How Dallas-Fort Worth’s most active apartment developer plans to further dominate market

By Bill Hethcock – Senior Reporter, Dallas Business Journal
Apr 14, 2021, 3:32pm EDT
Irving-based multifamily developer JPI is looking for big growth in its own back yard, staking out a strategy to increase its market share in Dallas-Fort Worth from 10 percent of all new apartment units built to 15 percent over the next two years.

Along the way, JPI — already the most active apartment developer in North Texas — plans to launch a workforce apartment product line to address some of the housing affordability issues in the region, Brad Taylor, CEO of JPI, said in an interview this morning with the Dallas Business Journal.

Taylor talks about those topics, plus the impact of the lumber shortage and COVID on apartment development/construction, in the Q&A that follows:

What’s your recap for 2020 as it pertains to multifamily?

2020 was a difficult year for everybody. It feels like a blessing that we were active in DFW. DFW has had a stronger recovery than other markets. DFW has received a capital windfall, if you will, as investors have tuned in from other markets in the country in favor of Texas markets. And JPI is in the multifamily space which continues to be a preferred asset class.

I’d characterize the market over the last 14-15 months as going from good to awful with the capital markets frozen, but great again for multifamily.

What are your growth plans for the year or two ahead?

JPI’s business plan is actually to grow here in the next few years in DFW. We are about 10 percent of the production of the market share and our goal would be to grow that to 15 percent by 2023.

What does that work out to in number of units?

DFW will start 20,000 to 25,000 apartment homes a year. Call it 22,000 over the next three years on average. Our goal is to average over 3,000 units — about 3,300 units. This is our back yard. We’ve been headquartered in DFW for 33 years now. We are believers in the local economy and have seen the above average growth. We would expect that to be the case going forward. In fact, COVID may have increased that over-national-average growth for Texas’ major markets.

What price/class apartments do you plan to build across DFW?

Those numbers are what we would call market-rate housing.

Would that be Class A, Class B, workforce housing…? How would you characterize that?

When I say market-rate rents, I would define that to mean there’s no income restrictions for the residents. That 20,000-25,000 starts that I referred to are the market-rate starts. We want to increase to 15 percent of that production each year.

How is demand changing?

We started seeing over the last three years or so more demand for a lower price point product. So even though it’s market-rate product, we are doing more development in suburban locations and lower density. So a walk-up product is more prevalent in our business model today than it was five years ago when it was more higher-density ‘wrap’ product. It’s still new product, so it’s still ‘A’ product by virtue of the fact that it is new. It’s still a new, nicely amenitized product albeit lower density and lower all-in rent.

What’s new with workforce housing?

JPI is also launching this year an affordable product line which would potentially encompass workforce housing. That’s a new product, and we’ll start construction on those projects this year.

How many workforce housing projects do you plan, and where?

Our business plan is to do about 1,000 apartment homes a year for the workforce and then about 3,000 of the market rate in the DFW metro. They’ll be more suburban in nature than some of the projects we’ve done in the past. We’re still working on final entitlements, etc. so I wouldn’t want to go into individual cities (where apartment complexes will be built).
Why are you launching the workforce product now?

Housing affordability will continue to be a much-discussed item. We’re trying to see if there is ability to help relieve some of those concerns. We’re in a market that has a growing population and therefor needs housing.

What are the challenges of projects that don’t command as much rent per unit?

There’s always risk in the market, and today it’s particularly on the commodity side, and specifically lumber. It creates a more difficult environment to create new housing today with the spike in lumber and reduction in supply relative to demand. That is a headwind that didn’t really exist a year ago or 14 months ago.

How much is it up year over year?

It’s up about 3x from what it was about 14 months ago. That’s materials only. Labor is up but not nearly as high. It’s substantial. It is a governor on how much housing we will have over the next year not only on the multifamily side but on the single-family side.

My understanding is that lumber prices skyrocketed because people thought housing construction was going to halt when COVID hit, so they shut down the mills, which caused a supply shortage when homebuilding (and other construction) actually boomed. Mills have reopened. Why isn’t the lumber market recovering more quickly?

When COVID hit, the mills reduced capacity. Most actually closed because of COVID concerns. What we saw is there were a lot of people at home versus being at the office, so there were a lot of home fixer-upper projects, adding a new segment of demand in the lumber market.

Then housing essentially tapped the brakes on starts for a few months, but didn’t reduce across the country significantly. The mills got behind. Most mills are up at full capacity today. The issue is with the mills and how fast they can produce. It is not a natural resource issue. It’s a capacity issue with the mills, and they’re in catchup mode. And projects that didn’t start because of the uncertainty are locking in lumber earlier than they might have in a nonvolatile environment.

Has COVID fundamentally changed the demand for multifamily?

The speculation is that in a post-COVID world there will be more demand in less dense locations than high-density locations. There could be a larger work-from-home opportunity because you may not need to be as close to the office. But it’s too early for me to have any facts to point to for DFW.