EL PASO, TX - About 900 apartments were added to El Paso's apartment rental market in the past three years, but city and Fort Bliss officials say the construction pace needs to pick up substantially to support the more than 20,000 new Army soldiers and more than 30,000 family members coming into El Paso in the next several years. City officials have said El Paso needs to add 8,000 multifamily units by 2012 to support troop growth at Fort Bliss. They hope new city incentives for apartment builders will attract more development. The troubled financing market, and what some developers view as a too-low military housing allowance for soldiers at Fort Bliss, are holding some developers back.
"I foresee a shortage. I don't think enough investors are ready to commit to have (apartment projects) ready (to open) in the next 18 months," said Ray Baca, managing partner for Monterrey Asset Management, an El Paso partnership. It plans to open a 160-unit apartment complex, Mountain Vista Apartments, in Northeast El Paso by May 1.
Mountain Vista is among more than 600 apartment units under construction or just now being completed in El Paso, El Paso Times research found. One El Paso developer hopes to begin construction this year on two projects with an additional 671 units.
El Paso is forecast to have a shortage of 4,867 multifamily units next year, and that number will grow each year if apartment construction does not pick up this year, according to a recent report from the Greater El Paso Chamber of Commerce's Military Housing Task Force.
El Paso has more than 30,000 apartment units, according to the El Paso Apartment Association. An association survey of 20,600 of those units in the first quarter showed the occupancy rate was almost 94 percent. The El Paso apartment occupancy rate has been above 90 percent for the past 10 years.
That strong market, coupled with the infusion of Army soldiers, prompted Acclaim Homes, a San Francisco area company that develops and owns apartment complexes, mostly in California, to enter the El Paso market, said Mark Johnson, Acclaim president.
Late last year, Acclaim began construction of a 260-unit apartment complex, Castilleja, at 1531 George Dieter on the East Side. It's expected to open in July with apartments renting for $695 to $1,100 a month.
"Financing was a big problem" because of the collapse of the nation's financial system last year, Johnson said. "Financing is still an issue," but the recently passed city incentives for apartment builders and the projected growth of Fort Bliss has Acclaim looking at possibly doing another project here, he said.
Tom Bohannon, president of Bohannon Development, an El Paso apartment developer that operates several large El Paso complexes, said difficulty finding financing has delayed construction of two apartment projects with a total of 671 units. The company hopes to begin construction of the projects this year, a 431-unit complex at 3700 Hueco Valley at Edgemere Boulevard on the East Side, and a 240-unit project at Resler and Helen of Troy streets on the West Side, Bohannon said.
Bohannon Development last year opened the 342-unit The Bungalows at North Hills, near Martin Luther King and U.S. Highway 54. The complex is doing well, but the company doesn't divulge occupancy rates, Bohannon said.
Kathy Dodson, director of the city Department of Economic Development, said her office had received many calls from out-of-town developers since the City Council on March 31 approved rebating city fees on a sliding scale for developers building apartment complexes with 250 units or more. No one has yet to commit to building a project here, she said.
El Paso Realtor Dan Olivas, chairman of the El Paso chamber's Military Housing Task Force, said, "I think the city stepped up and did its part" by offering the incentives. But developers are telling Olivas that the "incentives on their own are not enough," he said.
A Michigan apartment developer recently looked at El Paso as a possible site for a 1,000-unit apartment complex, Olivas said. But it couldn't make the economics work, he said.
One problem is that the Army's housing allowance for soldiers at Fort Bliss is too low, Olivas and others in the real estate industry told Army officials at a recent housing conference in El Paso. The allowance is now $892 a month, including utilities, for married, non-officer soldiers.
Apartment developer Bohannon said he saw out-of-town companies looking at this area, but "just because there's a demand (for apartments), doesn't mean it's profitable to do (a project). Rents have to justify the cost of development."
Apartment complexes aimed solely at soldiers need a higher Army housing allowance to "justify new construction," Bohannon said.
Baca, at Monterrey Asset Management, said, "The market is strong." But rental rates in the past five years have not kept up with increasing operating costs, he said.
Rental rates citywide averaged $617 a month in the latest El Paso Apartment Association survey.
Rents at Monterrey's new 160-unit Mountain Vista Apartments at 5757 Will Ruth in the Northeast range from $608 to $738 a month. The modest apartments are affordable for soldiers, but future projects would have to have higher rents because construction costs are rising, Baca said.
This is Monterrey's first new apartment project in about 25 years, and was largely prompted by projected growth at Fort Bliss, Baca said. Monterrey owns 11 other apartment complexes in El Paso. Monterrey is looking at possibly building two other projects on the East Side and West Side, but first it will see how "the market responds" to the area's growth and the city's incentives, Baca said.
"If we see several (projects) going up, we won't want to do it," Baca said.
Rick Saunders, vice president of Saunders Construction Co., which is building a 168-unit complex at 7990 Artcraft on the West Side, said local developers could be hurt if a lot of out-of-town developers came into this market to build apartments.
"We saw a big influx of apartments built in the '70s" by out-of-town companies taking advantage of federal tax breaks available at that time, Saunders said.
Source: elpasotimes.com