Lionstone Investments

Ultimately, Lionstone believes rent growth is mostly about household income growth. Cities where the median household has strong earnings growth have generally outperformed in terms of rent growth. All but one of the “Hockey Stick” markets (cities we track stretching from Seattle, down through the Rockies to Texas and over into Tennessee, Georgia and the Carolinas) posted above-average rent growth since 2008, not just since the beginning of the pandemic. Admittedly, there are a few metros which don’t fit the pattern. Household incomes grew at an above-average pace but rent growth was below average in the upper left quadrant, which includes San Francisco and Los Angeles. All these metros had below-average population growth. Metros in the lower right quadrant posted above-average rent growth but below-average household income growth and had, you guessed it, above-average population gains. We believe metros with both population and household income growth are the best bets for long term rent growth. 

Metropolitan areas with high demand growth have generally outperformed on rent growth as well. Importantly, the period shown here goes back to 2008, so this is not just a post pandemic thing, it appears to be a longer-term trend. Again, the high barrier markets (New York, LA, and others) mostly dwell in the low rent growth, low demand growth cellar in the lower left quadrant. Why? Here are two reasons to consider. A secular undersupply of housing in the U.S. may support absorption in all markets, regardless of whether they have barriers to supply or not. More importantly, in our estimation there is a virtuous circle in the Hockey Stick Markets (cities we track stretching from Seattle, down through the Rockies to Texas and over into Tennessee, Georgia and the Carolinas). Namely, building apartments serves the needs of growing populations, which usually migrate to a metro for jobs, and the employers grow operations in these cities to access ambitious migrants and because low-barrier markets may be easier places in which to grow a business. In our next post, we’ll look at what we believe is the primary driver of rent growth in the long run.

Is the strongest apartment rent growth found in the cities with the worst bouts of oversupply? In terms of the rent growth winners after the last construction cycle, the answer appears to be a resounding “yes”. Metros in green had the highest inventory underway as a percentage of stock in the last cycle — 2015–2017. Almost all the “Hockey Stick” markets we track (broadly lying from Seattle, down through the Rockies, into Texas and over through the Carolinas) are in this high supply, high rent growth quadrant. Barriers to new supply don’t appear to grow rents — NY, San Francisco, and L.A. are all in the bottom left quadrant where the rent growth and supply are lowest.  Sure, you might say high supply markets from the last cycle were bailed out by pandemic-induced migration. The flip side of that question may be — will there be enough demand growth in high barrier coastal markets to drive their rent growth in the future? More on all this coming in our next post. 

Lionstone Investments announces it has acquired The James, an eight-story, Class-A multi-family asset located in Houston’s River Oaks submarket. Delivered in 2016, The James has 344 total units and sits on 2.72 acres. The mid-rise building offers excellent access to surrounding employers, and is walkable to some of the top shopping, dining, and entertainment options in inner-loop Houston. Luxury amenities include a resort-style pool and courtyard, fitness center, private, full-service residents’ bar, business conference room, and EV charging stations. The complex is a short walk to the retail high streets River Oaks District and Highland Village. The prime location provides connectivity with Westheimer, San Felipe, and Kirby Drive, as well as to Memorial and Buffalo Bayou Parks. “This investment gave us the opportunity to purchase a newer Class A apartment building at a substantial discount to replacement cost, at time when there will be a historically low supply delivered into this prime inner-loop location,” said Bailey Jones, Lionstone’s Head of Acquisitions. The River Oaks submarket is expected to have higher demand for rental properties than the overall Houston metro area. Lionstone estimates that it will take less than two years for that demand to absorb the new supply currently under construction in River Oaks.

"Each of us needs...a forward look that's different than everyone else," notes our Hans Nordby in the conversation on how real estate firms are integrating AI into their strategies, in this month's issue of Institutional Real Estate Americas.

In recognition of Earth Day, Lionstone partnered with Houston Wilderness to fortify the bioswale with vegetation at Pasadena Memorial Park. In addition to natural stabilization and flood mitigation, the bioswale is designed to remove debris and pollution from storm water. A big thank you to all who participated! #HoustonWilderness

Do you know what constitutes a "Premier Mixed-Use" environment? Lionstone does. Read about it in our latest research paper, Why Mixed-Use Development? on our website at: https://lnkd.in/gXjCHbGu

Hear which key priorities Lionstone remains laser focused on during this uncertain macroeconomic environment...