After one quarter, how is the multifamily real estate landscape shaping up in 2022? On this episode, Doug Banerjee, Senior Managing Director of Greysteel joins the podcast to offer his perspective. He also dives into the Texas multifamily market, and more.
Click the play button above to listen to the conversation.
- Doug’s “state of the union” perspective on multifamily as Q1 2022 comes to a close.
- The story behind Greysteel and where they fit into the multifamily picture.
- What recent multifamily projects Doug is particularly excited about.
- Current intriguing trends in multifamily that have Doug’s attention.
- How multifamily development and investment is addressing the ongoing housing shortage.
- How inflation and supply chain issues are affecting multifamily projects.
- What the future may hold for multifamily investment and development projects.
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Greysteel is a leading transactional commercial property adviser for private, middle-market and institutional investors. Our platform optimizes options for our clients by providing end-to-end investment services, from sales and financing to research and investment planning. Strategically located across the United States, Greysteel has established broad market coverage from coast to coast.
About The Multifamily Investor Podcast
The Multifamily Investor Podcast covers trends and opportunities in the multifamily real estate universe. Host Scott Hawksworth discusses attractive offerings in the space, including direct investments, DSTs, opportunity zones, REITs, and more.
Scott: Hello, and welcome to another episode of “The Multifamily Investor” podcast. Scott with you once again, and excited to be diving into another aspect of the world of multifamily investing. And joining me on the show today to offer his unique insights is Doug Banerjee, who is the senior managing director at Greysteel, and he founded their Dallas office.
And he’s got a lot of experience in the multifamily world. Doug, welcome to the show, and thanks for being here.
Doug: Thanks for having me.
Scott: Yeah, absolutely. So, today, we want to discuss multifamily real estate, really take a look at the landscape in general. So, I guess, to kick things off, I was wondering if you could give us kind of a state of the union, so to speak, when you look at multifamily at a high level, particularly from the investor perspective here as we close out March 2022.
Doug: Yeah, absolutely. And as you have mentioned, so I founded the Dallas office. So, I’m based here in Dallas-Fort Worth, Texas for Greysteel, which is a national investment sales and banking firm. And, you know, being in DFW, one of the top markets from an investment standpoint, especially when it comes to multifamily, I think some key stats that I read recently are last year, we delivered about 28,000 units, a new multifamily product, across the metroplex.
That’s a lot of units. But there were around 48,000 absorbed. So, there was a shortage of supply of nearly 20,000 units compared to what was delivered and what was absorbed. So, the demand has been incredibly high here, and, you know, the demand is coming from job growth. So, when you see job growth, you see population growth, you see occupancies rise.
And you’re seeing rents go up nearly everywhere. So, that’s not unique to DFW. But with the amount of job growth and occupancies that we’ve been seeing, it’s just every deal that we bring to market and our competitors bring to market are getting highly competed against, bid up, because the rent growth last year, depending on the submarket, was anywhere from 12% to 20%.
So, just, nobody could have predicted that, right? And so, the interest level has been through the roof. We’ve got groups from New York, California, Canada, Asia, as well as local, you know, in Texas, that are all looking at these deals and looking at the opportunities, and they see the continued growth, kind of, in the greater Texas market.
Because our team…I’m based in Dallas, but our team really canvases the whole state. We’ve got separate offices in Austin, San Antonio, and Houston. So, we cover the whole state. And then we also have professionals here in Dallas that cover Oklahoma and Arkansas from this office as well.
Scott: Absolutely. And you’ve done such a fantastic job of really breaking down why there is so much excitement about multifamily and really that just demand that you’re speaking to. And I think Texas is a great specific state to highlight because it’s particularly notable there, but we’re seeing this all over the country as well in many different markets.
But before we go further and kind of explore the landscape a bit more, could you speak a bit more to the story behind Greysteel and really where you all fit into the multifamily picture?
Doug: Yeah. No, I mean, great question. So, as I mentioned, we’re a national firm headquartered in Bethesda, Maryland. So, Washington, D.C. area. We’ve got about 17 offices nationwide now. And, you know, the majority of our producers are based, I would say, in the Mid-Atlantic and in Texas, like I mentioned, but we have offices, kind of, all across the Southeast and out in California as well.
On the sales side, we primarily are known and, in every office, have multi-family investment sales, but depending on the office, we also can provide services for self-storage, manufactured housing, retail, whether that be triple net or multi-tenant.
So, we have, kind of, the investment sales vertical, and then we’re also in the capital market space nationwide. And Daniel Hartnett heads up that practice. He’s also based here in Dallas with me, but he’s got professionals that kind of do business all across the country, and they’re providing primarily financing, so for ground-up development, acquisition loans, refinance.
