Texas Real Estate Business

OCT 2017

Texas Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in Texas.

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24 • October 2017 • Texas Real Estate Business www.REBusinessOnline.com M A R K E T H I G H L I G H T: F O R T W O R T H As a lender in construction and permanent financing of new multi- family properties, Mason Joseph Co. is constantly assessing and reassess- ing future supply and demand esti- mates for rental properties. Tarrant County has several high- profile apartment properties under construction, causing some in the lending industry to ask if the market is on the verge of being oversupplied. Our answer to that question is a firm "no." Since 2010, a year in which Tarrant County boasted a ratio of 1.07 hous- ing units per household, the market has suffered diminished production of all housing types. As of 2017, ESRI estimates that the units-to-house- hold ratio is closer to 1.09. While that difference appears small, it means about 14,000 fewer housing units were built in Tarrant County from 2010 to 2017 than would be expected. A review of housing permits is- sued for the following two periods supports that data. From 2001 to 2010, the volume of housing units permitted exceeded the number of new households by an average of 821 units per year. From 2011 to 2017, the equation flipped and Tarrant County added 354 more households than housing units annually, implying the county has now been undersupplied by about 1,200 units per year for the last seven years. The under-production of housing throughout the market since 2010 is even more pronounced when com- pared to job growth. In 2010, there were 1.19 jobs per housing unit in Tarrant County. That ratio increased to 1.28 jobs per hous- ing unit in 2017. If the 2010 ratio had been maintained, 59,000 additional housing units would have been built. Even at the 2017 ratio, if the county continues to add 20,000 jobs annu- ally, 15,500 additional housing units will be needed each year. Historical- ly, that equates to annual demand of 5,000 new rental units. After permitting 6,400 rental units in 2016, Tarrant County is on pace to permit just 4,100 units in 2017, fol- lowing a volume of 11,000 units per- mitted between 2013 and 2015. Rents, Occupancies Tell All ALN Apartment Data tracks 582 apartment complexes totaling 137,098 units throughout Tarrant County that began leasing between 1980 and 2015. Over the last 24 months, occupancy of these proper- ties has increased from 93.1 percent to 95.3 percent while effective rents have gone up by 12 percent. By comparison, for the same sub- set of properties in Dallas County during the same period, occupancy rose from 92.6 percent to 94.3 percent while effective rents increased by only 8.7 percent. The results are similar in Denton County, where occupancy at sta- bilized properties grew from 93.7 percent to 94.9 percent and effective rents grew by 8.8 percent over the last two years. Put simply, over the last 24 months, rents and occupancies at stabilized properties in Tarrant County have grown faster than neighboring coun- ties. This finding confirms the un- dersupply predicted by analysis of household and employment growth. We expect this undersupply to worsen in coming years. The costs of land, labor and materials are increas- ing faster than rents. Combined with higher property taxes — which aver- age about $3,800 per unit for newly built properties, or roughly 50 per- cent of a property's total operating budget — these costs will force de- velopers to focus almost exclusively on building high-rent properties. Coupled with the lack of single- family starter homes, this market shortage will hit families earning $40,000 to $80,000 per year the hard- est. These families make too much to qualify for Low Income Housing Tax Credits (LIHTC) properties, but can- not afford the higher-end housing that developers are being forced to build due to higher costs and taxes. Eventually, the impact of this un- dersupply will be felt by employers via wage pressure from employees spending more on housing. In conclusion, the Tarrant County multifamily market has room for new development. But without an increase in deliveries, housing prices — something that attracts thousands of jobs to Tarrant County — may end up driving jobs away. TARRANT COUNTY MULTIFAMILY MARKET IS UNDERSUPPLIED STRIVE was founded in 2017 as the result of the merger between The Vitorino Group and Pierson Retail Advisors. We are a commercial real estate investment firm with over 70 years of combined real estate experience. The scope of our business is focused on retail investment sales in Texas and the Southwest. With nearly $3 billion in sales, our synergistic approach allows us to provide our clients with highly exceptional service and results. STRATEGIC PARTNERS. NOT JUST BROKERS. 5550 LBJ Fwy Suite 800 Dallas, TX 75240 www.StriveRE.com 469.844.8880 Michael Backman Vice President, Mason Joseph Co.

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