DALLAS — When developing multifamily product in a market that has added more than 20,000 new units in each of the past three years, distinguishing a community from its peers isn’t just important — it’s essential.
According to data from CoStar Group, the Dallas-Fort Worth (DFW) metroplex added approximately 70,000 multifamily units between 2016 and 2018. The market has also absorbed more than 25,000 units over the last 12 months, a period in which only about 23,000 apartments were delivered. Vacancy currently sits at 7.5 percent.
A panel of developers at the eighth annual InterFace Multifamily Texas conference discussed best practices for differentiating a property in a market that is not only teeming with new supply, but also home to segments of sophisticated renters. Held on Sept. 5 at the Westin Galleria hotel in Dallas, the event drew more than 225 attendees. Drew Kile, senior vice president at Institutional Property Advisors, a division of Marcus & Millichap, moderated the panel.
Cultivating A Story
Whether by the inclusion of an unusual amenity, the delivery of distinct unit mix that is perfectly targeted to the surrounding demographic or the ascription of a unique story behind the project, multifamily developers in DFW simply have too much competition not to innovate their properties in some way. This holds true even in a market that is experiencing exceptional job and population growth and absorbing new supply as quickly as it comes on line.
Greg Coutant, director of development at StreetLights Residential, kicked off the panel discussion by noting that product differentiation is a key focal point due to the maturity of the market today. At this point in the cycle, particularly within core urban submarkets, it’s important for developers to cultivate a narrative that appeals to renters and sets the community apart, he said.
“You can’t look solely at rent growth in those submarkets, because it hasn’t always hit expectations,” said Coutant. “We’re looking for a story we can latch onto that distinguishes it from all the new product that’s been delivered here in recent years.”
Panelist John Kirk, executive vice president at San Antonio-based Embrey Partners, posited the idea that because land availability in the urban core still represents a major hurdle to new development, sometimes the story of the project lies in the site itself.
“For us, playing on the urban fringe or suburban infield, finding sites that don’t have a lot of supply around them is key,” said Kirk. “The capital is out there, but finding sites that meet our criteria and allow us to stay at $2,000 per month — that’s the game.”
Developers invariably have to charge rents that cover their expenses. But being able to keep rents at a Class A urban property below a key threshold, such as $2,000 per month, reflects both a more affordable cost of construction and an advantage over competitors in building occupancy.
Kirk also addressed the issue of differentiation by noting that renters in today’s market are generally more knowledgeable about market conditions and what constitutes a fair price in a certain submarket.
“When you have a lot of supply around you, you’re definitely dealing with a more educated and sophisticated renter,” he said. “They’re going to shop your deal and pick it apart, so you have to make sure you have a great story to tell that renter in order to land that lease.”
Precise Targeting
Later in the session, Coutant of StreetLights elaborated on this notion, stating that in suburban locations, designing and building projects that appeal to a wide range of renters is considerably more feasible. In downtown areas, though, developers can go after more specific groups.
StreetLights Residential is developing The Margo, a 358-unit community in Frisco. Panelists at the conference talked extensively about how Frisco has some short-term supply-demand concerns but extraordinary long-term growth potential.
“We want to be specific on who we’re targeting with urban projects,” he said. “It’s beneficial to really target a certain segment and create a boutique offering that will be different from anything in the marketplace.”
Jason Haun, vice president of Orlando-based ZOM Living, reinforced the importance of catering projects to specific segments of the renter population.
“We’ve done projects where the average square footage for the units is several hundred square feet larger than what we normally do in that market,” he said. “It’s catering to a specific demographic that has the discretionary income to determine where it wants to go. A couple blocks off could create a barrier to entry in terms of whether they’re willing to go there or not.”
Maintaining Efficiency
Greg Faulkner, president at Dallas-based architecture firm Humphreys & Partners, invoked the relationship between innovation and building efficiency. This relationship represents an equally important piece of the puzzle in today’s market, wherein project costs and timelines are perpetually on the rise. Building efficiency is typically expressed as the ratio of net rentable square footage to total gross space.
“We’re fighting hard costs and extended timelines and more zoning and design requirements,” said Faulkner. “We try to innovate, but we also have to make sure that we’re designing more efficient buildings. Because we’ve eaten up so many of the urban sites over the last few years, that’s getting harder to do in some areas.”
As land and construction costs have steadily risen over past decades, design processes and techniques have evolved to create more efficiency and offset some of those costs. Faulkner stated that his firm has rolled out suburban product that offers 85 to 88 percent efficiency on a net-to-gross basis — well above the traditional thresholds and conducive to recognizing significant cost savings.
Achieving efficiency in multifamily projects is ultimately a function of spending money in the right places, the panel concurred. Gathering feedback from residents on what types of unit layouts and features, as well as the most useful amenities, has become integral to this process.
— Taylor Williams