for deep discounts on apartment communities, while many knowledgeable professionals in the field are claiming those discounts
will never materialize. Owners are unwilling to take a price cut
if they’re not in distress. Bridging the expectations between buyers and sellers will be a determining factor for what happens in
the market, says Alan Kaye, managing director of Sperry Van Ness
Kaye Commercial Investment Group in Boca Raton.
What can be done to close the gap? Brokers say sellers need to
realize they’re not going to get the prices they were quoted at the
height of the market three or four years ago, and buyers need to
realize they’re not going to get deals for pennies on the dollar. “It’s
the investors looking to buy based on fundamentals that are doing
deals today,” says Kaye.
That doesn’t deter some investors from trying to scoop up distressed assets, says Erik Bjornson, sales director with Walchle Lear
Multifamily Advisors in Jacksonville Beach. “In some instances
[those deals are] near impossible to complete because financing is
only available for stabilized assets,” he explains. “The ones getting
done are typically with cash players.”
All-cash buys are prevalent, but most investors make a purchase with the idea of
obtaining financing through Fannie Mae
or Freddie Mac after closing, says Shelton
Granade, first vice president of investment
properties with CB Richard Ellis in Orlando. But even the GSEs will only loan up
to 65% of value in Florida, adds Bjornson.
Still, experts note that in today’s market
there are more multifamily trades occurring than other types of commercial property because Fannie and Freddie continue
to provide debt for apartments.
“The real challenges they faced have
been primarily with single-family and subprime loans,” says Granade of the mortgage giants, which were recently moved
into US Treasury conservatorship. “
Multifamily was actually one of the most profitable components of
their business .”
Fannie and Freddie aside, the general lack of available financing, coupled with the gap between buyers’ and sellers’ expectations, has resulted in a major drop in transaction volume
throughout Florida this year. Add to that the general concern by
equity players about the overall economy, the direction of employment and rent growth, says Gerard Yetming, first vice president
with CB Richard Ellis in Miami.
The effects are being felt most drastically in South Florida,
where sales volume has dropped 70% this year when compared
to 2007, says William Hemingway, co-managing director with Integra. Walchle Lear’s Bjornson says transactions in the Jacksonville
market are “severely down,” citing 34 total communities traded in
2007 and only 11 sales closed so far this year. “Overall in Orlando,
apartment sales volume is down about 40% from where it was last
year,” says CBRE’s Granade.
According to Marcus & Millichap Real Estate Investment Services Inc.’s latest apartment research report, Tampa’s transaction
velocity is down 38% year over year. However, John Burpee, chair-
man of NAI Tampa Bay, says the market isn’t suffering as badly
as others in terms of transactions, citing the help of local lenders
who are stepping up in the absence of institutional financing. “It
is really a back-to-basics cash flow market,” he says.
“We have now started talking to more investors in 2008 than we
ever did in 2007, and a much more diverse pool of investors as well,”
Burpee adds. Buyers are exiting the office and retail sectors, which
are just now starting to feel the sluggishness that the apartment market has been suffering over the past 18 months, he notes.
Though the buyer profile has changed, says Calum Weaver, investment properties associate with CBRE in Miami, the good news
is “there is no shortage of people looking to buy right now. The
market is still open.”
Meanwhile, the shadow market is putting pressure on traditional units, as speculative condo buyers would rather rent
out their units until prices rise than sell at a loss. According
to a survey by Integra, rental rates on those units can differ
by as much as 250% on the same type of apartment because
there is no single landlord setting rates.
Those units, along with a number of single-family homes that have been dumped
into the rental pool and reversions of
failed condo projects, have fed a growing shadow inventory, the size of which
brokers in local markets say cannot be
accurately measured.
The additional competition is bringing
about higher vacancy, yet multifamily experts agree that people would be surprised
to know how healthy the market actually is.
In South Florida, widely publicized as being
the region most affected by the condo crisis, overall vacancy in mid-2008 was only
6.1%, says Cannon. Marcus & Millichap
forecasts Miami-Dade County apartment
vacancy ending the year at 5%, but points
out that vacancy rose only 20 basis points
in 2007 as opposed to 100 basis points this year. Availabilities are
high in other parts of the state, but local professionals claim they
will bounce back before South Florida does because those markets
didn’t see as much of an influx of new condos and conversions. In
Orlando, for instance, vacancy is projected to rise more than two
percentage points to 7.3% by the end of 2008, according to the
latest CBRE report. Marcus & Millichap research shows Tampa
vacancy rates are expected to end the year at 8.7%, up 180 basis
points year over year. Jacksonville occupancy is down 6% from last
year because of the shadow market, says Bjornson.
The story isn’t all bad for Florida multifamily, however. Experts are even reporting increased demand for units because
many owners who lost their homes or decided to rent condos
over the past few years will gravitate back toward professionally
managed communities.
The risk of foreclosure by the owner of a condo before a lease is
up is one major factor driving people back into the rental pool, says
Alan Ojeda, president and CEO of Rilea Group in Miami, who has
seen renters return to his One Broadway community Downtown.
MULTIFAMILY Continued on page 43
“It's the investors
looking to buy based on
fundamentals that are
doing deals today.”
ALAN KAYE
Sperry Van Ness Kaye Commercial
