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DALLAS-Texas experts for the multifamily market believe next year will look much like this one, with Austin and Dallas/Fort Worth holding firm to lead spots on most fronts. San Antonio is poised for another good year and Houston’s welfare is the big question mark.

“There are a lot more elements in play than we’re used to seeing,” says Greg Willett, vice president of Carrollton, TX-based M/PF YieldStar. Although the national economy is an uncertain state, he says market indicators for three of the four metros show another good year lies ahead.

Investors of all types from 16 states were on hand to hear Willett and others talk about the past, present and future at the fourth annual national and regional market vision breakfast sponsored by Cushman & Wakefield of Texas Inc. Don Ostroff, C&W’s senior director of the multi-housing group, says he’d like to think they flew in for just the one-hour event in North Dallas, but the reality is “they’re cruising through Dallas looking at properties.”

Ostroff tells GlobeSt.com that this year’s sales won’t surpass 2005, which was “a watershed year.” But, he adds, it will stack up as the DFW’s second highest sales year.

This year’s buyers, though, are different. “The urgency to buy clearly was not in play in 2006,” Ostroff says. “They are much more deliberate and contemplating evaluations of an acquisition.” The “hyper exuberance” has waned, he explains, as cap rates fell from 8.5% two years ago. In Austin and DFW, he says class A cap rates are 5.25% to 6% and class B 6.5% to 7.25%.

With DFW cap rates higher than what’s available on the West Coast and interest-only loans fueling the acquisitions pipeline, Ostroff says sellers have been able to raise prices based on “real yield.” Meanwhile, construction costs also have played into the upside with class A replacement costs rising to $90,000 to $105,000 from $70,000 per unit in the past two years.

But in many cases, it’s the class B and C product that’s now in the limelight as investors and redevelopers size up teardown sites. “Over the last year or two, that’s up substantially,” Ostroff says.

In the market overview, Willett says there are 6,000 units under construction in Austin and 10,000 coming out of the ground in Dallas. San Antonio too has 6,000 units rising and Houston’s looking at 8,000 more coming on line. But, the telling is in the occupancies: Austin, 97%; Dallas, 95%; San Antonio, 95%; and Houston, 94%. He points out Houston also is the only metro with flat rent growth.

“We really like Austin and Dallas/Fort Worth in the coming year. We’re pretty optimistic about San Antonio,” Willett concludes, “and Houston falls into the category of we just don’t know.”

The biggest unknown that’s hindering Houston is the ongoing impact from post-hurricane dynamics. It’s boiling down to more than who stays and who returns as the federal government and the courts go head-to-head over how much longer rents will be paid or subsidized for evacuees. “Looking ahead, overall numbers could look pretty bad for Houston in 2007,” he says.

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