How to Build a Successful High-Rise Apartment Tower in Downtown Houston: Q&A with Marvy Finger
Marvy A. Finger
HOUSTON – (Realty News Report) – Downtown Houston has undergone massive changes over the past several decades. From a CBD where the sidewalks seemed to be rolled up at 6 pm and a place only a few thousand lived, downtown Houston has been transformed with new multifamily developments and expansive amenities such as Discovery Green. Will the downtown boom continue? Is the multifamily market overbuilt? Do amenities such as parks and dog runs attract residents to the inner city? Realty News Report talked with one of the pioneers of downtown residential living, Marvy A. Finger. Native Houstonian Finger built his first multifamily development in Houston more than a half century ago – and still owns it. Under his leadership, The Finger Companies have developed more than 28,000 multifamily units and currently have 37 properties and manage more than $2 billion in assets.
Realty News Report: You were the first major multifamily developer to identify the potential of Discovery Green park in downtown. Tell us about you One Park Place high-rise development and how you knew it was going to be successful.
Marvy A. Finger: We started working on One Park Place in 2005. That’s when I started focusing on downtown Houston. I had built The Museum Tower, a high rise residential in Montrose five years before and it was extremely successful. Nothing had been built like that in 17 years. So fast forward a few years. I’m building apartments in a dozen cities in the U. S. — major cities like Atlanta, Boston, Chicago, Dallas, Denver, Houston, Los Angeles, Miami, and Minneapolis. I’m exposed to all these different major cities, and everyone has a viable downtown where a lot of people are living — ownership and rentals. But nothing new residentially had been built in downtown Houston for a while. Houstonians were not living downtown. People were living in the suburbs. But Museum Tower had been so successful, and Houston’s population was over 5 million, I said to myself it would be possible. There was nothing new in downtown Houston, and with 5 million people in greater Houston, I knew I can find 340 people out of 5 million who will want to live downtown. I was able to sell that pitch to lenders at the time. I decided to build rental units in downtown Houston. It was difficult because there were no comps. There was a site owned by the Cornish Group of Baltimore. They had the land two blocks from City Hall. It hugged 45, and I knew then that’s where I wanted to build. But then I learned the city was thinking about creating a downtown park near the George R. Brown Convention Center. I got excited early on because the Kinder family was heavily involved, and I knew they would get it done in a timely and upscale manner. So, I focused on trying to find a tract of land in the area. I knew there would be pent up demand for housing downtown. There was!
Realty News Report: You finished 500 Crawford, a 400-unit downtown project, in early 2016 about the time oil prices dipped below $30 a barrel and Houston’s economy was soft. Oil prices are back, and job growth is good. What’s the status of 500 Crawford today?
Marvy A. Finger: 500 Crawford was a struggle from the first day and continues to be a struggle, but we are at 90% occupancy. We were there pretty early. We were the “first-est with the most-est.” Although we were the first new mid-rise to open, the construction period was extended due to unusual construction obstacles and it was difficult to deliver apartments to lease. It had to do with where the building was located. It was on the site of a former hotel. But all the utilities for the area east of Minute Maid Park ran under site and the problems we faced affected the momentum of building. By the time we were able to open it occurred when there were many new projects at the same time, so there was a lot of competition. But 500 Crawford still got to 90 percent and it has been at 90 percent occupancy for a while, even with more competition. We have not been giving deep concessions because we believe we have a great location. We are separate and apart. We could gain additional occupancy if we gave three or four month concessions like some others, but we decided not to do so, and we don’t have a lot of turn over.
Realty News Report: Some of the older downtown office properties, such as the old Texaco building have been turned into residential buildings or hotels. Downtown Houston certainly has a large supply of office buildings that are now considered obsolete, or at least in need or major upgrades to remain competitive. How far can this redevelopment trend go?