And we also have a dedicated JV, joint venture, equity team, with two professionals that will help procure single source equity partners as needed for developers or operators. So, those are kind of the services that we provide. And so, we want to be a, you know, one-stop shop for our clients.
We want to be very advisory and look at the assets as if they were our own. And I actually started out in the business in commercial real estate as a principal before becoming a broker. I was the “equity” for a college buddy of mine, and we started building a student housing portfolio at West Virginia University.
And so, that is really what got me interested in the business. And then I made the pivot about 10 and a half years ago to get into commercial real estate brokerage full time.
Scott: So, needless to say, a lot of experience, and I’m sure you draw on thoe experiences even in your, you know, different side of the role now. So, I’m curious if you could speak to if there’s any multi-family projects, recent or current, that you’re particularly excited about that you could speak to.
Doug: Yeah, absolutely. So I’ll kind of…we just closed a deal called Greens of Hickory Trail. That was a very interesting asset. I’m not going to disclose prices just because Texas is a nondisclosure state and I want to kind of keep that confidential for the buyer primarily, right, for tax purposes. But unique asset where mostly townhomes, two-story townhomes, and one-story flats.
So, no neighbors above or beneath any unit. So, very unique from that aspect. It was a 250-unit deal. Average square footage or average floor plan was about 1200 square feet. So, good-size units, lots of families.
And it was originally billed as a tax credit property, so with low-income housing tax credits, but those were expired or terminated a few years ago, and what’s called the decontrol period ended in November. So, for all intents and purposes, it was sold as a market-rate asset. So, the new owner’s going to go in, continue to make improvements to the physical asset, mainly on the interior, and, you know, provide an even better kind of upgraded product.
So, that one, we just closed a few weeks ago. That was a 250-unit deal. And what I will say was, you know, it was north of $40 million. And then we have another similar-type asset actually less than a mile to the west, in Duncanville, called Wexford Townhomes that we’re about halfway through our marketing process.
Our call for offers is scheduled for April 7th. We’ve had a lot of interest. It’s 122 units, all individually deeded, which is not common, right, when we’re talking about multifamily investments, but that’s how the property was built back in 1984. I assume originally it was built to be a for-sale product.
And I’m not sure what the circumstances were, but it, you know, remained a rental community. And it’s 100% owned, so it’s not a fractured condo play. And, you know, so that’s unique, one, because you are paying a lot of different tax bills, but it falls under a different tax jurisdiction, which has shown to be pretty advantageous to the owner. So, that one we have on the market.
And every unit has direct-access single-car garages and private driveways. So, that’s included in the rent. And really strong tenant profile there. And it’s on a hard quarter in Duncanville, with a lot of visibility and traffic. And that one’s 100% pre-lease with a waiting list. So, that one’s on the market.
And then we just signed a new Class A listing up in Denton. Denton is a very tight market. This is a market-rate deal. It’s not student housing purpose-built, which is what a lot of people typically ask, you know, when new Denton deals come to market. Is it student, or is it market? This one’s market. Although it’s not far, nothing is in Denton, from UNT or Texas Woman’s University.
But that one’s 217 units, completed construction in 2019, you know, so brand new, 98% occupied. We’ll be bringing that one, it’s called Majestic Park, to market in about two weeks or so.
Scott: That’s fantastic. And I love…you highlighted these three different projects that are all very unique and have key differences. And that just kind of shows you, again, when you look across the landscape, that there’s just so many different types of properties out there and so many different opportunities, right?
Doug: Absolutely. Yeah. Every deal has…you know, it’s not every property, in my mind, fits for everyone naturally. Right? So, you have a Class A deal that’s going to have a lower yield, but it’s newer, a little bit less headache, so you’re likely going to have more, you know, “institutional” buyers or owners kind of looking at those types of assets. And then you’ve got the value-add product where somebody can go in and push rent and do some other things to increase the NOI and push the value.
Scott: Absolutely. So, we were talking earlier about just the overall landscape, and you did such a fantastic job of giving us the state of the union and talking really to why multifamily is so compelling, especially now. But if you’re kind of looking across multifamily, are there any intriguing current trends you’re seeing that you could speak to that are kind of catching your eye?
Doug: Well, I was interviewing someone yesterday, and she’s primarily worked in, you know, kind of the office leasing space and really enjoys what she does. She’s been in commercial real estate for a while. But one thing that she mentioned that I think is important and why a lot of people are chasing multifamilies, everyone needs a place to live, right?
We don’t necessarily need…not everyone needs, and COVID has kind of shown this, you don’t need to be in an office. Now, some people might believe it’s more effective. And for many, it is, myself included. Right? I work much better in the office than I do at home.
Scott: Absolutely. There are no toddlers in my office, which is nice.
