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Austin Multifamily Markets Leading The US

Population growth, debt and equity, international investment, rent growth: Speakers at Bisnow’s Austin Multifamily Boom event last week laid out numerous ways Austin is beating the rest of the US.

Austin’s population has risen 12.5% in the last four years, four times the national average, says Axiometrics research analyst Rick Wilson (left, with fellow speaker CohnReznick partner Mike Celkis). Meanwhile, we’ve posted 3.6% job growth this year, well over the 2.1% national average. That’s easing oversupply concerns, he says. Axiometrics recorded 5.5% rent growth in July, a 19-month high for Austin and again (shocker) above the national average.

It’s no surprise then that Greystone managing director Jef Elm says Austin is easily one of the top five national targets for debt and equity. He says job growth is the primary driver and shared a fun fact—we added more in 2014 than Chicago has since 2008. If we keep up this pace, the nearly 20,000 units in the pipeline will get filled. But at what rent levels, Jef asks? Meanwhile, institutions aren’t comfortable relying on projected job growth and are still a little concerned about supply. Jef’s at left here with Pillar Finance’s Colin Whittier and Presidum Group’s Cross Moceri.

ARA Newmark executive managing director Pat Jones shared two more ways Austin’s at the head of the nation. We’ve got the most Millennials in the country—35% of Austin residents—and are in the top five nationwide for international investment into multifamily. He’s sold four or five properties recently to Canadian investors alone. (Those guys must be heading south for the winter.) Houston’s oil woes have been a boon to Austin: One year ago, Houston was the hottest city in the US for multifamily, and institutions (which still drive urban infill activity) were worried about Austin because of supply. That’s totally flipped now, Pat says. Pat’s at center in this photo with fellow panelists HFF senior managing director Sean Sorrell and Argyle Residential managing director John Burnham.

CWS Capital Partners partner/CIO Mike Engels and Roscoe Properties president Jason Berkowitz are seeing impressive rent growth in their portfolios. Mike (whose firm owns 21 properties/5,400 units in Austin) says Q2 new leases are coming in 5.9% higher than Q2 ’14. Jason’s getting a large 8% rent bump from this time last year across his portfolio. Both gents say the stats are even higher for value-add. Pictured above is our investment and operations panel in action: Mike Celkis, Mike Engels, Pat, Jason, Jef and Sean.

John says it’s hard to find a submarket that’s struggling or oversupplied; even areas with lots of new supply have been flourishing. John is surprised at how well the South Lamar area is doing—people had predicted it would be a bloodbath, but only three projects are still in lease-up. Most are over 95% occupied. The Lakeline Mall area had gotten soft, but Embrey Partners EVP Jeff Booth says it’s stabilized. In fact, rent’s risen 11.5% there in the last 12 months. Pictured is our new development panel: Jeff, Paladino & Co technical director Brad Pease, moderator JLL managing director Scott Lamontagne, Berkadia SVP Andy Hill, WoodWorks senior national director Scott Lockyear and John.

Sean, here between Morrison & Head’s Steve Laas and Ray Head, says the slowdown in 2016 and 2017 projected deliveries gives confidence. If occupancy drops this year, it’ll fill back up in the next two years and we’ll be strapped for product again by 2017. But he’s got another concern: planning and development. Austin’s tech competitor Raleigh/Durham can design and build projects in half the time, which will attract companies away from Austin.

Jeff Booth (right, with Gracy Title’s Bob Roberts) is also frustrated by the lengthy process. He says it can take more than 30 months from closing a contract on land to deliver a garden-style community. And while the development cycle is lengthening, he says real estate cycles are shrinking as people have access to more information that impacts their decisions. And development will get even harder in Austin—Jeff says it’s gotten very tricky to find a site and get it entitled. There are 1,400 permits filed this quarter, the lowest in three years.

Andy (far right, with Capitol One’s John Hope, Jason Reeves and Luke Nolan) says financing will also limit development: Lots of debt players have their construction bets on the table and aren’t looking to place more loans. He says they can be enticed, but they’ll ask for more spread, equity and/or recourse. If you do launch a new building, Scott Lockyear suggests wood frame construction—it’s $8 to $10/SF cheaper than other methods. Wood construction has stayed consistent from last year, and lumber prices have dropped 15%, but labor costs are up, which has led to no overall benefit for builders.

Brad says sustainable features do add to your construction costs (tack on about 1% to 3% for LEED Silver), but it’s become part of the amenities arms race. He says Austin had one of the first green building programs in the US, but it hasn’t kept up with other markets since and is now lagging. Millennial demand for green features will change that soon, he believes.