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Resilient Multifamily Sector Holding Strong During Pandemic

The multifamily sector has long held strong against uncertainty and economic swings, and the Covid-19 pandemic has proven to be no exception. While investors may shift toward new product classes during the current downturn, multifamily as a whole continues to offer an attractive option for both private investors and institutions seeking protection from economic storms.

Why Investors Like Multifamily During Uncertain Times

Because people always need housing, multifamily properties historically perform better than other commercial real estate classes. In contrast to office and retail, which ebb and flow dramatically with supply-and-demand cycles, multifamily typically remains stable and often continues to grow when other parts of the market constrict.

In addition, demand for rentals has continued to grow over the past several years. Individuals and families, young professionals and baby boomers make up a growing renter demographic that spans generations and income levels. While many people rent out of necessity, a growing number of renters have chosen that option for the flexible and community-oriented lifestyle it offers. That trend has opened up a wide opportunity pool for properties across multifamily classes, from A-class luxury to C-class workforce housing.

An October 2020 report from Newmark Knight Frank describes Covid-19 as an accelerant for buyers preferring defensive property types including multifamily. The pandemic also enhanced targeting cities where there is room to grow — like less densely populated metros.

The report also points out that in the absence of for-sale opportunities in the industrial market, multifamily offers investors an attractive option due to its high level of liquidity. Data in that report supports the draw as multifamily investment sales volume accounted for 34.3% of CRE volume between April and August 2020 — a period with significant pandemic lockdown orders and business limitations or closures across the country.

How Covid-19 Impacted Multifamily Investment

An accelerated move toward suburban areas might become the most striking shift sparked by the pandemic. Although we have seen that trend in action for several years, the realities of social distancing appear to favor communities with less density and more features to meet the needs of renters not only working from home but spending more time there in general.

The report from Newmark Knight Frank bears out that shift, with data showing that 65.4% of multifamily property investment between April and August went to garden-style apartments. Newmark Knight Frank also points out that investors who typically place capital in safe haven-type markets are now open to suburban areas as a result of potential concerns generated by the pandemic — overcrowding and mass transit.

Throughout the pandemic slowdown, rent collections and occupancy rates have remained high in the sector. As of November 20, 90.3% of renters had paid rent in full or in part, according to the National Multifamily Housing Council’s Rent Tracker. That number sits only 1.6% below the same period last year. In a time of employment fluctuations and uncertainty, those figures paint a hopeful picture.

As of November, occupancy rates in urban core apartment towers sat at 92.7% compared to middle-market Class B properties, like garden-style or low-rise properties, which show an occupancy rate of 95.8%.

Gateway cities, such as San Francisco, New York and Seattle, have seen spikes in lease-originations; however, many of these new leases are existing renters who have been lured to new properties or units by pandemic-related concessions. Sun Belt cities have not experienced the same flight patterns among renters.

Investment Outlook

During Covid-19, mostly private investors have made moves in multifamily, but large investors have indicated their preference for multifamily and industrial moving into the last quarter of the year and for 2021. Newmark Knight Frank expects a $205 billion influx from the institutional side, which now sits in closed-end real estate funds. They report an expected $80 billion has been earmarked for the remaining two months of 2020.

As a private developer, the focus at my company for many years has been three- or four-story, surface-parked, garden-style multifamily properties in suburban submarkets of major cities in the Southeast and Texas. That experience has provided a lot of anecdotal data for assessing how the pandemic’s impact on the investment outlook. There are a few trends my company noted in 2020, based on the property portfolio it holds.

My company has maintained collections close to 98% across our multifamily portfolio, which aligns with the national numbers noted above. New development lease-up activity remains strong with levels unchanged from before the pandemic while many applications come from residents moving into our market from other states. My company — and others — offer concessions similar to those offered in other markets to encourage leasing, but they are coupled with steady rent growth. Buyer activity continues as does cap rate compression in our space — all while the region experienced supply constraints as a result of pandemic-induced cost increases in new development.

Both private and institutional investors continue to show interest in multifamily properties. As a result, I believe we can be optimistic about this asset class. Consumer behaviors and property performance in the midst of an uncertain economy as a result of the pandemic show this class as an important one. There may even be room for further demand growth as the impacts from the pandemic cool.

