Welcome back to another blog post. Today we are taking a look at a Houston multifamily developer.

The Dinerstein Cos company is a multifamily developer that just finished up a project in Austin, Texas. It is a Class A 304 unit apartment complex in the northeast submarket. The building is at 4617 Tannehill Lane.

Now, I have a couple of questions in regards to this deal. Why are you developing in an area with so much incoming supply? Would this not lead to slower lease up periods and lower potential rent? This was the first thought when I started reading this article.

Currently, Austin is experiencing the highest vacancy since 2010. Occupancy is at 92.3% (Costar data) and rents are down 6.7% YoY (Costar Data). This has everything to do with the supply in the market as well as the increased cost of living that consumers are faced with.

The developer is not blid to all these facts and must still see promising returns from this project. Thier argument is that they see “rents are bottoming and starting to steadily grow again.” They also feel that they have some protection given that the property is a Class A property.

I think that this is very interesting. You have two different sides of the story. The data is telling us “Do not build in Austin” and yet the developer is telling us “Austin is constantly a desireable place to live.” What should be believe and what is my opinion.

I think that the truth is somewhere in the middle. There is a reason I am reading different articles each day. This is to see different perspectives. I want to understand both sides of the arguement and then come to a conclusion, which is typically somewhere in the middle.

Now, my opinion is that 4617 Tannehill Lane could be in for a rough time for trying to lease up the property. I believe that they will have to offer some kind of concessions in order to achieve stabilization (95% occupancy). Also, I am not a fan of Austin in the longer term, unless they are able to consistenly have jobs continue to move there. Of course, I am not sure if this will happen, and that is why my guard is up. There is just too much supply and too little demand for multifamily housing in Austin for me to think that right now is a great time to develop or buy.

Let me know your thoughts on the current Austin market. I would be curious to hear your thoughts.

Ok, that’s it for today.

Thank you,

The Nest Journal

If you ever need a real estate financial model check out our website and browse our template models. These models can help you make better and more informed decisions. Also, feel free to reach out with any questions, comments, or ideas on what to cover next.

Article of the day:

(I do not own the rights, and there is no infringement indended.)