January 2019 Founders Grove Capital Newsletter
At the end of November, we completed our acquisition of Northern Cross a 398 unit complex in Haltom City, TX bringing our portfolio to just over 2,500 units valued at $256M. We are focused on due diligence and financing of a 415 unit apartment complex in Las Colinas with an expected close in late March. Founders Grove Capital is focused on acquiring the best, most promising multifamily investment opportunities in Dallas-Fort Worth. The demand for multifamily investments in DFW is as competitive as it’s ever been and rightly so, thanks to tremendous population growth and new job creation. We will continue to seek out the very best opportunities leveraging our institutional relationships with owners and brokers.
When 2018 started, people were asking when the Dallas-Fort Worth economy would slow down. Not only has it not happened yet, but DFW commercial real estate had a particularly strong year. That looked different in different parts of the Metroplex and in different property types. The following are 10 trends that dominated local CRE in 2018, as reported through the year by Bisnow.
RE experts at our annual Dallas State of the Market said Dallas is more than just a Texas boomtown with easy access to the rest of the country — though it is that. More fundamentally, Dallas is going to be one of the leading cities of North America in the 21st century. Metro DFW, because of its job growth and business-friendly environment, is on track to be the country’s third-largest metro in population in the not-too-distant future, probably within a decade. As businesses and residents flee high-cost coastal markets, they are going to come here.
Who wants to invest in Dallas’ Uptown submarket? National and international deep-pocketed investors. Land availability for new builds in Uptown is scarce and the market is brutally competitive, which is just right for institutional investors. And those investors are paying the big bucks: 2000 McKinney Tower commanded one of the highest prices for an office building ever in Dallas at over $500/SF.
Though Dallas has a booming economy and a robust real estate market, the city falls short when it comes to affordable housing. Like many markets in other parts of the country, there simply isn’t enough affordable housing and there are few mechanisms for creating more. For every 100 renters in metro DFW, there are only 19 low-income housing units available locally, the same as in metro Houston and only marginally better than in Los Angeles.
Even after nearly a decade of hotel room growth in Dallas, demand hasn’t been satisfied. But because of rising costs, developers are turning toward niche hotels on smaller sites and redevelopments of older properties to make new hospitality space.
Dallas-Fort Worth’s retail market at midyear 2018 had an occupancy rate of 92.5%. Not only is that one of its highest rates over the past three decades, it comes despite several major store closings this year and in the face of e-commerce growth. Space is being backfilled by new and often experiential retailers. At least one local favorite is doing well nationally: Strongly anchored in its home base of Dallas-Fort Worth, home decor retailer At Home Group is expanding the brand nationally to 600 stores, including opening about 15 new stores in 2018.
Northern Virginia and the Bay Area might get the plaudits when it comes to the heft of their data center markets, but the Metroplex is no slacker in that property type. More hyperscale users are on the way to Dallas-Fort Worth, attracted by strong fundamentals, room to build, the low cost of electricity and a business-friendly government.
As senior housing markets go, Dallas-Fort Worth (and Texas for that matter) is a low-barrier-to-entry proposition. That gives developers pause about building here, but it shouldn’t, according to the speakers at Bisnow’s Dallas Senior Living event.
Of course, some submarkets are overbuilt or soon will be. That just means that developers have to go that extra mile to figure out where demand is going to race ahead of supply. There is a lot of opportunity in North Texas.
The 121 Corridor Has Extra Oomph Bisnow Stellar Development founder Steve Graham, ZOM Living Vice President, South and Southwest Jason Haun and Craig Ranch master developer David Craig at Bisnow’s 121 Corridor event A generation ago, McKinney and the surrounding area were merely outlying towns. Now they are growth suburbs, according to the speakers at Bisnow’s 121 Corridor event. Some of the nation’s and region’s biggest and most well-respected developers are active in the 121 Corridor, with The Howard Hughes Co., Hines and KDC among them.
In some ways, Fort Worth is as hot or hotter than Dallas in real estate growth. For instance, Fort Worth-Arlington’s multifamily rent growth has surpassed Dallas for the past five years. Also, just south of Downtown Fort Worth, historic buildings are attracting locally based restaurants, retail, bars, offices and residences. True, Fort Worth legacy company XTO Energy, the biggest employer in the CBD, left — but other companies are busy absorbing space Downtown.
It may be too early to tell exactly how the region should work to improve its chances for future big corporate expansions, but it will definitely learn from the Amazon experience, according to site selection experts. Besides, while it would have been nice, DFW hardly needed the jobs boost — the area has created more than 750,000 new jobs since the end of the recession.