Multifamily Driving Florida Markets
Fannie and Freddie posted record years for multifamily business volume in 2012—and the Southeast drove more than its fair share. From Miami to Atlanta, and even to smaller Southeast markets like Raleigh, NC and Memphis, the multifamily revival is not only real, it appears sustainable as well.
The Southeast’s multifamily sector is poised to see the highest level of sales transactions since 2005. So says a new report from Jones Lang LaSalle’s Southeast Multifamily group. Vacancy rates are at their lowest point since early 2008 and rents have experienced consistent gains each quarter since 2010.
“Last year’s national multifamily sales well surpassed 2011 levels, with velocity only 10% below 2005, and the Southeast is echoing this growth,” says JLL managing director Derrick Bloom.
In Miami, asking rents will surpass their pre-recession high this year, according to Marcus & Millichap. Developers are planning about 20,000 new multifamily units over the next few years. Avery Klann, principal of ARA, says developers that find the right submarkets and build garden-style apartments in in-fill sites will see good results in the new cycle.
“Ten years ago we had 480,000 multifamily units in South Florida,” says Klann. “Today we have about 430,000. We saw about 60,000 condo conversions. The development pipeline combines condos and multifamily and with both we will still have substantially fewer units than we had 10 years ago.”
Institutional investors may snap up South Florida multifamily properties as quickly as developers can build them. That’s because in some cases it’s less expensive to develop new multifamily than acquire existing assets. This equation gives developers more confidence to launch projects, and available financing makes it possible.
“It’s easy to be bullish with everything going on while it is also easy to understand those who want to be cautious,” says Elliot Throne, a director at HFF. “The last downturn is still fresh in many of our minds and the word ‘bubble’ is starting to be talked about again. But when you compare South Florida to other markets around the United States, the new product emerging is still being delivered with great success and recent values are bargains compared to other top markets across the country.”
Miami isn’t alone. Orlando is seeing a rise in multifamily acquisitions and development. Increased hiring will draw new residents to the area in 2013, M&M predicts, cutting vacancies and emboldening landlords to cut concessions. Rents are rising and international capital is still flowing into Orlando multifamily even as developers plan to bring 1,200 units on line this year.
“The extremely high foreclosure rate in Florida has driven more people into rental demand, along with a growing segment that could buy but are now renting by choice,” says Jack McCabe, president of McCabe Research. “With growing demand, and only a few new projects built since 2007, apartment development and construction financing are back in full swing in the Sunshine State.”
According to M&M, builders are scheduled to bring the largest number of apartments on line in Atlanta since 2010. M&M predicts job growth will drive a demand and push vacancy down to 6%, levels not seen in Atlanta in more than a decade.
JLL also points to bright multifamily expectations in Atlanta through 2016 as the metro’s low cost of doing business continues to attract firms; population growth and job growth should follow. JLL managing director David Gutting says, “While economic growth is anticipated to continue at a slow and steady pace over the next 12 months, the economic picture is expected to brighten considerably.”
Investors, like Atlanta-based turnaround specialist RADCO, are active in the market. RADCO recently closed on eight Atlanta-area multifamily acquisitions in two months, bringing its multifamily portfolio up to 3,000 units. “There is liquidity in multifamily, and the fundamentals make value-add multifamily the perfect fit for us today,” says RADCO CEO Norman Radow.
And David Lynd, president and COO of Lynd, a San Antonio-based national real estate investment, development and management company specializing in multifamily, is bullish on the Southeast for six reasons: home ownership is declining; owning a home doesn’t mean as much as it once did; people want to be mobile; people understand that home values can and do fall; baby boomers are downsizing; and most new construction is condos. All of these factors are causing investors and developers to move outside core markets. “Buyers are moving to tertiary markets because too much competition in the primary markets has driven down the yields on properties,” Lynd says.