In the Cross Hairs!

In the Cross Hairs!

Thousands of soldiers and their families are coming to El Paso, most of these families will be young and most of them will be renters. All the soldiers get a Basic Allowance for Housing (BAH) some will get less some will get more on average that allowance will be around $979.00 per month, this allowance is for rent and utilities. Take away the utility allowance and their left with about $790.00 for a mortgage payment or for most of these soldiers for a rent payment. Average rents in El Paso today are around $700.00 per month; The El Paso real estate market has always included a strong rental market.

Here is where it gets interesting; these Soldiers will start arriving in mid 2010 or shortly thereafter. The city of El Paso does not have enough rentals to meet their demand; projections are, in 2010 there will be a shortage of rentals to the tune of 4500. Then the shortage will increase to around 8,000 as we approach 2013.


Since no one can deny that we are facing a massive demand one would think that the normal pressure of a supply and demand market would encourage an increase in supply. However, here are the cross hairs I see us in:


The highly acclaimed real estate advisory firm of Alvarez and Marsal conducted an El Paso real estate market study on what could be done to stimulate development….as a part of their study they figured out what it would cost, today, to build a 250 unit apartment complex in El Paso and what rents or BAH would have to be for the developer/builder to satisfy the loan and make a return on their investment. They presented their findings to City Council last Tuesday. According to their report on this one issue, it would cost $25,000,000 to build. Taking into account the current BAH of soldiers and the average rents in El Paso, there would be a $6,000,000 short fall in this hypothetical project. Assuming soldiers are the primary tenants, their BAH would have to be around $1,300.00 in order for this project to work! What builder is going to go into a project knowing that he is looking a losing Six Million Dollars? What bank is going to lend money on this project?

Here is the rest of the story; As the demand for rentals increases, there is little doubt that rents will go up. So let’s say that Soldiers BAH goes up and we reach that $1,300.00 per month. While the soldiers with higher BAH may be able to pay that rent, the everyday renter who’s salary has not gone up will not be able to…..then what?

Here is where the opportunity is; as a city as a community the citizens need to bring together bright minds with fresh ideas and catapult this situation in to an unprecedented opportunity. We should be thinking about higher density complex’s (maybe even high rise apartments or building smaller homes with common walls, using zero lot lines as the norm, or how about “green technology” that uses modular construction as a cost savings devise.) Why not smaller yards, in exchange for common gathering areas, like parks with gazebos and play areas for the neighborhood to come together, we already have models right here, like the Kern area. Where should this type of project be developed? What do you think? How about in the downtown area or say along the medical corridor. My vision is of a mixed use area with retail, grocery, a daycare center, etc. The City should be aggressive in helping to incentivize projects that incorporate mixed use and smart growth principals. How about adding a solar component to this project, like solar panels on each unit and get the electric company involved in buying back the excess wattage that is produced. We might venture into uncharted waters but out of the cross hairs. I’m just throwing out ideas; remember I said there needs to be a collection of “bright minds” working on this.

While I believe the city has a role to play in all of this, it has to start with the private sector. Throw in Innovation motivated by capitalism and a desire to move this city forward and we have the recipe for success. One thing is for sure the City has got to be careful not to impose onerous regulations that are going to discourage new development (and if currently there are such regulations remove them.) We can solve this and turn it into a model for other cities but we have to do it collectively and we have to do it now.

El Paso real estate markets and the city as a whole will forever change in a short period of time. We can’t sit here and do nothing. If we wait it will be a huge problem. If we address it today it can be a huge opportunity, either way we are in the cross hairs and Uncle Sam has already pulled the trigger.

Dan Olivas is the President of Dan Olivas and Associates.