July 18, 2017
The appetite for apartment investments in Texas is very strong, with robust job growth and increased rent growth bringing buyers into the Lone Star State. In the following Q&A, Greysteel Managing Director Doug Banerjee, one of the speakers at the upcoming Connect Texas Multifamily conference, talks about the Texas apartment market’s economic drivers, and if investor demand will continue.
Q. From your perspective, what is the current state of Texas multifamily?
A. The Texas multifamily is extremely hot. Investors from all over the world are looking at U.S. real estate to invest in. Many of them are looking to see where the job growth is, and it’s in Texas. That has helped drive up occupancy in most of the major markets in Texas, which has, in turn helped with rent growth and appreciation.
Q. Are certain Texas metros stronger than others?
A. I would say each of the four major metros in Texas are very different. The Dallas-Fort Worth area is a diverse economy, with a lot of supply coming online this year and next, totaling 50,000 units plus. A lot of investors are looking for deals in DFW. Houston has been hit pretty hard by the energy downturn, but actually kept job growth positive, which is different from past cycles. I hear a lot of people are looking for opportunities in and around the Houston area. San Antonio is known more for its slow and steady growth, and Austin is like California. There are crazy low cap rates, and a lot of appreciation that many investors outside the Austin area don’t understand.
Q. What should we look for over the next 12 to 24 months?
A. As long as interest rates and availability of money from the agencies Fannie Mae and Freddie Mac stay strong, then I think we’ll continue to see a transactional market. At some point, interest rates will increase, and cap rates will have to creep back up. The pricing in some of the major metros has gotten so aggressive, to the point that buyers can’t pencil out a decent return. There is a bid-ask gap between what sellers want and what buyers are really able to pay. Still, with the continued job and population growth in Texas, the state will be a great place for multifamily investment in the decades to come.
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