Dallas-Fort Worth Emerges as a Leading Market in Built-to-Rent Housing

Dallas-Fort Worth Emerges as a Leading Market in Built-to-Rent Housing

Texas's built-to-rent (BTR) sector is heating up, with Dallas-Fort Worth (DFW) emerging as the second-largest market in the U.S., closely following Phoenix.

Super South: According to Northmarq, DFW holds the #2 spot in the U.S. built-to-rent market, with Phoenix in the lead. Houston took 3rd place, while Austin came in 6th. Surprisingly, the South accounted for 61% of single-family BTR starts in the first three quarters of 2023.

Shifting strategy: The steep increase in mortgage rates has cooled the traditional housing market but conversely fueled the BTR sector. As a result, builders such as D.R. Horton, Lennar, and Embrey have shifted their focus from home sales to investing billions into developing rental communities.

Between the lines: While BTR is booming, it's not without its challenges. The sector has seen a slowdown in construction starts, likely continuing into 2024. However, the market benefits from a previous construction surge, with a 35% increase in SFR home deliveries compared to the previous year. Texas markets, particularly DFW, Houston, and Austin, collectively absorbed 5,000 units in the initial three quarters of 2023, reflecting the robust demand.

➥ THE TAKEAWAY

What they are saying: Northmarq's report reveals that rising capital costs are challenging the single-family build-to-rent (BTR) market, signaling its first major uncertainty. Despite this, the sector is increasingly integral to the housing market, finding balance amid high-interest rates and property shortages. This is leading to more potential buyers renting. As of Q3 2023, there's a significant $828 difference between average mortgage payments and single-family rental costs, typically $2,000 to $2,500 monthly.

Burger King to Buy Carrols Restaurant Group for $1B

Burger King (QSR) announced its acquisition of Carrols Restaurant Group (TAST), its largest franchisee, for around $1B. The big move is part of Burger King's plan to accelerate its“Reclaim the Flame” comeback strategy. 

Reclaiming that flame: Carrols owns 1,022 Burger Kings and 60 Popeyes stores in 23 states, generating over $1.8B in sales over the past 12 months. Burger King aims to remodel about 600 of those stores using approximately $500M of capital, funded by Carrols' operating cash flow, to enhance the customer experience. The deal is expected to close in Q2.

By the numbers: QSR is willing to bet on Burger King thanks in part to a 7.2% increase in same-store sales, supported by a 4.2% rise in average check size and a 2.9% uptick in traffic. Specifically, same-store sales surged by 9.3% and 10.1% at Burger King and Popeyes locations respectively throughout 2023.

Remodeling plan: Over the next five years, Carrols' operating team will run the 600 redesigned restaurants in partnership with Burger King. The franchisor also plans to re-franchise most of its portfolio to new and existing smaller franchisees, while retaining approximately 200 restaurants for itself.

➥ THE TAKEAWAY

The Return of The King: Burger King's acquisition of Carrols reflects the brand's commitment to accelerating growth and enhancing customer experiences. Through this major acquisition, Burger King will add over 1,000 stores to its portfolio, supported by $500M in capital investment. By partnering with Carrols' operating team, Burger King aims to create new and compelling experiences for guests.

In Q4 of 2023, commercial property mortgage delinquency rates rose, as reported by the Mortgage Bankers Association. Jamie Woodwell, head of MBA's commercial real estate research, noted that commercial real estate market challenges led to higher delinquency rates for office property loans (6.5%) and lodging-backed loans (6.1%). Retail property loan delinquencies remained stable but high since the pandemic's start, while multifamily and industrial property loans saw slight increases in delinquencies but remained comparatively low.

Woodwell mentioned that although long-term interest rates have decreased from their peak, many loans still confront high rates, valuation uncertainties, and fundamental changes in some properties. He emphasized that varying circumstances for each loan and property will impact how the market manages maturing loans this year.