DALLAS-In the period following the Great Recession, the multifamily sector came into its own. Constrained supply combined with huge demand meant apartments were a desirable product from a commercial real estate investment point of view.
And according to Terry Gwin, president of locally based SWBC Real Estate LLC, the investors are still out in droves. "There are more buyers out there for product than there is product available," Gwin says during a recent interview for Real Estate Forum's "Is Infill Tapped Out?" article. "None of the products we recently sold actually went to market."
He points out that the investment community views apartments as lower risk and lenders seem to be following suit. Basically, it costs less to borrow money these days. Furthermore, in various markets around the country, specifically, in Texas, job and population growth are driving rental occupancies.
"The number-one and number-two largest metro areas for growth are Dallas and Houston," Gwin says. "People are moving here because we're creating jobs." Along with that move, he adds, is the necessity to provide shelter. This means more construction. Or does it?
"Costs are going up," Gwin observes. "Labor costs are higher than they were three years ago. Commodity prices, such as for lumber and concrete, those are going up as well" What happens in these situations, he says, is that developers need to consider affordability of a project and whether price points can be justified from a tenant perspective.
Furthermore, Gwin goes on to say, lenders are doing a decent job of not throwing money at everything that has "apartment complex" as part of its name. "They want real equity in deals," he says. "They want borrowers to ensure guarantees and that they meet the requirements. Lenders, overall, have shown great restraint coming out of the recession."
Though Gwin isn't going so far as to say there is no danger of overbuilding – "developers will always find a way to overbuild," he says, somewhat wryly "—continued pent-up demand combined with lender restraint and the amount of zoned land available on which an apartment can be built are continuing to ensure that the multifamily product will be in demand.
"All the low-hanging fruit has been taken," he adds. "These days you have to look harder, tear something down or rezone something to build. It's not as easy as going out there and just overbuilding."
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