TEXAS SNAPSHOT, MAY 2007

Lubbock Multifamily Market

Hallmark

Lubbock is slowly and steadily recovering from the overbuilt condition of the multifamily/student housing market segment in recent years. At the end of 2002, occupancy levels for Lubbock apartments peaked at 94.5 percent. Starting in 2003, occupancy levels began slipping due to the new product coming on line and hit a low point of 81 percent in mid 2006. As of January 2007, it appears that occupancy levels have turned the corner and occupancy has climbed to 87 percent currently. The outlook is for continued, steady growth in occupancy rates as Texas Tech University continues its quest to achieve an enrollment of 40,000 students during the next 10 years.

Of the 17,668 apartment units surveyed by the Lubbock Apartment Association, nearly 3,500 of them were built in the past 5 years. In addition to the new apartment properties, according the Lubbock Building Inspection Department, 1,368 duplex properties representing 2,736 apartment units were built during the same time period. More than 1,000 of these duplex units were concentrated in two Northwest Lubbock subdivisions and are geared to students at nearby Texas Tech University as “rent by the bed” apartments where roommates each have their own bedroom and bath, but share the living room and kitchen in the apartment. Much of the overbuilding, particularly from 2003 to 2005, was a result of Tech’s enrollment growth falling short of the anticipated increase to 30,000 students.

Of the new apartment projects built in recent years, four were student-oriented and are located in the Overton Park neighborhood, which is between Texas Tech University and Lubbock’s central business district (CBD). Three of the projects were built as “rent by the bed” properties by the Donnerstein Group of Houston and the fourth one, The Centre at Overton Park, was developed as a student-oriented apartment complex over ground-floor retail shops by the McDougal Companies of Lubbock.

McDougal continues to redevelop the nearly 400-acre Overton Park neighborhood. It has recently been announced that Garfield Traub of Dallas is building a new 300-room, 14-story hotel in the area in conjunction with a new 50,000-square-foot convention center. Next to that, Dallas-based Shafer Property Company plans to build a 90,000-square-foot retail center. McDougal also plans to break ground later this year on The Centre II, a planned four-story apartment complex that will have almost 300 units in Overton Park. As for upscale student or university-oriented property, McDougal also has built the Main Street Condominiums in the area, which are 1,800-square-foot townhome style units starting at $180,000 each. Also, currently under construction is U Lofts Lubbock, which is a redevelopment of the former University Plaza private student dormitory located on University Avenue across the street from Texas Tech. They are scheduled to have 300 units, 200 of which will be sold as condos.

In addition to the Overton Park area across from Texas Tech University there has been quite a bit of new apartment development in Northwest Lubbock outside of Loop 289 as a result of the new Lubbock Heart Hospital and related medical offices. Other apartment development has occurred in Northeast Lubbock as a result of two new affordable housing tax credit apartment projects being built there and a third affordable housing tax credit project being built in North Central Lubbock.

According the latest Lubbock Apartment Association Survey, average rental rates citywide are $495 for one-bedroom units, $645 for two-bedroom units, and $950 for three-bedroom apartments. Lucy Eade, executive officer of the Lubbock Apartment Association indicates that concessions range from a free month’s rent on a 1-year lease to providing flat screen TVs, to deal or no deal/make offer/negotiated rents, to pick your paint colors, to even “look here and enter the contest to win a Jeep.” Popular amenities include wireless Internet access, cable TV, exercise centers, video libraries, gated communities, fenced pet play parks and enclosed garages with openers.

With Lubbock being a college town, the Texas Tech University area will continue to play an important role for future apartment development, but there has been recent multifamily activity in Southwest and Northwest Lubbock as well. A new retail and entertainment development, Canyon Crossing, is underway in Southwest Lubbock along U.S. Highway 62/82 outside of Loop 289 and that should increase demand for apartments and housing in that area. It includes a new Target, Cracker Barrel restaurant, Burlington Coat Factory and 250,000 square feet of other planned retailers, theaters and shops. Milwaukee Avenue, west of Loop 289, was recently completed and is now seven lanes from Fourth to 98th streets and will be the next commercial corridor to attract future multifamily development. Work also continues on the east/west Marsha Sharp Freeway, which will connect U.S. Highway 62/82 on the Southwest side of town with Interstate 27 that runs north and south through downtown Lubbock. It also will be a development stimulus.

All indications are that the Lubbock market should continue its steady growth. Lubbock appraiser, Merle Blosser, MAI, forecasts that occupancy levels will rise back to 90 percent during the coming year. Not many multifamily sales have been reported in the past year, but as apartment occupancies continue to improve, owners’ operating numbers improve, making it more feasible to sell their properties. Many properties that were purchased in 2002 and 2003 when occupancy rates and rents were higher have struggled in recent years but are now recovering. There are still plenty of buyers out there seeking quality properties where the numbers work.

— Wes Hallmark is senior investment advisor with Sperry Van Ness/Hallmark & Associates in Lubbock, Texas.


©2007 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.