All in the Family

New single-family home prices in Collier and Lee counties are rising at such a fast clip that builders are angling for the next opportunity: multifamily housing.

Multifamily housing is marketed in many ways, from condos to townhomes and carriage homes. But the idea is to fit more homes onto the same acreage so it's more affordable.

In a recent presentation to the Collier Building Industry Association, land broker Ross McIntosh highlighted the challenge: Out of the 34 major residential communities in Lee and Collier counties, only four reported average single-family selling prices below $250,000. Every other community's prices had jumped over that threshold price.

There are many reasons for the rising prices of single-family homes, including increased demand, shrinking inventory and rising labor and materials expenses. “Many of the highest-performing communities are running out of land inventory,” says McIntosh.

McIntosh says homebuilders such as D.R. Horton are positioning themselves to capture the segment of the market that wants to pay less than $250,000 for a home. “D.R. Horton has made a commitment to multifamily,” he says.

Construction costs rising
“It's all true,” laughs Jill Meeks, vice president of sales and marketing for D.R. Horton, who attended McIntosh's presentation. “Multifamily has just skyrocketed,” she says. “House construction costs are rising; it's hard to find a single-family home in that price range.”

Meeks says D.R. Horton executives started building multifamily homes in Southwest Florida two years ago in anticipation of higher demand. The company sells homes in the $150,000 to $250,000 range for carriage homes (four homes per building) and townhomes (six to eight homes per building). D.R. Horton's multifamily homes range in size from 1,300 square feet to 1,950 square feet with one- or two-car garages.

Buyers range from retirees and boomers looking for a second home in Florida to working professionals who need a more modestly priced home. “We have exceeded our sales quarter over quarter for the last two years,” says Meeks. D.R. Horton doesn't break out sales for the region.

D.R. Horton is scouting new sites for future development of multifamily housing. “There are tons of deals we're looking at. We have so many pending.”

Cash buyers
Lennar has also beefed up its multifamily operations. In fact, the company has pulled 122 permits for multifamily homes in the year ended Sept. 30, McIntosh says. D.R. Horton ranked second with 86 permits.

“We have a lot of multifamily going up now,” says Matt Devereaux, Lennar's director of sales and marketing for Southwest Florida. He points to Treviso Bay, a community in Naples that Lennar recently acquired from a previous developer. “We have 60 units under construction at Treviso Bay, and all but 12 are sold,” he says.

Priced from $180,000 to $220,000, the condos at Treviso Bay measure 1,200 to 1,400 square feet and include granite countertops and tile floors. Membership in the golf club is included. “There's nothing like it in Naples,” Devereaux says.

Devereaux says 70% of the buyers of multifamily homes pay cash for their purchase. They're usually not yet retired and want to try out the Florida lifestyle before committing to a more significant purchase such as a single-family home. “They want to be able to walk in, unlock the door and go to the beach or play golf. Then they want to walk out, lock up and get on a plane,” Devereaux says.

Still, Devereaux says most multifamily buyers could buy a single-family home instead. “A lot of the buyers we see have the ability to go either way. They end up upgrading once or twice,” he says. “They have a lot disposable income.”

Emerging Trends
Pat Neal was in Naples recently for an early morning meeting of the Urban Land Institute. There was a good reason the Sarasota homebuilder rose at 4:30 a.m. to drive to Collier County.

“We think it's the hottest market in Southwest Florida,” says Neal, president of Neal Communities.

Neal was speaking as a panelist at a ULI conference. “I'll be in the back of the room to buy land,” he told the gathering at the conclusion of his opening remarks.

Put Neal in the camp of those who think there's pent-up demand from people who want to move to Southwest Florida, regardless of the challenges that lie ahead. Issues such as the country's fiscal challenges don't worry him too much. “We've had a fiscal cliff for many years now,” he says.

You can rattle off more bad-news scenarios, as Charles DiRocco, PricewaterhouseCooopers' director of real estate research did: the eurozone recession, a slowdown in China and political gridlock. DiRocco joked at the ambiguous title of his ULI presentation, Recovery Anchored in Uncertainty: “We really covered our butts with that one.”

According to the ULI's survey of more than 900 real estate executives, here are the best bets for real estate in 2013:
• Concentrate acquisitions on budding infill locations. Tenants want to be in commercial areas near hip residential neighborhoods.
• Find more efficient space. More tenants willingly pay higher rents for more efficient layouts and lower operating costs in energy-efficient buildings.
• Develop industrial buildings near transportation hubs such as ports and airports.
• Focus on income-generating properties, particularly in secondary and tertiary markets. Back off before overpaying, however.
• Apartment development is getting risky. There's a danger that apartments are getting overbuilt.
• Consider single-family housing funds. Major investors are partnering with local operators to manage rental pools of single-family homes. But be prepared to wait before rentals can be converted to sales.
• Obsolete buildings can be renovated to another purpose. Vacant strip centers are ripe for this.