Three Texas Multifamily Drivers

What's coming for multifamily next year? IPA Texas executive director Will Balthrope peeked into his crystal ball and found three interesting Texas trends that'll rule 2014.

1) Value-add

From Class-A down to the Class-D, value-add properties are the No. 1 trend. (Aside from cashmere.) Will (right, with Witten Advisors prez Ron Witten at a recent IPA event) tells us because the economy is doing so well, renters tend to have discretionary income. That means a chance to up the rental rates by enhancing the interior or adding exterior amenities. The payoff: a $1,000 investment in improvements can equate to $75 per month in increased rents. This has been an ongoing trend for a few years and should continue, he says.

2) Overbuilding

Will believes Texas will overbuild in certain pockets for a brief time (more on overbuilding in a future issue), but the big picture shows the state won't overbuild as a whole. The headline could be "Texas is underbuilding," he says. "It's true." Most of the construction is occurring in the urban core areas with very little in the suburban areas, as a generalization, he says. And, when you look back at previous cycles, we're nowhere near those levels of construction. Because of the underbuilding we're about to do in 2014, there will be delivery gap in 2015. That will make rents go up.

3) Suburban development

The trend: the lack of it. It's less capital intensive, has an easy in and easy out, and can be accomplished in less time, Will says. While they may not be as profitable, overall, as a downtown high-rise, a developer can do two or three in the same time and end up with similar upside, Will says. That's going to make it become more popular. For some playtime, Will is taking his wife and two children to NYC for the week of New Year's. They may all try some ice skating at Rockefeller Center. He's going to take his 12-year-old son to see Spider-Man on Broadway while his wife and 15-year-old daughter will head over to see Kinky Boots.