If you’ve read the headlines and press releases the past few weeks, you might thing Florida is turning the corner.
Look at the resale data. Bal Harbour, Fla.-based Condo Vultures says nearly 75,000 residences resold in 2010. That beats 2006’s previous high of 67,600 transactions. It was also up 10.4 percent over the 67,800 transactions posted in 2009.
“All of these towers all pretty much went into play in the second half of the year,” says Peter Zalewski, a principal with Condo Vultures. “They’ve been spoken for now. It looks like there’s some stabilization starting to occur, or at least a floor being put into place. Institutions have come in and bought.”
Zalewski predicts that by the end of the year, private equity will have scooped up most of the prized assets in the state and be off to other markets. The consensus is that this movement most definitely indicates a sign of life in the troubled state. But what does that mean to rental owners? Until there’s a clear bottom, don’t expect values to recover rapidly though.
“Whoever pegs the bottom and settling of the single family home and condo glut, will do well,” says Gene Berman, a managing director for Encino, Calif.,-based Marcus and Millichap. “When that starts to absorb, everything will spark values going back up.”
That said, 2010 did see trades of rental assets rise around the state. “It’s clear that 2009 was the bottom and we persevered and, in 2010 we’ve gotten some lift,” Berman says. “2009 was very difficult to do anything expensive in Florida because fundamentals were so bad. We’re really rolling into 2011. We’re no longer fighting the headwinds.”
Jack McCabe, a Deerfield Beach, Fla.,-based real estate analyst and owner of McCabe Research & Consulting, says, like bulk condos, apartment assets starting moving in the last six months of 2010. "A lot of insituions are actively looking for and buying apartments," he says.
Part of the reason 2011 looks so much better in Florida? Fundamentals are looking a lot better. And, that’s given some owners the confidence to get more aggressive. Birmingham, Ala.,-based Colonial Property Trust announced its building a 486-unit community in Tampa, for example, and Atlanta-based Wood Partners has likewise announced that it is beginning construction in Jacksonville.
"Apartment developers are buying land because they see an opportunity in the market in the next five to seven years," McCabe says.
Greg Willett, vice president, research and analysis, for Carrolton, Texas-based MPF Research says that all of the major metro areas in the Sunshine State improved in 2010. Miami, ground zero for the condo collapse, saw its occupancy jump 1.6 percentage points to 96 percent and its rent growth went up 4.8 percent.
“Miami is in good shape and should do well, too,” he says. “But the shadow market inventory of individually-owned condos offered for lease remains big, and that creates some downside risk for the apartment sector depending on how those shadow market units get priced.”
But Zalewski contends some of those foreclosed homeowners helped South Florida. “We would have anticipated that rents would have fallen further,” he says.” As people are getting foreclosed upon in their five bedroom houses, they’re increasingly changing their lifestyle and moving into a new product that’s centrally located.”
Highs and Lows
Tampa's 91.9% occupancy at year end was an 1.8 percentage point annual increase and rent growth likewise rose 2.6%. Orlando saw its occupancy move 2.5 percentage points to 92.1%, while rent grew 1.2 percent. Jacksonville, considered one the weakest markets nationally, saw occupancy move a strong 4.1 percentage points to 90.4%. It recorded 2.1% rent growth.
“Orlando and Jacksonville are the two metros really displaying some demand momentum. But occupancy got so low in those spots during the downturn that recent improvements still leave lots of work to be done,” Willett says. “Occupancy progress should continue in 2011, but we’re not yet at the point where sizable rent growth can kick in.”
Fort Lauderdale, which posted 94.9% occupancy at the end of 2010, saw occupancy jump 2.0 percentage points and rent growth increase 2.8 percent during the year. MPF likes the market heading into 2011 and has it pegged as the nation’s eight strongest market for revenue growth with a 6.7% increase (1.6% on occupancy and 5.1% on rents).
“What’s distinct about the area is that production of total housing—including apartments, condos and single-family homes—over the past decade actually wasn’t very aggressive relative to job change,” Willett says. “Thus, the metro’s general overstock just isn’t that big and can be burned off pretty quickly at the expected pace of job gain.”