BOCA RATON, FL—Think of some of the best-performing markets for multifamily today that aren’t New York City or in Southern California. Now think of a few of the surprise markets you didn’t think would be on that list as recently as five years ago.
Chances are, Houston, Dallas and Seattle are probably on your lists. These markets, according to Greg Willet, VP of MPF Research, “have not turned out to be the type of markets many people thought they would be.” Willet moderated the session, titled “Changing Markets and Market Influences,” at the 2014 NMHC Apartment Strategies Outlook Conference, held here yesterday.
Also on the panel were Mark Alfieri, president and COO of Behringer Harvard Multifamily REIT I Inc.; Wes Fuller, executive director of Greystar Real Estate Partners LLC; Pinnacle president and CEO Rick Graf; and Steve Lamberti, COO of Milestone Management.
The experts discussed what it is about these markets that make them so favorable for multifamily. With all of these markets, hubs tend to attract young renters. Many of those, said Alfieri, tend to be entertainment based, especially in the suburbs, as opposed to revolving around transportation. The residential tends to drive the retail and entertainment components in those hubs.
Added Graf, “Part of the reason for the success of these hubs have been jobs—people want to live, work and play in the same area.”
And while the long-term trend in Texas is in the urban areas, said Fuller, there are also opportunities in the suburbs, such as in areas like the Woodlands.
These live-work-play centers have really emerged in Dallas, Houston and Seattle. The hubs in Dallas are very different than the hubs in Houston, said Lamberti. The dynamics and the drivers vary as well. “In Houston, there’s higher rent growth among the B properties than in Dallas,” he said. “And the suburban ring properties feed off of that.”
Affordability is a definite issue, concurred the speakers. In many markets these renter hubs tend to be filled with high-end product. Yet in Texas, they also appeal to the middle-market consumer. “The interesting thing about B product in Texas is that income ratios have increased significantly; renters’ incomes have gone up an average of $4,000 in the past 18 months,” shared Lamberti. “So some of those who used to be renters of necessity have become renters by choice, because they pay less yet still are close to where they want to be.”
Affordability does play into these markets’ long-term growth prospects, but they should continue to do well, said Fuller—especially when one takes into account investor interest in the up-and-coming areas. “If you talk to investors, especially middle eastern investors, they understand the transformation of the Dallas markets,” he explained. Especially when it comes to the energy-based markets, “they see that we’re in the first stages of a major transformation.”
Meanwhile, the West Coast market of Seattle is attracting investor dollars. The market, said Graf, “is interesting. It’s on the top of every investor’s list but it’s very difficult to buy there. There’s a lot of concern about the amount of capital coming up in Seattle, but I think it’s manageable. Seattle is a strong market and investor interest there will remain high.”
Fuller, whose firm also invests in the market, said “we’re big believers in Seattle. It has great exposure to the Asian economies, it has the cache for the international investor community. Although it’s a small markets, it passes the smell test especially for institutional investors.” In fact, he pointed out, the properties that have had the highest NOI growth in the firm’s portfolio in the past two years have been two “very vanilla suburban properties there. We like the makeup of the economy and job drivers, tech is doing very well there with Amazon, Boeing, Microsoft, etc. We like the long-term prospects.”