Heights at Post Oak offers one-, two- and three-bedroom options. Property amenities include gated access, two playgrounds and eight laundry facilities.

“The borrower acquired Heights at Post Oak in November of 2016 through foreclosure and has invested $5.4 million in property upgrades since purchase,” says Cullen. “The subject was unleveraged, and proceeds from the new loan will be used to return equity to the sponsors and complete the finishing touches on the renovation program.”

Capital improvements completed by the sponsor to date include hundreds of upgraded unit interiors, new appliances, boiler and HVAC replacement, exterior carpentry repairs and unit repairs inherited from prior ownership. Additional planned improvements during the next 12 months include upgrading of all remaining vacant units, as well as constructing a new leasing office, fitness center and community facility.

“Since acquisition and the substantial renovation, Heights at Post Oak has steadily increased occupancy and rents, and the adjustable rate loan will allow prepayment flexibility next year to compliment the anticipated increased value,” adds Cullen.

The loan was arranged by Sal Torre of Estreich & Company.

“We took application at $27 million at 60% of value but were able to support an increase of $1.3 million in the loan amount due to the strong lease up of the renovated units and an increase in the appraised value,” Cullen observes.

Apartment development remained focused in the downtown/Montrose/River Oaks submarket as builders worked to meet demand in the dense urban core of the Houston metropolitan area, according to a first quarter report by Berkadia. Approximately 22% of metro-wide additions during the last four quarters were in the submarket.

The new inventory facilitated leasing activity, as annual absorption was highest in the area. Even with sustained rental demand, leasing activity trailed inventory growth, leading to downtown/Montrose/River Oaks occupancy lowering to 93.1% year over year. The downshift moved occupancy closer to the five-year average of 93.7%.

Apartment operators responded in kind by tapering rent growth. After increasing 7.1% during the preceding year, the average effective rent advanced 4.3% during the last four quarters to $1,896 per month in March 2019. The submarket trend was reflected across the metro. Apartment occupancy shifted down closer to the five-year average as effective rent growth lessened.

Greater Houston occupancy was 92.8% in the first quarter of 2019, down 120 basis points year-over-year as many displaced residents from Hurricane Harvey returned home. At the same time, effective rent advanced 1.5% to $1,088 per month in March 2019, says Berkadia.