DFW Multifamily Market Possibly Touches Bottom

"We may just coast down for a couple more months, but the consensus is if we aren't at the bottom then we're pretty close," Tim A. Speck, regional manager here for Encino, CA-based Marcus & Millichap, tells GlobeSt.com. For the last eight months, occupancy has been relatively flat, rent is much the same and concessions are so deep that "two and three months on a 13-month lease" can be had at many class A properties, he says.

"The Dallas apartment market has not suffered as greatly as other metro areas and owners," Speck says in a press release. "Employment growth is predicted by year end and further gains are forecast for next year, which will allow apartment owners to lessen the use of concessions."

Developers, though, are keeping the market in check to deliver the needed breathing space until the region once again starts generating high numbers of jobs. The Marcus & Millichap team says the 2003 pipeline has 8,600 units and 2004 will add just another 3,700 apartments--a sharp drop from the five digit deliveries of years past.

Speck says this year's "surprise" has been the showing by "the '90s product," which is clearly outperforming newer inventory across the board. The 1990s-era properties are posting a 92.6% occupancy average in comparison to 90.5% at year-end 2002. Rent fell $7 to an average of $940 per month for the 1990s sector, but its newer competition was down $12 to $974 per month. Across all classes, monthly rent is $720 while occupancy, in general, is 88.9%.

On the investment sales side, transactions started picking up again in May and continued into this month. With the bid-ask gap narrowing, class C sales held the lead as owners sold and diverted capital, in many cases, to other product types. In the class C sector, the median price per unit is $31,465 versus $30,125 a year ago. The median cap rate was up 20 basis points to 9.2%.

Occupancy is the key to the rebound since operating costs are rising due to increases in real estate taxes and insurance. "When occupancy comes around, rent growth will come screaming back," Speck stresses.

It's not all going to be an uphill climb from this point. Speck predicts foreclosures will rise. "All the big lenders are going to see an increase," he says, laying the blame squarely on back-to-back years of occupancy declines and properties tied to loans with higher interest rates. "Those deals don't make sense today .... and there are going to be more foreclosures and loan workouts.