IN OCTOBER, ATLANTA-BASED Wood Partners made a move that has been all too rare the past few years: It purchased land in Florida.
Wood acquired 9.69 acres on which to build Alta at Lake Eve, a $32.7 million, 264-unit luxury apartment community approximately two miles from Walt Disney World. Construction is expected to begin in December, and the first residents will move in by September 2012.
Wood isn't alone. Later in the month, Phoenix- based Alliance Residential announced that it purchased a 17-acre parcel of land in Boca Raton. There, it plans to build a $62 million, 384-unit luxury apartment community called Broadstone at North Boca Village. And Atlanta-based Gables Residential has a deal under construction in Coral Gables and is sitting on a site in Aventura that it would like to put under production. It's pursuing other opportunities in South Florida, as well, according to company senior vice president of investments Joe Wilber.
“Apartment construction is coming back and is rip-roaring in Florida right now,” says Jack McCabe, chief executive of McCabe Research & Consulting in Deerfield Beach, Fla.
Think back a couple of years. Supply-soaked Florida dominated the real estate headlines with foreclosures, distress, and investors fleeing from their downpayments. Now, national multifamily firms such as Alliance, Gables, and Wood are making big building bets on the Sunshine State. In fact, McCabe says there are 18,000 units in the works in South Florida overall. The question is, can the market absorb these new units?
What happened to cause this resurgence of interest in Florida? Well, for one thing, like the rest of the country, the occupancy situation in Florida has stabilized and now tightened. The major markets in the state are 93.3 percent occupied, which is an increase of 0.7 percentage points in the past year, according to Carrollton, Texas–based MPF Research.
But fundamentals are not the biggest factor here. The bigger problem could be underwriting deals. Right now, a lot of Florida developments are penciling out because of almost-distressed prices for land and relatively inexpensive materials and labor costs. “Costs have edged up slightly [from the bottom], but not significantly," says Michael Ging, Alliance's managing director of development for Florida. “Across the board, costs came down about 30 percent from the peak pricing back in 2005."
Plus, land could be harder to come by. Right now, apartment operators are finding a lot of former condo sites that are available. “There's a fair amount of deals that never got built,” Wilber says. “The sites that got tied up and got entitled for condo towers but never built are coming back into the market. We're looking at them as rental opportunities."
All told, most developers are talking of new starts. “Developers develop,” says Peter Zalewski, a principal with the Bal Harbour, Fla.–based Condo Vultures. “They see a little crack. These developers are thinking there will only be so much allowed this go-around. So we want to come out early and announce it early.”