Case Study · Texas · Multifamily · Agency / Conventional
Multifamily Feasibility Study, Texas — An Agency / Conventional Worked Case
This is how our independent feasibility study company and consultant team analyzed a new-build market-rate apartment community underwritten to a conventional bank construction loan and a Fannie Mae / Freddie Mac agency permanent takeout, from primary-market-area demand and absorption through the debt-service coverage a lender must document. It is a representative, anonymized worked example of the methodology — not a specific client deal — set in a fast-growing suburban submarket on the outer ring of a major Texas metro.
A garden/mid-rise lease-up on a growing Texas suburban edge.
A developer came to our feasibility study company with a ground-up market-rate apartment project and a two-part capital stack that needed the projected cash flow independently tested: a conventional bank construction loan to build and lease, and a Fannie Mae or Freddie Mac agency permanent loan to take that construction debt out once the property stabilized. The subject is a roughly 200-unit garden and mid-rise community on an arterial in a fast-growing outer-ring submarket of a major Texas metro, in a corridor adding rooftops well ahead of its trailing Census counts.1
Multifamily is the one asset class where the lender asks for a market study rather than a feasibility study — a demand and supply analysis that informs the lender's own underwriting — and where the site-specific financial model, the debt-service coverage, and the viability conclusion are layered on top of it.11 The central question here is not “what is the dirt worth” but “will this specific community lease at the effective rents assumed, on the absorption pace assumed, and will the stabilized net operating income size and cover the agency loan that retires the construction debt.” Our scope was the independent demand, absorption, capture, competition, and coverage analysis that supports that credit.
Representative and anonymized. Every figure below is illustrative of a typical engagement of this type; the site, submarket, and parties are composited, not a real named borrower, address, or completed transaction.
Primary-market-area demand, capture, and fair share.
The demand read starts with qualified renter households, not a rent applied to a population count. The primary market area (PMA) — roughly a ten-to-fifteen-minute drive around the site — is defined first, and the demand denominator is limited to households that can afford the subject's rent band and want its unit sizes.
Under the NCHMA Model Content Standards, absorption is derived across four layers: demand drivers (employment, household formation, in-migration, income by tier) establish annual rental demand at the subject's rent point; the supply pipeline establishes the competitive constraint, including the units delivering during the lease-up window; capture-rate analysis allocates that demand against the subject and its competitors; and the resulting monthly lease-up schedule sizes the interest and working-capital reserve.11 Stabilized garden and mid-rise product typically absorbs twelve to twenty-five units per month; lease-up projected under six months signals aggressive demand assumptions, while lease-up beyond eighteen months signals oversupply or mispricing.11 The subject is underwritten to roughly eighteen units a month — squarely inside the defensible band — for an approximately eleven-month lease-up to a stabilized 93 percent occupancy, and it is credited with a capture rate below its fair share given the pipeline arriving alongside it.
| Demand driver | Basis | Supported figure |
|---|---|---|
| PMA qualified renter demand | Household formation + in-migration + tenure shift at the subject's rent band11 | ≈ 1,300 households/yr |
| Competitive supply in lease-up window | Comparable lease-ups delivering into the window | ≈ 900 units |
| Subject capture rate | 200 units ÷ qualified annual demand | ≈ 15% |
| Subject fair share | 200 ÷ (200 + ~900 competing units) | ≈ 18% |
| Stabilized absorption | ~18 units/month, inside the 12–25/mo band11 | ≈ 11-month lease-up |
| Stabilized occupancy | Market-rate, effective-rent basis | ≈ 93% |
Demand, capture, and absorption logic grounded in NCHMA Model Content Standards Version 3.1; see source 11. Figures are illustrative of the engagement type.
Two disciplines matter more here than the headline rent. First, the demand denominator is held to the qualified PMA, not the metro: an over-broad market area inflates demand and understates the capture rate, the leading red flag in agency and LIHTC market-study review. Second, the revenue line is built on effective rent, not asking rent. As of the first half of 2026, roughly 16.9 percent of stabilized U.S. units were offering concessions averaging a 10.9 percent discount — the equivalent of nearly six weeks free on a twelve-month lease and the highest concession level since mid-2014, with close to a third of units discounted in the softest Sun Belt metros.3 Modeling posted rents while the market clears on concessions is one of the most common ways an apartment pro forma fails review, so the subject's year-one revenue is carried net of a concession and loss-to-lease haircut rather than at the sign-out-front rent.
