Investment capital continues to pour into the apartment sector. Investors have an insatiable appetite for deals that have good cash-on-cash returns, as evidenced by what we’re experiencing in our office alone. Recently, ARA Dallas marketed four Class A communities in the Plano and Carrollton submarkets; all were 2000s-vintage product. We averaged 40 tours and 25 offers for each deal. This level is among the highest we’ve seen in years.
Even deals with unattractive debt and significant yield maintenance/defeasance are drawing a big crowd. On two recent deals, sellers are paying between $3 and $5 million in defeasance, but the buyers are chasing the cash-on-cash with debt in the 4 percent or sub 4 percent mark. Sellers are able to absorb significant penalty, pay off existing debt, and still maximize the value.
Right now there’s a limited amount of product on the market, especially in the Class A and B categories. Many buyers who never before entertained the idea have opened their pocketbooks to secondary markets, especially those with unprecedented rental growth, such as Midland and Odessa. New watermarks have been set—with rents increasing 2 percent per month. Prices for Class B 1980s-vintage deals have increased to the mid-to-upper $70,000-per-unit range. Hard to believe, but true.
Dallas-Fort Worth continues to be the new construction leader in the United States, with more than 22,000 units currently in the pipeline and under construction. Employment growth is projected to remain steady for North Texas, and I believe that our market is strong enough to absorb the deliveries without significant adverse effects.
This new construction product is also setting new marks; high-rise units are realizing rents in the $2.30-per-square-foot range, and several Uptown projects are collecting rents exceeding $2.10 per square foot.
Several recent new construction communities have changed hands prior to reaching stabilized occupancy. This further supports my belief that 2013 will be another great year for multifamily—both for property performance and sales activities.
