la Frontera In the News

Austin Business Journal

June 13-19, 2003

La Frontera complexes under contract to be sold

by Mary Alice Kaspar, Austin Business Journal Staff

In what's being called a buyer's market, two high-end apartment complexes in Round Rock are under contract to be sold.

Real estate sources say the 411-unit Enclave at La Frontera and the 367-unit Lakeside are under contract to Hong Kong-based Henderson Land Development Co. Ltd. The price tags weren't disclosed.

The complexes are part of the La Frontera development, a 328-acre mixed use project at the confluence of I-35, State Highway 45 North and MoPac Expressway. Occupancy rates for the complexes weren't available.

Douglas Moore, general manager of Henderson's strategic planning department, says the company doesn't comment on completed or pending deals under consideration.

The two properties were developed and are owned by Houston-based Martin Fein Interests Inc. A company representative couldn't be reached for comment.

Charles Heimsath, president of Austin-based Capitol Market Research Inc., says the prospective buyer is banking on an expected turnaround in the Austin economy.

"They feel that the value is clearly there today and will improve in the future as the area, particularly the transportation improvements, is completed," Heimsath says. "Right now, it has excellent access, but that access and visibility is just going to improve over time as SH 45 and the extension of MoPac is completed."

Apartment sales remain sluggish in the Austin market, according to a new multifamily research report from Hendricks & Partners Inc. Three deals closed during the first quarter of this year, compared with four deals in the first quarter of 2002.

Recent transactions in the Austin area include:

• Boca Raton, Fla.-based real estate investment trust Gables Residential Trust bought the 239-unit Post West Avenue Lofts downtown for $34 million.
  
  
• Tiburon, Calif.-based Drever Opportunity Fund LP bought the 512-unit Limestone Ranch for $33 million and the 308-unit Village at Gracy Farms for $17.7 million.

Heimsath says Martin Fein Interests has a reputation for building high-quality projects and holding on to them for a long period of time. The Enclave opened in the third quarter of 2000, and Lakeside opened in the spring of 2002.

"They're not a merchant builder," Heimsath says. "[Martin Fein Interests'] mode is more build and hold, and so the construction quality is excellent."

Diana Zuniga, president and owner of Austin-based Investors Alliance Inc., says the buyer must hang on to the property for at least five years to realize a profit.

"There's a disconnect between what sellers are hoping to get and what buyers are hoping to pay. That's because rents are still low. As rents go up, then sellers will be more likely to be achieve their asking prices, as long as operating expenses don't go up," Zuniga says.

Zuniga and another local multifamily real estate specialist, Ellen Muskin, say the Austin market has hit bottom. Muskin is an associate partner with the Austin office of Phoenix-based Hendricks & Partners, a real estate firm that focuses on multifamily properties.

"I think a lot of buyers believe now is a good time to invest in Austin," Muskin says.

That's because large investors think the market's fundamentals are strong, she says.

"It's always hard to pick the exact right time to buy," Muskin says. "If underwritten properly, even if you have to sit with flat net operating income, as occupancy increases, your investment does much better.

"The return might not be there today. But in the long run it will be, which is why people have a continued interest in Austin."

Zuniga says lenders are being "very conservative" in their underwriting of apartment deals.

"They say they're going to do one thing, then when you get into the bowels of the deal, they change their mind," Zuniga says. "Sometimes that causes the deal to fall out."

The Hendricks & Partners report shows the overall apartment vacancy rate in the Austin market has remained relatively stable: 8.1 percent during the first three months of this year, compared with 8.2 percent for the same period in 2002.

More than 90 percent of apartment complexes are extending "concessions" to renters, such as one to two months of free rent, the report indicates.