TEXAS SNAPSHOT, JUNE 2011

Dallas/Fort Worth Multifamily Market

The Dallas/Fort Worth (D/FW) market appears to be strengthening — the activity level feels like it did at the height of the market. Contracts are getting executed in less time, sellers are seeing buyers agree to shorten their due diligence period, re-trades have been kept to a minimum, and there is intense competition for purchase of not only well-located Class A product, but B and C properties as well. In fact, today's buyers are even more accommodating in the negotiation of the purchase and sale agreement and it has been our experience that many are willing to begin their due diligence from execution of access agreement, not contract.

More new buyers are coming into the multifamily arena as they are attracted to the improving market fundamentals and the positive press that the D/FW market is receiving nationwide. These new buyers are driving prices and, as a result, buyers across the board are becoming more aggressive in their underwriting.

In increasing numbers, owners are evaluating their assets. Real estate offices across the Metroplex are generating record numbers of BOVs and there doesn't appear to be any break in the trend for the short-term. Often this is the first step for product brought to market, resulting in a surge of new communities being offered for sale over the next three quarters. We expect to see very strong sales activity through the remainder of the year. The first 3 months in the D/FW Metroplex (Dallas, Tarrant, and Collin Counties) saw a total of 65 transactions for multifamily product of four-plus units. Dallas County had the majority of these sales (66 percent), with the largest number of transactions occurring within the 21- to 50-unit category. In the 101-plus-unit product category, there were 31 sales between January and March. According to Roddy Information Services, there were a total of 247 sales during 2010 compared to 166 for 2009. 

Although the D/FW market has led the country in new deliveries in 2011, construction has tapered off significantly. According to MPF Research's 1Q2011 Apartment Report, 1,199 units were delivered during the first quarter, with a total of 8,899 units for the past 4 quarters. This is significantly less than the +/- 13,000 units that were delivered annually during the 2000s which peaked with 18,000 units being delivered in 2010. Impressive annual job growth of 2.9 percent for 2010 spurred exciting absorption numbers for the D/FW market. In fact, last year the  market set a record of 23,470 absorbed units — the highest calendar year total since 2000. This is a direct result of the 64,600 job gains in the market last year (January 2010 through January 2011) according to the Texas Labor Market Review, May 2011. Year-to-date job gains for the Metroplex of 63,400 will further solidify the absorption of upper- and lower-tier product.

Falling unemployment rates, limited new construction, and strong new job creations has allowed the market to finally see some rental growth. Almost all of the financials being evaluated by ARA show trailing 90-day numbers with increased income; trending forward, 2011 and 2012 should show strong rental growth — something the market hasn't seen in several years. This will enable buyers to be more aggressive in their underwriting.

ARA is also seeing a return of life insurance companies to the multifamily financing arena. Several life companies have, in fact, beat Fannie Mae and Freddie Mac rates. We expect, however, a slow return of CMBS debt to the market.

Finally, we're hearing rumblings of banks shifting gears when it comes to equity requirements for construction lending — some are reducing the amount of equity required to finance new projects. The equity requirements have teetered between 30 and 35 percent to secure bank debt. Recently, however, several commitments have been written on the 25 percent level.

— Brian O’Boyle, CCIM, is the founder and managing broker of ARA Dallas and Brian Murphy, CCIM, is the senior investment broker of ARA Dallas.

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