Strong economic fundamentals, a favorable regulatory environment, and plenty of capital to deploy bode well for real estate investments, acquisitions, and development in 2018. But with significant amounts of capital chasing deals, panelists at a recent ULI North Texas event said that competition is one of their biggest challenges.
“All of us sitting in this room have been seeing the vitality of the real estate market in north Texas,” said Greg Kraus, Dallas managing director and director of acquisitions for Invesco Real Estate. Atlanta-based Invesco, an independent investment management firm, manages nearly $1 trillion in assets on behalf of clients worldwide.
In the Dallas area, Invesco has invested heavily in multifamily and owns 2,500 apartment units in the Legacy West development in Plano, Texas, and another 1,500 in Austin Ranch, a 1,700-acre (688 ha) Billingsley Company mixed-use development that stretches across three suburbs north of Dallas. Invesco has also been a longtime investor in Dallas’s landmark Village Apartments—the largest rental community in the city, home to about 11,000 residents.
The company is still interested in multifamily property around the United States and is picking sponsors, assets, and locations that are good fits for the portfolios that it is trying to deploy, he said.
But Dallas remains on the radar for smaller investors as well. Mary Hager is cofounder and partner at Thackeray Partners, a Dallas-based private equity firm that has raised a series of private equity funds to acquire and invest in a diversified portfolio of real estate investments. Thackeray Partners focuses on the acquisition of stabilized and value-add and development opportunities—primarily in multifamily and industrial sectors.
The private equity firm prefers smaller multitenant industrial opportunities up to about 250,000 square feet (23,200 sq m) in mature submarkets such as the Great Southwest Industrial District that spans Arlington and Grand Prairie, Texas, and the Dallas/Fort Worth International Airport subsector, Hager said.
Since its 2005 inception, Thackery Partners has also been active in the multifamily sector, with over 20,000 apartment unit investments around the United States. The firm is actively “looking in job growth markets,” she told ULI members, and prefers garden-style affordable plays over luxury high-rises. In one of its most recent deals, Thackery Partners announced a joint venture in January with Fogelman Properties to acquire a 284-unit apartment community in Alpharetta, Georgia. The two companies have jointly acquired a total of five properties since 2015.
All three panelists talked at length about working with partners on their real estate investment, acquisition, and development deals.
Carrington Brown, executive director of investments for USAA Real Estate, said that Dallas has a strong combination of large legacy real estate companies, such as Trammell Crow Company, along with talented employees who have branched out from those legacy firms to form entrepreneurial ventures. A long history at a legacy firm is not a prerequisite to get a deal done with USAA Real Estate as long as the team members have high-quality experience and a good reputation, he said.
USAA Real Estate, the real estate arm of insurer USAA, has $20 billion in assets under management and provides co-investment asset management services to U.S. pension funds and foreign and domestic institutional investors. It also provides capital to partners for development. Its portfolio spans all real estate sectors and includes office properties in northern Dallas suburbs.
“Reputation, integrity, [and an] ability to execute are important for anyone managing capital,” Brown said. “In Dallas, you’ve got great development firms and spin-offs that have started new companies. We look at the team; we look at the bandwidth they have.”
Hager said that Thackeray Partners takes its time to get to know potential partners and wants to be an equal, not merely a funding source. Someone who needs fast funding likely will not be a good fit for Thackeray since it does not rush into partner relationships, she said.
Looking to Other Markets
All three panelists said that they are finding opportunities both inside and outside of the Dallas/Fort Worth area.
Kraus said Invesco has found investment opportunities in New York City now that some of the Asian capital there has waned and noted that yields there are better than he has seen in many years. Invesco is also active in western states.
Hager said that Thackeray also likes Houston and is doing ground-up multifamily and industrial projects there. USAA Real Estate is active around the country, including in the Houston office market, Brown said.
Although the real estate market appears strong, panelists say they are watching closely for anything that could upset the status quo. Some things, such as political or stock market volatility, for example, are out of their control. And as values rise, some deals no longer make sense, so real estate investment firms must look carefully for the right project yet still be prepared to act quickly due to stiff competition from the ample dry powder chasing deals.