All in the multifamily

After a recent lull, multifamily investment sales rebounded with a vengeance in the second quarter of 2017, signaling that institutional buyers have renewed confidence in class A apartment buildings in South Florida, according to brokers and builders involved in some of this year’s most monumental transactions.

“In the fourth quarter of 2016, the financial markets were like a turtle pulling its head in,” said Robert Given, Cushman & Wakefield vice chairman of the South Florida Multifamily Institutional Properties group. “Investors simply lost confidence in the last four months of 2016 and, as a result, not many projects went into agreement that would then naturally close in first quarter of 2017. Volume was way down.”

Data crunched by The Real Deal supports Given’s assessment. TRD pulled data from Real Capital Analytics (RCA) on multifamily investment sales that closed between August 1, 2016, and July 31, 2017. Then, for the purposes of comparison, TRD also analyzed RCA’s data on sales in that asset class between August 1, 2015, and July 31, 2016.

When looking at the top 10 multifamily deals that closed in the 12 months ending in July of this year, a combined 4,628 units over 11 properties changed hands. The combined dollar value of those sales came to $1.1 billion. The priciest deal was Harbor Group International’s $158.5 million purchase of the Montage at City Center in Pembroke Pines from AVR Realty Company. With 700 units sold in the deal, Harbor Group paid approximately $225,714 per apartment. 

(Click to enlarge)

By contrast, the top 10 deals in the 12 months ending in July 2016 represented 53 properties with a combined 16,716 units changing hands. And the total value of the deals was $3.6 billion, which eclipsed an annual record of $3.3 billion in sales for 2014-2015, according to a Cushman report. However, that figure includes an outlier that had a huge impact on the totals: $2.4 billion of the deal volume was part of the blockbuster $5.4 billion sale of Equity Residential’s nationwide multifamily portfolio to Starwood Capital. In that deal, Starwood acquired 32 Florida properties with a combined 10,742 apartments.

Still, experts said the uptick in interest over the previous year was noteworthy.

Given, whose firm was the listing broker for the first and second ranked deals in 2016-2017, said real estate investment trusts and insurance companies became hesitant to work deals in the fourth quarter of last year due to combined concerns about the devaluation of China’s currency, negative interest rates in Europe and the U.S. presidential race. “That just led to investor anxiety going into the back part of the year,” Given said. “We just hit the pause button.”

By the beginning of 2017, investors regained their confidence, but faced pent-up demand since only a small number of class A properties were on the market, Given said.

That pressure has placed a premium on buildings like the Amaray Las Olas in downtown Fort Lauderdale. In June, Cushman handled the $133.55 million sale of the new luxury rental tower at 215 Southeast Eighth Avenue from a joint venture between the Rockefeller Group and Stiles Corp. to GID, a Boston-based real estate development, property management and acquisition firm. The deal for the 30-story, 254-unit building is the second highest for 2016-2017, and each apartment sold for nearly $526,000.

The priciest deal of the last 12 months was Harbor Group International’s $158.5 million purchase of the 700-unit Montage at City Center in Pembroke Pines.

“That was the highest price per unit in Southeast U.S. history for a multifamily apartment trade deal,” Given said. “It was 41 percent higher than the next two biggest trades in the Southeast, and both of those were also in South Florida.”

Joel Altman, chairman of Boca Raton-based multifamily builder Altman Companies, said the price per unit GID paid is a little more than double the going rate for a typical apartment building deal.

“The normal rate is around $250,000 per unit,” Altman said. “The reason behind that is the demand is higher than the supply. There is a lot of money out there looking to invest in class A properties, but there are not a lot for sale.”

The Altman Companies is one of the few builders that was able to make a deal in the fourth quarter of last year. Its Altis at Kendall Square, a 321-unit garden apartment complex in Miami-Dade County, sold for $82 million to SMB Bradley in November of 2017. That equates to approximately $255,000 per unit. Altman retains a minority interest in the development and manages the property.

“There is not a lot of product, thus prices are up,” Altman said. “It is very competitive among buyers.”

Institutional investors are particularly bullish on multifamily deals due to South Florida’s growing population and the continued difficulty the middle class is experiencing in trying to buy homes. This has created a healthy base of home renters, said Charles Foschini, a senior managing director in commercial brokerage Berkadia’s Miami office.

(Click to enlarge)

“The credit environment for first-time buyers and anyone who had a blemish in the last cycle still has not returned to normalcy,” Foschini says. “That has created an extended demand for rental properties.”

South Florida rents achieved record pricing for the sixth straight year, according to Cushman’s 2017 first-quarter multifamily update. At the same time, income levels for the region grew significantly. According to Cushman, median salary income rose 3.6 percent in 2016, the second highest percentage increase since 2006.

Since 2011, rents in Miami-Dade, Broward and Palm Beach grew by 32 percent, and the occupancy rate is around 96 percent, while net absorption levels are outpacing new supply, Cushman reported. Currently, there are 52 apartment buildings with a total of 17,652 units under construction in the tri-county region, according to the firm.

Foschini said REITs and insurance companies are especially interested in high-quality urban infill developments that have state-of-the-art amenities and good access to employment centers and transportation hubs.

“These projects create a sustained value and have the ability to increase rents over time,” Foschini explained. “I don’t see this trend going the other way.”

— Harunobu Coryne provided research for this report.