After a remarkable first quarter of 2020, virtually all multifamily transactions came to a halt as the COVID-19 pandemic overwhelmed the world. Multifamily business delayed—sellers and buyers pushed the pause button and brokers waited in the wings with cell phones in hand.
While institutional buyers are still on the sidelines, the opportunity was realized by the private sector and interest picked up slowly in May and June. By mid-summer, activity had increased significantly, and we are currently operating at near pre-pandemic levels.
From a brokerage standpoint, we have seen a few changes as a result of the pandemic. Many sellers no longer want the typical marketing period for their product, instead opting for more pre-emptive arrangements. In fact, I would estimate based upon our recent experience, approximately 25 percent of the transactions have followed a conventional marketing timeline.
Non-refundable earnest money “day one” has also become very common and due diligence “unit-by-unit” inspections have been curtailed. Surprisingly, however, property tours by potential buyers have not decreased.
Travel restrictions continue to be a roadblock for institutional investors, but others are out and about in full force.
Other changes include a shift from infill, transit-oriented developments to lower density, suburban transactions. Equity raises for new development have remained active, but the biggest demand is for suburban, low-cost basis deals within good school systems. We are also seeing more of the “single-family for rent” concept, with a substantial amount of new product being delivered in the next 12 to 18 months. This type of development concept will especially appeal to renters who, spurred by COVID-19, may be seeking a more private setting while still renting.
Regionally, it appears that investors are flocking to Texas, and Dallas-Fort Worth in particular, because of anticipated future growth in addition to the fact that capital is having difficulty placing equity in retail, office, and hotels–leaving multifamily and industrial as the best options.
DFW is currently the fourth largest market in the U.S. and has led the country in terms of job growth in 2017, 2018, and 2019. Inquiries to the local economic development chambers have always been robust, but word on the street is that the pace has increased significantly and there has been overwhelming interest as of late.
On an even brighter note, asset pricing has held up and we have seen little, if any, adjustments to pre-COVID-19 pricing.
As the year rounds out, 1031-exchange identifications are critical, provided that motivated buyers stretch for the transactions. Buyers are sharpening their pencils, sellers are taking note and deals are most definitely getting done. The chasm brought about by the pandemic left us wondering if, and when, business would return to some semblance of normalcy. Remarkably, the multifamily industry rebounded quickly and continues to score big numbers for buyers and sellers alike.
Brian O’Boyle is vice chairman of Multifamily Capital Markets for Newmark’s Dallas office.