DFW’S MOST ACTIVE APARTMENT DEVELOPER TO SLOW NEW STARTS BY HALF
The rest of 2020 and 2021 could look a little different for North Texas’ most active apartment developer JPI.
For starters, company CEO Brad Taylor says expected starts in Dallas-Fort Worth will be half of what was previously expected before COVID-19. Additionally, all planned projects have been delayed between six and nine months.
Last week, Taylor spoke with the Business Journal about these changes as well as his long-term thoughts on the DFW market. He also shared his thoughts on construction pricing and his company’s shift to more suburban apartment development.
What have the last three months been like for your company? Have you all had to delay or put any projects on hold?
On some fronts, we’ve been encouraged. On others, it’s been more challenging. On existing projects that have already been leased up, our collections have been stronger than we expected three months ago and they continue to get better every month. That has been encouraging.
Our leasing has been slow. We started off doing virtual leasing, then moved to socially-distanced guided tours. Since we started doing guided tours, our leasing has picked up and has been strong in our Texas markets, so that’s been encouraging. Across the country, we have 15 projects under construction and all of them have continued to progress. We’ve had no site shutdowns, which we feel blessed about.
As far as our planned projects, we’ve looked at everything as a delayed start. For us, the working assumption is a six to nine month delay. As a result, we expect that our production will be half of the volume we expected pre-COVID. In DFW, that mean we’ll have three starts this year. We’ve already started one and will begin two more later in the year.
Besides fewer starts, you mentioned in December that your goal locally is to also sell six properties and open six. Has any of that changed?
We’ve had conversations with capital partners to recapitalize our projects as they stabilize for a hold of two to five years. Simultaneously, we’ve taken six JPI projects to market and have been pleased with the offers we’ve received. All of them are now under contract, five of which are in DFW. For other projects, we’ll do the same exercise and see where market prices might be.
The company has been North Texas’ most active apartment developer for five straight years.
There’s been some discussion around where construction pricing might be in the near future. What are you seeing in the market right now?
We’re actually in a pricing exercise right now. We have seen a reduction in our all-in cost and it might be expected that hard costs could further reduce with time, but we don’t know for sure yet. If apartment starts are cut in half, less demand could lead to a pricing drop. Some manufacturers are reducing their supply to offset the reduction in demand for materials. It remains to be seen how supply and demand will play out.
We’re also seeing labor prices come down. We saw deflation back during the Great Recession where hard costs dropped. My question is, do we see deflation this time around? In the short term, we’re seeing it, but others are forecasting that we won’t see it in the long term. We might see hard costs flatline but won’t see deflation. I don’t think there’s a consensus around this question either way.
What are your final thoughts about the DFW market right now?
We really like DFW long term. We will always be an active developer here and our goal is to be one of the dominate players in the market. Our business plan and goal is to achieve the best risk-adjusted returns for our partners. We’re indifferent on submarkets and indifferent on product type. In 2020, we were looking at more walk-up product in the suburbs because we found higher returns there. That’s different compared to five years ago when we were doing more wrap product at “Main and Main” locations. Ultimately the math will drive which direction we go. It could be different moving forward.
This interview has been edited for brevity and clarity.