 

Source:  Forbes

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What Trends Should Florida Investors Keep Tabs On?

Multifamily will continue to be a prevailing asset class in the Sunshine State due to residents’ growing desire to relocate and live here, Victor Ballestas, principal of Integra Investments, told Multi-Housing News.

Currently, locals are increasingly looking for residential options in suburbs and rural areas—and shying away from high-density metros—but this trend is likely to reverse once the crisis recedes. Despite short-term uncertainties brought on by the coronavirus outbreak, Ballestas anticipates a quick recovery for Florida’s real estate industry.

How is the Florida multifamily market navigating the pandemic?

Ballestas: Despite the uncertainty brought on by the pandemic, Florida’s real estate industry may be primed to recover with a sharp rebound. The multifamily market is weathering the pandemic better than most; vacancies remain low and collections were only a challenge for a few months. Low interest rates and the net migration to Florida contribute to the stability of the product.

The pandemic’s circumstances have created homebuyers and strengthened the suburban market, as residents look for outdoor space, especially as more people spend time working and learning from home. Thus, dense urban markets are being affected as individuals relocate away from the urban core. However, I expect a wave back to urban markets will happen again, but it will likely take a few years.

Compared to the last cycle, how is the current environment different in terms of relocation trends?

Ballestas: In the last cycle, conditions led to a movement from suburban areas into the urban core, specifically Miami’s Downtown, Brickell and Edgewater submarkets. Current trends show that individuals now prefer a less dense environment, potentially leading to deurbanization caused by the pandemic and resulting in a boom in rural and suburban areas. Understanding the market needs, municipalities must work with developers to deliver high-quality products that adjust to the changing environment.

New York and New Jersey have seen residents moving to Florida, Texas and other Sun Belt states since the onset of the pandemic. What can you tell us about this pattern?

Ballestas: With roughly 1,000 Americans flocking daily from high-tax northern cities to South Florida, new contracts for single-family homes and condominiums have doubled, and continue to rise in five south and central West Coast counties. As some companies transition to permanent remote work, buyers are reevaluating their lifestyle needs, seeking home offices, larger kitchens and green spaces. Therefore, consumers’ shifting product needs—combined with tax advantages—created the perfect storm, leading to an unprecedented uptick in sales, even in rentals of single-family homes.

Experts forecast the supply of multifamily housing units will not outpace the underlying demand, thus requiring added product to meet ongoing needs. Integra Investments remains bullish on multifamily, particularly market-rate and workforce-targeted units in the suburban submarkets of Dade and Broward counties.

Please tell us how your company has handled the pandemic-induced volatility.

Ballestas: With ongoing construction amid the pandemic, Integra’s project timelines remain on track across its portfolio. To ensure the safety of our construction team and the community, our firm has worked in conjunction with other developers and industry leaders to implement the proper protocols.

To support the ongoing housing crisis, 390 units of entirely affordable and elderly housing in Miami-Dade will be under construction by the end of the fourth quarter by Interurban, our affordable housing development division. Additionally, Integra Marina, our in-house marina business vertical, remains bullish on value-add marina opportunities, as the increase in recreational boat sales has led to a substantial demand for coastal upland developments. Our portfolio includes Angler House Marina in the Florida Keys, Islamorada Marina in Key West, and Harbor Yacht Club and Westshore Marina in Tampa.

What trends in the multifamily industry should Florida real estate players keep an eye on going forward?

Ballestas: From now on, developers and users will place increased value on live-work-play environments, with added emphasis on suburban housing products with high walkability scores to parks and outdoor amenities. Additionally, we predict an uptick in untapped products that merge single-family home features with Class A multifamily amenities. An example of this is our Bella Vista apartment community in Lauderdale Lakes, which will be fully completed by the fourth quarter.

Considering the shift in remote work, internet speed and accessibility to different residential areas will become the most-valued amenities. With this in mind, our firm is incorporating dens and home offices in more units in our new multifamily developments.

How are your predictions for Florida’s multifamily market over the coming period?

Ballestas: The general outlook for real estate in 2020 at the start of the first quarter was positively supported by asset classes positioned for stability based on strong market fundamentals, steady rent growth and low interest rates. With a continued positive migration and increased desire to relocate to and live in South Florida, I predict multifamily will continue to be a predominant asset class.

