thing that adds value to land, Bob says, is time or money. And they’ve invested the time.

The traditional Class-B suburban garden is a classic for a reason. It continues to be attractive for workforce individuals and small families. The tenants are definitely not the Millennials in the urban core, Bob says. They’re mostly families; 75% to 85% of the units are small two-bedrooms.

JLL’s managing director of multifamily investment sales Chip Nash agrees that Class-B is highly desirable. Rents are holding up, and occupancy is way up—93.1%. Potential tenants flock to Class-B units during downturns, Chip says, because they aren’t feeling very secure. But it’s no fad spurred on by low oil prices. Class-B has always been occupied by a very large segment of the population and always will be.

Class-B is in demand all over: in the suburbs, but also older properties in the urban core.

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