Doug: But push comes to shove… Yeah, yeah, yeah. I have toddlers at home. Right? So, it’s really tough to get things done. But that being said, if I had to, I could work from home, just like many people could, especially with technology and all the advances today. So, multifamily, there’s always going to be a high demand and need for it because, at the end of the day, we need roofs over our head.
And housing prices, I own my home, so, you know, from that aspect, I’m pretty fortunate because I’ve seen the value increase. But if I wanted to move, then I’d be paying, you know, historically, the highest prices ever in the market to go buy my new home. So, for first-time homebuyers or anybody out there searching for a home, it’s very difficult when, you know, the prices in most markets have outweighed their income growth.
So, it’s just tough to find a place to buy. So, if you’re not buying, you’re renting. So, those are kind of some of the trends that I’ve seen where, I think, multifamily is going to continue to stay strong. Another trend that, I think, many are cautious of and that, you know, is frequently discussed is where are the capital markets going?
And when I say capital markets, I’m mainly referring to debt. So, the 10-year treasury is one of those benchmarks that, you know, we constantly look to because a lot of the lenders will use that to base, you know, what their rates are going to go off of. So, they’re going to have a spread on top of that. And so, I think yesterday, the 10-year closed in the high 2.30s. And just 2 weeks ago, when I was going over some underwriting with a client, we were at about 1.90.
So, that’s a 50-basis point increase in just 2 weeks.
Scott: Right. That’s significant. Yeah.
Doug: That’s significant substantial movement. And we’ll see. We’ll see, right? Does it continue to increase? Does it pull back? Those are a lot of the unknowns that, I think, sometimes can be a little bit unnerving. But once again, the demand for multifamily is there, and the rent growth has been pretty astronomical the last year.
So, we’ll see. We’ll see kind of what happens over the next, you know, 6 to 12 months as the feds continue to say, “Hey, we’re going to keep pushing up their rates,” which puts a lot of upward pressure on, you know, a lot of the other lenders out there.
Scott: Yeah. It’s going to be very interesting to see where it all shakes out. You were talking to, you know, ongoing housing shortages and, you know, the demand for multifamily. How do you see multifamily development and investment continuing to work to really address that and really address that housing shortage and meet that demand?
Doug: Yeah. I mean, that’s a great question. It’s always…it’s a tough one. Affordable housing is a big buzzword out there that is…it’s a big issue, especially in the major metros, right? So, as costs are increasing and rents are increasing, it’s more and more difficult for, you know, most the blue-collar workers out there, right, that are helping with providing social services, with construction, everything else, to afford to pay rent.
So, we actually have a team, a national team at Greysteel, that focuses on affordable housing. And when I say affordable housing, I’m mainly referring to Section 42 Low-Income Housing Tax Credit properties. So, properties that are built or rehabbed in a public-private structure with tax credits. So, that’s a federal program that every state gets credits to go out and provide affordable housing.
Or Section 8 housing assistance program, which was primarily the program prior to Section 42 coming into play in 1986 to provide subsidized housing, where the government, you know, is paying for the rent. So, we’re seeing a lot more lobbying for that.
And hopefully, the government’s getting behind providing more tax dollars to help out with kind of providing that type of housing because construction costs are going through the roof. Right? And at the end of the day, we’re capitalists, right? So, people are out there to make money, and no one can, frankly, afford to work for free, right?
So, as costs are going up and we have these supply chain issues, we’ve got to figure out different ways to continue to kind of keep rent affordable and prices, you know, from going too crazy. Because then that’ll…eventually, something’s going to have to burst, right? You know, there’ll be a bubble that’ll burst.
Scott: Absolutely. I’m glad you brought up materials, construction costs, because that’s my next question. When you look across the current economic landscape, considering things like inflation, like cost for materials, other potential challenges, how have you seen this impact multifamily projects?
Doug: I’ve seen it delay starts. So, you know, when COVID hit in March 2020 primarily, you know, it was kind of when, I think, most considered that the beginning of COVID, there was probably a four-to-six-month period there after March where there were almost no starts, right?
The lending environment was very chaotic. Nobody was really doing anything. So, that’s why, I think, we’ve really seen a shortage in supply. And I’m looking mostly here at DFW, but those delays, you know, kind of cause, you know, the absorption to kind of increase.
And although we delivered 28,000 units last year, there’s a shortage. It’s going to be a little bit of a dip this year because of the starts, the fewer starts in 2020, so. But then with the supply chain issues, the pricing has been tough. I mean, the bids I’ve heard for the same project…I talked to developer a few weeks ago, and I’m sure the costs maybe have gone up even since then, but they were building the same product at one site or…I can’t remember the exact cost, but it was 20% higher 6 months later for the same package at a different site.
And let’s just assume that the land costs…and I’m just talking about the hard costs, land costs and everything else are same, but lumber and other materials, you know, had increased 20%. And it’s just tough. Right? So, those costs have to get passed through. And the way that those are typically passed through is in the form of rent, right, which is why we’re seeing so much rent growth and things there.
