SF developers zero in on multi-family market

A multi-family project for sale in Miami

While Miami’s condominium units have seen strong sales in the last two years as the residential market has picked up, the city’s multi-family sector could be the source of the next development boom.

With financing more readily available for multi-family properties, and rental demand surging, the city is seeing a pipeline of apartment developments that could mark a major shift for the residential market, from condominiums to rental apartment projects.  

“There are some condo projects proposed [here], but there are very few, and construction financing for a new condominium is going to be pretty difficult to find,” said Brad Capas, a senior director at Cushman & Wakefield in Fort Lauderdale. “And there’s not going to be much of it out there. And unlike [with] rental apartments, the end-unit pricing, the unit pricing and the price per square foot you need to develop condominiums — you can’t achieve in today’s market.”

According to Capas, there are at least 12 multi-family projects currently in development in South Florida, much of them in Miami, with developers drawn in by several factors — high occupancy, higher rent levels and a reduction in inventory.

“The fundamentals for the rental market are strong,” he said. “Rent levels are at a point where the feasibility of a new project is supported, and there’s a general belief that rents will continue to grow, and that South Florida, from a rental standpoint, is on the road to recovery.”

The shift to apartments is marking a sea change for developers, for whom the prospect of quick financing and waiting tenants is a much more desirable proposition.

According to a report by CB Richard Ellis, Miami-Dade County is seeing record asking rents in the multi-family market, and an occupancy rate of 96.5 percent.

Coral Gables and Miami, which together have the most apartment units of any South Florida submarket, boast an average monthly rent of $1,378 per unit, a 2.6 percent increase from last year, according to CBRE’s report.

Part of the improvement could come from relatively small inventory, Weaver said. There are only 62 multi-family communities in all of South Florida that were built after 2000, in large part due to a slew of condo conversions during the boom years.

And it’s not just new projects that are seeing interest — investors are homing in on the relatively small inventory that remains, especially in Miami, a move that actually began in 2010, according to Calum Weaver, CBRE’s director of operations and co-chair of the private client group .

“Beginning in 2010, we’ve seen an uptick in activity,” he said. “You’ve got more investors that want to park their money here, and that’s been fueled by very attractive debt. The reality is that there are, particularly in the private capital arena, more buyers and sellers right now.”

For these existing properties, more and more investors are considering a value-added strategy, Weaver said, putting money into capital improvements for a larger return down the road.

“Value-added is a strategy that only came back in the last year,” he said. “In 2009 and 2010, people weren’t even entertaining value-added — and it’s certainly back in a big way.”

While a number of new units have been proposed in the region, financing for condos is still tight, Capas said, and that has led some developers to consider the so-called Brazilian model of condo financing, where buyers pay incrementally over the course of the development of a project to fund construction with their payments. But that still represents a relatively small sample, and with an established and continuously improving rental market, the apartment model could prove enduring.

“The fact that [developers] are looking to build apartments tells you that, I think, the [multi-family] apartment market is the game to be in right now,” Weaver said.