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Multifamily

Adam Saphier: Multi-housing Developers Ready to Pounce

Dallas-Fort Worth is arguably the strongest multi-housing market in the country. Absorption is stout, with 8,380 units absorbed during the second quarter of 2011—one of the best quarters on record. Many factors are supporting this bullish environment; the two drivers that we are following closest are job growth and new construction deliveries.
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Adam Saphier

Whether you call it multi-housing, multifamily, or apartments, the fundamentals in this sector are undeniably strong. In fact, Dallas-Fort Worth is arguably the top-performing multi-housing (which is what we call it at Trammell Crow Co.) market in the country. While the local office, industrial, and retail markets have all shown us signals to be cautiously optimistic that those sectors have bottomed and are getting better, the multi-housing statistics leave no doubt that the market bottomed at the end of 2009.

According to CB Richard Ellis, North Texas multi-housing occupancy, which stood at about 89 percent in the fourth quarter of 2009, has increased to about 93 percent. Rates of $0.85 per square foot bottomed in the first quarter of 2010 and have steadily increased to $0.90 per square foot today. And absorption is stout, with 8,380 units absorbed during the second quarter of 2011—one of the best quarters on record.

Many factors are supporting this bullish environment; the two drivers that we are following closest are job growth and new construction deliveries. The Bureau of Labor Statistics says that North Texas gained 62,800 jobs from July 2010 through June 2011, more than anywhere else in the country. We won’t always gain more jobs than anywhere else, but the absence of corporate and personal income taxes, the financial health of Texas, its relatively low cost of living, central location with great airports, amenities, etc., will all sustain DFW as a great place to do business and create jobs.

Even though you already see multi-housing construction sites all over town—CBRE tracks 29 projects with more than 100 units that will be delivered from now until the end of 2012—the number of units under construction and the number of building permits obtained are still at multi-year lows. When you add to all this that cap rates are in the 5 percent to 6 percent range and non-recourse construction loans are available at 65 percent loan to cost, which cannot be found in any other product type, we find DFW at a unique time in the multi-housing development cycle.

Dallas is such a competitive real estate environment, we think groundbreakings will become much more frequent in the next 18 months, as developers and capital pounce on this opportunity.

Adam Saphier is a managing director for Trammell Crow Co., overseeing the firm’s activities in Dallas-Fort Worth. Contact him at [email protected].

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