Within the last 120 days, the multifamily market has been witness to significant changes. Right now, buyers seeking properties in the Class A sector have an abundance of choice and, as a result, have become much more selective in their offer process. In the conventional best and final process, we are seeing a reduction in the number of participants. One year ago, six or seven potential buyers participating in the best and final round was the norm; today, that number is closer to three or four.
The underwriting process has also changed. Buyers are generally underwriting deals more conservatively, especially in their rent growth and real estate tax numbers. Even so, brokers are typically achieving their strike price—they are just having to work a little harder for the same results as last year. Unfortunately, there has also been an increase in the number of deals that are falling out of escrow, with brokers having to opt for their second choice in the buyer pool.
That being said, Class B and Class A communities that have a strong value-add component continue to receive strong interest across the sector. Furthermore, we have seen substantial appreciation in the Classes B and C market and still frequently see new high-water marks set. The Dallas-Fort Worth job growth story helps mitigate some of the concerns about the robust new construction pipeline, and Dallas continues to find itself on more buyer radar screens locally, nationally, and internationally.
Brian O’Boyle is vice chairman of ARA, A Newmark Company.