Investors Who Went South

TWO Boston companies that have invested in Houston are looking for more deals there. The March Company Inc., a syndicator of real estate tax credit limited partnerships, is buying into a partnership in 380 apartments in southwest Houston that were acquired two years ago for $12,000 to $13,000 per unit. Another $6,000 each was spent for rehabilitation, says executive vice president James W. Flint. The partnership is getting rent of 55 cents per square foot, better than last year's projection of 40-45/foot.

``In New England, $19,000 per apartment is like a down payment,'' Mr. Flint says. Land prices, construction, and financing make northeastern prices as much as five times as high as Houston's. Low-income housing projects - a company specialty - aren't possible because the rents would have to be too high. The projects only work here when substantial government rent subsidies can be obtained.

Investors in The March Company's syndications are not necessarily fleeing Boston, though. They are attracted to the tax credit for low-income housing of $1.50 for every dollar invested - cutting their IRS bill by up to $7,000 per year for 10 years, Flint says. That makes the partnership profitable even if the property itself doesn't appreciate, he says.

Michael A. Burke bought 68 apartment units in the Spring Branch area of Houston through McAlister in October 1988. All the apartments are leased, and he's getting 52/foot, rather than his projected 42/foot. ``The property is cashflowing [breaking even] right now. At the next rent increase, which is Jan. 1, it will throw off money [make a profit],'' he says.

His $28,000 total cost per unit is very attractive relative to the $500 monthly rent he gets. ``Those numbers don't even come close to what I have to do in Boston,'' Mr. Burke says.

His Burke & Co. had developed $2 million to $3 million worth of properties a year in the Boston area. But now, ``the only thing that's worth buying here is special situations,'' he says.

For example, a year ago he bought 16 partially built town homes in Dorchester, Mass. from BayBanks at a foreclosure sale. He's selling them at a profit - but there have been snags. Bank of New England would only finance the completion of eight units at a time. Burke says, ``We've been having our problems with them.'' He complains of ``a radical slowdown'' in getting loans, though he has borrowed there for eight years.

He's also finding the changing faces confusing. His former lending officer, James M. Sweeney, was removed as head of the real estate group the day the bank announced the size of its non-performing loan problem. ``He shouldn't have been blamed'' for Bank of New England's troubles, says Burke, who's looking for a new lender.

Burke is attracted to Houston's pro-development attitude. He says a lot of friends are in financial trouble because of rehabilitation projects, let alone new construction, that ran afoul of the Boston Redevelopment Authority, the Landmark Commission, the Environmental Protection Agency ... ``it goes on and on and on.'' In Houston, he had a permit problem ``that was fixed in weeks, not years like in Boston.'' Burke says, ``All of my work will be in Texas for the foreseeable future.''

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