The competitive denominator is what delivers into lease-up.
The correct competitive set is not today's standing supply; it is the comparable units leasing during the subject's own lease-up window. Roughly 900 Class A and B+ units are in or entering lease-up across the PMA, and the pipeline arriving mid-lease-up is what governs concession depth and pace.
| Project | Class / type | Units | Status | Read |
|---|---|---|---|---|
| Comp A | Class A garden | 312 | In lease-up | ~15 units/mo; ~8 weeks free |
| Comp B | Class A mid-rise | 248 | Delivering into window | Direct competitor; ~6 weeks free |
| Comp C | Class A garden | 220 | Stabilizing | ~92% occ.; ~4 weeks free |
| Comp D | Class B+ garden | 120 | Existing (older vintage) | Price floor; light concessions |
| Subject | Class A garden/mid-rise | 200 | Proposed | New; amenity-led, effective-rent underwriting |
Competitive set surveyed and field-verified for the engagement per NCHMA methodology; anonymized. Announced and permitted supply was scanned, not just the standing set, so the capture forecast is not overstated by units the trailing data cannot yet see.
The competing set totals roughly 900 comparable units against the subject's 200, which sets the fair share near 18 percent; the subject is nonetheless underwritten to a capture near 15 percent, a deliberately conservative posture given that Comp A and Comp B are still burning through their own concessions during the subject's lease-up. A study that stops at today's occupancy misreads the denominator: a project leasing over eleven to eighteen months faces new competitive supply mid-lease-up that a snapshot misses.11 Field verification of each comparable's rent, concession, and absorption — rather than a desktop estimate — is what lets the capture and absorption conclusions survive an agency reviewer, and it is why the subject's effective rents are benchmarked to what the set is actually collecting, not to its posted asking rents.
Texas macro: strong demand, real oversupply risk.
The state backdrop is a tailwind for a suburban apartment community, tempered sharply by the supply the Texas Triangle is still digesting. Texas is the nation's second-largest economy at roughly $2.9 trillion of GDP, carries no state personal income tax, and, decisively for housing supply, has no general Certificate of Need or growth-cap regime, so apartments are built to the market rather than a permit.
Texas held about 31.3 million residents as of July 2024 and continues to lead the country in in-migration, and the demand engine sits precisely on the metro edges: Princeton, in the Dallas metro, grew 30.6 percent in a single year to become the fastest-growing U.S. city, and Fort Worth crossed 1,008,106 residents to overtake Austin as the state's fourth-largest city.12 That outer-ring rooftop growth is the tailwind a new suburban community needs. But the very freedom that lets Texas build also means it over-builds, and the central analytical risk here is oversupply the sponsor did not price.
The state is mid-cycle in the largest apartment delivery wave in a generation. Nationally, completions reached roughly 608,000 units in 2024, the most since 1986, before falling about thirty percent toward 500,000 in 2025 as starts collapsed, which guarantees a thinner 2026 and 2027 pipeline even as demand has overtaken new supply.3 Texas is the sharp end of that wave. Dallas–Fort Worth vacancy reached a twenty-year high near 10.8 percent, with vendor reads ranging to 12.0 percent;45 Austin, the clearest oversupply story in the country, posted asking-rent declines for ten consecutive quarters through Q4 2025 and the lowest rent growth of the 150 largest U.S. markets;6 and San Antonio held the highest multifamily vacancy of any major U.S. market for three consecutive years and is only now stabilizing.7 A defensible Texas study is therefore built submarket-by-submarket against the current pipeline, not on the state's population headline — citing strong Texas growth while ignoring the metro's vacancy and concession data is the single most common reason multifamily studies fail lender review.
Why the submarket supports the rent band.
Household income, renter depth, and drive-time job access all point the same direction, and the outer-ring location converts that demand into a captive, income-qualified renter base for the subject's price point.
