Perspectives From the Real Estate Forum: Ryan Epstein
On November 18, over 150 people packed into the Colombe d’Or ballroom for the Montrose Management District’s Real Estate Forum, featuring talks by real estate experts Brian Janak, Ryan Epstein, and John Walsh about the prospects for development in Montrose in the coming years. All this week we’ll be running excerpts from the speakers’ talks. This one is from Ryan Epstein, who is the founder and leader of CB Richard Ellis’s Capital Markets Multi-Housing Group in Houston. Since 2006 he has marketed and sold assets valued at more than $3.6 billion.
“Why are developers targeting this area? Well, there are all these millennials getting out of college and making astounding amounts of money. One of the best parts about my job is when we sell a property, we do a lease audit. And when we do a lease audit we see what the future tenants are making. For most millennials who are renting, their proof of income is their offer letter from Schlumberger, or Chevron, or somewhere else. They haven’t even received a paycheck yet, they just got out of school with an engineering degree. The lowest starting salary I’ve ever seen is $85,000, and the highest is $140,000. That’s in the energy industry. I remember thinking, I’m in the wrong business.
The other side of the coin is the empty nesters who are fleeing the suburbs. They want to be close to the action—the restaurants, museums. Those are big drivers for the older people moving to Montrose. To cater to them, developers are building larger units. Believe it or not, the highest per-square-foot rents in the city are on the largest units. Typically, it’s just the opposite. But it’s because empty-nesters want the room and aren’t that concerned about an extra $1,000, extra $5,000 if they can fit their grand piano or the rest of their stuff in. That’s why there’s so much development going on.
It’s going to slow down, however, because institutional investors are kind of pushing the pause button on building in Houston. They’re getting really scared because of falling oil prices. But it’s not because of fundamental reasons—fundamentally, Houston is still doing very well. The city’s housing overall is 93 percent occupied. The Montrose District comes in just above that.
The reason it’s slowing down is because of perception. Perception often has a way of becoming reality. I was just in New York, and you would have thought a meteor had hit Houston and the world was coming to an end. But based on the traffic on my way here today, it seems like we still have a lot of people going to work. This pause is actually going to make our market even healthier than before [by preventing overbuilding].
The apartments that are being built today are no longer the apartments that most of you think of from 10 or 20 years ago. I was talking to an older gentleman in the hall earlier, and he said that when he was younger renting an apartment meant something was wrong—the person was divorced, they’d lost their house, they’d lost their job. Today, more and more people are deciding to rent rather than own. Because these are not the apartments you’re thinking of. You’re moving into a resort, with real wood floors, marble countertops, the latest appliances. I just moved out of an apartment and into a house, and I had to step down in quality. I would encourage you to look at the product that’s being built today. And the fastest-growing segment of the renting market are people who are renters by choice, people who could afford to buy a home but choose to rent.”