cre port - greysteel report_dfw mf_q… · over the past year. additionally, according to recent...

Q2

2017 CREPORT

DALLAS-FORT WORTH MULTIFAMILY

Q2 CRE Report / 02 © 2017 Greysteel

Dallas-Fort Worth | Q2 2017

Pipeline Vs Effective Rental Rate PSF

$0.50

$0.60

$0.70

$0.80

$0.90

$1.00

$1.10

$1.20

$1.30

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2012 2013 2014 2015 2016 YTD

UNITS EFFECTIVE RENT PSF

Under Construction Delivered Effective Rent PSF

TrendlinesConstruction boom flashes warning signs:Immediately following the Great Recession, industry experts expressed great concerns over developers building too much too quickly, spreading a doom-and-gloom narrative of oversupply and premature expansion. Dallas-Fort Worth currently ranks second only to New York in expected 2017 deliveries with 35,000+ units currently under construction. As of Q2, asking rents increased 4.4% year-over-year and net absorption has remained positive (0.5% of inventory) despite the number of units delivering each month. Popular high-density submarkets, however, are starting to shows signs of softening; asking rents in Uptown have decreased 2.1% since Q2 2016 and concessions in Downtown Dallas have reached nearly 3.0%.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD

Net Absorption, 10-Year HistoryUNITS

Foreign capital flows into the metro as investors are priced out of gateway markets:Nearly $342 million in foreign capital made its way into the Dallas-Fort Worth multifamily sector during 2016, following an even more impressive record-breaking $1.1 billion in 2015. Over the 5-year period ending in 2015, the metro region trails only Manhattan in the list of top cities for foreign multifamily investment. The vast majority of the investment money coming in is from groups based in Europe, Asia, and the Middle East, specifically South Korea and Germany. Many countries in Western Europe are facing currency valuation issues, government instability, and overbuilding which is making U.S. markets, like Dallas-Fort Worth, seem even more attractive.

Despite concerns about oversupply, Dallas-Fort Worth continues to operate as one of the hottest development markets in U.S.Once dependent on the energy sector for its growth, Dallas-Fort Worth has shrugged off recent drops in oil prices by evolving into a diverse, dynamic economic juggernaut. Major corporate relocations and expansions across the metro have generated thousands of new jobs, resulting in a massive influx of new residents hoping to capitalize on those opportunities and driving the apartment market forward. Over the past 12 months, non-farm employment increased by 3.3%, which ranks as first in the nation for job growth. Looking forward, young professionals and families will continue to move to the area because of its low cost of living, climate, and culture, and the region’s apartment market will continue to benefit as a result.

GEO

GRA

PHIC

BRE

AK

DO

WN

Dallas Class A Class B Class C

Effective Rent Growth (Y-O-Y) 2.36% 5.5% 6.4%

Vacancy Rate 10.1% 5.1% 5.7%

Net Absorption (12-Month Trailing) 7,900 (566) (17)

Fort Worth Class A Class B Class C


Vacancy Rate 6.8% 4.5% 4.4%

Net Absorption (12-Month Trailing) 1,540 481 106

Arlington Class A Class B Class C


Vacancy Rate 6.3% 4.6% 3.9%

Net Absorption (12-Month Trailing) 520 (278) 44

Source: Greysteel Research, ESRI, CoStar Realty Information



Key Economic Indicators

LABOR Q2 2016 Q2 2017 Change

EMPLOYMENT 3.50M 3.62M +3.3%

PUBLIC SECTOR 430K 440K +2.2%

PRIVATE SECTOR 3.07M 3.18M +3.5%

UNEMPLOYMENT RATE 4.1% 3.8% -0.3%

10-YR TREASURY YIELD 1.49 2.31 +0.82

PEOPLE 2010 CurrentProjected

(2022)

POPULATION 6.43M 7.28M 8.0M

% CHANGE — +13.4% +9.7%

HOUSEHOLDS 2.32M 2.61M 2.85M

% CHANGE — +12.3% +9.3%

HOUSING UNITS 2.53M 2.81M 3.06M

OWNER-OCCUPIED 1.43M 1.55M 1.69M

RENTER-OCCUPIED 888K 1.05M 1.15M

MEDIAN HH INCOME $59,192 $62,782 $71,021

% CHANGE — +6.1% +13.1%

DEVELOPMENT 2014 2015 2016

MF PERMITS ISSUED (5+ UNITS) 18,231 28,142 25,650

UNITS DELIVERED 14,388 16,644 18,016

Source: Greysteel Research, ESRI, Bureau of Labor Statistics, U.S. Census

37.5%

55.3%

OwnerOccupied

RenterOccupied

7.2%

Vacant

Housing Profile

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

20-24 25-34 35-44 45-54 55-64

Population Count By Age

2010 2017 2022 Projection

AGE RANGE

30.1%of Dallas-Fort Worth occupied rental units are rented by Millennials (aged 25-34)