The primary market area carries a median household income near $95,000 and a renter cohort with incomes comfortably above the roughly $77,000 needed to carry the subject's ~$1,925 effective rent at a thirty-percent housing-cost ratio — the band at which a Class A suburban lease-up fills without reaching down-market. The growth rate on the outer ring means trailing Census counts understate the captive base, an exurban distortion a careful study corrects for rather than extrapolates, and it cuts both ways: developers who over-credit rooftops before absorption catches up are the other half of the same error.1
Location does the rest. The site sits within a short drive of the submarket's suburban job nodes and retail, on the growth side of the metro, where new households are forming faster than the for-sale market can absorb them — and where, across roughly half of the largest U.S. metros, renting now costs less than owning, keeping well-qualified households in the renter pool.3 That combination — income-qualified renter depth, drive-time access, and a tenure math that favors renting — is why the model credits the subject with a durable stabilized occupancy rather than an aggressive one, and why the effective rent is benchmarked to the field-verified competitive set rather than to a metro average that would misprice this specific submarket.
Bank construction, agency permanent takeout.
Total development cost lands at $44.0 million. Standard market-rate apartments are not SBA-eligible — the 7(a) and 504 programs require owner-occupancy — so the project routes through a conventional bank construction loan to build and lease, then a Fannie Mae or Freddie Mac agency permanent loan to take that debt out at stabilization.
| Cost component | Amount |
|---|---|
| Land & acquisition | $4.40M |
| Hard costs (building & sitework) | $29.30M |
| Soft costs (design, permits, impact/tap fees, legal) | $3.90M |
| FF&E, amenities & contingency | $2.20M |
| Financing, interest reserve & lease-up | $2.60M |
| Developer fee | $1.60M |
| Total development cost | $44.00M |
~$220,000 per unit all-in, below the $300,000-plus per-unit cost seen in high-cost coastal submarkets. See source 9.
| Item | Figure |
|---|---|
| Bank construction loan (65% LTC) | $28.60M |
| Sponsor / LP equity (35%) | $15.40M |
| Agency permanent takeout (Fannie DUS / Freddie Optigo) | ≈ $28.6M |
| Binding sizing test | 1.25x min DSCR on underwritten NOI12 |
| Implied LTV at stabilized value | ≈ 61% (below the ~65% ceiling) |
| Rate / amortization / term | ~6.0% / 30-yr amort / 10-yr term |
| Annual debt service (perm) | ≈ $2.06M |
Agency loans are sized to the most restrictive of loan-to-value (up to ~80%), debt-service coverage (~1.20x–1.25x), and debt yield; here coverage binds. See sources 8 and 12.
The construction loan funds 65 percent of cost, $28.60 million, with the sponsor and its equity partner bringing the remaining 35 percent, $15.40 million, and an interest reserve inside the budget carries the loan through construction and lease-up before the property produces stabilized cash flow. The takeout channel itself is deep: the 2026 agency purchase caps total $176 billion, $88 billion each for Fannie Mae and Freddie Mac, positioning the agencies as permanent-takeout and refinance backstops even as roughly $90 billion of multifamily debt matures.10 The pivotal number is the agency takeout. In a higher-rate environment the permanent agency loan is sized by debt-service coverage rather than loan-to-value: the loan that satisfies a 1.25x coverage minimum on the agency's underwritten net operating income comes to roughly $28.6 million, which at the stabilized value is only about 61 percent leverage — below the agency LTV ceiling.812 The takeout is coverage-constrained, not leverage-constrained, and it happens to retire the construction balance almost exactly, so there is no refinancing gap for equity to plug. On a 30-year amortization at an illustrative 6.0 percent, annual debt service on the permanent loan is about $2.06 million — the number the projected coverage has to clear. This DSCR-constrained takeout is the dominant execution risk on newly built lease-up assets, which is why the study's absorption and effective-rent conclusions, not a headline value, decide whether the deal converts.
Feasible and bankable, on coverage the takeout can document.
