DALLAS-Although most institutional investors are still targeting coastal, high barrier-to-entry markets for multifamily investments, they're beginning to seek opportunities in the Metroplex.
“Most institutions are still focused on coastal, high barrier-to-entry markets, but they can’t find a lot of core product,” says Ryan Epstein, a director with the Balthrope Group of Institutional Property Advisors, a Marcus & Millichap Co. “As the capital gets more anxious, institutions are expanding their criteria to include major metros, and Dallas-Fort Worth is at the top of that list.”
Will Balthrope, senior director with the Balthrope Group of Institutional Property Advisors, tells GlobeSt.com that the entire spectrum of institutional investors, from public and private REITs to pension funds and life insurance companies, are looking for investment opportunities in North Texas.
“Dallas-Fort Worth is at the top of buyers’ list for several reasons: our job growth forecast for next five to 10 years is outstanding and at the top of the nation. Our job losses were minimal during the recession, our population is expected to continue to grow and our construction pipeline is very low,” Balthrope notes.
For example, Associated Estates Realty Corp. recently acquired San Raphael, a class A apartment community in Dallas. The 222-unit property marks the Cleveland, OH-based REIT’s first buy in Texas in many years.
“They really believed our job growth story and decided now is the time to put a flag here in Texas,” Balthrope says. He and Epstein, along with Matthew Friedman, a vice president of investments in Marcus & Millichap’s Encino, CA office, marketed the deal.
John Shannon, senior vice president of acquisitions for Associates Estates, says the REIT has had its eyes on the Dallas market for some time. "With acquisition prices below replacement costs and strong apartment fundamentals, we plan to grow our presence in the Dallas market," he notes.
Associated Estates is just one REIT that has recently acquired an apartment community in the Metroplex. Other recent investors include: Mid-America Apartment Communities, Behringer Harvard and Grubb & Ellis Apartment REIT Inc.
Earlier this month, Grubb & Ellis Apartment REIT Inc. paid $19.86 million for Mission Rock Ridge Apartments, a 226-unit multifamily community in Arlington, located between Dallas and Fort Worth.
So far this year, Real Capital Analytics has tracked the sale of 39 properties over $5 million; total year-to-date volume is nearly $673 million. That number has already eclipsed 2009’s total of $651 million.
“Pricing has improved over the course of the year, and cap rates have dropped dramatically, due in part to the low cost of debt, but also demand from investors who are willing to pay higher prices,” Balthrope says. He estimates suburban garden-style assets are trading for $90,000 to $140,000 per unit compared to $70,000 to $90,000 per unit last year. Urban infill properties are trading for $140,000 to $200,000 per units versus $100,000 to $120,000 per unit in 2009.
Meanwhile, cap rates for both suburban and infill properties have compressed 100 basis points. Today, garden-style assets are trading at cap rates ranging from 6% to 6.25%, while urban communities are trading in the range of 5%
“Cap rates are back to the levels we saw during the peak period, but incomes have dropped, so prices aren’t quite back to peak levels – they’re off by about 10%,” Balthrope notes.
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