 

Source:  MHN

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Multifamily Remains Strong Amid Health And Economic Uncertainty

As cities and businesses begin to reopen following weeks or months of stay-at-home orders, many sectors of the economy face the reality of a downturn. Amid that climate of uncertainty, multifamily remains strong as an investment opportunity.

Backed By History

Multifamily real estate has a long history of weathering economic storms. Last year, CBRE analyzed the effects of the past two recessions on the commercial real estate market and found that “multifamily outperformed office and industrial in the 2001 recession and all major property sectors (office, industrial, retail) during the 2008-2009 recession. Multifamily generally had lower total rent decline and more rapid post-recession rent recovery.”

Following the 2001 recession, multifamily recovered more quickly than other CRE categories and reached a much higher rent growth (10%) beyond its historical peak than either industrial or retail (4.3% and 5.7%, respectively).

The 2008-2009 recession sparked a steep decline in homeownership and demand for single-family homes, which has bolstered the multifamily market for the past decade. That demand has not shown signs of slowing in recent months.

The market has been predicting a downturn for the past several quarters. Although few could have expected a pandemic as the cause, industry experts have been ready for the shift from growth to maintenance for some time. The sector’s strong history of withstanding recessions gives those of us in multifamily confidence that we will bounce back and fare well in spite of challenges. In fact, my firm wrote about the subject in a 2019 newsletter, highlighting some fundamentals that contribute to multifamily success in all economic climates, including location, value-add investments and underwriting.

Effects Of The Pandemic To Date

While the market can expect a dip in occupancy following the pandemic, experts anticipate that it will be short-lived. Multifamily fundamentals will contribute to its ability to react to short-term fluctuations and long-term recovery. Covid-19 has had an impact on multifamily, but we can expect that the sector will continue to demonstrate its resilience.

According to one Globe St. writer, “Demographic trends favor continued multifamily demand. In addition, many businesses are now operating remotely so flexible shelter or renting versus owning remains desirable. And, graduating students with high debt will most likely choose to rent because securing a mortgage remains challenging.”

Recent reporting shows that renters in Class A and B properties have, in large part, kept up with their rent payments through the months of stay-at-home orders, in part because many residents in luxury to midtier apartments have a greater ability to continue their work remotely from home because many of these renters work in information- or technology-centric fields. Apartment communities located near strong professional business centers will continue to attract renters.

In our experience, professionally managed properties also have a greater ability to flex and meet the needs of those remote workers with high-quality technology investments, as well as creative solutions to in-unit and on-site workstations.

In addition, the following will support continued apartment demand:

• Interest rates are at record lows.

• With fewer people able to afford homeownership, tenants who under different circumstances might have become homeowners will remain apartment renters.

• With projected decreases in both homeownership and multifamily apartment deliveries, the current multifamily supply shortfall will increase.

• Resident turnover will lessen as people seek stability.

• Properties that have already deployed technology for marketing, leasing and resident services will be at an advantage in retaining and attracting renters in this environment.

Even as consumer spending tightens and retailers downsize or close entirely during downturns, people continue to need homes. Demand for apartment homes continues throughout all economic cycles. As the economy corrects in 2020, investors should feel a higher level of comfort with their multifamily investment than other investment products.

 

Source:  Forbes

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Multifamily Owners Go Virtual to Get Leases Signed Amid COVID-19

Virtual and augmented reality have been available for some time and had seen sporadic use, but the mass COVID-19 precipitated shutdowns nationwide have led to rapid adoption of the technologies by multifamily owners in order to get leases signed during the pandemic.

“Owners of apartment buildings across the U.S. are looking for new ways to have contactless touring… anything to decrease one-on-one touring,” says Georgianna Oliver, founder of Tour24, a technology company based in Medfield, Mass.

New technologies let apartments shoppers to check out potential homes without ever being in the presence of a leasing agent. That includes virtual tours, video chats and even “self-guided tours” that let potential renters make an appointment to see a real, physical apartment without a real, physical leasing agent being present.

