All in the family

When WCI Communities CEO Keith Bass speaks with stock analysts, one question always comes up: When is the homebuilder going to build a condo tower?

After all, condo fever is back in the Miami-Fort Lauderdale region, where a developer recently announced plans for the 174th condo tower since the real estate crash of 2007, according to market tracker CondoVultures.com.

But all is quiet in Naples and Fort Myers, where no tower has been built since 2008. “We'll see how this season goes,” says Bass, whose Bonita Springs-based company built condos up and down the coast during the boom.

Perhaps as a precursor, developers are building multifamily housing in growing numbers throughout Collier and Lee counties. They're building apartments, attached homes and mid-rise condos.

The most ambitious is the 300-unit condominium development near downtown Naples planned by The Ronto Group and Wheelock Street Capital, where prices will average $750,000. “Something that appeals to today's buyer is badly needed in Naples,” says Anthony Solomon, Ronto's executive vice president. “We definitely see the need for new multifamily product.”

Meanwhile, large national homebuilders such as D.R. Horton and Lennar are building affordable multifamily homes throughout the area. These are generally attached homes that cost less than detached single-family homes, which have sharply risen in price and pushed buyers to consider multifamily homes instead.

And renters have pushed up occupancies in apartment complexes to virtually full occupancy, spurring new development in that category. The demand for apartments restricted for people over the age of 55 is also growing and prompting new construction. “Occupancy rates are getting to the range where developers are going to build more of them,” says Jim Garinger, senior managing director and principal with Colliers International Southwest Florida.

Apartments and senior living developments made Fort Myers construction firm Brooks & Freund the top builder of multifamily units in the region. According to Land Solutions, Brooks & Freund pulled 610 multifamily permits for the year ending Sept. 30.

The new construction is a result of dwindling supply and growing demand. Fact is, there's been very little new supply of homes. In a recent presentation to the Lee and Collier building industry associations, Randy Thibaut, the CEO of Land Solutions, says multifamily development is going to continue to increase next year. “It won't be long until we're going to see high-rises on the coast,” he says.

Halfway there
There are challenges for any builder considering a condo tower in Southwest Florida. “First of all, there's a shortage of land,” says Howard Gutman, president of Naples development firm The Lutgert Cos., one of the leading condo developers.

And while there may be demand for new condos, how fast they can sell is key. “The absorption is going to be a major issue,” says Gutman. “It's more realistic to do mid-rises.”

The condo boom in the Miami area is a result of Latin American capital fleeing risky places such as Venezuela. Developers and builders say very little of that capital has made its way to the Southwest coast.

Smaller mid-rise buildings four to six stories high, however, are selling well. In WCI developments such as Tiburon in Naples and The Colony in Bonita Springs, luxury mid-rise condos with private elevators are selling for prices that range to the high $500,000s in The Colony to $1 million in Tiburon. “There's huge demand,” Bass says. “We can't build them fast enough.”

In downtown Naples, Ronto plans to build four buildings that will house a total of 300 condos priced from the high $400,000s to the “low millions,” says Solomon. “Being in such a desirable area with older stock and very little of it in the market, we see a great opportunity for this price point,” says Solomon.

Ronto plans to start sales in January and construction in May. “We just the other day got approved for our development,” Solomon says.

That may be perfect timing for developers such as Ronto and WCI, because recent data from the Naples Area Board of Realtors show prices rising fast as the supply of existing condos shrinks. In October, for example, the median sales price of an existing condo in Naples rose 35% to $210,000 compared with the same month one year ago.

But it's not just the luxury end that's busy. Builders such as D.R. Horton and Lennar are building multifamily homes that appeal to first-time homebuyers and people forced out of the single-family market because of escalating prices. “Young singles, young families got priced out of the market,” says Thibaut.

For example, D.R. Horton is selling attached homes at prices starting from the mid-$100,000s. The company says the supply of existing homes on the market is dwindling, forcing buyers to look at new construction. What's more, prices for new construction are now competitive because existing-home prices have rebounded sharply.

Full apartments
Apartments have been filling up as many residents were forced out of their homes in the foreclosure crisis. In addition, younger renters have eschewed homeownership because they saw how their parents struggled with owning a home. “I think a lot of people got hurt pretty badly in the downturn and lost equity in their homes, so they're in the market to rent,” says Garinger with Colliers International.

The occupancy rate for apartments in Southwest Florida is more than 95%. “That's basically full occupancy,” Garinger says.

In addition to demand, many apartments were converted to condos during the boom. “The condo converters pulled all the inventory out of apartments,” says Garinger, noting that some of them came back on the market as apartments during the bust.

Garinger counts 899 apartments under construction in Southwest Florida today. That's just 1.1% of the total apartment market. “In 2005, they were building 10 times that,” he says.

Developers have been waiting for the market to come back. “A lot of these projects have been in the plans for years,” says Ashley Nicolette, who handles business development for Brooks & Freund.

Now that occupancies are strong, Garinger says rents need to be in the $1-per-square-foot range for apartment development to pick up. He says rents today are about 88 cents per square foot.