Memphis multihousing sweet spot

Back in the days when the lending was easy, when seemingly everyone was buying a house, a Memphis, Tenn. builder was know for leaving fliers on apartment doors.


“Don’t feed the rent monster,” said Fogelman Properties President and COO Mark Fogelman, recalling the slogan on fliers circulated throughout the mid-2000s. “He actually had a picture of a monster taking money out of a couple’s pockets.”

Times change.

Today’s monster is foreclosure. The relevant picture might be of a couple hanging upside down on their front porch, their last coins falling from pockets turned inside out.

“We overbuilt here on the residential side, but it’s hard to overbuild on the multifamily side because lenders are more conservative,” said Steve Woodyard, president of Woodyard Realty, a brokerage for multifamily real estate.

“From an operations perspective, we think multifamily will hold up better than the other real estate sectors,” said Eric Bolton Jr., CEO and chairman of Memphis-based Mid-America Apartment Communities.

“People have to have shelter, even with the lack of job growth.”

First-quarter numbers from CB Richard Ellis’ MarketView show occupancy in the Memphis market at 89.4 percent, a 0.1 percent decline from the fourth quarter of 2008.

But street rents rose $5 from year-end 2008 to an average of $714, or by an annualized 2.4 percent.

New construction, as expected, was slow, with only 182 units completed; Carrington at Houston Levee was the only property to deliver units this quarter.

More than 1,300 units of new construction are scheduled for the remainder of the quarter, but CBRE’s Blake Para said: “Some projects will be put on hold and pushed off for a year or two.”

Mid-America Apartment Communities Inc. actually saw an increase in first-quarter income, reporting a net income of $7.9 million; that’s an almost 80 percent increase compared to a net income of $4.4 million for the first quarter of 2008.

“We beat the estimate Wall Street had for us,” said Bolton.

The company owns and manages 120 apartment communities in 13 Sunbelt states in the South and Southeast. It has 42,000 units spread over 40 cities.

“Memphis is doing OK,” Bolton said, adding they have 11 communities in the metro area, including two in DeSoto County. “Atlanta and Jacksonville are very weak. Houston, Dallas, Raleigh, N.C., they’re doing very well.

“But one of the big differences for us is 40 percent of our holdings are in secondary markets like Chattanooga and Jackson, Tenn., and Little Rock, Ark.”

Fogelman Properties manages 19,000 units in 55 communities in 13 states and 24 cities. Of those 55 apartment communities, about half are owned by Fogelman Properties; third parties manage the other half.

In Memphis, Fogelman Properties counts 17 properties and more than 5,000 units. Through much of this decade, Mark Fogelman said they saw “an exodus of people leaving to buy houses.”

“People would get rejected for an apartment (because of poor credit),” he said, “and go down the street and buy a house. Now, we get people coming back in different forms of foreclosure.”

“And some of these people aren’t able to get into our apartments today. We aren’t lowering our credit standards.”

Richard Fogelman, president and CEO, said: “Our focus is on newer properties in the higher end of town. There are only five Class A properties in Collierville, and we own four.

“So, we’ve placed a big bet on Collierville. And we’ve sold all our properties in Hickory Hill.”

The local market also is feeling some effect from condominiums returned as rentals.

“The economy is going to force you to go a more profitable way,” Mark Fogelman said.

“We don’t have as much supply as Florida or other major markets,”

Fogelman said of condos transitioning into rentals. “Downtown certainly has the largest concentration.”

First-quarter new construction rental rates in Downtown showed a 3.2 percent spike. But rental rates for 1980s construction Downtown declined 11.3 percent, the largest decrease for any sub-market.

The biggest increase in rental rates was 12.8 percent for old construction in the Southeast sub-market. But that’s potentially deceiving because many apartment communities have offered incentives, such as one or more months of free rent for new leases.

In general, Bolton said, “It’s important to protect occupancy.”

Said Broker Steve Woodyard: “Our fundamentals are still sound in this market, in terms of job creation, having a great city with a lot of things going on.

“Nationally, everyone thinks the sky is falling. Other markets are beat up. But that creates opportunities for buyers to come in and act.” .

Here’s a snapshot look at the Memphis multihousing market, Q1.

89.4 percent, down 0.1 point from year-end 2008. Occupancy for Class A and B product unchanged at 90.6 percent.

Street rents
$714 per unit, an annualized increase of 2.4 percent over year-end 2008; up 1.8 percent for class A and B product.

Down from year-end 2008 with (548) class A and B units absorbed.

182 units completed Q1. An additional 1,317 scheduled before year end.

Source: CB Richard Ellis Memphis Market View

Author: Don Wade is a writer for Memphis Commercial Appeal