Marvy A. Finger: The cost of conversion sometimes is not favorable. Until we start generating greater employment growth — and not just blue collar growth – I don’t think conversions make economic sense. When you look at the employment growth numbers in Houston, it’s mainly from Port of Houston, Medical Center, petrochemical and refineries and they cannot afford Class A rent or the required rent of a converted building. Plus, the oil and gas industry now knows how to operate with less people. We analyze where our traffic is coming from, and we are seeing very little employment growth from outside Houston. We take a possible renter’s application and ask about their job and we are finding few people are actually moving here from another city – most of them are going from one job to another job in the city. I don’t you’ll see additional repurposing of older buildings without the demand increasing. Once demand increases, we may see newer apartment buildings. Pent up demand seems to be irrelevant in this modern day era – sometimes developers don’t look at fundamentals, their only consideration is ‘can I borrow the money?’ and ‘can I sell the product once I finish it?’
Realty News Report: TX DOT is changing the route of the Gulf Freeway through downtown. This will allow the removal of the Pierce Elevated, the big barrier between downtown and Midtown. What should happen to this urban land that is now occupied by the Pierce Elevated, in other words, the land that is now underneath the Pierce Elevated?
Marvy A. Finger: I think the more park area we have downtown, the better, and I’m convinced that it’s one more good thing about our city – our increasing park land. We work hard to get more green space. The City Parks Department and the groups like Kinder Foundation do a great job. Parks are a huge feature for people to migrate to the downtown area. So, I’d like to see the land where the Pierce Elevated is now becoming a park and then we will see midtown and downtown blend together.
Realty News Report: What attracts tenants to downtown residential towers?
Marvy A. Finger: It’s walkability. Walkability is everything. This was a shocker for me, but at One Park Place, we found out about 25% of 650 people — 25%! — have no car. They have sold their one automobile because they don’t need it or don’t want it. Walkability — that’s the biggest attraction – to be able to walk about the area. Right now, the biggest deficiency in downtown living is retail and restaurants. At One Park Place, we have a gourmet food market, Phoenicia Deli & Grocery, and that’s terribly important. I have to believe, there will be other major grocery stores locating downtown. And about half the residents at One Park Place have pets. In fact, about 55% of the residents in our multifamily units own a pet, so you have to have a place for pets and Discovery Green has huge pet runs.
At 500 Crawford, we’re picking up all of the brick pavers, so we can make it one long dog run. Maybe we can get another 1% occupancy by doing that, so that another big reason. But we need additional employment growth for Houston. And walkability is important, but you must have places to walk. I often say the secret to success is having a Main and Main location; if you build a block off Main Street and Main Street — it’s a secondary location and that can be a huge difference in occupancy. In downtown Houston right now, there needs to be more reasons to move downtown. Having a few restaurants and bars downtown and having the events downtown is great, but we need to have more. It is not so walkable if have to go more than a few blocks. I think that is the reason, people have moved into our developments is that they like living here with all restaurants in the convention center, the entertainment in park. There is a lot going on for them.
Realty News Report: Houston is getting denser in the Inner Loop as the population grows and commute times to the suburbs get worse. Is there a chance the Inner Loop could get overbuilt?
Marvy A. Finger: How about right now? There are a lot of projects being built, but there is limited demand, so the pricing is being discounted. It’s very difficult. We have been a long-term holder not a merchant builder. We still own the first project we developed in Houston — 6666 Chimney Rock. I was just there the other day and its 90% occupied. It’s a fine building that we have renewed constantly. The demand is there. But today, the drive is to build it, earn a development fee, a builder fee and sell it and hopefully you have a good spread between the cost of building it and the selling price. But it doesn’t always work out that way. So, to go back to simplistic answer, I think some areas of Houston are overbuilt now, and unless there is employment growth, it will continue to be overbuilt.
Realty News Report: In the long-term, what do you see happening in Houston’s future over the next 10 or 20 years?
Marvy A. Finger: We have built a lot of apartments in Houston and we own a lot of product here. Houston is our main investment focus. We look at Houston long term – for our children’s children’s children. Houston will continue to grow. I don’t think we’ll see a replacement for fossil fuel for a while. And the world is getting smaller. Despite trade wars and tariffs, everyone is trying to produce goods and services, and to do that they need electricity and fossil fuel produces electricity. Houston’s long term future is excellent. It’s strategically located and can’t do anything except grow. All you are seeing now in Houston is the pause before even greater expansion.