The stabilized model builds net operating income on effective rents and a Texas-appropriate operating-expense load, then carries the coverage from a lease-up year below 1.0 to a stabilized 1.32x — above the agency's ~1.25x floor.
| Line | Basis | Amount |
|---|---|---|
| Gross potential rent | 200 units × ~$1,925/mo × 12 | $4.62M |
| Other income | RUBS, parking, fees (~6% of GPR) | +$0.28M |
| Vacancy, concession & credit loss | Effective-rent basis (~8% of GPR)3 | ($0.37M) |
| Effective gross income (EGI) | GPR + other income − loss | $4.53M |
| Operating expenses | Taxes, insurance, payroll, R&M, management, reserves (~40% of EGI) | ($1.81M) |
| Net operating income (NOI) | EGI less operating expense | ≈ $2.72M |
Revenue is carried net of concessions per 2026 Sun Belt norms; Texas operating-expense load reflects high property-tax and insurance components against no state income tax. See source 3. Rounded to two decimals; NOI margin ≈ 60% of EGI.
| Year | Stage | NOI | Debt-service basis | DSCR |
|---|---|---|---|---|
| Year 1 | Lease-up (interest reserve) | ~$1.55M | Construction interest-only, reserve-funded | 0.75 |
| Year 2 | Burn-off / conversion | ~$2.37M | Agency perm, full amortizing ~$2.06M | 1.15 |
| Year 3 | Stabilized | ~$2.72M | Agency perm, full amortizing ~$2.06M | 1.32 |
DSCR computed as NOI divided by the period debt-service obligation; Year 1 coverage is shown against the eventual permanent debt service and is carried by the interest reserve during lease-up. See sources 8 and 12 for the ~1.25x agency convention.
The stabilized 1.32x coverage is the figure the agency documents, and it clears the roughly 1.25x floor with real headroom.8 By Year 2 the project already covers fully amortizing debt service at 1.15x. The Year 1 figure of 0.75x is intentionally below 1.0 — it is the lease-up year — which is exactly why the construction structure carries an interest reserve through stabilization: the reserve covers the ramp, and permanent, fully amortizing coverage is measured once the community reaches its supportable occupancy. Modeling stabilized rents in Year 1, or best-in-class absorption from day one, is one of the most common ways these pro formas fail review; the ramp here is deliberately graded to the surveyed absorption pace.11
On the equity side, the $15.40 million injection earns growing levered free cash flow — negligible in the interest-reserve-funded lease-up year, building to roughly $0.6 million and then toward $1.2 million a year as rents grow off stabilization. The exit is valued on the income approach: capitalizing a Year-10 net operating income near $3.4 million — the stabilized $2.72 million grown at a durable, post-glut Sun Belt pace — at a market rate in the high-5 percent range implies a gross sale in the high-$50-million range, and, net of selling costs and the roughly $25.1 million outstanding agency balance, on the order of $34 million of net equity at sale.8 Combined with the interim distributions, the blended result is an illustrative levered equity IRR near 15 percent over a 10-year hold. That figure is explicitly sensitive to the Texas supply picture: persistent concessions during lease-up, or 50 to 100 basis points of cap-rate expansion at exit, pull the return toward the low double digits, which is why the study stress-tests both.
Verdict: financially feasible and bankable. On independently derived demand, effective-rent absorption, a stabilized 1.32x DSCR, and a ~15% illustrative levered equity IRR, the projections support the bank construction loan and the agency permanent takeout.
Independent demand, absorption, effective rent, and DSCR stress.
The engagement was scoped the way an agency reviewer and a construction credit committee read it. As an independent feasibility consultant, our role is to test the sponsor's projection against the market, not to restate it — the value of the deliverable is precisely that it carries no stake in the outcome. We prepared the market study to NCHMA Model Content Standards, defining the primary market area first, field-verifying every comparable's rent, concession, and absorption, and deriving capture and fair share from qualified demand rather than a metro population count.11 Revenue was carried on effective rent, net of concessions and loss-to-lease, and absorption was graded to the surveyed pace, not to a stabilized run rate applied on day one.
The coverage analysis was then stress-tested. We ran the debt-service coverage and the agency takeout sizing against the two variables an apartment lease-up is most exposed to — deeper or longer concessions, and cap-rate expansion at the takeout — to confirm the credit still converts when effective rents or exit pricing compress. One scope boundary is worth stating plainly: as the feasibility consultant, we reference, but do not perform, the appraisal that supports the lender's loan-to-value; the appraisal is a separate USPAP engagement that runs in parallel to the market study.12 That combination — independent demand, absorption, effective rent, competition, and a stressed DSCR — is what lets the bank and the agency rely on the file.
