Another Multifamily Wave Or Tsunami?

Developer Peter Torres and fellow Astor Development Group LLC executives saw how quickly South Florida condominiums were gobbled up after the housing boom and decided Coral Gables was ready for its first condo construction project since the bust.

“The papers said we would have 10 years of inventory,” said Torres, Astor’s vice president. “That certainly has proven not to be the case.”

The company is planning Merrick Manor, a 10-story, 180-unit luxury condo project near the city’s Merrick Shops. Construction could begin by summer 2013.

Fueled by the region’s resurgent housing market, multifamily builders in both the for-sale and rental arenas are beginning the latest construction wave in targeted markets. Only 2,900 of the nearly 49,000 boom-era condo units in South Florida’s seven largest coastal markets remain unsold, according to Condo Vultures LLC, a Miami-based real estate consulting firm.

Consequently, at least 86 new condo projects totaling more than 12,500 units are planned for Miami-Dade, Broward and Palm Beach counties, according to CVR Realty, a brokerage launched by Condo Vultures founder Peter Zalewski.

Many builders already have shovels in the ground, and others are kicking around project plans, according to Grant Horwitz, chief operating officer at KW Property Management & Consulting.

“I’ve got a lot of developers who worked with us in the past asking us to help with due diligence on potential projects,” Horwitz said. “They are getting market stats for the area and doing analytical work. The response has been positive.”

Real estate observers say the market can sustain thousands of new condo and apartment units. The experts disagree on the potential tipping point when oversaturation could become a major issue.

“With judicious growth, the South Florida market can have absorption,” Horwitz said. “But it can’t come like last cycle where everything hits in a two-year period.”

The true limit on healthy new residential construction in South Florida will be evident soon enough.

‘Balanced’ Cycle

In the rental sector, 20,000 to 30,000 units are in the development pipeline for the tri-county area over the next four years, according to real estate firm CBRE.

Multifamily specialist Robert Given, CBRE’s vice chairman, predicts 20,000 of those units “have a very good chance of getting developed.”

That would represent a “fairly balanced” development cycle for the sector, Given said. But considering how many rental units were lost during the condo conversion craze in the middle of the last decade, South Florida could handle even more new apartment construction.

“During the conversion years we lost about 35,000 apartment units, which were typically more modern spaces built mostly in the 1990s and 2000s,” he said. “That accounted for about 20 percent of the total market-rate apartment inventory in the market. … Then we had a number of years after 2006, 2007 when we didn’t build anything.”

Population trends support the spate of multifamily projects. The state’s population is projected to increase an average of 222,000 annually through 2019, according to the University of Florida’s Bureau of Economic and Business Research.

On a daily basis, Florida nets about 700 new residents, according to Ron Shuffield, president of EWM Realty in Coral Gables. Before the real estate collapse, the state had about 1,000 net new residents a day. That plummeted to 140 during the lowest point of the downturn.

“Miami and Fort Lauderdale represent almost one-quarter of the state’s population, so we probably have 160 to 170 new people coming here every day,” Shuffield said. “If you divide that by 2.2 people for every household, you probably need somewhere around 75 new living units to be delivered every day. Many of those are tenants today. … People are now just regaining the confidence to buy again.”

Still, the projection of at least 20,000 rental units being developed by 2016 is far too optimistic, according to multifamily specialist Peter Mekras.

Many of the projects are planned for a few specific markets, like Doral, Miramar, Pembroke Pines and Delray Beach. The volume of development in those markets could be problematic, at least in the short-term, Mekras said. Area landlords may have to turn to concessions to compete for tenants.

“In the next couple of years, it would be hard to believe in the market-rate rental world that more than 5,000 to 7,000 units will be delivered. Some of the markets where four or five projects are being delivered could have a little fallback in rent growth and occupancy.”

Condo Cycle

Like the apartment construction cycle, South Florida’s condo development is heavily concentrated in select markets.

Miami’s central business district is again the sweet spot for condo builders like the Related Group, which has multiple projects under way or planned in the Brickell Avenue area. High-end coastal markets like Miami Beach and Sunny Isles Beach also are targeted by the luxury condo sector.

Pent-up demand for homes in urban and oceanfront markets is starting to trickle into suburban areas like Coral Gables, said Torres, the Astor Development executive.

Astor began assembling the nearly 2-acre Merrick Manor site in 2010, knowing Coral Gables had not had new condo construction since 2006.

“There is simply a depletion of inventory in the Gables market,” Torres said. “The locals really take to the area. We have high demand from young professionals. We anticipate having a good second-home market and are also anticipating good demand from families.”

Astor is funding the 301 Altara Ave. project with a model similar to the Brickell condo projects, with heavy deposits from buyers for units ranging in price from the low $200,000s to the mid $500,000s. Overall, the company has about 700 units planned for South Florida. Torres declined to disclose other potential Astor projects.

The deposit-heavy financing model, dubbed the “Latin American model” by some observers, also should be viable in suburban markets, Shuffield said.

“Many of the buyers from Latin America, as well as local buyers, want to pay cash,” he said. “They don’t want financing.”


Source: DBR