Billionaire Jeff Greene, the dominant real estate investor in West Palm Beach, has pulled back from what was to be the city’s first foray into micro apartments, after concluding that the numbers don’t work.
“I was really excited after seeing a show about them in New York City, thinking this is the way to affordable housing,” Greene told The Real Deal. “But I probably jumped the gun without doing my homework on the costs to get this entitled. And those costs have increased since the plan was hatched in 2015.”
The city approved it in April 2017. The project was to include 348 apartments in a 12-story building at 550 Banyan Boulevard in downtown West Palm. Unit size was slated at 300 square feet to 549 square feet. Greene was planning on rents of $995 to $1,200 a month. Rent for one-bedroom apartments start at about $1,400 in the downtown market. Greene intended to compensate for the small size of the units with first-class amenities, including a pool, a fitness center and a screening room.
“It’s like an Ian Schrager hotel model,” Greene said. “But that model has a downside. Amenities cost a fortune.”
And other expenses for his micro apartments — a full kitchen, washer and dryer, plumbing, ventilation — are no less than for normal-size apartments.
“A lot of the costs are almost the same as the Bristol,” Greene said, referring to the luxury condo building being built downtown, with units priced at $5 million to $30 million. “When I bid out the project, the cost to build in a city that doesn’t have high rents is more than what the building would be worth when I complete it.”
And how much more?
“By my last calculation, it was $8 million,” Greene said. “If I could figure out a way to build it cheaper, I would do it tomorrow. But that’s obviously not happening at this point.”
A conventional apartment project he planned for downtown, 12-story Clematis Place, with 162 units at 530 Clematis Street, also is on hold.
“I still think it’s an exciting project,” Greene said.
But he wants to see how quick the absorption is — and at what rents — for the 1,000 apartments in four downtown buildings that have recently started coming on line and are scheduled to be completed next year.
“If the Alexander (a luxury building at 333 Fern Street, which opened in September) leases up pretty quickly, then I would consider it,” Greene said. “But it depends on building costs and rents.”
In any case, Greene remains bullish on downtown West Palm, noting that he owns hundreds of units in three condo and rental buildings.
Neil Kozokoff, president of Parkland Properties, whose 312 Northwood building with about 100 apartments opened in July, also is optimistic. He said his building, with one- and two-bedroom units priced between $1,400 and $2,900 a month is already more than half full.
“While we all have concerns about oversupply, demand remains strong for affordable units,” Kozokoff said. “Not everyone wants to live in the Bristol. But there is so much momentum for rental housing, especially among millennials. What’s needed to fill buildings downtown is more jobs, and I expect they will ultimately come.”
Source: The Real Deal