July 30, 2019
David Harrington, with Matthews Real Estate Investment Services, will return to the upcoming Connect Texas Multifamily Conference as a panelist for the third year in a row. Connect recently asked him questions concerning the DFW multifamily market, and Matthews’ plans for it.
Q: Last year, we had discussed DFW as one of the more active multifamily markets. Is this still the case?
A: In terms of total deal volume, Dallas has kept pace with 2018 levels and remained the most active in the country. However, while the total deal size in the first half of 2019 led the country, the number of transactions across DFW has not kept pace with the performance of the last few year’s and fell by nearly 15% year over year. When analyzing A, B & C product, we can see that the class A transaction volume peaked in the fourth quarter of 2016, with a sharp decline as we hit 2019. B product peaked later in mid-2017, but volume has tapered off a bit more gently. Class C showed its highest activity levels more recently, in the fourth quarter of 2018, but like the A product, has fallen from that peak through 2019.
Q: You had also mentioned just opening an office in Austin. What is happening in and around the metro there?
A: Austin, being a smaller market, means lower deal volume with less than half of what is done in DFW. That said, both total deal volume and number of transactions has shown significant increases through 2019, with over 40% more in sales year over year and 14% more transactions. So, 2019 has been a bounce back year for Austin, while DFW has cooled a bit.
It is common to drive down any street and see apartment buildings that have undergone or are currently undergoing value-add repositioning. We are seeing some investors focus on the short term play by doing a tremendous amount of exterior cap ex work, enhancing curb appeal and position the property for the next value add investors for interior and rent growth strategies. Other groups will completely overhaul the property, prove out market rents and look to compress the market cap rates to new lows in a sale. Others will do a total rehab and prove market rents followed by a refinance in order to pull cash and do it again.
Q: What are some of the other trends you’re seeing, that are impacting the Texas market?
B: All Texas markets continue to benefit from the regulatory environments in both California and New York. With expanded rent control recently hitting New York, the NYC area has seen a 30% decline in sales in 2019. Select cities throughout California have implemented some form of rent control or regulations on landlords, with a statewide rent control assembly bill still looming. The low cap rate environment of these coastal markets has traditionally driven the flow of capital, but today, the chase for yield is accompanied by a desire to diversify risk from an increasingly oppressive environment for investment property owners. The Texas markets post impressive fundamentals for multifamily owners in job growth as well as apartment demand and absorption, which make these markets a suitable home for capital seeking opportunity.
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Tags: Apartments & Multifamily