To many people, Dallas and Fort Worth are one and the same. But to local Texans, they are two distinctly different cities in which to work, live and play. And to investors, the fundamental strategies are drastically different.
Many consider Fort Worth to be the region’s cultural center and the “cooler” place to live. In terms of job growth, both cities are booming and are magnets for young, talented professionals. With this job growth comes a burgeoning multifamily market with future potential that is sure to remain strong. Here’s why.
Job growth in the region continues to outpace the national average by more than 50 percent, and the Dallas-Fort Worth metropolitan area is ranked among the highest-growth metro territories in the country. More than 100,000 jobs have been added over the past year, thanks in large part to major corporate relocations and expansions. Toyota and Liberty Mutual are examples of two major companies committed to growth in the local market.
In addition, over the next five years, the demographic of 20- to 34-year-olds is projected to increase by close to 100,000 people – one of fastest rates in the country. These millennials typically prefer to rent and are less likely to purchase a home until they know which neighborhood or suburb they prefer, leading to the rise in the rental market.
Vic Clark, Hunt Mortgage Group
Many millennials have delayed household formation, preferring the flexibility of renting, enabling them to be mobile and change jobs with more frequency. The job market in Fort Worth certainly supports this.
Rent growth, which was accelerating, has cooled from its peak in 2015. However, it remains better than the historical average. Vacancies are rising slightly, but they are also low and likely to stay below the historical average for the near-term.
Local developers like Republic Property Group (RPG), Centurgy, Hillwood Properties and Majestic Realty Co. have been investing in building new multifamily properties to serve the local need. However, these developers are often unable to deliver units fast enough. Quarter after quarter, absorption is either mirroring or surpassing supply. More than 20,000 units are expected to come to market in 2017, and that still may not meet the local need.
The Left Bank Development, a mixed-use project bridging the CBD and CAD in Fort Worth, will include 1,500 high-end residential units under the Centergy’s development. West of Fort Worth, the Walsh Family has partnered with Republic Property Group on a mixed-use project, “The Walsh,” to include housing for 15,000 people, along with eight elementary, two middle and one high school(s) as well as hiking and bike trails.
Hillwood Properties’ redevelopment of 18,000 acres at Fort Worth Alliance Airport and the surrounding area has created a high-quality destination for jobs and housing. From the Trinity River Vision project to the rebuilding of the Fort Worth Stockyards, developers and lenders are steadily working to provide housing at a rate that matches the areas’ growth.
Still, Fort Worth is considered underbuilt. Single-family homes are being constructed at roughly half the rate of the previous cycle, leading to a housing shortage in the area. In fact, since 2010, the area has added 50,000 more households than it has housing units. The spillover effects have been felt in the apartment market as well, with record demand and consistently strong rent growth.
For investors who are looking to develop or purchase multifamily properties, activity continues to increase. Nationally, when multifamily investors start getting priced out of key coastal metro areas like New York and San Francisco, they seek opportunities in secondary markets like Dallas-Fort Worth.
The strong fundamentals, including solid demand and above-average rent growth have brought unprecedented levels of capital to Fort Worth. Record volumes were set each year from 2013 to 2016, and roughly 100,000 units changed hands in 2016.
Cap rates are compressing on high-end new assets. Strong investor interest has driven up pricing in urban and leading suburban areas, causing cap rates on properties in core submarkets to fall into the high 4 percent to low 5 percent range.
Demand for financing also remains strong as local owner-operators and investors seek to add value to their properties and refinance old loans that came due during the last cycle. This is a good market for lenders and many Fort Worth banks work hard to keep customers happy. But as transactions become larger, national players are coming to town.
Over the past two decades, Fort Worth and some key suburbs — Plano, Frisco, Allen, McKinney — have experienced some of the country’s fastest growth. Forbes rates these cities as some of the best places to live in America. The sheer number of people and companies looking to move into these cities and towns should keep demand for multifamily strong in this region well into the future.
— By Vic Clark, Senior Managing Director, Hunt Mortgage Group. This article first appeared in the May 2017 issue of Texas Real Estate Business Magazine.