DALLAS—While many segments such as self-storage are lessgenerally impacted by volatility in the economy, Mountain Pacificindicates that multifamily also has strong fundamentals, making ita viable asset class long term. Mountain Pacific is a developmentfirm created in 2019 to provide equity for real estate developmentand opportunistic value-add transactions with a focus onopportunity zones.

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To be sure, there is an undeniable housing shortage in the UScaused by growing rental demand, limited new construction andrising development costs. According to the National MultifamilyHousing Council, 4.6 million new apartments need to be completed by2030 in order to keep with demand. Mountain Pacific believes thatthis persistent shortfall in the market's ability to meet housingdemand will continue to promote strong asset class performance.Despite rising construction costs, the firm sees opportunities todevelop apartments for renters at various income levels while stillachieving superior risk-adjusted returns.

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The lag in wage growth has resulted in significant migrationinto states and counties with lower costs of living and/or superiorjob prospects. Some of these counties include Maricopa County(Phoenix), Harris County (Houston), Dallas County, and gentrifyingareas in and around Los Angeles County.

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Some 8 million new renter households have been created with thenumber of middle and high-income renters having the largestincrease. Specifically, the percentage of middle-income rentersincreased 13% and the percentage of high-income renters increased27% from 2000 and 2016, says Mountain Pacific. This increase indemand in an otherwise under-supplied market has forced increasesin median rents. A newly created renter category, renter by choice,which represent these higher income earners, are vying for the samehousing stock as the lower income earners causing potentialdisplacement of this key demographic.

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Joan Kramer, partner of Mountain Pacific Opportunity Partners,recently weighed in on these issues, opportunity zones and whymultifamily is still one of the shining stars in the CREgalaxy.

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GlobeSt.com: Describe why the multifamily sector ispositioned for success despite the turmoil in the financial marketsresulting from the COVID-19 outbreak.

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Kramer: One of the downsides of COVID-19 isthat it has continued to make homeownership increasingly out ofreach for many young professionals and families. We think thatwell-positioned multifamily product in markets with solidfundamentals will be a good alternative for this sector of themarket.

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GlobeSt.com: Mountain Pacific's Texas portfolio includesmultifamily value-add and ground-up development projects in Harrisand Dallas counties–why are these specific markets of interest foropportunity zone developments?

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Kramer: For every Opportunity Zone transactionthat we look at, we look first to see that the deal works on itsown merits and then we place the added benefits of OZ on top ofthose economics. The transactions that we have sourced in thesemarkets make good fundamental sense on their own based on jobgrowth, new construction and absorption.

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GlobeSt.com: How has the renter demographic shifted inthese regions during the last several years?

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Kramer: Another criteria for our OZ investingis that we select sites that are in the path of growth and areeither surrounded by current growth/gentrification or are the nextblock in that growth. Thus, in the areas that we are investing, wehave seen improving demographics.

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GlobeSt.com: Can you provide some insight on the currentOpportunity Zone projects you are working on inDallas?

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Kramer: We are working on a development in theBishop Arts area of Dallas. This is a 266-unit project that startedconstruction in first quarter 2020 and comes to market in thirdquarter 2022. The unit mix and amenities will be geared to thecurrent influx of residents in that market.

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GlobeSt.com: Why will Opportunity Zones continue to be agreat investment post-COVID?

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Kramer: As noted, we only invest intransactions in which the fundamentals are solid as a non-OZtransaction. Two items of note as to OZ deals and COVID-19 are thatmost OZ deals are in development, so are not coming on to themarket in the midst of the current crisis, but in 18 to 24 months.We anticipate seeing recovery in these markets over that timeframe.Additionally, OZ deals are by their nature structured to be longerterm transactions, so they have a runway to continue to see rentalimprovement.

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Lisa Brown

Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.