Passco Cos.’ Gary Goodman recently spoke at Connect Media’s Connect Apartments Conference, which took place in Los Angeles. He’s also joining us in Texas on Aug. 23, for the upcoming Connect Texas Multifamily Conference. We asked Gary some Texas-specific questions about multifamily in Texas, and where it’s headed.
Q. What types of properties are investors interested in?
A. There has recently been heavy interest from investors in value-add multifamily opportunities across the country, and Texas is no exception to this. That said, we find that in many Texas submarkets where there is an ample delivery of new units, this strategy can be risky, as softening rent growth can make it increasingly difficult to maintain a significant delta between new and renovated units.
At Passco, our strategy is to focus primarily on best-in-class, newly-constructed Class A multifamily properties within suburban areas with less development in the pipeline, in relation to job and population growth. Further, we are continuing to see increasing demand from residents for walkability – even in traditionally suburban areas. As a result, we are attracted to well-located properties within these submarkets that have nearby retail, restaurants, and employers.
Q. From a geographic perspective, what areas of Texas present the most opportunity to investors?
A. The state of Texas is presenting long-term multifamily investment potential primarily due to its strong employment growth. While the Dallas-Fort Worth market is experiencing the highest rate of job growth, some investors are approaching acquisitions with caution, as many properties are posting occupancies of 80%-85%. It is critical to evaluate the ratio of jobs to unit permits, not simply the number of jobs being added. For example, DFW is seeing four jobs per every unit in the pipeline, while the ratio in Houston is 12-to-1.
Like with all real estate, multifamily in Texas is very submarket specific. We are seeing some of the strongest opportunities in Houston overall, but certain areas – such as inside The Loop –are showing signs of becoming overbuilt. Likewise, emerging areas in DFW may still present lucrative opportunities. Further, it is also important to look beyond these figures to the types of jobs created. For instance, in Austin there are fewer jobs per unit permits than in San Antonio, but much of the growth in Austin is white collar jobs, while in San Antonio it is blue collar jobs.
Q. What is your forecast for the state for the remainder of 2018 and into 2019?
A. Because of the strong growth projections, we anticipate that multifamily activity and prospects in Texas will remain strong into next year and beyond. Passco plans to continue to aggressively pursue acquisitions within Texas markets, closely monitoring development pipelines within specific submarkets. Currently, we believe that the Houston area will present the most multifamily opportunities that are in line with our suburban investment and long-term hold strategy. Fewer units are projected to be delivered in the market by 2020, but job growth is forecast to continue at high rates.