Apartments for rent? Not many

New Mexico Business Journal, April, 1994 by Sharon Frink

There's the joke making its way around New Mexico that more couples are staying together who might otherwise have separated or divorced because they can't find apartment space.

While there's no empirical evidence for that, there is plenty of proof that apartment vacancy rates are way down today and plans for new apartment buildings are at an all-time high.

Whether it's Santa Fe, Farmington, Las Cruces, Las Vegas, Roswell or Albuquerque, the story is pretty much the same.

Since 1986 when Albuquerque apartment vacancy rates were as high as 16 percent and now rattle around at 2 percent, the construction of new apartment buildings has been lean at best.

"There's a lot of new construction underway now," says Josie Johnson, district manager of Lincoln Properties in Albuquerque. The national real estate development firm manages 85,000 units across the country, including five apartment communities in Albuquerque's Northeast Heights.

"Our occupancy rates are pretty good," she says. "There seems to be a shortage, but that'll change soon.

"The latest figure I've heard is 4,000 units planned for this year. I think Albuquerque, with its moderate growth, will be able to absorb that."

Dr. Brian McDonald of UNM's Bureau of Business and Economic Research says while construction generally has been booming, apartments now are on the verge of a boom of their own.

"There still isn't a lot of apartment building in Albuquerque," he says. "We have had about six years where there were really low levels of apartment construction, fewer than 500 units a year, for instance, in Albuquerque."

In 1985, 5,200 apartments were built in the Duke City, which in part eventually led to an overabundance of apartments that then filled up. Developers were at the very least hesitant to take on apartment construction of that magnitude in lean economic times.

"Part of it is, indeed, that we built too many apartments in the '80s," McDonald says. "Vacancy rates rose and tax laws changed in 1986 making it less favorable to build apartments.

"A third factor is what's been going on in the financial industry in the last two or three years," he says.

"In 1991, banks were under a great deal of scrutiny from their regulators and were discouraged from making apartment construction loans.

"Banks, however, are in better condition now and they're starting to lend again."

"With all of those vacant apartments absorbed, we have a shortage in Albuquerque, in particular. Under 2 percent is incredible.

"The normal rate is 5 to 6 percent, and it had been as high as the high teens in '87-'88," says McDonald. "Albuquerque has continued to grow and add households -- and there is now a big demand.

"We'll probably see another boom."

McDonald says construction of multi-family units statewide is projected double the '92 statistics.

"In Albuquerque alone, the increase in '93 was 764 percent -- 570 multi-family house units compared to 66 in '92," he says.

Bobbie Burkdoll, manager of Albuquerque's Apartment Store, says as of January the average rental for a two-bedroom apartment in the greater Albuquerque area was $600; a three-bedroom was $750; an efficiency typically rents for just under $400.

"New Mexico is a poor state," explains Howard McCreary, president of the Apartment Association of New Mexico. "Where the median income in Albuquerque is around $29,000, the state average is about half that.

"Apartment rentals are rivaling the cost of single family homes, the American dream," he says. "Units with the highest rent are losing occupancy to first-time homeowners.

"Interest rates are low, there's more building going on particularly on Albuquerque's West Side and it's making home ownership affordable," he says.

There was a 9 percent increase in apartment vacancy in the last quarter of '93 compared to the last quarter of '92 on the West Side when the vacancy rate stood at 3.4 percent.

There was no vacancy at all by the end of the second and third quarters of '93.

The southeastern section of the city has remained constant at 2.3 percent vacancy as of the end of '93.

No data is available for the southwest section of Albuquerque.

The northwest area of Albuquerque had zero apartment vacancy at the end of the third quarter of '93 and a 9 percent increase in rate structure.

Observers say the biggest competition for Albuquerque apartment space has been opportunities for home ownership in Rio Rancho.

"There will always be a demand for apartments," says McCreary, who 20 years ago started in real estate selling homes for Hooten/Stahl; for the last six years, he's been director of property management for Cauwels & Davis.

"We're a highly mobile society," he says. "College graduates today expect to have between three and five different careers in their lives."

That, he says, means frequent transfers and relocations of shorter intervals, meaning apartment living makes a lot more sense with less hassle.

"If they analyze the costs of home ownership versus apartment renting, they realize they can never recoup the down payment and closing costs," says McCreary.