Eric Stanley, President & COO, Bright Realty

Eric Stanley, president and COO of Bright Realty, spoke with Invest:, about the rise in interest rates that has made it challenging for real estate players to survive. Higher rates have made servicing debt more difficult, he said. Job growth, however, has created opportunities to navigate those challenges and promoted leasing activity in the residential sector, Stanley added.

What were the key milestones for Bright Realty in the past year?

We navigated an exceptionally challenging year in both the multifamily and the commercial sectors, where we are involved in development, ownership, leasing, and management. The primary obstacle that virtually every developer, owner, and income-producing real estate has faced is the rise in interest rates. The rates have thrown loans out of balance and created challenges beyond anyone’s control.

Navigating the environment created by increased interest rates has been incredibly challenging. We have been successful with refinancing, adjusting our strategy and solving those problems one at a time. For example, we have been successful in selling some assets and have others on the market. However, due to the less-than-ideal market conditionals for sellers, we expect to fall short of our initial financial expectations. 

How have increases in interest rates affected the operations of Bright Realty and the real estate sector of North Texas?

When a project is developed in sectors such as office, retail, multifamily, or industrial, it is expected to achieve certain rent incomes. Moreover, every loan contains certain provisions called debt service coverage or debt yields that constitute the debt payments relative to net operating income. Those provisions test whether you have enough revenue to cover your required debt service. With interest rates having doubled since many projects were financed or built, compliance becomes challenging, even if nothing has gone wrong operationally. This discrepancy can place projects out of compliance with their financial obligations.

It also creates challenges on the lending side because of the federal rules that lenders must comply with as they cannot have non-compliant loans. As owners, there is not much that we can do in that situation. We can’t alter existing leases or rent space to somebody who is not there. 

How has job growth in North Texas influenced the development projects and plans of Bright Reality?

We opened a 362-unit apartment community in January 2024. Thanks to job growth, we are achieving pro-forma rents and have robust leasing activity that is ahead of projections. Around 71% of that project is leased, which is a rate of five to six units per week. The property stands out as the newest and most attractive option in the market, drawing high-quality tenants with its premium amenities, including a large resort-style pool and a state-of-the-art fitness center.

Our sister company in homebuilding had a strong start to the year. However, the housing market is experiencing a slowdown as buyers anticipate potential interest rate relief.  Even existing housing in this market has gone insane in its valuation and required purchase prices, so people are priced out of the market.

Looking ahead, we are planning several projects, including two smaller, 60-unit multifamily buildings for professionals with moderate incomes. While these projects are not classified as workforce housing or affordable housing, they are intended for people seeking quality, modern living in desirable school districts.

How has demand for mixed-use and multifamily real estate evolved and what kind of amenities are renters of those spaces looking for?

Generally, apartment renters are not typically experienced in real estate or business. They are usually either early in their careers or nearing retirement and choose to rent instead of living in a house. For many, particularly younger renters, their primary concern is the monthly rent and whether its within their budget. If you do not check that box, they are out regardless of the amenities it offers. 

Nevertheless, if they can afford it, they look for a livable environment and prefer access to amenities like pools and workout facilities even if they do not use them frequently. They also appreciate high-quality finishes and low maintenance. Proximity to shopping or entertainment is also important. Moreover, with many people working from home, business centers have taken on a whole new requirement.

How has demand for office spaces performed and what are renters in that sector looking for?

There has been a flight to quality in the office sector. Bright’s two major office buildings are finished and full. The newest one that we have coming has access to a fitness facility, a deli, and a community conference room, and it will get leased. While it’s challenging to have a 150,000-foot office building sitting vacant and unfinished, I am confident we will achieve our desired results once it’s completed.

What do real estate players like Bright Realty need to weather the current economic environment?

As long as we maintain positive job growth in North Texas, we will be able to pivot and make moves that allow us to survive. Additionally, any interest rate and inflation relief will be helpful. It is difficult as a business owner to keep everybody paid at a level that outpaces inflation. I will not have my people coming to work worried about making their car payment, buying groceries, or getting their kids ready for school. We will do what we must to keep the engine running.

How do you expect the presidential elections to impact commercial real estate?

What happens in the November elections will have a significant impact on the commercial real estate industry in North Texas and across the country. There have been periods in our national economy that have been better, and we need to get back to that. We will continue to benefit from Texas’ strong economy, but the next administration must also deal with inflation, higher building costs and elevated interest rates.

What are the top priorities and goals of Bright Realty for the next two to three years?

We aim to accelerate our development pace. I have projects in various stages. In an ideal world, we would have four apartment projects being built at once, one on the sale block, one in lease up, one in construction, and one in design, and we sell one every year. We strive for a similar approach in office and retail projects, provided the site is right.