David Schwarz, ARA Newmark on Prime Opportunity for Developers
- Nov 01, 2016
Houston—The multifamily market in Houston is experiencing a minor setback, particularly in the high-end sector. However, despite the difficult times for construction financing, ARA Newmark had its strongest quarter of the year, financing more than $224 million from July through September. Multi-Housing News talked to David Schwarz, executive managing director at ARA Newmark, about the company’s strategy and the outlook for the next two years on the local market.
MHN: Which do you think are the causes behind this downfall in Houston’s multifamily market?
David Schwarz: We haven’t seen a downfall, per se—the Houston multifamily market has done well with the exception of the top five delivery submarkets. Class B and C continue to show great yield and strong competition. The Class A development pipeline stalled a bit due to the drop in oil and gas, which impacted job growth and construction lending. The next two years are on track to receive historically low amount of new supply. Now is an opportune time for forward thinking developers to begin a project and be one of the few 2018 deliveries.
MHN: How did ARA Newmark manage to secure more than $224 million in financing? Tell us more about the company’s strategy.
Schwarz: ARA Newmark only advises on multi-housing, which allows deeper intelligence and trust among capital sources. Investment sales and capital markets teams work closely together. The size of our team and depth of our capital relationships help us cover a lot of ground—the highest sales volume in the market.
MHN: What type of projects were financed by ARA Newmark?
Schwarz: Mostly value-add acquisitions along with a few commercial developments mixed in as well. In addition, we closed on a few Class A, newly constructed multifamily deals in Florida. Since our team is client-focused, we have the ability to follow our clients across the country.
MHN: Is there demand for Class A developments in Houston right now?
Schwarz: Not for many areas, but in the right sub-market, yes. For example, we just raised debt and equity for a Class A development on the east side of town closer to the Port of Houston, which is a booming area.
MHN: Do you think investors will take advantage of this low point in the cycle to deploy capital?
Schwarz: Yes. There is a lot of capital on the sidelines waiting for the right opportunities. Institutional investors and REITs are watching to see when we have dealt with the new supply and the market starts to stabilize before re-engaging in new acquisitions. Many developers are waiting for values to come back before selling.
MHN: What do you think will happen in the Houston multifamily market in the next two years?
Schwarz: We believe the market will stabilize. Communities coming online in early 2017—mostly merchant sellers—may see more of a bid-ask gap. In many of the submarkets with oversupply coming online, we are seeing more and more concessions being offered to lease-up the communities. Now is a prime opportunity for developers who are able to obtain financing and will be the first out of the ground in 2018 to capitalize on demand peak and upward trends.
Image courtesy of ARA Newmark