Horizontal Multifamily Trend on the Rise

DALLAS—“Horizontal multifamily” is catching on in single-story multifamily neighborhoods. This is in contrast to the typical stand-alone rental homes. And, as more people are leaving apartments and urban centers, banks are starting to finally jump on this trend. Those renters are looking for additional space and a neighborhood feel but many can’t afford a home or don’t want the responsibilities of home ownership.

John Hutchinson, president, central and southwestern US of Trez, says the trend came to pass when the banks wouldn’t finance those types of projects. As a result, Trez started funding these deals with NexMetro. Trez financed one of NexMetro’s first projects in Phoenix and completed some 12 projects with this group in the Southwest including Dallas/Fort Worth. And, Trez has begun to work with other companies with this horizontal multifamily product type.

He recently discussed the lending environment behind these types of products.

GlobeSt.com: What is your overall outlook for the lending environment? What deals are getting done and why?

Hutchinson: While the economy seems to be improving in some areas, lenders are being very cautious about lending on retail, office and hotel projects. There is a strong appetite for industrial and residential-related projects.

GlobeSt.com: What is your forecast for built-for-rent property demand? How does the DFW market look compared to the rest of the country?

Hutchinson: The demand for loans for built-for-rent properties is very strong and growing. The loans are somewhat complex because they generally involve both the land development element as well as the construction of the homes. Trez Capital has financed several of this project type as well as townhome-for-rent, duplex­-for-rent and horizontal multifamily’ projects. The horizontal multifamily product is becoming very popular as it is halfway between single-family rentals built on platted lots and suburban, garden-type apartments. The projects are platted as a multifamily project would be, but the buildings are only single story and are detached. Trez has financed many projects of this product type.

GlobeSt.com: Which markets/regions are seeing the most demand for this product type? Why has this become such a popular asset type?

Hutchinson: The built-for-rent product is very popular in Phoenix, Dallas, Houston and other cities throughout the South and Southwest. The product should be successful in any market that has high growth in population and employment. The product is popular for several reasons. First, many people are moving to these high-growth cities and may want to wait awhile before purchasing a home. Second, due to COVID-19, many people want to live in a less dense environment. This is true for both the single-family rental projects built on platted lots and the horizontal multifamily type of product. Third, this property type has a back yard, which is very important to people with dogs.

GlobeSt.com: Do you think this trend will continue long term, post-pandemic?

Hutchinson: Yes, I think the built-for-rent product type will continue to be popular. Many developers of master-planned communities are beginning to carve out sections of their properties for the single-family rental product. This offers another way to create a new segment to absorb some land, and the neighborhood of rental properties can serve as an incubator for prospective homebuyers who want to live in the community but are not yet ready to purchase a home.

GlobeSt.com: Is now a good time to deploy capital into new loan opportunities? What deals are you looking for?

Hutchinson: Due to the impact of COVID-19 there are many challenges in the market today but Trez Capital is very active in financing many types of residential projects.