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COMMERCIAL REAL ESTATE
Apartment Surge
Occupancy rates are high, but prices may foreshadow a wave of conversions
BY DARCIE LUNSFORD
It is not your imagination.
New apartment projects are popping up like sawgrass across
the South Florida landscape. In fact, nearly 8,100 new rental units
were delivered region-wide last year alone,
topping off a three-year construction surge.
Bolstered by a torrent of capital, available
financing, low vacancy rates and an everrising floor for what people will pay to live a
luxury, lock-and-go lifestyle, South Florida’s
apartment sector is commercial real estate’s
proverbial Energizer Bunny.
And so far, the construction boom hasn’t
moved the vacancy dial up that much, or rental
rates down – at all.
Fourth-quarter occupancy in South Florida
was a healthy 95.3 percent, according to MPF
Research.
Year-over-year rents in 2014 edged up 6.5 percent in West Palm
Beach; 4.7 percent in Fort Lauderdale; and 4.5 percent in Miami.
“It is supply and demand and right now we have a very healthy
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market,” said Deme Mekras, regional managing partner of
Franklin Street. “If I were to guess, I would say we have a couple
more years of this.”
A quick trip down memory lane helps remind
us how we can build so much without a glut.
From 2003 to 2007, more than 63,000
apartments were ripped from the rental
inventory and converted to for-sale condos.
That led to a 37 percent decrease in total
apartment supply.
Even with the three-year deluge of new
apartment deliveries, South Florida’s apartment
stock still remains seven percent lower than it
was in 2003, MPF data shows.
Joel Altman
“You still have tremendous pent-up demand,”
said Joel Altman, chairman of Altman Cos, a
Boca Raton-based apartment developer. “You
also have a dramatic change in household preference for living
accommodations.” He said that these days many people simply
prefer to rent than own.
Several views of Altis Sheridan
Village, facing page and this
page, where high demand allowed
developer Joel Altman to raise rates
20 percent during the lease up phase.
Altman’s recently completed Altis Sheridan Village in
Pembroke Pines, is an example of the dynamics now driving the
apartment sector.
By the time the 300-unit complex received it final certificate
of occupancy in October, it was stabilized at 93 percent leased.
Robust leasing demand of 40 units a month allowed Altman to
push rents by nearly 20 percent to $1.84 per square foot during
the lease up phase.
Altman hopes to repeat this success with his
newest development, Altis Boca Raton in the
Park, which is set to break ground this summer.
The 398-unit midrise development on Yamato
Road will seek to command rents averaging
$2.20 per square foot. The project will blend
high-end residential with 64,000 square feet of
retail.
“It is a very luxurious building,” Altman said.
With average rents in new South Florida
apartment projects now piercing $2 a square
foot in Broward and Palm Beach counties and
$3 a foot in Miami, affordability is beginning
to become a market force, said Jack McCabe of
McCabe Research & Consulting in Deerfield Beach.
“I think what we are coming into now is a potential period
of condo conversions,” he added. “Ninety percent of the new
apartment developments being built now are unaffordable to 90
percent of the people that live here.”
In fact, metro Miami was recently pegged as the least affordable
city for renters among the nation’s largest cities, including New
York and San Francisco, according to a new study by New York
University Furman Center and Capital One. More than 36 percent
of Miami renters spend more than half their income on rent and
utilities, the study showed.
“What we noticed in Miami is that it is one
of the most severely rent burdened cities in our
study,” said Laura Bailey, head of community
finance at Capital One. “Rent growth has
outpaced income growth in Miami.”
At current market rates, leasing a new
1,000-square-foot, two-bedroom apartment in
Miami would be more than triple the mortgage
payment on a $200,000 house or condo.
“That is why I think we have a new age of
conversion coming,” McCabe said. “I think we
Jack McCabe have a lot of folks out there that would like to
buy.” ¿
Freelance writer Darcie Lunsford is a former
real estate editor of the South Florida Business Journal. She is the
Senior VP for leasing at Butters Group and is avoiding a conflict
of interest in her column by not covering her own deals.
www.sfbwmag.com • April 2015
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