The pivot quietly began five years ago.

Back then, construction cranes dotted the downtown Miami skyline like the towering alien invaders in Steven Spielberg’s “War of the Worlds.” The real estate industry had recovered from the 2009 recession and was bouncing back hard. Thousands of condos — many of them priced way beyond the reach of local residents — were being delivered or built, completing Brickell’s transformation from office district to dense residential neighborhood.

But Steve Patterson, president and CEO of Related Development, the multifamily rental arm of the Related Group, saw a different picture altogether and started buying up land outside of Miami-Dade.

“I was hired by Jorge Pérez [chairman and CEO of the Related Group] right at the trough of the recession to reactivate the company’s market-rate rental division,” he said. “We like to put the pedal to the metal during a downturn, because costs are lower and the quality of our product is better. There is some softness in the condo market now, and we feel it’s the perfect time right now.”

The Related Group is best-known for its luxury and market-rate condo towers, with an estimated 80,000 condos built, the bulk of them in Miami-Dade. But with a glut of unsold condos dragging down that market, the company is shifting gears and invested $2.3 billion for a wave of apartment rental buildings — both affordable and market-rate — in Miami-Dade and cities such as Tampa, Orlando, and Fort Myers.

This year alone, the company has delivered 3,053 market-rate and 719 affordable/mixed-income rentals in Lantana, Palm Beach and Orlando, including another 204 units in the ongoing $300 million Liberty Square renovation project, which unveiled the completion of its second phase on Friday. Phase I, which opened in July 2019, brought another 204 affordable and workforce units online.

In the pipeline are another 6,772 market rate units in cities including Fort Lauderdale, Phoenix, Atlanta and Jacksonville, all due to break ground between now and the summer of 2021. Another 3,576 affordable and workforce units in mixed-income developments built with the support of local government and federal subsidies are under construction, most of them in Miami-Dade. They include the 120-unit Brisas del Este in Allapattah and the 150-unit Gallery at River Parc in Little Havana.

Related still has more than 1,500 condos under construction or in development in cities such as Fort Lauderdale, Tampa, Sanibel and Jacksonville, but none in Miami-Dade

According to Patterson, all major banks are continuing to provide real estate funding, including Related’s projects. But lenders are being more conservative than in years past, and backing for condominiums is much tougher to secure than that for apartments — another motivator for the company’s pivot to rentals.

Because of the glut of apartment rentals built over the last couple of years in the downtown urban core — nearly 6,000 units since 2014, according to the Downtown Development Authority — Related is steering clear of that area except for one project: The first of three planned towers at 444 Brickell, a four-acre site the company bought in 2013 for $104 million, will be a 40-45 story tower with 500 apartment rentals. Groundbreaking is scheduled for first quarter of 2021 and will take 30 months to complete. In total, the company has 1,500 condo units in the pipeline in Florida, Brazil and Cancun, Mexico.

A NATIONAL TREND

Related’s switch to apartment rentals is a continuation of a national trend that’s been happening for the last few years.

“The biggest driver of apartment construction is the home ownership rate,” said Gerard Yetming, executive managing director of the Urban Core Division of Colliers International. “Home ownership peaked in 2005 at 69% and it’s been trending down every year. So it makes sense there would be a growing demand for rentals and that Related is pushing into that area. The question is will it be a long-term trend. What you’re seeing right now is really just a result of big economic trends that are cyclical.”

Over the last 20 years, home ownership in the U.S. peaked in 2005 at 69%, according to Statistica, and hit a low of 62% in 2015. The percentage inched back up to 65% in 2019. But the U.S. population also grew during that time, from 296 million people to 328 million in 2019.

“The government created the notion that owning a home was the American dream,” Patterson said. “It proved to be beneficial to most people who bought homes until we saw the spike in prices in the last cycle. A lot of millennials saw their parents lose a lot of money.”

The housing bubble burst in 2008, when the bottom fell out of the real estate market, resulting in 2.3 million foreclosures and a loss of $2 trillion in home values in that year alone.

 

Source:  Miami Herald

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