These technologies are likely to be helpful, even in places where the rules of social distancing, meant to slow the spread of the virus, have begun to relax. “It’s here to stay for some time,” says Dan Russotto, vice president of product for Apartments.com, based in Atlanta. “Even as things re-open, there are going to be people who want to practice social distancing.”

Apartments.com creates virtual tours in which potential renters can move through a three-dimensional computer rendering of a model apartment.

Potential tenants can turn around to get a panoramic view, back into and out of rooms, and even look out of windows. They can take these virtual tours from the comfort of their own homes. The effects are similar to those in computer games in which players move through three-dimensional spaces. Apartments.com uses its “Matterport” technology to wrap a three-dimensional computer rendering of a model apartment with photographs of that model apartment.

These virtual tours are becoming easier to create. Apartments.com used to have to send photographers to create the specialized images needed to create a virtual tour. The company is now creating technology that allows property managers to take their own pictures.

In May 2020, Apartments.com also plans to introduce an online leasing office. Visitors to its website will be able to press a button on the webpage to start a video chat with a leasing professional.

Other property owners and property managers are using video chats and online tours to attract potential renters.

“We have always used these tools in our lease-up efforts… We are ramping it up,” says Jordan Brill, partner at Magnum Real Estate, based in New York City, the center of the coronavirus outbreak in the U.S.

The firm is using virtual tours to lease-to-own condominiums at it new-constructed properties at 196 Orchard in the Lower East Side neighborhood and 100 Barclay in the Tribeca neighborhood.

Potential residents can also now let themselves into an apartment and receive information about the unit and the community without needing the presence of a human leasing agent.

“In the last couple of months the interest in the product has grown tremendously,” Tour24’s Oliver says. The firm launched its technology less than two years ago. Today it provides self-guided tours at over 100 apartment communities, averaging 250 units each.

Apartment shoppers sign up to tour an apartment online and chose an option to take a self-guided tour. These potential renters download Tour24’s app onto their smartphones. They submit an image of a picture ID and a credit card number, which is verified by Tour24’s system.

At the time appointed for the tour, electronic locks let them into the apartment. The geo-location function on their phones track their location as they move through the apartment and the tour the amenities in the community, while listening to recorded information through the Tour24 app.

“You can have a message for the kitchen and another for bedroom,” says Oliver. “We provide a curated experience similar to a museum tour.”

So far, existing residents have not been too worried about having potential residents visiting their community unattended.

“It hasn’t been an issue,” says Oliver. “With all of the short-term rental activity and deliveries, there is already a lot of traffic in and out.”

 

Source:  NREI

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Small-Scale Urban Developments Starting To Sprout. Thank A Change In The Parking Code

Five years ago, the city eliminated a parking requirement for small-scale buildings. Now, dense multifamily buildings are cropping up on small lots across the city.

The City of Miami removed a zoning provision in 2015 that previously required new apartment, office and retail buildings covering less than 10,000 square feet to include 1.5 parking spaces per apartment. The change has spurred developed of at least 10 rental apartment buildings, say experts, by making them more affordable to build.

“We wouldn’t have been able to build what we want to build on these small lots if we had to include parking,” Mikhail Gurevich, a developer with Miami-based Propolis, said. “It would have become uneconomical for us.”

In small-scale projects, each parking space costs an average of $40,000, say experts, and is difficult-to-impossible to fit on a 5,000-square-foot infill lot. Large developments with the advantage of scale can build a parking garage for about $20,000 per space.

Propolis has eight projects in the pipeline in Allapattah, Little Havana and Overtown. The lot sizes are all about 5,000 square feet.

“None of them have parking. If a site forced us to have parking, then we wouldn’t build,” Gurevich said.

Gurevich expects his first rental building in Little Havana to be completed in February. The 3-story building will offer 12 units at 125 NW Seventh Ave. The two-to-three bedroom and two-to-three bathroom units will be rented per room as a co-living facility. The rooms start at $875 per month.

The code change prompted Maytee Valenzuela, president of family-owned Tommy’s Tuxedos, to develop a Little Havana property owned by the family for 40 years as a way to keep up with rising property taxes. She is planning a three-story, nine-unit rental apartment building at 700 NW Second St. , though she expects it will be about three years before she breaks ground.

“The parking exemption gives us that option,” Valenzuela said. “We would have not been able to do this otherwise because the lot is 5,000 square feet.”

