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Texas Multi-Family Markets Face Higher Assessments

by Kevin Kirkpatrick, San Antonio, April 2013


Apartment properties in Central and South Texas are having perhaps their finest hour by all measured accounts. The shift in mindset of young professionals to rent rather than own; the fact that Texas continues to lead many national statistics for employment growth; and perceived barriers to home ownership have all contributed to unprecedented rent growth and higher stabilized occupancies.


Combining this rent growth with low interest rates (and associated low cap rates) creates the perfect storm for tax assessment increases. Tax notices for 2013 are being released this month (April) in most Texas metro areas.


Austin (Travis County)


Investor transactions over the last 18 months in the Austin area have resulted in heavy volume and record prices for multi-family properties. These transactions will not be lost on appraisal authorities, who have historically revalued properties at or near the purchase price upon discovery. Higher investor prices combined with historic rent increases and stabilized high occupancies will encourage appraisal authorities to match their numbers with market conditions.


The largest valuation increases in Travis County will be in the suburban Class B apartment market. That's because many of these properties were marginally reappraised in 2012. Meanwhile, Class A apartments, which were heavily revalued last year, have seen continued rent growth. Therefore, the Class A market has the potential for additional increases of 5%-10%. Class C properties will only marginally increase or may even go down, depending on the location.


The challenge for 2013 in Travis County is understanding when increases are valid -- and mitigating erroneously high assessments based on either misinformation or the over-estimate of market parameters. Additionally, with a large number of newly constructed units hitting the market within the next 18 months, unbridled optimism should be tempered with cautiousness in areas with new product that could potentially splinter demand.


San Antonio (Bexar County)


The last significant reassessment of San Antonio area multi-family properties was in 2009. Market transactions, particularly over the last 18 months, have forced taxing authorities to reappraise apartments. These transactions have occurred because of San Antonio's continued stable rent growth and high occupancy throughout most market sectors.


For the Class A market, overall increases of 15%-20% can be expected. Likewise, the Class B market will also see significant value hikes. Class C properties will likely experience typical increases of 5%-10%. New construction, slated for delivery over the next 18 months, will also have an impact on certain market segments.


There will be considerable challenges for San Antonio multi-family owners as the 2013 reappraisal attempts to catch up to market conditions after four years of relative stability.


Corpus Christi (Nueces County)


Corpus Christi may experience the highest assessment increases in the South Texas area. We are seeing increased activity combined with much higher prices as investors look to this tertiary market for investment opportunity.


The Eagle Ford shale, the single largest oil and gas development in the world, is bringing tens of thousands of high wage earners to the area. This is spurring record occupancy levels and rent growth. We expect appraisal authorities to use much lower cap rates in valuing income-producing properties. These combined influences will present extreme challenges for minimizing increases in the upcoming tax year in Corpus Christi.


In summary, tax appraisal is a fluid environment. It's very important to understand the unique characteristics of each individual apartment property and how they relate to the market as a whole. This information is essential in order to produce sound, reasonable arguments to challenge unnecessary tax increases.