{"id":330841,"date":"2026-06-10T16:17:24","date_gmt":"2026-06-10T16:17:24","guid":{"rendered":"https:\/\/www.newsbeep.com\/us-tx\/330841\/"},"modified":"2026-06-10T16:17:24","modified_gmt":"2026-06-10T16:17:24","slug":"operational-expenses-are-becoming-full-deal-breakers","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/us-tx\/330841\/","title":{"rendered":"Operational Expenses Are Becoming ‘Full Deal Breakers’"},"content":{"rendered":"

The increasing cost of insurance<\/a>, labor, property taxes<\/a> and other operational necessities is making investment deals hard to pencil, putting pressure on property managers to drive value where they can.<\/p>\n

And to be honest about when they can\u2019t.\u00a0<\/p>\n

\"Placeholder\"\/<\/p>\n

\n Downward interest rates and inflation could help boost real estate.\n <\/p>\n

As interest rates remain elevated and apartment occupancy and rent growth have stagnated in Houston, operators are working closely with owners to survive until economic conditions improve, Greystar<\/a> Managing Director Ryan Terrell said.<\/p>\n

\u201cIt is a knife fight across the country,\u201d Terrell said at Bisnow\u2019s Houston Property Management Summit at Houston Grand Hotel on Thursday.<\/p>\n

\u201cWe are really locked arms, saying, \u2018OK, that’s the goal, that’s what we have to get to,\u2019\u201d Terrell said. \u201c\u2018We have to get to next year, we have to get to lower interest rates, so I can refinance.\u2019\u201d\u00a0\u00a0<\/p>\n

Managers have had to push for transparency, asking landlords for details about their loan maturity dates, cash on hand and disposition plans, he said.\u00a0<\/p>\n

Property managers also have to be transparent themselves, Asset Living Division President Pauline Houchins said. Some owners may want to have a higher cash flow per unit so they can be at an advantage when they sell, \u201cbut it just may not be there,\u201d Houchins said.<\/p>\n

Part of a property manager\u2019s role has become to determine what can drive value at the property, whether that\u2019s initiating a partial or full renovation, adding a dog park or programming events.<\/p>\n

\u201cHow you determine that is not just throwing capital at it but doing a lot of different test options,\u201d Houchins said.<\/p>\n

Property managers hold pertinent information about what will benefit a property. Sometimes, regional directors will request a dog park be added at a community, not knowing that only five pets live on that property, she said.<\/p>\n

In some cases, a property can be exceptionally beautiful, but its submarket location will still limit its trade value.\u00a0<\/p>\n

\u201cEspecially in a market like this where operational costs are high, even as you’re doing renovations, if it’s not going to work, it’s just not going to work,\u201d Houchins said. \u201cYou need to be transparent with your client at that point.\u201d\u00a0<\/p>\n

\"Placeholder\"\/<\/p>\n

\n Bisnow\/Hunter Madden\n <\/p>\n

\n CCS Facility Services\u2019 Candace Burk, CBRE\u2019s Lauren Kelch, Asset Living\u2019s Paula Houchins, Greystar\u2019s Ryan Terrell, Morgan Group\u2019s Aaron Almanza and Level Capital\u2019s Jamail Virani\n <\/p>\n

Any property bought in 2021 or 2022 will be reduced 20% to 30% in value by 2024, Terrell said. Borrowing money based on that inflated value could create a terrible loan structure, and every investor has a property in their portfolio like that, Houchins said.<\/p>\n

\u201cThey obviously overpaid for the property, the loan structure sucks,\u201d she said. \u201cSo operationally, even if you were at 100% occupied, you still would not make any money. You’d be barely breaking even.\u201d<\/p>\n

Even without being overleveraged, operational line items like insurance and labor have risen to the point of being deal killers, said\u00a0Jamail Virani<\/a>, partner of Level Capital, which develops and invests in hospitality, retail, industrial and other asset classes.\u00a0<\/p>\n

\u201cIt’s not necessarily just a financing issue, it’s not necessarily an investment issue,\u201d Virani said. \u201cThey’re all full deal breakers.\u201d\u00a0<\/p>\n

These circumstances have created the toughest market in decades, forcing Level to have difficult conversations with investors and lenders to explain why\u00a0it can\u2019t perform,\u00a0Viranit said. The\u00a0company has to be transparent about legacy deals that didn\u2019t perform well, sometimes explaining why investors should trust\u00a0it again or even continue to invest in real estate.<\/p>\n

\u201cIt’s not painting a rosy picture, it’s being honest about the situation that we’re in,\u201d Virani said.<\/p>\n

In the multifamily market, a\u00a0huge wave of Houston apartment development has crested<\/a>\u00a0but left behind oversupply.\u00a0<\/p>\n

Houston generally sees positive rent growth when the multifamily market is 90% or more occupied, and it is about 88% occupied right now, Terrell said. The market needs to absorb 16,000 to 18,000 units to get there, and it\u2019s going to take some time, he said.<\/p>\n

\u201cIt’s going to be this time ’27 before we see positive rent growth in Houston,\u201d Terrell said.\u00a0<\/p>\n

\"Placeholder\"\/<\/p>\n

\n Bisnow\/Cat Rowntree\n <\/p>\n

\n Zentro Internet\u2019s Christian Diener, Rebees Management Co.\u2019s Micah Hart, Wan Bridge\u2019s Ting Qiao, Stellar International Commercial Real Estate\u2019s Seth Eslami, Avenue5 Residential\u2019s Stephani Park, Transwestern\u2019s Kelly Wheeler and Ironhold Asset Management\u2019s Jeremy Yost\n <\/p>\n

In the meantime, property owners are focused on upping renewal rates from the industry-acceptable standard of 50%. They\u2019re now aiming for 65%, 70% or even 80%, depending on the property, panelists said.\u00a0<\/p>\n

It costs about $3K to flip an apartment unit, so even offering a tenant a $50 monthly rent reduction to stay could be a net positive, Terrell said.<\/p>\n

Again, that makes it important for property managers to be transparent with owners about their potential for profit or rent growth, which might be little to none for now, said Aaron Almanza, vice president of property management for the Morgan Group<\/a>.<\/p>\n

\u201cOwners don’t want to hear that, but if you’re having a conversation with them early about what you’re seeing in the next six months, 12 months, 18 months, that’s an expectation that they’re going to align with you on very early,\u201d Almanza said.<\/p>\n

\u201cBut to expect to buy a property at $300K a door and sell it for $450K in three years, it’s not going to happen.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"The increasing cost of insurance, labor, property taxes and other operational necessities is making investment deals hard to…\n","protected":false},"author":2,"featured_media":330842,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[118253,118248,12960,56,58,57,118249,118252,118251,41050,9188,118250,18746],"class_list":["post-330841","post","type-post","status-publish","format-standard","has-post-thumbnail","category-houston","tag-aaron-almanza","tag-asset-living","tag-greystar","tag-houston","tag-houston-headlines","tag-houston-news","tag-jamail-virani","tag-level-capital","tag-pauline-houchins","tag-property-management","tag-property-manager","tag-ryan-terrell","tag-the-morgan-group"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/posts\/330841","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/comments?post=330841"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/posts\/330841\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/media\/330842"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/media?parent=330841"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/categories?post=330841"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/us-tx\/wp-json\/wp\/v2\/tags?post=330841"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}