The Real Deal Miami

Rental potential floats multi-family unit buys

By Alexander Britell | February 11, 2009 11:40AM

Israeli developer Shaoul Mishal made news when he bought 26 units at Pembroke Pines’ La Via condominium for around $1.4 million. But large, bundled purchases, even sales of complete condo complexes, are still a constant, rather than accelerating, force in the South Florida market.

The bargain buyers who’ve hovered by the coastline are now turning their gazes inland, and that’s where market watchers say sales will pick up first.

“There are entire condominium projects being sold inland, on the coast, on golf courses. The deal flow is beginning to pick up now, and the vultures and opportunistic buyers step in because prices begin to make sense where they can cash-flow these as rentals,” said Jack McCabe, CEO of McCabe Research and Consulting in Deerfield Beach. “In certain cases they’ve been in inland areas closer to workforce centers, near interstates, downtown Miami, and so forth.”

He said Pembroke Pines is one area with a large workplace population, and said former homeowners, many victims of foreclosure or distressed sales, are back in the rental pool, making big buys viable again.

“The unit values have finally come down to where investors can see they can look over their taxes, their insurance, a fair internal rate of return and still do a marginal positive cash flow,” McCabe said.

He said some condo conversion projects are selling for as low as $30,000 to $40,000 per unit, and new units in many marketplaces are selling in the $90,000 to $140,000 price range. In many cases these were units that had sold for two to three times the price of the market.

While much of the real estate market has declined considerably and continues to do so, the multifamily sector remains relatively stable, according to Zhonghua Wu, assistant professor of real estate and finance at Florida International University.

“In contrast to other sectors, like industrial real estate, which are heavily influenced by the local economy and investor expectations, the multifamily market is doing fine relatively, and that’s for several reasons: people can still get financing for affordable housing; also, as people wait for the market to bottom out, they choose to rent. Finally, the multifamily market is still related to demographics — as population increases, and people don’t want to buy single family homes — they still have to find a place to live.”

Professor Wu also said that international investors, like Mishal, may see this market as more conservative and safer for them to invest in.

“A lot of portfolio funds are coming and buying these buildings as long as they can buy 51 percent or more of the available inventory in the building,” said Irving Diaz, founder and managing director of South One Capital, a real estate finance firm in Miami. “What’s not usual is this growth spurt of a bunch of condos where the developer bundles them and sells them in blocks, that’s the new trend.”

McCabe said the multifamily and high-volume condo deals are soon to come.

“It’s only going to get better through 2009 and the first half of 2010—that’s when we think these large commercial grade bulk deals and project deals are going to really start happening,” he said. “We’re going to see a huge redistribution of real estate in the next few years, a lot of it’s going to be transacted between distressed banks and developers and opportunistic buyers.”