The Weekly Dirt: Is it doomsday for South Florida’s multifamily market? 

Costs are soaring for multifamily landlords in South Florida. Some are looking to cut their losses before it gets worse. 

South Florida has outperformed other major metros, with out-of-state apartment investors and developers flocking to the region during the pandemic boom. That could make the downcycle even worse, Alex Horn of Miami-based lender BridgeInvest tells my colleague Lidia Dinkova. 

Between the middle of 2022 and 2023, South Florida property repair and maintenance costs rose 22 percent, insurance skyrocketed 62 percent and payroll and other expenses increased 12 percent, according to Morningstar Credit. Inflation has also prompted rent delinquencies, when at the same time demand for new projects has slowed down. 

Because of record rent growth and in-migration, investors in South Florida were more aggressive than usual, taking out higher-leveraged loans and expecting rent growth to continue for longer than in other U.S. markets. 

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The cooldown in other cities that began in 2020 “ultimately extended that curve further because there was continued growth in the market for the following two years. … In some ways that made it worse” for South Florida, Horn says. 

For some owners who bought at the peak, higher interest and cap rates have suppressed property values. So if values continue to drop, waiting to sell a property could mean taking a bigger loss than selling now. Not everyone agrees that will happen.

“South Florida’s demand and rent dynamic are the best in the country, period,” said David Lynd, CEO of apartment developer and investor The Lynd Group. “But that has nothing to do with interest rates, insurance rates and costs. There’s no hiding from them anywhere, no matter what market you are in.”

What we’re thinking about: How will the changes brought by the National Association of Realtors’ proposed settlement affect South Florida brokerages’ bottom lines? Send me a note at kk@therealdeal.com. 

CLOSING TIME 

Residential: An oceanfront penthouse at Four Seasons Residences at the Surf Club in Surfside sold for $44 million, or a record $6,000 per square foot. The 7,300-square-foot, five-bedroom, five-and-a-half-bathroom condo includes an outdoor garden and a rooftop pool. The buyer and seller are hidden. 

Commercial: Lurra Capital paid $59 million for the Queue Apartments in downtown Fort Lauderdale. Boardwalk Properties sold the seven-story, 192-unit building at 817 Southeast Second Avenue for more than $307,000 per apartment. Lurra assumed $33.2 million in outstanding debt with a fixed 4 percent interest rate. 

NEW TO THE MARKET 

The eight-bedroom, nine-and-a-half-bathroom Mediterranean-style estate at 5 Via Sunny in Palm Beach hit the market for nearly $45 million. The property includes a main home and a two-bedroom guest house. It’s listed with Paul Birmingham, a Sotheby’s International Realty agent. 

A thing we’ve learned 

Inspired by imitation caviar, a L’Oréal packaging engineer is using seaweed to produce completely biodegradable packaging for food, drinks, detergent, cutlery and more that could replace plastic. 

Elsewhere in Florida 

• The Florida Supreme Court’s ruling last week triggered a six-week ban that goes into effect in May, NPR reports. The court also allowed ballot language for a November amendment that would codify abortion protections in the state, leaving it in the hands of the voters. The six-week ban will be one of the most restrictive in the country. 
• A U.S. bankruptcy judge didn’t immediately rule on an attempt by creditors to force Rudy Giuliani to list his Palm Beach condo for sale, a temporary win for Donald Trump’s former lawyer. But the judge warned Giuliani that he could be faced with a more extreme bankruptcy remedy, such as a trustee being appointed to take control of his assets, according to Reuters. 
• A portion of a tower crane fell from an apartment building under construction in downtown Fort Lauderdale last week, after a platform for equipment staging failed, according to the city’s fire chief. The accident killed one construction worker and injured three others.