'Irreplaceable location'

An Iowa-based finance giant has paid a record amount for a Gulf Coast multifamily complex, continuing the flood of institutional capital that has flowed into area apartment projects since the end of last decade's economic recession.

Principal Financial Group's $85.5 million acquisition of the Solaris Key apartments, in Clearwater, ranks as the largest 2016 multifamily deal to date and, at $200,704, is among the largest sales of the year on a per unit basis, according to property appraiser information.

The 426-unit complex, which was developed by Atlanta-based Pollack Shores Real Estate Group, was completed in 2015. In addition to upscale amenities including an outsized swimming pool and clubhouse, the 2855 Gulf-to-Bay complex has a private slice of beach and is adjacent to Tampa Bay, with views of the water from most units.

“First of all, it's an irreplaceable location,” says Joe Beaudoin, a director in commercial real estate brokerage firm Cushman & Wakefield's capital markets group/multifamily advisory group, in Tampa.

“It's waterfront, which is very unusual for an apartment community, and it's located close to so many of the employment areas around there, from Rocky Point to Westshore to downtown to St. Petersburg.

“Taken together, it justifies that price,” Beaudoin adds.

By comparison, the next-largest apartment sale in the nine-county Gulf Coast region in 2016, to date, was $55 million paid for the Channelside Apartments in Fort Myers.

That 325-unit complex, also completed last year, amounted to $169,230 per unit.

The second-largest sale of the past year regionally occurred last December, when the Northland Investment Corp. spent $70.5 million to buy the Yacht Club at Heritage Harbour.

The 392-unit complex, in Lennar Corp.'s master-planned community in Bradenton, represented one of the first Florida acquisitions by the Newton, Mass.-based company.

Neither Principal Financial officials nor Pollack Shores executives returned numerous telephone calls for comment on the Solaris Key transaction.

But multifamily analysts say the continued shift away from entrepreneurial and developer ownership of complexes along the Gulf Coast, and toward large institutional buyers like
Principal Financial, is a reflection of the trajectory of the current commercial real estate cycle.

More pointedly, institutions like Principal Financial are willing to accept lower yields on their investments as a trade-off for shouldering less risk.

And with Solaris Key, a new and upscale complex providing unique residences to a growing influx of new residents, retirees who no longer want to own their home or millennials interested in spending a large amount of their income on housing, there appears to be little risk.

From an investment perspective, too, Solaris Key appears to be a solid choice.

“If an institutional buyer can make 1% on their money by keeping it in a bank, and 5% on a cash-on-cash basis in real estate, plus appreciation, they're going to move into real estate,” says John Stone, managing director for multifamily services at commercial brokerage firm Colliers International Tampa Bay.

“Yield is the catalyst here. And if you're a big insurance company, you need to make your money work for you year after year,” Stone adds. “That's why investments like Solaris Key make so much sense.”

Added to that, Principal Financial can bank on enviable market fundamentals that should make Solaris Key viable for years to come.

Most notably, Tampa-area rental vacancies have been falling steadily since the end of the recession, boosted by foreclosures, job growth and shifting American sentiment toward home ownership.

Occupancy throughout the region stands at 96%, Beaudoin says, and rental rates grew an impressive 8% last year, with another 5% bump anticipated for 2016.

“The market fundamentals throughout the Gulf Coast, and especially in the Tampa region, remain extremely strong,” Beaudoin says. “And there's no reason to think that we'll see any kind of negative adjustment anytime soon, because the fundamentals of the market are so strong. Population influx and in-migration, demographics and job growth all are on our side.”

Still, Principal Financial may have set a new benchmark for Class A apartment properties with Solaris Key, by buying at more than $200,000 per unit, and the deal may also spur further institutional activity, analysts say.

“It always says something when a major institution comes into a market,” Beaudoin says. “And for not being a central business district property, and rather a three- and four-story property with surface parking, this is a very solid acquisition.”