Representative engagement
This is an anonymized, illustrative worked example of our methodology, built on market data current to 2026; figures are representative of a typical engagement of this type and do not depict a specific client, site, or completed transaction.
Underwriting a Texas apartment project for an agency takeout? Start with the market study.
Feasibility Study Company prepares independent multifamily feasibility and market studies for conventional bank construction and Fannie Mae / Freddie Mac agency permanent financing, built to the NCHMA and coverage standards your lender and the agency must document. A methodology briefing walks through the demand, absorption, effective-rent, competition, and DSCR analysis behind a case like this one, calibrated to your submarket and unit mix.
Request a methodology briefingData sources and dates.
The deal figures are illustrative of the engagement type; the market data that grounds each dimension is real and sourced, drawn from our standing Texas, Multifamily, and Conventional & Institutional analyses and the primary authorities they cite.
- U.S. Census Bureau, Vintage 2024 Population Estimates (Texas population ~31.3 million as of July 1, 2024; city-growth rankings released May 2025: Princeton, in the Dallas metro, grew 30.6% in a single year to become the fastest-growing U.S. city; Fort Worth crossed 1,008,106 residents), as compiled in the firm's Texas market analysis.
- Texas Comptroller of Public Accounts, Texas economy and GDP data (Texas the 2nd-largest U.S. economy, ~$2.9 trillion GDP; 90%+ of Texans in metropolitan counties; no state personal income tax); National Conference of State Legislatures, Certificate of Need State Laws (updated 2025): Texas has no general CON law.
- RealPage Market Analytics, 4Q 2025 Update and 2025–2026 commentary: U.S. apartment completions ~608,000 in 2024 (most since 1986), falling ~30% toward ~500,000 in 2025; net absorption overtaking supply; stabilized occupancy ~95.4%; concessions at ~16.9% of units averaging a 10.9% discount, the highest since mid-2014 (near one-third of units in the softest Sun Belt metros).
- Partners Real Estate, “Path to Market Stabilization,” Dallas–Fort Worth multifamily (2025): DFW vacancy near 10.8%, a twenty-year high, with vendor reads ranging to 12.0%.
- Yardi Matrix, Dallas Multifamily Market Report (November 2025); Northmarq DFW absorption commentary (2025).
- Colliers, Austin multifamily, via CRE Daily (Q4 2025); National Multifamily Housing Council citing CoStar; MMG Real Estate Advisors, Austin forecast (2025): asking rents down for ten consecutive quarters through Q4 2025, the lowest rent growth of the 150 largest U.S. markets.
- Institutional Property Advisors, San Antonio Multifamily Market Report (Q2 2025); MMG Real Estate Advisors, 2026 San Antonio Forecast: highest multifamily vacancy of any major U.S. market for three consecutive years, now stabilizing.
- CBRE, Q4 2025 Multifamily Underwriting Survey and 2025 investment-volume data: going-in cap rates near 4.75% on core assets, with stabilized product broadly in the low-to-mid 5% range; agency coverage conventions near 1.25x; the debt-service-coverage-constrained takeout as the dominant 2026 lease-up execution risk.
- Yardi Matrix, Winter 2026 outlook (via Multifamily Dive and CRE Daily): per-unit trade pricing near $208,000 against all-in development cost of $300,000 per unit or more in high-cost submarkets; rent-growth outlook.
- Federal Housing Finance Agency (November 24, 2025): 2026 multifamily loan purchase caps of $88 billion per Enterprise ($176 billion combined), positioning Fannie Mae and Freddie Mac as refinance backstops against roughly $90 billion of maturing multifamily debt.
- National Council of Housing Market Analysts, Model Content Standards Version 3.1 (September 2025): primary market area definition, demand and capture- or penetration-rate methodology, and absorption, with field verification of comparable properties; stabilized garden and mid-rise absorption commonly 12–25 units per month (under six months signals aggressive demand, beyond eighteen signals oversupply).
- Fannie Mae Multifamily (DUS) and Freddie Mac (Optigo) seller-servicer underwriting conventions, with the market study prepared to NCHMA Model Content Standards; agency loans sized to the most restrictive of loan-to-value (up to ~80%), debt-service coverage (~1.20x–1.25x minimum), and debt yield; the supporting appraisal is a separate USPAP engagement, distinct from the market study.