WESTERN SNAPSHOT, MAY 2009

Albuquerque Apartments

During 2008, Albuquerque seemed to live in a parallel universe that was disconnected from the national economy — new jobs continued to roll in, foreclosures were some of the lowest in the country, single-family housing values held on for the most part, apartment occupancies continued to increase and so did rental rates. To understand why, one needs to delve “under the hood” and look at the overall market fundamentals and drivers for apartments.

Albuquerque was recently rated one of the top 5 cities in the country to build wealth in. The latest employment data indicates that unemployment has been creeping up slowly since last summer when it was announced that it was at a 30-year low.

New jobs drive demand for new apartments, and current estimates forecast 1,000 to 1,350 units of additional demand for the Albuquerque metro area. Unfortunately for the local residents, the pipeline has only been able to supply 500 to 650 units a year. Recent new projects include the very cool ABQ Uptown Village, adjacent to the new ABQ lifestyle center, as well as the high-end Las Manitas on Albuquerque’s west side and Broadstone Town Center near Albuquerque’s airport. The hottest trend for development is driven less by submarket and more by product, with apartment residents paying a premium for urban living.

The increasing demand for a limited number of apartments continues to put upward pressure on rents as 2007 and 2008 experienced double-digit increases. Unlike many markets, Albuquerque has experienced a relatively small number of foreclosures, and single-family homes continue to appreciate. Current occupancy rates for most communities are in the mid-90 percent range.

2008 was not a banner year for apartment sales in Albuquerque. The volume of sales decreased by 75 percent from $336 million to $82 million, with the 100+ unit apartments leading the slow-sales way decreasing from $277 million to $37 million. In fact, further analysis of the 100+ unit sales segment (which makes up 60 percent of the number of units, but only 4 percent of the total communities) indicates that both sales that occurred in 2008 were actually put under contract in 2007. While the overall volume of sales decreased, valuation benchmarks showed only marginal decreases ranging from 10 to 15 percent. Since 18.4 percent of all sales in 2008 involved a distressed property, it is amazing that values have remained as resilient as they have. This can be attributed to the fact that a majority of the distressed sales occurred in communities containing less than 8 units.

While Albuquerque’s internal economy is outperforming the national economy, the extended recession nationally is starting to take its toll locally, and this could continue for a while. While many apartment values remain reasonably close to their recent high prices, an extended credit freeze could force more investors to liquidate at substantially discounted prices.

Todd Clarke is CEO of NM Apartment Advisors.

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