July 2018 Founders Grove Capital Newsletter

In Founders Journal by Ryan Cox

July 2018 Founders Grove Capital Newsletter

Founders Grove Capital is focused on acquiring the best, most promising multi-family investment opportunities in Dallas-Fort Worth. On Tuesday July 10th, we closed on the second apartment community in the 564 Unit North Arlington Portfolio, Midtown Crossing, in Arlington, TX and we have taken over ownership and management. This completes the portfolio acquisition in North Arlington, a sub market with 6% rent growth over the past two years and projected rent growth of 5% or more through 2021.

Marcus and Millichap 2018 Q2 Multifamily Report

Investment Trends

Low vacancy and rents below the metro-wide average in many submarkets will allow for healthy rent gains. Investors seeking upside may target assets in these areas. Apartment trades in these submarkets generate cap rates in the 4 percent to 6 percent range.

First-time investors are targeting the Dallas/Fort Worth metroplex for opportunities. These investors are drawn to nation-leading job creation and healthy property operations, especially for Class B and Class C assets, where vacancy remains tight and rent growth is strongest.

Over the past 12 months, the number of sales in East Dallas was more than twice the number of properties traded in any other submarket of the metroplex. Here, assets traded at an average cap rate in the low-6 percent area.

Employment

2.9% increase in total employment Y-O-Y.

Employers created over 36,000 positions during the first three months of 2018, contributing to the addition of more than 100,000 people to payrolls since March of last year.

The unemployment rate fell 40 basis points over the past 12 months to 3.6 percent in March, erasing the 20-basispoint rise recorded during the previous yearlong span.

Construction

26,100 units completed Y-O-Y

Developers completed more than 6,700 apartments during the first quarter. Completions during the span were heaviest in Intown Dallas and Richardson.

Intown Dallas remains a target for developers, with more than 6,000 units underway at the end of March. Frisco is also slated to receive a boost to supply as 5,500 apartments should come online through mid-2020.

Vacancy

60 basis point increase in vacancy Y-O-Y

After rising 40 basis points one year ago, the vacancy rate increased again over the past 12 months, reaching 5.7 percent.

Class A and Class B vacancy has risen over the past year, with the rate for Class A units rising 80 basis points to 6.5 percent, and vacancy for Class B assets.

Rents

2.9% increase in effective rents Y-O-Y

Rent growth is moderating, with the average advancing to $1,082 per unit in March. One year ago, the average effective rent grew 5.2 percent year over year.

Rent growth has been strongest among Class C properties, rising at an average rate of more than 4 percent during each of the past four years. The average Class C rent was $866 per month in the first quarter.