Why one Austin investor scooped up more than 1,700 apartment units across the Rio Grande Valley

About five years ago, interest rates at the Federal Reserve funds were near record lows, which translated to near-zero interest rates to borrow money, including corporate debt and home mortgages. 

That’s when Austin-based investor Alan Stalcup, CEO of GVA Real Estate Group, scooped up most of his multi-family portfolio across the Rio Grande Valley, which has grown to include more than 1,700 apartment units across 14 properties between McAllen and Brownsville. 

Founded in 2015, GVA Real Estate Group grew to a peak of owning more than 30,000 apartment units, which have since been sold off and scaled down to 5,000 units in the past few years. The reason was the hike in the Federal Reserve’s federal funds rate from near-zero to more than 5% between March 2022 and July 2023. 

And the GVA Real Estate Group business model relied on bridge debt, floating interest rate loans, so the debt service to repay the growing portfolio increased significantly during a short time frame. Some of that has been transferred to longer-term fixed-rate debt. 

Initially, Stalcup said he thought the Rio Grande Valley was a good market to invest in for affordable multi-family properties near workplaces and schools with stable demand. The company is vertically integrated, so the properties are managed by GVA as well. 

“We started in Austin, then went to Houston, San Antonio, the usual suspects. Then Kentucky, Tennessee, South Carolina, North Carolina, Georgia, and Florida. Then somewhere along the way discovered the Rio Grande Valley and I just fell in love with it,” Stalcup told the Rio Grande Valley Business Journal in a recent news interview. 

The properties include 300 units in the Residences at Edinburg, which sits near the intersection of Sugar and Trenton Roads behind South Texas Health System’s Edinburg hospital campus. The apartment complex features one- and two-bedroom units up to 1,200 square feet that rent for between $929 and $1,300 a month. 

And now, he’s doubling down on that theory with nine more apartment complexes under contract expected to close this year. 

“From an investor’s perspective, not a lot of capital goes to the valley. We don’t have many institutional operators or managers, it’s more mom and pop, and fragmented which also creates the opportunity,” he said. “The downside is there’s not a lot of exits, not a lot of people that can buy. So it’s more of a longer-term hold, not really something you could really kind of readily flip.” 

To make the transaction economical, each market requires at least 1,000 units, he said.

That includes Conquistador Apartments, which sits near Boca Chica Boulevard and Billy Mitchell Boulevard near the Brownsville South Padre Island International Airport. The complex has 172 units with one, two, and three-bedroom apartments, which GVA renovated, which now cost between $779 to $1,189, according to its website. 

“Brownsville has a lot going for it. Right now, it has very little supply, it’s got the port, LNG plant, the refinery, and SpaceX, a stable workforce,” he said. “McAllen is newer. It has healthcare and nurses. The challenge right now is Mcallen has a little bit too much supply. Then Harlingen is kind of in the middle that I think offers a little bit more affordability as long as people can commute between McAllen and Brownsville.” 

The younger-than-average population has led to increased demand for apartments and retail amenities, he said. 

“The growth rate and young people means more Starbucks, Chick-fil-As, more infrastructure. You have this flywheel that’s created for growth, retail, housing and more entertainment,” he said. 

The next opportunity is to purchase apartment complexes and turn them into condos. 

“Single story, washer-dryer connections and dedicated parking, so it feels very much like a home. So we’re able to convert the apartments to condos. And condo developers have not been building at this price point for like 20 years. But we can deliver condo units anywhere from $85,000 to $125,000 a unit, depending on the size,” he said. 

That size of a condo in the Valley would cost upwards of $200,000 in Dallas or Houston markets. 

One complicating factor in the past year for the multifamily market has been the slowdown in migration to Texas and the lack of international migration into the state. But vacancy rates for the multifamily portfolio have remained above 80% despite the big change in immigration policy that has slowed population growth, from both natural change and migration.