YP’s Tom Grunnah Leads Site Selection Efforts for NexMetro Communities

Trez Capital, which has an office in Dallas, will initially help back five of NexMetro’s Avilla Homes communities this year in Phoenix, Dallas and Denver. The lending relationship will be managed from the Canadian-based firm’s Dallas office.

Recently, the Trez Capital team toured the Avilla Homes neighborhoods and quickly understood the value of these apartment homes for consumers and investors, said Jason Stowe, a vice president in Trez Capital’s office along Keller Springs Road.

“We believe the concept will continue to escalate in demand and popularity,” Stowe said in a prepared statement.

In all, NexMetro Communities Chief Operating Officer Josh Hartmann expects to develop up to $1 billion in communities in North Texas, with an estimated $150 million to $200 million in annual investment in the next few years. The new relationship with Trez Capital will help fund the developer’s expansion plans.

“We are going to continue to do as many projects as we can over the next few years,” Hartmann told the Dallas Business Journal. “Beginning in 2013, we have increased our deliveries of homes 50 to 100 percent year-over-year, and next year we want to build 1,200 to 1,500 homes, with nearly half of those homes in the Dallas.”

“This financing allows us to focus on our core business, which is project execution,” he added.

NexMetro has already closed on two of its initial five projects with Trez Capital, including a land deal in Grand Prairie for a 13-acre tract. Tom Grunnah of Dallas-based Younger Partners is representing NexMetro in its expansion plans in North Texas. (Younger Partners’ Michael Ytem, Kevin Harrell and Jeremy Lillard assisted Grunnah in the Grand Prairie deal.)

Hartmann said North Texas’ constraint on new homes in the pipeline and rising rents for apartment communities has brought a rising interest in the hybrid model — a luxury community of for-rent single-family homes — that NexMetro specializes in putting together.

The firm’s east Plano community has gained traction with homebodies wanting a front porch without the long-term commitment of a mortgage, Hartmann said.

And NexMetro’s soon-to-open community in McKinney already has a long list of more than 250 would-be residents hoping to get into the for-lease community. The community is slated to open in early March.

We chatted with Hartmann about the company’s growth its plans in Dallas-Fort Worth.

Why have you chosen to expand so rapidly in North Texas?

We like North Texas. We like the home values, which have increased almost 11 percent. That’s a pretty good sign that residents may be interested in some alternative in the Dallas market and we can achieve absorption. There hasn’t been much multifamily development outside the urban neighborhoods, and we believe we are in the right place to be able to grow. We like the idea of everything in Dallas.

What does your typical resident want in a community?

The North Texas resident likes to consume a lot. They want a lifestyle where they can eat out and have easy access to entertainment. They want a somewhat suburban feel without paying the rent in a downtown community. We see them wanting to be in more upscale suburban markets in a community with its amenities on steroids (and) with access to a yard. In Plano, we built beautiful front porches and the residents like the idea of having their own private space.

Have you tried to incorporate your product in a master-planned community yet?

We have had some discussions with some master-planned developers, but we haven’t done any deals yet. They are open to the option. We have done that in Phoenix and are looking at other markets, but the product has to fit in a mature master-planned community, like Craig Ranch. The early-stage, master-planned communities don’t have the restaurants and other services our consumers want.

What does that do to your cost of land?

We are generally paying more than the single-family builders, but the economics are just different.

Have you experienced any push-back from municipalities on this type of residential development? It seems renting has a negative connotation to it by some city leaders.

It’s all about having the right mix of residential options. It’s about going through the educational process to explain who we are and what we do. Initially, we do see a knee-jerk reaction, but we explain this is a different product with less turnover that is more of a lifestyle decision by our residents. This isn’t a garden-style apartment building, but a transitional product for space where traditional commercial real estate doesn’t work and is friendly to other single-family communities.

What are your typical rents in Dallas-Fort Worth?

We are at about $1.80 per square foot in Plano, which is a premium to the rental rate in Phoenix of $1.45 per square foot. Plano’s rate will be similar to the McKinney community when it opens.

What kind of properties are you looking to buy?

Our biggest challenge in Dallas is that it is such a successful economic market that land sellers are becoming increasingly picky, and it takes time to get the zoning done. We like 10- to 15-acre remnant sites. We have been successful, but we look at a lot of sites.

How much money to you plan to invest in North Texas in the near future?

Our year-over-year annual investment is in the realm of $150 million to $200 million, depending on the size of the projects. We plan on doing this for the next few years with five to six new projects a year.