America's Property Tax Advisor

Booming D/FW Apartment Market Expands

BY BRIAN COX, DALLAS, FEBRUARY 2022

The thriving apartment market in Dallas/Fort Worth is spreading to area cities throughout the region. With rapid population growth, properties in North Texas are gaining the attention of investors worldwide. Areas that will receive the most new supply include Frisco, South Arlington-Mansfield, and Intown Dallas, according to a report by Marcus & Millchap.

 

Fundamentals Remain Strong

 

“The sizable field of buyers eager to acquire properties in the Metroplex is pushing up sale prices. From 2013-2021, the mean sale price increased by an average of more than 10% per year,” Greg Willett, Vice President of Marcus & Millichap’s Institutional Property Advisors multifamily research told GlobeSt.com.

 

“Following a 190-basis-point drop in 2021, downward vacancy movement continues this year as net absorption exceeds new supply. The rate will fall to a two-plus decade low of 3.6%,” Willett said. “It will be difficult to mirror the 12% gain from last year but rent growth in 2022 will be the second fastest in the past six years.”

 

The average cap rate also dipped below 5% for the first time on record last year. Many buyers are following household formation trends to North Dallas suburbs, with deal velocity ramping up in locations beyond Interstate 635 like Carrollton, Frisco, and Garland, Willett added.

 

Marcus and Millichap predicts the mean effective rate will reach $1,395 per month. Competition for properties in North Dallas suburbs, Downtown, and in the Mid-Cities will lead buyers to search farther out. Denton, McKinney, and Waxahachie may become the next multifamily hot markets.

 

The Impact on Property Taxes

 

A CoStar search of the greater D/FW metro markets revealed that 568 apartment properties of 50 units or more sold during calendar year 2021. Although Texas is a “non-disclosure” state regarding real estate sales, appraisal districts are getting increasingly more proficient at securing or estimating sale prices.

 

With more apartment sale prices being revealed, property tax assessments have increased. By law, Texas Appraisal Districts are mandated to appraise properties at 100% of market value. While most apartments in the D/FW area markets are under-assessed, if appraisal districts discover a sale price, they will typically increase the value on the property to be at or near the sale price in the following annual valuation cycle. This leads to inequality of assessments compared to similar properties.

 

The Texas Property Tax Code has a provision for “Inequality of Appraisal” (also known as equity), which states that a property cannot be assessed greater than the median value of a reasonable number of comparable properties, appropriately adjusted. POER consultants frequently utilize this provision to successfully achieve value reductions based on equity. These adjustments are sometimes achieved at the Appraisal Review Board level, but many times require litigation.