Neal Verma started noticing them a few months ago — move-out notices that blamed layoffs as a reason. They trickled in, one by one, into his 16 apartment properties — Class B and C complexes located primarily on the west side of Houston.
“The oil slump is definitely affecting us,” the president of Nova Asset Management Inc. said. “ It’s a huge hit to the multifamily industry.”
Founded in 1992, Nova Asset Management is a Houston-based multifamily company that owns and operates about 6,000 apartment units across the Bayou City.
Most of Nova’s apartment communities average about 300 units. Typically, Verma said he sees about 15 move-outs a month — and about a 5 percent vacancy rate — due to regular attrition: tenant changing jobs or moving to a new city.
However, in recent months, Verma says he’s getting an extra 10 move-outs a month, pushing his vacancy rate closer to 8 percent.
As oil prices plummet to near seven-year lows, energy companies are laying off IT workers living in Nova’s Class B properties. And as new office and multifamily development cools, contractors are laying off construction workers living in Nova’s Class C properties, Verma said.
“We have a lot of tenants working for oil and gas and construction. A lot of them have been let go,” Verma said. “This greatly affects our bottom line because now you’re talking 25 vacancies at each property, which will add up to a couple hundred units. It’s extremely worrisome.”
Verma is starting to do more marketing to attract new residents to replace those who are leaving. He is putting up more fliers in restaurants and businesses and advertisements in newspapers and online portals. He also plans to double his incentive for resident referrals from $200 to $400 per resident.
There’s a silver lining to the oil slump however, Verma said. As vacancies mount in Class B and C properties, there may be opportunities for companies like Verma’s to purchase properties on the cheap, he said.
During the energy boom, apartment properties — even a Class C complex with a 30 percent vacancy rate — were being listed at $40,000 to $50,000 per unit, “a ridiculous” price, Verma said. He expects prices to come down to perhaps $20,000 per unit during the oil slump, he said.
“We’ve been in this industry for a long time, so we’ve seen a lot of ups and downs,” Verma said. “This doesn’t faze me. We’ll hunker down and do the best we can and see what we can do to fill out our properties. It’s going to be time to buy apartments again.”