Good weather. Good neighbors. Good jobs. A great future. With these attributes on its side, the Dallas/Fort Worth multifamily market is not only moving forward, it is doing so with the kind of determinationthat is emblematic of the Lone Star State.
Case in point: population and job growth. In 2007, the population of the Dallas/Fort Worth Metroplex?which the North Texas Commission says includes 12 surrounding counties?exceeded 5.7 million. According to a spring 2007 report by the Texas Workforce Commission, Dallas/Fort Worth expanded by 94,300 jobs in 2006, making last year the best job market in the region in six years. Citing sustained job growth and a strong economy, the commission also reported in May that unemployment had fallen to a seasonally adjusted rate of 4.1 percent, its lowest point since 1976.
And weather? Here again, Dallas improves upon the norm, with the National Weather Service reporting its average warm season, or freeze-free period, at 249 days.For the Dallas/Fort Worth multifamily market, this means good things.
MARKET FACTORS Dallas/Fort Worth's solid economy andquality of life certainly contribute to a healthy multifamily market. But what may create an even greater impact is the upward shift in interest rates. Like much of the nation, the Metroplex apartment rental market has seen a slowdown in recent years, brought onby low interest rates that produced cheap capital and resulted in a renter exodus to the single-family home market. Now that interest rates are trending higher and lenders have tightened their financing criteria, the demand for multifamily housing in Dallas/Fort Worth?as in so many other apartment markets across the nation?is on the rebound.
According to a midyear estimate byYieldStar, a Carrollton, Texas-based provider of apartment market intelligence, Dallas/Fort Worth home sales in2007 are down by 5 percent to 10 percent over the year prior, and local apartment occupancy is at its highest level in more than five years. Similarly, commercial real estate research company Reis reports Dallas at an 8.2 percent vacancy rate as of first quarter 2007 and Fort Worth at a 9 percent vacancy rate for the same period.
Over the last year, average rents in the overall market increased 3.4 percent. Average monthly apartment rents in Dallas/Fort Worth as of first quarter 2007 ranged from between $450 and $515 per month for a studio to between $1,000 and $1,100 per month for a three-bedroom unit. New, similarly sized projects in hot markets are renting for as much as $1,300 to $1,500 per month.
DEVELOPERS: GO NORTH For several years now, Dallas/Fort Worth's major path of growth has focused on the more affluent submarkets to the north. In these amenity-heavy areas, developers can build Class A product and secure Class A rents, which in turn has helped offset higher-than normal vacancy rates and the higher costs of construction that have stifled the industry over the past 24 months.
In the near future, the development of Class A units in Dallas/Fort Worth is predicted to continue, but for somewhat different reasons. In part, developers will be responding to Class A demand among those who are retreating from rising single-family adjustable-rate mortgage loans and looking for an upscale multifamily alternative. According to a May/June report by the Federal Reserve Bank of Texas, the trend toward Class A product also follows the state's steady shift toward services. Within "an economy traditionally known for cotton, cattle, crude oil, and construction cranes," the bank says that a shift away from such raw goods brings with it across-the-board increases in salaries. This, in turn, improves the ability of Metroplex residents to afford a Class A apartment living.
North of Fort Worth, high-end communities such as Keller and South lake have experienced new Class A apartment and townhome construction and will likely see more in the coming years. In large part, this is due to the growth of the Alliance Corridor, a 17,000 acre mixed-used master planned community located on a 12-mile section between State Highway 114 to North Loop 820. At present, the Alliance Corridor includes more than140 companies that have generated approximately 24,000 new jobs.
Responding to the demand generated from this area are projects such as Monterra by Hillwood. Half of the 130-acre project is being maintained as natural land with walking paths and streams, and the site is also home to the famous Texan Bison. Together, they are expected to draw thousands. The balance of the master-planned community will consist of 1,100 rental units offering a live/work/play lifestyle. The first phase is slated to deliver 288 units this fall. Final completion is expected in the next three to four years, depending on absorption.
Also in active development near the Alliance Corridor is the 340-acre KellerTown Center. Now in the design phase, the newest addition to the Uptown Keller section of the community includes the Arthouse Project, a collection of upscale shopping, neighborhood services, and 13 office condominiums, as well as 48 patio homes, 30 upscale condominiums, and 24 townhomes.
North of Dallas, active growth areas include Frisco and closer-in Plano,which?with a vacancy rate in the mid-7percents and 1,200 units currently underway?ranks as the area's third most active apartment construction submarket. Even closer, in the northern Dallas suburb of Farmers Branch, Opus West, in partnership with Alliance Communities, is developing Broadstone Parkway, a 5.8-acre mixed-use project. Slated for completion in spring 2008, the project includes 41,000 square feet of retail and restaurant space surrounded by 332 luxury apartments and townhomes. Broadstone Parkway is one of many examples of developers building a project specifically to meet upscale demand. Often, this includes incorporating a mixed-use element.
