Austin Multifamily's Extra Competition
The Austin multifamily investment sales market is growing, despite new competition. With our new international appeal, each property is no longer just vying for attention versus other Austin properties—it’s competing with other global markets.
Austin has great returns and is a safe haven compared to many international markets, HFF senior managing director Sean Sorrell said at Bisnow’s Austin Multifamily Summit Thursday morning. Besides foreign investors and still-aggressive local guys, new splinter groups are raising capital and coming here. A national economist at ULI two weeks ago admitted he had mistakenly dismissed Austin, believing it was overbuilding multifamily. But our job growth is so unexpectedly strong, he’s putting it on the radar as one of the top markets in 2015/2016. Scott prefers tricking to treating on Halloween: He let his four Great Danes jump on the door and scare any teenagers who came by. Above, 200 attendees joined us at the Hyatt Regency Austin.
Brass Enterprises managing director Mark Zolty (pictured, talking with Bonner Carrington’s Stuart Shaw) is one of those foreign investors who’s come to Austin lately. A slowdown in the Canadian economy four years ago led his firm to focus on US multifamily acquisitions, and Austin’s job growth made us a natural choice. He’s noticed a big impact in the last two months from new deliveries, including a 200 bps occupancy decrease. He thinks it’s just a small bump in the road though, and we’ll go back to 95% occupancy in the next two months.
There’s a serious perk to bringing new investors into Austin—they don’t have any prejudices, so they make decisions purely based on an area’s fundamentals. Integra Realty Resources senior managing director Randy Williams (right, with fellow panelist dwg partner Eric Schultz) shared an example: local players have a stigma against Oltorf, but a foreign investor just sees that it’s a few miles from Downtown and will happily buy there.
Most investors today are looking for value-add money, but ARA principal Pat Jones says that can mean anything from a 1960s property to something built in ’07 with one shingle missing. He believes we’ll get back to ’07 investment sales volume this year. (We sold $2B that year, dropped to $300M in ’09, and have closed $1.5B so far this year; he doesn’t foresee the typical Q4 slump.) Pat’s wife not only made him dress as Ken to her Barbie for Halloween, but made him paint his own pink box to wear.
Berkadia SVP Brant Smith (above, left, with co-panelist JLL managing director Scott Lamontagne) says a good value-add market requires a sizable rent gap between asset classes, and bridge capital. We’ve got the former, and although bridge financing was the last to come back to the market, it’s back in full force. Bridge lenders have been going up to 85% of cost and funding renovations. It seems every month people predict interest rates will rise soon. Brant’s done with that—he says we’ve had an unprecedented 63 months and counting without rate movement, but he thinks that won’t change for at least another year. Brant dressed up as Wayne and Garth with his wife.
Deverick & Associates managing director Deverick Jordan is seeing a big push on Class-B and –C assets because supply is down (thanks to so many being torn down for redevelopment). He’s especially got his eye on East Riverside/South Shore. Multifamily activity (like AMLI South Shore) has spurred other development there, like Ryan Cos’ big corporate campus announced last month at Pleasant Valley and Lakeshore. Deverick’s kids chose his Halloween costume: Superman.
Sean says the big hole in the market now is core-plus, but that’s set to change—in the last 60 days, six to eight firms wrapped up core-plus funds to deploy nationwide. Sean’s latest deal was in another up-and-coming Austin submarket. He first sold 1918 Monterrey Ranch in 2009, and just closed it again two weeks ago. It’s in southwest Austin, which has improved since ’09, going from primarily renter by necessity to 65% renter by choice. Its appeal: Suburban neighborhood environment, but so close to Austin's core. Northland (a Boston-based group) purchased it in a deal that took 60 days from start to finish, and the seller will redeploy money in Austin.
We snapped our sponsors Premier Technology Group’s Eric Herleth and Lord Aeck Sargent’s Amanda Retallack. Eric says every project is so incredibly different, and the firm is realizing there is lots of inconsistency even in one portfolio’s technology. You need to analyze each building’s tech differently to make it work.
We’ve got more coverage from our event in Wednesday’s issue, including hearing from Austin’s top multifamily developers!