InterFace Panel: Property Taxes, Public Transit Among Chief Concerns for DFW Multifamily Market
The InterFace Multifamily Texas leasing and development panel, from left to right: Rob Key, HFF; Adrian Lufschanowski, Thrive, FP; Kim Radaker, The Exponential Property Group of Cos.; Carlos Vaz, Conti; Matt McGraner; Highland Capital Management.
DALLAS — With roughly 10,000 new residents moving into the metro area every month and more than 100,000 jobs already created in 2017, the Dallas-Fort Worth (DFW) metroplex appears poised to handle any challenges thrown at its multifamily sector.
These obstacles include absorbing the 35,000 or so multifamily units expected to come on line in 2018, maintaining positive rent growth of 3 to 4 percent and navigating a constricting labor market to ensure new projects stay on schedule.
For the real estate professionals who spoke on these issues at the InterFace Multifamily Texas conference on Sept. 13 at the Westin Galleria hotel in Dallas, there wasn’t much dissension as to whether the market can handle these tasks. The bigger question among the panelists was what, if anything, could crash the party.
Moderator Rob Key, senior vice president at HFF, invited the four panelists — all of whom work for DFW-based firms that offer investment platforms — to share their insights on what they believe is the single-biggest threat to the continued growth and prosperity of DFW’s multifamily market.
Kim Radaker, managing principal of The Exponential Property Group of Cos., identified rising property taxes stemming from higher sales prices as her biggest concern.
“Property taxes are definitely going to cause some trouble, especially when prices are rising and you have to underwrite at 95 percent of the purchase price,” said Radaker.
Adrian Lufschanowski, president of Thrive, FP, cited a lack of inflation as problematic, mainly because it’s an indicator of an impending shift in the cycle.
“Although we don’t see ridiculous leverage or other economic catalysts to suggest change is coming, we’ve already blown through the longest part of the cycle and it just keeps going,” said Lufschanowski.
Lufschanowski added that the absence of inflation and/or wage growth creates misleading price levels.
“It’s not uncommon for our acquisitions department to be $2 million to $3 million off the winning bid,” he said. “But we’re not willing to pay the higher price.”
Carlos Vaz, CEO and co-founder of Conti, which invests exclusively in multifamily, pointed to infrastructural issues as possible detriments, particularly the metro area’s underdeveloped public transportation system.
“Dallas has poor public transportation,” said Vaz. “If Amazon doesn’t select Dallas for its new headquarters, that will be a major reason. That’s the key to the whole state becoming stronger, figuring out how we can use public transportation to make the triangle between Dallas, Houston and Austin/San Antonio more vibrant.”
Vaz also highlighted the importance of the metro area’s continued support of its labor force — a key factor in drawing out-of-state businesses to DFW — primarily in the form of greater spending on education.
Matt McGraner, managing director at Highland Capital Management, rounded out the discussion with an explanation of how the heavy volume of capital flowing into multifamily could spell trouble.
“When assessing the market in general, we ask ourselves, ‘If you have to allocate capital to real estate, where do you want to be?’” said McGraner. “Right now, retail and office dollars are flowing into multifamily because there’s a bias in the public markets toward anything residential.”
McGraner noted that he also expects more capital to shift away from DFW’s multifamily assets and toward technology-oriented real estate, such as data centers and cell phone towers.
— Taylor Williams