52.3%of Dallas-Fort Worth occupied rental units are rented by people aged 25-44

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Unemployment Rate, 10-Year History

Source: Greysteel Research, ESRI, U.S. Census, American Community Survey



Pipeline & Deliveries

1,800ARLINGTON

MARKET RATE UNITS UNDER CONSTRUCTION:

6,500FORT WORTH

16,750DALLAS

Under Construction Planned

UNITS

Source: Greysteel Research, ESRI, CoStar Realty Information

MORADA PLANO 184 Units | Plano

THE MAXWELL 325 Units | Frisco

Hot Submarkets

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Plano Frisco/Prosper Uptown/ParkCities

East Dallas Northwest FortWorth

Garland/Rowlett

Arlington Allen/McKinney



Transactional Trends

According to CoStar data, the total number of transactions during 3Q16-2Q17 was down nearly 18.7% over the prior period. Non-regional investment in the Dallas-Fort Worth multifamily market has been steadily increasing over the last three years and recently hit a five-year high of 52% as a percentage of total transactions. True to the nature of the Dallas-Fort Worth market, a large majority of the transactions during the last 12 month period have been private individuals and companies which make up roughly two-thirds of the activity. Also of note, private equity shops, institutional investors, and REITs appear to be moving away from the area as they have become net sellers of multifamily over the past year. Additionally, according to recent investor sentiment reports, Dallas-Fort Worth ranks as the second most likely market in the U.S. for expected increased investment over the next year, as well as the fifth most likely to see current owners divest. This divergence of opinion hints at a growing disconnect between institutional and middle market investors, in which insitutitons will dispose of lower-quality assets and pour capital into high-end core product while middle market owners focus on value-add deals in the suburbs in North Texas.

Non-Regional Transactions Total Transactions

Non-Regional Investor Interest, 5-Year Period

41%47% 38% 43% 52%

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3Q12-2Q13 3Q13-2Q14 3Q14-2Q15 3Q15-2Q16 3Q16-2Q17

# OF DEALS

Buyer & Seller Types, 12-Month Period

Private Institutional Private EquityUser REIT

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

BUY

ER T

YPE

68% 18% 5% 8%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

SELL

ER T

YPE

60% 20% 7% 12%

Source: Greysteel Research, CoStar Realty Information, National Apartment Association, RealPage, Inc.



Dallas-Fort Worth Investment SalesBOYAN RADIC DOUG BANERJEE MICHAEL CARTER

Managing [email protected]

Managing [email protected]

[email protected]

ANDREW MUELLER ANDREW HANSON WILL CLARKE

Senior Investment [email protected]

Investment [email protected]

Financial [email protected]

Sources & MethodologyAll data is obtained from sources recognized as reliable but Greysteel makes no guarantees as to the accuracy thereof.

(1) Rental & occupancy trends take into account only multifamily assets larger than 50 units, except in the case of development and transactional analysis.

(2) The Dallas-Fort Worth region, as defined by Greysteel Research, is comprised of: Collin County, Dallas County, Denton County, Ellis County, Hood County, Hunt County, Johnson County, Kaufman County, Parker County, Rockwall County, Somerveil County, Tarrant County and Wise County.

(3) Affordable properties and market-rate properties with an affordable elemet are not analyzed in this report; this includes, but is not limited to, LIHTC, Section 8, HCVP, senior housing, military housing, corporate housing, and student housing.

(4) Data provided courtesy of Greysteel Research, CoStar Realty Information, Inc., REIS, Bureau of Labor Statistics, Bureau of Economic Analysis, and the U.S. Census Bureau.

Debt & Structured Finance

ANTON MATTLI JOHN MARSHALL DOSS ZACH GHORMLEY

Senior [email protected]

Senior Finance [email protected]

Finance [email protected]

Greysteel Research

JARED EMERY RYAN HILL

Lead Research [email protected]

Senior Research [email protected]

GREG EDMONDS

Research [email protected]

Corporate Leadership

ARI FIROOZABADI DUERK BREWER

President & CEO Chief Operating Officer

REBECCA WILEY YASSI FARZANEH

Marketing Director Director of Corporate Services

Greysteel’s CREport focuses on any subject that potentially impacts, or relates to, the commercial real estate sector, ranging from studies of the performance of a specific asset type or region to economic and demographic studies, and anything in-between. Readers will benefit from our professionals’ expertise and insight into the economic and market trends that affect all sectors of commercial real estate, as well as our expansive knowledge of local markets. For more information about the CREport, or to request information for a specific region, please contact [email protected].

* For more information or to inquire about Greysteel, please contact Ari Firoozabadi, CEO & President ([email protected] | 202.417.3873)

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*For more information or to inquire about Greysteel, please contact Ari Firoozabadi, President & CEO ([email protected] | 202.417.3873)

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