Investors looking for multifamily projects in Palm Beach County face a scarcity of development sites and properties for sale, according to a panel of real estate experts
“We’re obviously site-challenged in Palm Beach County,” said Bob Vail, president of Kolter Urban, the multifamily development arm of West Palm Beach-based Kolter Group LLC.
“The biggest problem is finding sites,” said Joe McMillan, chairman and CEO of DDG, a New York-based developer that is building 3550 South Ocean, a seven-story, 30-unit condominium in Palm Beach.
McMillan and Vail spoke Thursday during a panel on Palm Beach County’s multifamily market, hosted by Bisnow at the Four Seasons Resort Palm Beach.
Many of the county’s best sites for rental apartment development already are taken, and “land costs are through the roof,” said panel member Gabe Seghi, of Hollywood-based Hunt Mortgage Group.
About 8,000 rental apartments are in some stage of development in Palm Beach County, including 2,000 under construction in downtown West Palm Beach, Seghi said.
“That’s a lot of supply,” so apartment construction probably will slow over the next couple of years, he said. “I think it’s going to be a trickle compared to the steady flow we’ve seen over the last few years,” he added.
Investing in existing apartments in Palm Beach County also has become more expensive in recent years, said Neal Herman, senior director of Avesta Holdings, a Tampa-based apartment investor and manager.
The typical cap rate for a multifamily rental property, or its net operating income as a percentage of its price, has dropped substantially over the last five years as property prices have risen, Herman said.
“It’s tough to swallow a 5 percent cap now when you were buying them for 7 in 2013,” he said.
Herman said Avesta Holdings is now shopping for rental properties in central and western Boynton Beach.
Another panel member, Miami Beach native Todd Michael Glaser, said the Dixie Highway corridor in West Palm Beach “is becoming a very artsy area, very similar to Wynwood [in Miami] and the Miami Design District. It’s almost like both in one.”
He recently bought a former bank building in West Palm Beach after buying two houses in Palm Beach in 2017.
Glaser also is working on an apartment development in Miami without parking spaces for cars, due to the site’s proximity to mass transit, and “we’re looking for sites now in West Palm Beach to do possibly the same thing,” he said.
But Brightline, the newest form of mass transit in Palm Beach County, may be too pricey to encourage widespread commuting by rail, several panel members said.
The Brightline passenger train service that began operating in January between West Palm Beach and Fort Lauderdale charges $20 per round trip. “The ticket price is a bit of a sticker shock. That’s probably the biggest challenge to it,” McMillan said.
Seghi said South Florida is “not a commuter society. It’s not Manhattan. I think people still like their cars.”