Investor interest in Dallas-Fort Worth multifamily properties continues at all-time highs and shows no signs of waning anytime soon. Competition to acquire deals has been intense, especially among those properties that were constructed in the 1970s and 1980s. Appreciation on Class B and Class C product has been astonishing over the last three to four years, with many deals doubling in value during this timeframe. In more than half of the Class B and C deals that we have closed, the structure has included significant, non-refundable earnest money at the execution of the contract. Even with the recent rise in interest rates, most buyers have not been fazed and simply absorbed the increase rather than re-trade the price. Potential buyers have been even more aggressive in pricing if given the opportunity to preempt the marketing process in their pursuit of these properties.
In addition to the 1970s- and 1980s-vintage product, value-add product remains the darling of the industry. A recent 1990s-vintage, value-add property that went through the marketing process led to 78 site tours and 36 offers. Also of note is that these value-add deals are selling at almost the same cap rate levels as those considered core deals; these remarkably similar cap rates have inspired a crossover effect in which some historically B-only and C-only buyers have been taking a closer look at new construction deals.
Buyers for new construction deals have taken a more conservative outlook as reflected in the offers that we are seeing. Although tour activity and numbers of offers received for each new construction property is less than those for B and C properties, new buying groups continue to pop up. Sponsors who are in their mid-30s run many of these groups; this bodes well for continued interest in Dallas-Fort Worth multifamily market for the foreseeable future, and appreciation of the properties’ values. Concessions in the submarkets with a large supply of new construction product have been especially common. Even so, I do not foresee this to be a problem long-term—with the 119,900 new jobs added in the Dallas-Fort Worth Metroplex according to the April 2018 (latest) numbers provided by the Bureau of Labor Statistics, the sector should maintain a positive outlook and absorption rate.
Brian O’Boyle is vice chairman of ARA Newmark.