According to Steve Chilton, senior director at Opus West, the multifamily homes at Broadstone Parkway are designed to be "very upscale, with 10- foot ceilings, granite countertops, and hardwood floors. The mixed-use aspect creates a sense of place for the project, which is the first of its kind on the west side of The Galleria." In the Farmers Branch submarket alone, Chilton noted that there is more than 4 million square feet of office space. "So interest in the area [north of Dallas] continues to be strong with high-end retailers and multifamily developers," he adds.
NEW (OLD) FRONTIERS While condominium sales have softened overall, the central business districts of both Dallas and Fort Worth continue to experience demand for this type of multifamily product.
Attracted to the entertainment and lifestyle notion of urban living?and increasingly put off by rising gas prices?younger individuals and empty nesters are being drawn to the live/work/play concept. The expansion of the Dallas Rapid Transit, or DART, system also has helped the process along, offering residents an easy commute and spurring interest in downtown living?approximately 1,900 units are now under construction in the district. This represents a significant percentage of the approximately 10,600 units that were under construction in the Metroplex as of the end of the first quarter of this year.
Among the recent additions to the Dallas central business district market are the Gables Republic Tower and the Mosaic project. The Gables Tower is a $46.5 million undertaking by Atlantabased Gables Residential, which, in May, delivered 225 renovated multifamily units within one of Dallas' first skyscrapers. At North Akard and Pacific, Hamilton Properties is converting the Mosaic project into a 440- unit residential tower, and in Uptown, a bevy of groundbreakings include the 22-story residential high-rise The Tower Residences at the Stonleigh Hotel and the Alta Rosewood residential tower. The Tower Residences will offer 110 for-sale units priced from $400,000 to $2.6 million. The 22-story Alta Rosewood has 375 units slated for completion in late 2008.
With a 96.6 percent downtown occupancy rate, Fort Worth leads the Texas market for central business district occupancy. The nonprofit group Downtown Fort Worth reports an estimated 228 new downtown units set to open this year. One recently completed downtown Fort Worth project is the historic Texas & Pacific Lofts, a 1930s railway terminal that, in 2006, was redeveloped by Wood Partners into a 228-unit, for-sale loft community. Units went to market for $150,000 to $300,000. Another recent redevelopment located just west of downtown Fort Worth is the Montgomery Ward building, originally built in 1928. After the building was hit by a tornado in 2000 and Montgomery Ward subsequently went out of business, the building was purchased by Dallasbased Weber & Co., who brought its ow n version of downtown live/work/shop to the area with 240 high-end condos and a collection of major retailers.
B, C, AND BEYOND According to the 2000 census, Dallas/Fort Worth grew by 30 percent in the decade between 1990 and 2000. In that same decade, and within that growth, the Hispanic market of Dallas/Fort Worth grew by 112 percent. This has breathed new life into Class B and C properties, particularly among those located in largely Hispanic submarkets such as Bachman Lake and Victory Meadow. The Ivanhoe Apartments in the Victory Meadow area east of I-75 (Central Expressway), for example, sold in November 2006 for $31,000 per unit and has just returned to market priced at slightly more than $48,000 per unit.
Even outside of these areas, Dallas/Fort Worth's B and C class units?when they are well run and maintained?are experiencing low vacancy rates and high rent growth. Indeed, this niche is proving to be a solid investment opportunity. Yet whether it be B and C class properties or Class A developments, the growing consensus is that Dallas/Fort Worth can count on more good multifamily news in the years to come. This is particularly true for properties that are managed well, as opposed to the investment tack of recent years that depended more on a strategy of flips and trades.
Developers also will continue to find value in Dallas/Fort Worth, both from a standpoint of high occupancy and because land prices here, as compared to most other major U.S. growth markets, are still very favorable. That makes the Metroplex one of the first places that builders will turn as demand returns to the multifamily market.
Considering Dallas? Here's what you need to know:
Population: 5.9 million
Median Age: 31.8 years
Median Household Income:$52,300
Average Rent: $500 to $1,200
NOTABLE: Dallas is home to the largest urban arts district in the country, with 17 contiguous blocks featuring the Nasher Sculpture Center, the Dallas Museum of Art, the Crow Collection of Asian Art, and the Meyerson Symphony Center. The city's slogan is "Live Large. Think Big." And it does, offering more than 65,000 hotel rooms. Forth Worth is equally multi-dimensional, with the downtown market serving up destinations ranging from a world-class Cultural District to the top-ranked Forth Worth Zoo, and from theTexas Motor Speedway to the cattle drives and rodeos of the Forth Worth Stockyards.
About the author: Heather Konopka is an advisor at Sperry Van Ness.