September 7, 2018
Anyone driving around North Texas understands there are a lot of cranes dotting the skyline. Many of those cranes belong to multifamily projects, which could lead the casual observer to wonder if too much supply is being delivered.
Not really. Or at least, not from the insights provided during Connect Texas Multifamily’s “Market Outlook & Development Round-Up: The Four Metros.” Moderated by CBRE’s Aimee Morgan, the panelists focused on development and multifamily, especially in North Texas. The panelists agreed that, while the locale is experiencing extra supply (along with softening rents and increasing concessions), “there is no sign of weakening in jobs,” said Randy Primrose with Magnolia Property Co. As such, demand will continue to chew through supply, and “’19 and ’20 will see more favorable markets to play in again,” Primrose noted.
Richard Ashton, whose Liberty Multifamily focuses on affordable housing, allowed that there is no oversupply in affordable housing. It’s difficult to build too much supply in that sector, he went on to say, because of regulatory scrutiny. However, there is demand for the affordable product, just as there is plenty of demand for the market-rate apartments.
However, not all is rosy when it comes to meeting the demand. JPI’s Miller Sylvan indicated that “hard costs are going up faster than rents, and the only way to get some relief is through land.” The problem, he went on to say, is that landowner expectations are increasing as well. “It’s getting more difficult to find good sites,” he said. “And if you are finding the sites, entitlement headwinds, at least with the first string of suburbs, are more difficult, as cities continue pushing back against multifamily rezoning.”
Some ways in which the developers are trying to combat cost issues include more creativity when it comes to deed restrictions and entitlements, and even pre-fab, modular housing. Liberty Multifamily’s Ashton pointed out that public-private partnership could also help, as well as “interesting things like opportunity zones,” he said. “With those, we can start to fill some of the gaps; it comes down to creative partnerships, whether with construction companies, land owners, and cities and counties.
Mark Drumm with GroundFloor Development came up with another solution, that of smaller project sizes; basically, instead of building high-rises, focus on mid-rises and smaller footprints. He went on to suggest that, once inventory has burned off over the next 18 to 24 months, “we’ll return to a healthy market.”
Sylvan reminded the panelists that “We had a good run of oversized returns, and now we’re feeling sorry for ourselves with the normal returns.” He went on to agree with Drumm that the near-term continues to be positive.
The other panelists echoed the sentiment, with Primrose noting that he was impressed with both demand and supply burn off. “I feel pretty good about the next 12 to 24 months, as long as there is no black swan from Washington,” he added.
l-r: Aimee Morgan (CBRE); Randy Primrose (Magnolia Property Co.); Miller Sylvan (JPI); Richard Ashton (Liberty Multifamily); Mark Drumm (GroundFloor Development)
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