Because we have a shortage of housing, so the only way to continue to build more is to charge more.
Scott: Absolutely. Absolutely. And I think it’s always interesting to note, though, that in spite of this, you mentioned there is still that demand and there is still such, I guess, a strong appetite for investment in multifamily because of that. So, there are challenges, but it’s not really derailing things.
Or have you seen it really make projects not feasible?
Doug: No, definitely not. You know, I think it’s just a matter of people going out and getting more and more bids and trying to tighten the screws a little bit and making sure that they’re finding the best and keeping their bases down as much as possible. But it’s definitely not derailing things.
It’s just…I think it’s making it a little bit more difficult for developers to find sites that pencil, right? Because naturally, they’re looking at locations where they feel they can get the rents to justify a new development.
Scott: Right. Right. As we wind down our discussion here, I always like to turn the attention to the future. So, if you’re looking at the future of multifamily, what innovations or exciting developments do you see potentially impacting multifamily properties and subsequent investments?
Doug: Yeah. So, another big buzzword is SFR BTR. So, single-family rentals, build to rent. Over the last year or two, I think COVID, once again, kind of caused a new product to really start to explode.
There were some groups, you know, prior to COVID, that were starting to build this type of product. But now it seems to be exploding everywhere, especially where there’s land, such as in Texas, to grow. But that product, I think, will…naturally is going to compete with multifamily from a renter standpoint. And you know, I would say most people would prefer to probably have their own private yard or private garage and driveway if they have the opportunity or the chance to kind of choose between that and not having it.
So, that’s something that, you know, we’re keeping our eye on. We’re working on some of those projects, you know, in and around the metroplex with different developers and other owners that just kind of coincidentally, they own, you know, single-family rental packages. And maybe it wasn’t built for that purpose, but now it’s a pretty common investment product, you know.
I think it’s something that’s new and there’s a lot of institutional money out there chasing it. But just in general, I think multifamily is just going to continue to have a lot of demand because, you know, there’s always a need for housing. And if people can’t afford to pay the prices that are kind of skyrocketing for single-family homes, then they’re going to continue to rent.
And I always joke, but frankly, in my mind, it’s the truth. If I never got married and didn’t have kids, my wife was the one who wanted, you know, the privacy and the yard, and she had a dog at the time. And for me, I like the simplicity of multifamily, right? And if something breaks, I can just call the maintenance, you know, and the landlord takes care of it.
And if I want to go on vacation, I don’t need to worry about things breaking down or, you know, having to paint the house.
Scott: You don’t have to get under the sink.
Doug: Yeah. Yeah. So, the simplicity is pretty nice. And there’s a lot of folks out there that don’t want to be locked down to a mortgage, right? Because you can’t just up and move if you own a house, unless you want to turn around and rent it. But yeah. So, I think it’s an attractive way of living unless you’re really after kind of that private yard and your own space.
Scott: I think that’s spot on, Doug. And really touching on the mobility aspect and just when you look at population trends and how folks of all age groups are just moving and want to be able to do that. And so, I think that’s another feather in the cap of why multifamily. So, before I let you go here, is there anything else exciting going on at Greysteel that you’d like to share that our listeners might find to be interesting?
Doug: Oh, I mean, we’re always looking for good talent, right? So, we’re a young firm. I think we’re up to about 75 producers now, you know, across sales and capital markets, and we’d like to grow to, you know, 100 in the next 12 months. And, you know, that’s across all offices.
So, we’re always looking for good talent. So, if somebody’s looking to kind of get into a role where he or she can bet on theirself. Because at the end of the day, we’re 100% commission, right? So, we go out there, we build and kind of run our own businesses, but we have a platform behind us and teams and tools that help us succeed there. So, you know, I would kind of share that.
If anybody is looking for that or knows anyone, we’re always looking for new talent.
Scott: Fantastic. And if folks do want to learn more, maybe they know someone or they just want to connect and find out a bit more about you guys, where can they do that? Where should they go?
Doug: Yeah. For me, I’m pretty active on LinkedIn. So, I think that’s how you found me initially.
Doug: So, you can look me up. I believe I’m still the only Doug Banerjee in the world, so pretty easy to find. The last name is actually of Indian descent, from India. My grandfather migrated here in the ’50s from India, so I’m one-quarter Indian, and then, you know, Doug, a pretty classic American name. So, pretty easy to find on LinkedIn, or [email protected] is my email.
So, either one of those avenues can get a hold of me.
Scott: Fantastic. And we’ll, of course, have links to all of that in the show notes. Doug, thank you again so much for joining me on the show today, offering your perspective on multifamily.
Doug: Appreciate it. Thanks for having me.