Development Spotlight Q&A: Dallas-Fort Worth

November 14, 2019

Development Spotlight Q&A: Dallas-Fort Worth

November 14, 2019

There’s no denying that Dallas-Fort Worth (DFW) is one of the hottest metros for multifamily development in the country. Few expect that momentum to slow down as we head into 2020. So what’s bringing new investors (and new residents) into the metro at an elevated rate?

We recently sat down with Berkadia’s Dallas-Fort Worth investment sales team, including Managing Director Jay Gunn and Senior Directors Taylor Hill and Michael Ware, to answer some of these questions. They were happy to lend us their professional input about why everything seems to be going right in DFW.

Population and Job Growth

Effective rent is also expected to accelerate 2.8% annually in 2020, up to $1,193 by the end of the year.

Dallas-Fort Worth has seen substantial population growth over the last year with the addition of over 77,500 new residents; what’s drawing all these people to the DFW area?

“Ultimately, what’s attracting relocations is the pro-business climate and affordability, especially relative to the coasts. We’ve also seen job creation in DFW remain very strong. Employment grew by 3.4% year over year in September 2019, with 120,000 new jobs created. Pay levels are rising, and that’s attracting people from all over the country to migrate.

“Just recently I had a plumber in my house with a New York Mets hat on. I asked him, ‘Why’d you move here?’ He told me he needed a change from NYC, and he was attracted to the city’s low taxes and job opportunities.”

“A business-friendly climate. Affordability. Quality of life. These are all things drawing people to DFW from the coasts.”

What industries do you feel are having the biggest impact on multifamily development in Dallas?

“The DFW economy is known for its diversity across many sectors. That translates to strength and stability in the rental market. Of the 120,000 jobs created year over year, more than a third of those jobs were in the professional and business services and financial activities sectors. This translates to a significant uptick in high-paying jobs.”

Abundant Investment Capitol

A growing pool of first-time multifamily investors are eager to jump in and ride the Dallas-Fort Worth wave.

Where are most industry insiders in terms of their expectations about sustained multifamily development in Dallas going into the new year?

“Most people initially had some caution going into 2020. Is there a little softness? That’s just due to new supply. If you take a closer look at the macro data you see where we’re delivering in job growth and population growth. Advisors and investors aren’t concerned. There’s a lot of optimism moving forward because sustained multifamily development will be a necessity.”

“There’s a lot of optimism moving forward because sustained multifamily development will be a necessity.”

How has the DFW multifamily market been impacted, if at all, by the rise in foreign capital flowing into the metro?

“There’s actually a broader picture and it’s twofold: Foreign capital and fresh capital. Foreign investors are most interested in leveraging real estate assets strategically and often have a lower return requirement in mind than a traditional, stateside investors.

“We’re also just seeing more money flowing in from private equity, institutional capital, or local and coastal private wealth. It’s new money that wants to be involved in multifamily in DFW and that’s helping to sustain the demand, push pricing, and keep cap rates compressed.

“The story we’re hearing is, ‘We love the long-term investment story in Dallas. We think DFW is going to be the place to be. We want to invest there now even if our returns might be a bit thinner in the short term.’”

Looking To 2020

What’s the big story for multifamily in DFW that will dominate the headlines in 2020?

“We expect we’re not going to see a lot of big moves until after the election, but that’s an opportunity. Expect 2020 to be “business as usual” in DFW as we encounter more absorption of delivered supply. Value-add is also going to continue to perform well as a high demand subsector.”

  • Visit Berkadia’s Research and Resources portal in early December for more insights about DFW and the rest of the country’s top multifamily markets in the upcoming 2019 Review and 2020 Forecast Reports.
  • Reach out to Managing Director Jay Gunn, Senior Director Taylor Hill, and Senior Director Michael Ware for even more perspectives on the metro’s exciting potential in 2020.