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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42 • October 2017 • Texas Real Estate Business www.REBusinessOnline.com W ith 10,000 new residents moving in every month and more than 100,000 jobs already created in 2017, the Dallas- Fort Worth (DFW) metroplex ap- pears poised to handle any challenges thrown at its multifamily sector. These obstacles include absorbing the 35,000 or so multifamily units ex- pected to come on-line in 2018, main- taining 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 Dal- las, there wasn't much dissention as to whether the market can handle these tasks. The bigger question was what, if anything, could crash the party. Moderator Rob Key, senior vice president at HFF, invited the panelists 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 as her biggest concern. "Property taxes are definitely go- ing to cause some trouble, especially when prices are rising and you have to underwrite at 95 percent of the pur- chase price," said Radaker. Adrian Lufschanowski, president of Thrive, FP, cited a lack of inflation as problematic, mainly because it serves as 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 al- ready blown through the longest part of the cycle and it just keeps going," said Lufschanowski, noting that the absence of inflation and wage growth can create misleading price levels. "It's common for our acquisitions department to be $2 million to $3 mil- lion off the winning bid when looking at a new deal," 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, par- ticularly the metro's underdeveloped public transportation system. "Dallas has poor public transporta- tion," said Vaz. "If Amazon doesn't select Dallas for its new headquarters, that will be a major reason why. That's the key to whole state becoming stron- ger, figuring out how we can use pub- lic transportation to make the triangle between Dallas, Houston and Austin/ San Antonio more vibrant." Vaz also highlighted the importance of the metro's continued support of its labor force — a key factor in drawing out-of-state businesses to DFW — pri- marily in the form of greater spending on education. Matt McGraner, managing direc- tor 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 gen- eral, 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 to- ward anything residential." McGraner noted that he also expects more capital to shift away from DFW's multifamily assets in the future, and to instead move toward technology- oriented real estate, such as data cen- ters and cell phone towers. n From left to right: Rob Key, HFF; Adrian Lufschanowski, Thrive FP; Kim Radaker, Exponential Property Group.; Carlos Vaz, Conti; Matt McGraner, Highland Capital Mgmt. WHAT COULD CRASH THE PARTY? InterFace panel: property taxes, public transit among chief concerns for DFW's multifamily market. By Taylor Williams

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