Dallas’ multifamily investment activity is at an all-time high, with many properties selling after two or three years of ownership and yielding significant returns for investors. Buyers don’t seem to mind the uptick, attracted to the burgeoning job market that’s expected to keep its momentum. The result? There isn’t enough product to satisfy demand, especially in suburban submarkets.
For instance, we recently brokered the sale of a four-property portfolio, which the seller purchased three years ago and resold for a 53-percent gain. The sales price of one of the largest Class-B properties in the Dallas-Fort Worth area increased by 65 percent over its purchase price in 2012. And another large Class-A property purchased three years ago netted a 50-percent gain when it was sold last month.
The most-desired assets are value-add properties that offer the opportunity for quick renovations such as granite countertops, new cabinets, updated plumbing and upgraded lighting fixtures to significantly raise the rents. One of our recent listings—which was built in the early 2000s and also a value-add candidate—attracted 55 investor tours. Slightly older properties provided even better upside in rent growth: In the 12 months ending March, year-over-year rents rose the most in 1970s- and 1980s-vintage properties, jumping 7 percent and 7.3 percent, respectively.
Investors want to be part of the explosive growth in Dallas, particularly near the Frisco-Plano area, which has been the center of corporate relocations and expansions. State Farm and Raytheon will bring 12,500 jobs to Richardson’s Telecom Corridor, while Toyota’s new corporate headquarters in Plano is expected to generate 7,000 jobs. Nebraska Furniture Mart and Liberty Mutual also will employ thousands of new workers. Add to that the unprecedented $5.5 billion of commercial development occurring in the one-mile stretch along Dallas Parkway between Warren Parkway and Lebanon in Frisco, and we don’t see corporate demand ending anytime soon.
The only, possible hiccup is the pullback from Fannie Mae and Freddie Mac, which have stopped providing competitive quotes in the market, having already committed $20 billion each this year. We expect life insurers, national and regional banks, and CMBS will fill the void on an interim basis until Fannie and Freddie get additional allocations from Congress. This happened two years ago, but Fannie and Freddie began pushing out more money again by the fourth quarter.
Still, from a long-term perspective, Dallas has some of the best fundamentals for investors, with unprecedented employment growth and strong rental increases, versus other U.S. markets. While the high-net-worth segment is our most active investor right now, more foreign capital—especially Israeli, South American, and Middle Eastern money—is taking its eyes off the West and East Coasts to check out the job formation and bright future of Dallas.
Brian O’Boyle is vice chairman of ARA Newmark. Contact him at [email protected]