John Griggs: Why I’m Betting Big on Apartments in DFW
Given its thriving economy, affordable living, and central location, it’s easy to believe that Texas is the best place to live and work in the country. Known for both its metropolitan excitement and suburban housing options, the Dallas-Fort Worth area is considered the fourth largest metropolitan area in the country with a population of 8 million.
With its growth rate, DFW is poised to surpass Chicago as the third largest metropolitan area in the country within the next two decades. Given the resilience of investor demand in DFW, it’s now the largest single real estate transaction market in the country. All of this makes me confident that, if it hasn’t already happened, DFW will be the country’s golden kid for housing development.
John Griggs, Presidium
The North Texas region has become one of the true Tier 1 metropolitan areas in the country over the years. It’s no secret that recent net migration and business relocations from expensive markets like California and New York to North Texas are coming to enjoy those special benefits that Lone Star State residents and businesses are experiencing.
Even investors, with whom I communicate regularly from California to New York to Europe and Asia, observe the success of DFW and want a piece of the pie. Regardless of my positive personal opinion, the performance of housing construction has cemented this sector of the Texas real estate industry as the main driver of development.
A clear advantage for us in the current North Texas real estate industry is that there is plenty of land and opportunity. Obviously, this can be a double-edged sword as the barriers to entry aren’t as strong as they are on the coasts. In particular, in a recent analysis by Richardson-based RealPage Inc., DFW led the country with 36,400 residential units under construction in January alone.
While the construction of new apartments is significant compared to the current housing stock compared to the overall size of the market, DFW’s construction pipeline is not among the most aggressive in relative terms compared to other large metropolises – including many with a much lower growth path compared to DFW. I am optimistic that the market will have the opportunity to absorb the given growth if the economy thrives here.
It’s also important to note that development constraints are becoming an increasingly important factor here. Many suburbs in DFW either severely limit the number of units that can be built through restrictive zoning or require dense building types (especially in parking garages or ground floor retail) that make it difficult to justify projects on a cost basis due to prevailing rents.
In many suburbs we see a trend towards more resistance to residential development, which of course will limit the supply. Rising labor and material costs are further factors that will make it more difficult to build apartments in the next 10 years compared to the last 10 years. However, these restrictions will help prevent superstructures, which should keep the rent and occupancy robust.
Anchored by the growth of our suburbs and two major cities, the “booming” suburbs also have a major impact on DFW’s rise as a top market for housing, investment and absorption. The same study by RealPage Inc. found that Carrollton, Farmers Branch, Frisco, Addison, and North Fort Worth are currently leading the number of residential units and cities that have seen the greatest development in apartment building this year. Fortunately, these are the same places that have seen high employment growth and immigration from outside the DFW.
Compared to previous generations, millennials are shifting the “starter home” trend and renting for longer periods of time, which is a great “professional” for our industry.
Nationally, Dallas was the industry leader in the number of new single-family homes under construction. However, affordability and the millennial population are having a major impact on the new demand for single family homes. As the largest generation in the country, millennials are a significant part of our business. Compared to previous generations, millennials are shifting the “starter home” trend and renting for longer periods of time, which is a great “professional” for our industry. Developers should take this opportunity while it’s still hot and take advantage of this “long-term” rental market.
According to Zumper, tenant-occupied households in DFW currently make up 44 percent of the total inhabited housing units in the region, with the average rent increasing by 12 percent over the past three years. This statistic alone further shows that we need to account for this changing shift in renter travel as millennials prioritize high-end amenities, smart home features, and on-site convenience rather than starting the initial home buying process.
I’ve seen DFW successfully embrace an urban core boom by expanding its mixed-use districts as an infill strategy to further accommodate population growth and millennial populations. Uptown Dallas was the city’s first real attempt to concentrate its density while bringing retail, office and real estate into one convenient walking area. Its popularity has now revived the city, with neighborhoods similar to Deep Ellum, Oak Cliff, Plano / Legacy West, and Fort Worths West 7th being modeled on the same. For this reason, I believe that these districts will continue to be important sub-markets for new multi-family projects in 2021. And even people who don’t live in these areas will find DFW attractive because they are accessible from the suburbs.
Presidium Revelstoke is the first multi-family community near ATC to offer a modern, luxurious design while fully integrating SMART technology into each of its 408 units.
Despite the slight pause in development last year due to the pandemic, Newmarks 4Q20 United States Multifamily Capital Markets Report reported that Dallas had the largest cash flow in the country in the fourth quarter of 2020, with $ 10.3 billion invested in multi-family projects. For me, this is just proof that regardless of the brief construction break last year, the DFW real estate industry is not only resilient, but that developers are more than willing to dive deep into the market.
With that in mind, I think the pent-up demand we saw last year will only drive multi-family investment higher in 2021 and beyond. We have seen that competition for residential land has become much stronger, and in some cases even more intense, over the course of 2021, and the economy appears to be gearing up for a sustained boom.
Everything is bigger in Texas, including the opportunity for investment, development, and housing absorption. Thanks to the strong tailwind from business relocations from other parts of the country, coupled with a booming job market, a highly skilled customer base and unprecedented cost of living, I think the real estate industry in North Texas should be ready to welcome new buildings from residential complexes with open arms and hopefully enough space!
John Griggs is Co-CEO and Co-Founder of Presidium.