Apartment development in the wake of crisis

Last of three parts

            The foreclosure crisis of more than a decade ago rocked Southwest Florida and left an indelible imprint on residents and transplants – especially younger ones and empty nesters.

            To many, home ownership in the years after 2010 became less an avenue toward longer-term wealth building and appreciation and instead a financial albatross that encroached upon freedom and brought with it a series of ongoing – and often costly -- maintenance obligations.

            But when Fort Myers and Naples emerged from the last decade’s economic recession and businesses like Hertz, Gartner, NeoGenomics, Arthrex and others either relocated to the region or expanded, newly hired workers and incoming retirees alike found few places to live other than the single-family homes they didn’t want.

            “Southwest Florida has had relatively limited single-family inventory from which to choose, so there’s been heightened competition since the recession for the housing stock that is available,” says Brian Alford, director of market analytics in Central and Southwest Florida for real estate research firm CoStar Group.

            “For a lot of people, they found it was simply easier to rent than to fight for the limited supply of single-family homes, which is still very undersupplied,” Alford adds. “And in many cases, people typically rent when they relocate to a new area anyway. Here, on top of that, they became renters by choice.”

            Into that void, apartment developers like Stock Development and Knott Realty Group responded with projects such as Spectra, Insula and Decorum, to name a few. Since 2015, more than 9,700 new multifamily rental units have been delivered in the three-county area comprising Charlotte, Collier and Lee counties.

            Along the entire nine-county Gulf Coast and Central Florida region, which also includes the Tampa Bay area, by comparison, 44,265 new apartment units were added between 2015 and the end of 2019, records indicate.

            Overwhelmingly over the past five years, Lee County has been the primary recipient of new apartment housing. Since 2015, the county has added 7,649 new multifamily rental units, according to CoStar Group, building permit and commercial real estate brokerage data.

            By contrast, Charlotte County’s multifamily rental inventory grew by just 256 units during the same period, while Collier County added 1,838 new units over those same five years.

            “In prior economic growth cycles, Lee County and much of Southwest Florida, with the exception of Naples, was largely considered a bedroom community for tourism,” says Brad Capas, an executive director with commercial real estate brokerage firm Cushman and Wakefield who tracks multifamily development.

            “But today, the region has its own employment and other economic drivers,” Capas adds. That’s completely different than prior cycles, and that’s in turn driving demand for all types of housing, especially multifamily rentals.”

            Lee County has added enough population to become one of the fastest-growing counties in the U.S., according to the federal Census Department. Last year, the county’s total population grew by 2.1% on an annualized basis, even as employment growth topped 3.%.

            In response, developers began new units at a staggering pace – adding more than 14.5% to existing inventory, the highest percentage basis growth in the nation during 2019, according to CoStar.

            The twelve months of 2018 were by far the most active of the past five years, figures indicate. Lee County apartment starts reached 3,027 units that year, vs. just 644 units in nearby Collier County. Charlotte County had no new apartment units begun that year.

            “We felt there was significant pent-up demand in Southwest Florida beginning in 2015 because of the lack of construction of multifamily rental units in Fort Myers and Naples, especially,” says Keith Gelder, president of Stock Luxury Apartment Living, a division of Naples-based custom home builder and developer Stock Development.

            “There hadn’t been any meaningful inventory built there in either city for some 10 years, at least not institutional-grade product of 300 or more units,” Gelder says. “All of the existing inventory was older, and from our analysis, we felt like if we could deliver an amenity-rich, resort-style community, it would be successful.”

            In 2016, Stock began constructing Spectra, a 324-unit, Class A community in Fort Myers. In early 2018, it was sold for $71.4 million. In Naples, the company then built a 304-unit, upscale apartment project known as Inspira.

            Gelder says the company today is designing a new multifamily rental project in Estero, in Lee County, and is moving ahead with another in North Naples.

            He agrees that last decade’s foreclosure crisis has had a lasting impact on consumer thinking about housing in Southwest Florida.

            “It’s brought on a paradigm shift,” Gelder says. “We’re seeing that among our younger renters who are renters by choice and our older residents. We’ve found with them that if we build the apartments in a condominium-like fashion, with an accent on lifestyle, they feel comfortable enough to forego purchasing in favor of renting.

            “Without question, the housing crisis shaped the ability, and in some cases the willingness, to rent,” he adds. “It definitely left an imprint.”

            Arturo Pena, vice president of development for Miami-based The Related Group, says macro-economic factors such as taxation have also played a role in the region’s growth.

            “Resident flight from high-tax states, especially in the Northeast and New England, has helped Florida tremendously,” Pena says. “It’s been a very healthy phenomenon for Southwest Florida multifamily rentals, as well.”

            Related has embarked on a pair of new apartment projects in Lee County totaling 784 units, a response to population predictions that project that Lee County will be among the fastest-growing places nationwide by 2030 and rental gains over the past five years.

            In the first quarter of 2015, for instance, average rental rates in Southwest Florida were $1,068 monthly, according to commercial real estate brokerage Newmark Knight Frank. By the end of last year, however, average rents had climbed to $1,342 per month – a 25.6% jump despite the thousands of new units that had come online.

But with all the gains and new product have come concerns from some quarters that inventory has begun to outpace demand.

Fort Myers’ multifamily vacancy rate now stands above 11%, according to CoStar, one of the highest rates in the nation.

Gelder and others, however, believe the market remains in equilibrium at least for the time being.

“We feel bullish about the area,” he says. “Yes, the biggest headwind the industry faces is potential oversupply, but there’s a sustainable and reasonable amount of demand going forward, so we’re confident.”