Multifamily Investment updates (DFW)– Oct 2023
Hey, everyone,
It has been a while since we updated our last blog post. We have been busy trying to buy apartment buildings in DFW; we submitted 8 offers in the past 3 month, and unfortunately, we were all outbid by other buyers. DFW is still a very competitive market right now. In this blog post, we are putting a lot of information together about the latest market updates, stay reading!
In a nutshell, rents have decreased or stayed flat throughout the metro; whereas occupancy rates are overall higher. Suburbs are doing relatively better than the inner-city areas. The main reason are explained as the 2 factors below:
1) More supplies are coming to the market
2) High rent increases in the past 2 years are not sustainable, and now contracting.
That being said, fundamentals are still good for DFW:
Both inventory and absorption are huge. DFW delivers more multifamily units than any other city in the nation. Although we are delivering more units than any other year by 25%, we are delivering only a bit over 2% of the existing stock. Most importantly, we would still be able to absorb all these units.
DFW leads the nation when it comes to multifamily sales activities.
Employment growth is strong at 4.4% in DFW (2% above national average). Particularly in construction and other services, it’s 9.5% and 10.1% respectively.
Deliveries are expected to fall off a cliff in 2025 as the cost of construction, economic uncertainty and interest rate make deals nearly impossible to pencil. Thus, we will have a shortage of apartment supply in 2025.
Job growth will outpace supply growth which will cause upward pressure on rental rates
However, we have challenges for buyers in the current market:
Interest rate went up 150%+
Temporary over-supply in Class A & B+ driving down the rents in supply heave areas such as Woodhaven, Bachman, Vickery Meadow, East Dallas. Whereas, Class C rents are stickier because they are not competing with newer developments
WFH coupled with an aging millennial population are impacting CBDs, which compresses the CBD rents.
Affordable properties are performing better
Vacancies continue to rise, but the velocity is slowing.
Insurances prices are surging across the nation. There are more in claims paid out in the last 3 years than in the past 50 years; and lots of properties have been under insured for many years.
Income & Expenses changed dramatically from 2018 to 2023.
In less than 5 years total revenue increased 33.4% in DFW while expenses increased 44.3%
NOI is down 4.4% as a percentage of GPR
Insurance has seen the highest increase: 155.1%
Utilities have increased 135% (other income only up 63.7%)
Concessions down 75.5%
Bad debt is down 40.4%
Taxes are up 36%
Marketing is up 83.3%
Contract services and R&M are up 48.2%
Sales are down 64% $YOY in DFW and it’s 71.4% by # of transactions; Close ratio is also low, roughly 40% of the deal fell through.
Overall, 2023 is a very turbulent year for multi-family. And Yes, we are having a multifamily recession. MF values have declined 20% and remained below that level more than two quarters. Thus, now is a really good time to buy, why?
Macro – employment, spending, industrial production and incomes are holding steady or improving.
If recession hits the broader market impacting main street it would cause the Fed to stop QT and start QE again.
Lowering interest rates will lower the cost of rate caps for bridge debt and lower rates obviously help values.
MF is the most recession resilient CRE sector and would likely benefit in the long run like it did during 2008 great financial crisis.
