Removal of Multifamily Rent Restrictions Means Higher Rents
The vast majority of income-restricted properties have 15 years of mandatory compliance, then after that, ownership can apply to have the property removed from the program, which can take up to a year.
DALLAS—Many income and rent-restricted properties completed in the early 2000s are now eligible to have rent restrictions removed, allowing owners to implement a systematic upgrade program and reap financial benefits from investing in the upgrades. The pricing for these properties is much lower than market counterparts.
The Greens of Hickory Trail is an example of that trend. This 250-unit multifamily community is located at 8613 Old Hickory Trail about 20 minutes outside of downtown Dallas. Built in 2000, rental restrictions for Greens at Hickory Trail will phase out during the next two years, offering a recent buyer a tremendous upside potential as none of the units have been upgraded since construction was completed.
Chris Deuillet and Chandler Sims with CBRE capital markets investment properties in Dallas and Jeff Kunitz and Mike Canori with CBRE affordable housing in Seattle represented the seller.
“The vast majority of income-restricted properties have 15 years of mandatory compliance, then after that, ownership can apply to have the property removed from the program, which can take up to a year,” Sims tells GlobeSt.com. “If it’s approved to come out of compliance, then they can slowly over three years turn the units into market units.”
According to Sims, after building these properties in the early 2000s, many developers set them on cruise control without many upgrades to the interiors after the initial lease-up. So when a property does come out of compliance, the interiors can receive upgrades and the rents can be pushed upward without any restrictions.
“Greens of Hickory Trail came out of compliance last September, so as the units turned, they were being upgraded and the reward for those upgrades in Greens of Hickory Trail’s case has a potential of more than $200 in rent per unit,” Deuillet tells GlobeSt.com.
The property features accessibility to Interstate 20 and Highway 67 in southwest Dallas. It is located near a major intersection, backs up to retail locations such as Walmart, Target and Southwest Center Mall, while also in close proximity to Methodist Charlton Medical Center and the elementary, middle and high schools that are zoned for the apartment.
“The purchaser is an experienced buyer, but this is their first property in DFW,” said Deuillet. “Buying a large property will help them establish a foothold in the metroplex. The amount of interest on the property was substantial because of its future potential and the buyer pursued it vigorously.”
Greens of Hickory Trail was 97% occupied at the time of sale.
“We exposed the property internationally and are tapping into a new group of buyers that are seeing the near-term benefits of purchasing these types of deals,” said Kunitz.
Overall, Texas is lacking in low-income housing, according to a study from the National Low Income Housing Coalition. The availability of affordable rental housing for extremely low-income renters in Texas, that is, wages below the federal poverty level or 30% of an area’s median income, was 29 homes available for every 100 renters. The national rate is 37 homes, says the report.