REGIONAL MARKETS: SOUTH CENTRAL

APARTMENT FINANCE TODAY • MAY 2008

Long-Awaited Bliss

El Paso is shedding its reputation as isolated and poverty-stricken with the expansion of Fort Bliss. It will be the largest expansion of any military base in the country, which could be a boon at last.

By Dana Enfinger

The multifamily market is expected to heat up in this sun-soaked city. But like new charcoal, it may take a while to catch fire.

Tens of thousands of troops and their families are expected to arrive at Fort Bliss over the next five years as part of the Army’s growth plans and the government’s base realignment and closure strategy.

The move will push Fort Bliss’ population of troops and family members from 24,660 in 2005 to 90,418 by the end of 2012. That includes more than 13,500 children forecast to enter local schools.

Local officials have already issued hundreds of millions of dollars in school bonds, opened the planet’s largest inland water desalination plant, and begun trying to persuade dozens of defense contractors to come to El Paso, reported the Dallas Morning News.

More than $4 billion in construction is planned on base, with an additional demand for 20,000 apartments and homes off-base in this sleepy, sunburned town. For the last 20 years or so, about 200 to 300 new units were tacked onto the rental inventory every year.

“This is maybe the first time when there’s a national slowdown when El Paso’s not the first one in and the last one out,” said Dennis Soden, executive director of the Institute for Policy and Economic Development at the University of Texas at El Paso. “We are probably one of the few places in the country that has anything close to a construction boom going on.”

Most construction and population increases are expected from 2009 through 2011. So for now, the story is just same old, same old.

Stable, modest gains

“Stable, stable, stable,” said Greg Willett, vice president of research and analysis for M/PF YieldStar, an apartment market research firm based in Carrollton, Texas. “It’s one of those really stable performers in the country. The occupancy rate tends to hold around the 95 percent mark. And here we have the first quarter [2008] occupancy rate at 95.4 percent. You tend to see a 3 to 4 percent rent growth every year. And that’s what we report at first quarter: 3.6 percent rent growth.”

Since many in El Paso earn at the lower end of the scale, it is hard for apartment owners and operators to achieve significant rent gains.

“New inventory amounts to 200 or 300 units a year, and that’s it. It doesn’t take too much job growth to generate some demand to fill up that amount of product,” said Willett. “Plus, it’s so isolated. With most metros, there are other sizable cities within pretty close proximity, and [an apartment owner] can be operating all properties out of one location. If you are in El Paso, you just have to be there in El Paso, and it doesn’t make sense alongside other markets.”

Locally based Bohannon Development Corp. has begun construction on a 342-unit apartment complex in the northeastern part of the city in anticipation of population growth at Fort Bliss. The complex opened some units for move-in last December. The entire project will be completed in August.

Another significant multifamily play was Wrightwood Capital’s $9.63 million in acquisition financing for buyer Richard Aguilar for Fairway View Estates. The 264-unit complex was built in 1977 and consists of 33 twostory buildings.

Another local buyer, Cash Investments, acquired the 379-unit Arbor Vista Apartments from national player Archstone-Smith earlier this year. Cash Investments plans to upgrade the Class C property’s interiors and increase rents over the next two years.

Times may be a-changin’

Developers coming in with big plans may face the scrutiny of opponents of downtown revitalization plans. Several residents are critical of development they view as gentrification of El Paso neighborhoods like Segundo Barrio.

“You look at what El Paso was like from the mid-’50s to the mid-’60s. We were on a par with Austin, San Antonio, Phoenix, Tucson,” said Mayor John Cook in the Dallas Morning News. “We were a cultural destination point at that time. I think we got complacent, and people started promoting El Paso as a low-wage town. I mean, people used to brag, ‘Hey, you can get a maid here to work for $20 a week, and you can open a restaurant and put a helpwanted sign outside, and within a couple of hours you have a hundred people apply for a job.’ That was something that philosophically [was] built into the community over years and years and years.”

Defense companies are expected to bring higher-wage jobs to the area, adding to the diversifying income range in El Paso. With an estimated demand for 20,000 units in the not-so-distant future, El Paso has never looked better. The philosophy is similar to that catchphrase familiar to those who were in the military: “Hurry up and wait.”