Gauging Multifamily Investment: Two Sides

Multifamily seems to be doing quite well in Texas. More units are being delivered to the four metros (five, including Fort Worth), while absorption remains quite strong, thanks to job growth. That’s the positive news.

Then, there is the other side of that coin, which was discussed in great deal at the recent Connect Texas Multifamily Conference, which took place in Dallas. During the “Multifamily Investment: Gauging the Climate” presentation, panelists, led by JLL’s Scott LaMontagne, indicated that the markets are, indeed, strong, but some softness is starting to show up.

On the supply side, Gary Goodman with Passco Cos. indicated that the Dallas, metro, is especially doing its share of deliveries. “The only market delivering more than Dallas is New York,” he said. “Texas keeps building, but you are also absorbing.”

Some of that absorption, however, is coming at the cost of concessions. Tony Ferrell, with the Bascom Group, said the value-add properties his company acquired in San Antonio and Austin are doing well, but “we’ve been giving concessions, anywhere from half a month, to a month.” LaMontagne also acknowledged that concession burn-downs are stronger, especially in Central Texas.

On the financing side, USAA Real Estate Co.’s Carrington Brown indicated that, with all the supply, “We’ve shifted away from the tactical, and are now building to the core. Debt is becoming more difficult, as banks are becoming more selective.” Building has also been more of an option for Camden Property Trust, according to the company’s Laurie Baker. It’s been a challenge for the REIT to buy, she noted, indicating that the value-add pricing “has gotten so crazy for us.”

Most of the panelists agreed that finding good product at a realistic price has become a challenge, with Doug Banerjee of GreySteel noting that: “There is no lack of competition for any deal. It’s a seller’s market; as long as interest rates stay low, there will be a lot of competition.”

Goodman went on to remark that he, personally, likes Houston as a place to invest. Though he also likes Dallas, “I wonder if there is enough job growth to absorb the units,” he noted. “There could be some softness in that market, which could be troublesome for us.”

Brown also felt Houston could be a positive investment target, noting that the metro is “showing some signs of cracking, and that’s where I see the most opportunities for investment coming from.”

For comments, questions or concerns, please contact Amy Sorter