Multi family mania

The multifamily sector along the Gulf Coast has been superheated since the end of the last decade's economic recession.

Fueled by a lack of new inventory and job and population gains in the Sunshine State, investors have flocked to acquire apartments for rent growth and appreciation.

As 2015 came to an end, though, experts felt new investment into the multifamily market from Pasco County to Collier County was due for a pause. That's because many well-located complexes had already traded hands, debt was becoming harder to come by and new complexes were sprouting up to compete with existing communities.

Despite that expectation, however, investors plowed more than $1.02 billion into apartment purchases in the nine-county region in the initial three months of this year, according to an analysis of property records by the Business Observer.

The investments were spread throughout 40 deals, involving complexes like the Lakes of Palm Harbor, in Pinellas County; the Summer Wind Apartments, in Naples; Altis at Highland Park, in Hillsborough County; and the Vista at Palma Sola, in Manatee County.

The total investment also is on pace and on par with 2015 activity, leading some analysts to contend that the region's multifamily sector will remain healthy from an investment standpoint for at least the next two years, even as dozens of new communities now under construction are completed. Typically, new complexes that come online drive up vacancy rates and dampen yields on purchases.

“The Florida market is among those leading the country in terms of both job and population growth, and those are the key market drivers that we look for when it comes to acquisitions,” says Josh Hoffman, managing director at Bluerock Real Estate LLC, a New York-based private equity manager that in January spent $86.3 million to acquire the Summer Winds and Citation Club Apartments, in Sarasota County.

Macro-economic and migration trends have also played a significant role in boosting the region's apartment sales.

Home ownership nationwide, for instance, now stands at a 45-year low, as many potential buyers who witnessed the foreclosure crisis that began in 2008 have opted to rent rather than own. Younger workers, too, have eschewed home ownership in favor of urban areas that offer more of a lifestyle experience than areas with typical starter homes.

At the same time, Florida's rise to the third most populated state in the nation last year — surpassing New York — has strained residential inventory and pushed many new residents into apartments.

Both trends have buoyed submarkets like Tampa and St. Petersburg, in particular.

“The Tampa market has gotten a lot of national attention,” says Steve Robbins, a Tampa multifamily manager who formed a joint venture last year to acquire apartment communities nationwide. “Companies are looking actively at Central Florida because of the state's tax structure and the weather, and because there's a good source of educated labor.”

That translates into a more active multifamily market for investors, Robbins says.

“Apartment prices kicked up the past two years, especially, as buyers from places like California and New York came to Florida markets and saw value, because they were looking at prices versus the metrics of their primary marketplaces.”

Starwood Property Trust was among the New York-area buyers that took advantage of relatively low prices along the Gulf Coast. In the first quarter, Starwood, a Greenwich, Conn.-based investment firm that is the largest commercial mortgage real estate investment trust in the nation with more than $20 billion in total allocated capital, bought four apartment complexes along the Gulf Coast.

Those communities were located in Tampa, Clearwater, Oldsmar and Plant City, records show. Starwood officials could not be reached for comment.

“There's been a pretty good step up in the past 24 months,” agrees Sean Williams, a senior vice president with commercial real estate services firm CBRE Inc., in Tampa, who specializes in multifamily deals.

“We're anticipating the pace to slow somewhat over the balance of the year, but the volume of deals will stay up. We're still projecting solid growth in the sector in 2016. It may not be quite as much as 2015, but it'll still be solid.”

Williams attributes the continued health to low interest rates, which have fueled purchases, and rental rate hikes that have contributed to higher returns than on many other investments.

The interest in apartment deals also has spurred developers to move forward with dozens of new communities in urban and suburban areas throughout the Gulf Coast.

“We're still seeing, from a supply and demand perspective, fairly modest lease up periods,” says Jerome Hagley, an executive vice president at Carter, an Atlanta-based firm that is building new apartments in downtown Sarasota and Tampa that will contain a collective 542 units.

“A lot of what's happening is being driven by today's renter profile,” he adds. “There are more renters by choice, a lot of older demographics who want the flexibility renting brings but they also want the finishes that new products brings with it.”

To the south, in Fort Myers, Norstar Development and partner Norstar Accolade Property Management are basking in the success of Colonial Commons, a new apartment complex with 332 units.

While the typical apartment community requires between 12 and 14 months to reach full occupancy, even in a good market, Colonial Commons leased up in just six months, at rents ranging from $1,025 per month to $1,425 per month.

“There was a lot of pent-up demand for new product in Fort Myers,” says Stephanie Baker, president of Buffalo, N.Y.-based Norstar Accolade. “And job growth was an obvious driver.
There've been 8,000 jobs created in the MSA here over the past 18 months, thanks to Hertz and others.

“I don't see it slowing down over the next 18 months, either.”

That could lead dozens of other complexes that are hoping to begin construction to go forward.

In Sarasota's Rosemary district north of downtown, more than 1,000 new units have been announced or planned. Throughout Sarasota County, another 1,500 units are on the books or preparing to go vertical.

And in Pinellas and Hillsborough counties, some 5,700 new units are under construction and set to be completed this year and next, says Amanda Cooper, a valuation specialist with commercial real estate firm Colliers International Tampa Bay.

“I don't think the number of units under construction or proposed is scary, when you consider household formations and job growth data,” she says. “The apartment market is in good shape to absorb them. But there is an affordability issue.”

Nationwide, real estate research firm Green Street Advisors predicts new apartment unit deliveries, as completed projects are called, will peak next year and taper off beginning in 2018.

And at least so far, Gulf Coast multifamily investors seem undaunted.

In the first weeks of the second quarter, nearly $300 million has been invested to purchase Gulf Coast apartments like the 325-unit Channelside Luxury Apartments, in Fort Myers.

If that pace continues, it will eclipse even the $1.02 billion spent in the first three months of this year.

“If the apartment market were analogous to a nine-inning baseball game, I'd say we're in the sixth inning right now,” says Robbins, of the Robbins /Elco Management joint venture.

- K.L. McQuaid and Steven Benna