HPI spends $195 million on Houston apartments as values plummet

Hamilton Point Investments is making a multifamily play in the Bayou City. 

The private equity firm has bought four apartment developments from Alliance Residential, the Houston Chronicle reported. It is capitalizing on what it sees as a chance to get below-replacement-cost deals in a stuttering market. 

The portfolio, all in Alliance’s Prose line of more affordable units, covers 1,174 apartments. HPI paid $195 million, or $166,100 per unit for the recently built projects. The deals closed in May and June. 

HPI is based in Connecticut and began making moves in Houston last summer. The apartments it just bought are in north Houston, northwest Houston, Cypress and Katy.

“The submarkets were heavily overbuilt over the last couple years resulting in increased vacancy rates and decreased effective rents which, combined with interest rate spikes, led to value reductions of over 20 percent,” said Matt Sharp, a co-founder and managing principal of the company. “We’re buying new construction today in Houston for around $165,000 per unit that just two years ago was priced at $210,000 per unit and would cost maybe $190,000 per unit to build today.”

More than 29,000 apartments have come online in Houston in the last year, according to MRI ApartmentData, with another 18,600 under construction. With all that new supply, occupancy stands at just over 88 percent.

HPI now holds 2,814 units across 10 properties in Texas.

While it secured these deals thanks to perceived distress in the market, HPI believes Houston’s apartment market will return. It expects prices to push back to about $210,000 per unit by 2026, driven by continued population growth. 

“Not much will be added to the market after this year,” Sharp said. “So growth will get things back on track.”

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