Commercial Real Estate

CRE Opinion: Value-Add Remains Gem of Multifamily Market

In the fourth quarter of 2017, we saw a class A new construction deal sell for $350,000 per unit, and some class B projects hitting $150,000 per unit.

Interest in Dallas-Fort Worth multifamily properties is at an all-time high, and the largest buying segment continues to be high-net worth individuals and private equity funds. The most sought-after sector of the market remains the value-add projects, confirmed by the level of activity that we have experienced in our office. Offers have been extremely aggressive and the tour action has reached record-setting numbers. Four of our most recent offerings have averaged between 55 and 70 tours per property. Many of the deals being awarded have either significant non-refundable, day-one earnest money or a very short due diligence timeframe. In addition, we are seeing some of the class B and C deals that traded a few years ago doubling in value.

Brian O’Boyle

Market confidence and mood at January’s National Multifamily Housing Council conference held in Orlando was very upbeat. All the major buyers were flush with cash and felt that the only thing limiting the amount of deals they could do was their ability to find product. Since January, interest rates on agency debt have increased by approximately 40 basis points but despite the uptick, pricing has held up, primarily attributable to the fierce competition to buy deals. Right now, it is not unusual to have between 20 and 30 offers per property. High-water marks continue to be established; in the fourth quarter of 2017, we saw a class A new construction deal sell for $350,000 per unit, and some class B projects hitting the $150,000 per unit mark.

With continued sizable deliveries to the market, we have seen absorption start to lag. This has led to an escalation in move-in concessions, especially in the high-rise market where we have seen properties offering up to two months free. Rezoning of properties in Dallas is becoming more difficult and the city is pushing for more affordable housing units as a trade-off for increased density. Even so, the metro’s multifamily market is strong and doesn’t show signs of letting up anytime soon.

Brian O’Boyle is vice chairman of ARA Newmark.

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