The apartment vacancy rate in El Paso continued to climb the first half of this year, leading property owners to cut rents to keep and attract tenants.
The recent decline in the El Paso apartment market, while slow, stands in stark contrast to the past several years when the local apartment market flourished and was a bright spot in an otherwise depressed national economy.
The apartment vacancy rate in the El Paso metro area rose to 8.1 percent during the second quarter of 2013. The vacancy rate for the same period last year was 5.3 percent.
At the same time, the average rent for all apartment types in El Paso fell to $784, down 3 percent from the previous year, according to a report released by national brokerage firm Hendricks-Berkadia.
Brokers report that their properties have become harder to sell and some local apartment builders say they are moving forward with new projects more cautiously.
“The market has slowed down a little bit. We are starting to get oversupplied,” said Bobby Bowling, president of El Paso-based Tropicana Building Corp., which builds primarily subsidized apartment complexes for low-income renters in El Paso.
“On the Westside, given what is on the ground and what is planned, I wouldn’t touch building a non-subsidized, market-rent apartment complex for about eight years or so,” Bowling said.
The apartment vacancy data, though, can be misleading, said Darren Woody, CEO of El Paso-based CF Jordan Construction, which was ranked the seventh largest apartment builder in the nation last year.
“When you look at those total numbers, they don’t differentiate between Class-A apartments and old, substandard product,” Darren said.
For newer and nicer properties, the vacancy rate is closer to a healthy 4 percent or 5 percent, he said.
Apartment developers requested building permits for 1,070 apartments in the first half of this year. That compares to permits issued for 460 units during the same period in 2012, according to the report.
Right now, two major apartment projects, totaling 260 units, are under way in El Paso. One is expected to be completed later this year and the other by mid-2014, according to the report.
Bowling, along with other builders, brokers and economists, said it is unlikely that the El Paso apartment market would become grossly overbuilt, in part because apartments are built in El Paso almost entirely by local companies.
“Local guys are going to be much quicker to react to local market forces because they live here and see the market every day,” Bowling said.
Traditionally, the El Paso apartment market has not attracted droves of outside investors and speculators because it is very small and slow growing, according to Winston Black, a native El Paso and vice president with Hendricks-Berkadia based in Colorado Springs, who works in the El Paso market.
“There is no outside pressure from developers or buyers,” he said.
Right now, Black said he is working to sell three multimillion-dollar apartment complexes in El Paso:
The Preserve at Mesa Hills, owned by a California investor; The Tuscany at Mesa Hills, owned by Ike Monty’s Investment Builders in El Paso; and North Hills Village, also owned by Monty.
Although the properties are drawing some interest, it is nothing like they would have received last year or the year before, he said.
There are several factors that led to the most recent slump in the apartment market, said Tom Fullerton, a professor of economics and finance at the University of Texas at El Paso.
“None represent a crisis situation, but have combined in a manner that has hampered apartment sector performance,” Fullerton said. “In these conditions, it was probably unavoidable.”
When the real estate market went bust in the United States in 2007, El Paso’s apartment market headed in the other direction, and surged.
During the worst of the recession, El Paso’s apartment market led the nation in occupancy and rental growth – shielded by rapid growth at Fort Bliss and a wave of migration from Juárez when violence exploded there, Black said.
In 2009, as evidence mounted that the city faced a critical shortage of rental housing for the thousands of soldiers surging onto Fort Bliss at the time, Army officials began to raise the alarm.
But construction costs were high and credit was tight, making it hard to get new units on the ground in time, developers said. So the city government rolled out a series of tax incentives to spur new development.
“There were efforts out of City Hall to artificially stimulate the construction of new units, and, as a consequence, the number of units has increased more than it otherwise would have,” Fullerton said.
In the end, 4,000 units were built under the program that rebates builders100 percent of the property tax paid to the city over a five-year period, according to city development director Mathew McElroy. The city no longer offers the incentives.
Now the expansion at Fort Bliss and the wave of migration from Juárez are over. The Defense Department is grappling with budget cuts and the violence in Juárez is declining.
Fullerton said he expects the migration from Juárez to be at least 20 percent lower this year than it was in 2010, although it’s hard to say because there is no exact count.
As the U.S. real estate market recovers, El Paso’s apartment market is again headed in the other direction, this time slowly declining.
“We are back to normal. El Paso has always been a sleepy little apartment market where rents don’t really move a lot and properties don’t change hands often,” Black said.
The El Paso market, he said, is great for investors looking for a conservative investment that will deliver a slow, steady yield, but it’s not so great for investors looking to buy low and sell high.
Email El Paso Inc. reporter Robert Gray at firstname.lastname@example.org or call (915) 534-4422 ext. 105.