Brian O’Boyle: Multifamily Demand at All-Time High, Sales Setting Records

Brian O'Boyle
Brian O’Boyle

The party is in full swing. The Dallas-Fort Worth multifamily sector continues to flourish, and demand is at an all-time high. The industry is seeing sales at record levels, and several are setting high watermarks for product age and type.

Dallas’s West Village area had product sell in the $247,000 per unit, and several 1990s product in suburban areas are selling in the $140,000 to $186,000 per unit range. ARA sold 21 deals in the third quarter of 2013 alone, and we’re on track to close 70 deals by the year’s end.

When rates increased mid-year, we saw limited re-trades. That’s because the market was extremely competitive to place equity into deals; also, funds were on hand for product purchased by pension funds or buyers paying all cash. The ability to close all cash or change debt from a 10-year term to a five- or seven-year term in order to keep the rates competitive has also proven to be advantageous. We’ve seen several recent Class A institutional-quality deals in this category.

The increase in capital gains taxes is driving buyers to try to execute 1031-exchanges. We’ve seen considerable activity in this realm, too. As evidenced by what we’ve experienced in our office alone, buyers and sellers are becoming more competitive on all fronts—infill and core product, as well as suburban, secondary, and tertiary markets. Cap rates are holding steady on the infill—between 4 percent and 4.75 percent—and suburban cap rates are ranging from 5.25 percent to 5.75 percent.

Today’s most sought-after deals appear to be those with the ‘value-add’ story.  Always a favorite, the product has now shifted to communities built in the 1990s and early 2000s. Buyers are finding that they can spend between $3,000 and $7,000 per unit and capture significant rental increases by doing so. Rents remain more affordable than those at new developments, and many of these properties sit in highly sought-after locations. We recently marketed three deals in Plano and averaged 45 tours per property and between 25 and 30 offers each. North Texas activity has not stalled.

Not to be downplayed is the interest that we’re seeing in secondary and tertiary markets. Investors usually confined to major metro areas have branched out and shown interest in solid and growing Texas cities. Midland and Odessa, two of the hottest markets in the country, have experienced unprecedented multifamily activity. Property tours have tripled, and 1980s-vintage product recently traded in the $75,000 per unit range.

Dallas-Fort Worth continues to deliver new product to the market. Multifamily land is hot, and we remain true to the ‘build it and they will come’ ideology.  Developers from across the country have come to Texas to try to get in on the booming market. Land prices for multifamily have increased, driven by market demand, but big-box retail is also active, with Walmart, Target, and HEB purchasing locations while land is still affordable.

We’ve seen some evidence of deals falling out due to high building costs, but overall, developers appear to be here for the long-term. After a several-year hiatus, single-family development is making a comeback, too. Although there is a shortage of lots in affluent suburbs where job growth is occurring, creative developers have discovered that marginal retail sites can be rezoned for higher density single-family development.

Dallas-Fort Worth job growth continues to be strong, and there doesn’t appear to be a stall on the horizon. Industry researchers predict that the North Texas multifamily market will continue to flourish through the end of 2016. The pipeline of deals going into 2014 looks deep; it appears that it will be a long time before last call.

Brian O’Boyle is founder and managing broker of Apartment Realty Advisors’ Dallas office. Contact him at oboyle@arausa.com.

2 comments on “Brian O’Boyle: Multifamily Demand at All-Time High, Sales Setting Records

  1. Pingback: Brian O’Boyle: 2013 Multifamily Outlook—The Roll Continues | Rowan Properties

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