The elimination of the parking requirement helps offset rising land costs, said Tecela founder Andrew Frey, who initiated the zoning code change in 2015 and got it passed with the support of the then-commissioner Francis Suarez. Frey then built three neighboring townhouse-style, 3-story buildings at 771, 769 and 761 NW First St. starting in 2016.

The change also allows developers to build smaller-scale projects in neighborhoods where most buildings have two-to-three floors, including Little Havana.

“Keeping the integrity of Little Havana is important. The policy change will make it easier to maintain the environment of Little Havana,” Gurevich said.

 

Source:  Miami Herald

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Multifamily Investors See This As ‘The Biggest Risk To Our Industry’

Local governments from New York to California have moved forward with new rent control laws this year in an attempt to address the housing affordability crisis. But multifamily investors say the laws are pushing them away from those markets, and they fear the trend could spread to other cities.

New York in June passed a law expanding rent regulations that affect nearly 1 million apartments in New York City, which was widely condemned in the commercial real estate industry. Oregon in February passed the nation’s first statewide rent control bill and California followed suit last month with passage of its own statewide rent control law.

TruAmerica Multifamily co-Chief Investment Officer Matt Ferrari, whose firm has over 40,000 units under management across 11 U.S. states, including California and Oregon, said the new laws are hurting those markets. He said they disincentivize owners from renovating properties, depress property values and decrease investment. He said he already sees capital fleeing those markets, and he is worried about more markets expanding rent control.

“It’s probably the biggest risk to our industry is this having a contagion effect from these deep blue states, New York and California, and eventually spreading across the country,” Ferrari said Thursday at Bisnow’s Multifamily Annual Conference East in D.C. “It could really impact our business long term.”

D.C. is currently considering expanding its rent regulations. The District has a law in place that passed in the 1980s and regulates rent for about 80,000 apartments built before 1975. But that is down significantly from a peak of 130,000 rent-controlled units, and the remaining 80,000 could become market-rate units next year if the D.C. Council doesn’t extend the law.

Council Member Anita Bonds, who chairs the D.C. Council’s housing committee, introduced a bill to extend the rent regulations to 2030 and is scheduled to hold a hearing on it Wednesday. In addition to expanding the program, activists are calling for the D.C. Council to adopt more aggressive rent control measures that would lower the rent increase cap, cover all buildings constructed before 2005 and make all new units subject to rent control after 15 years.

The D.C. Building Industry Association has come out against these proposals, arguing it would make it harder for the city to reach Mayor Muriel Bowser’s goal of building 36,000 new housing units by 2025.

“Rent control exacerbates the housing shortage because it does not do anything to address why rents are rising,” DCBIA CEO Lisa Maria Mallory wrote in a Washington Business Journal op-ed last week. “The one issue that nearly every economist agrees is that rent control just makes housing worse.”

Some investors are already shying away from the D.C. area for fear of new rent control laws, Melnick Real Estate Advisors founder Scott Melnick said. He said he recently had a buyer seeking to invest $110M as part of a 1031 exchange deal, and they limited their search to less-regulated states like Georgia, Texas and Florida.

“We’re seeing people want to skip over this region because they know it’s coming,” Melnick said of rent control. “Investors now are not just looking at the House and the Senate, they’re looking at the county council and how it’s made up to see what’s coming.” Harbor Group International Director of Acquisitions Matt Jones, whose firm has a nationwide portfolio of 33,000 multifamily units, also said he expects stronger rent control laws to be enacted in the D.C. area.

 

“We’re definitely seeing capital that used to be New York City multifamily-focused fleeing that regulatory environment,” Jones said. “My view is that regulatory environment is following them down I-95, and we’re not a decade away from those concerns in many of the markets down here.”

FCP principal Jason Bonderenko said several of his recent deals have involved buyers fleeing the New York City market, likely because of rent control.

“I can tell you we recently sold properties in Philadelphia, [D.C.], Atlanta, the Carolinas, and it was all New York buyers on all those deals,” Bonderenko said. “That trend is happening in a very big way.”

The Donaldson Group CEO Carlton Einsel, whose portfolio is largely concentrated in the D.C. area, said politicians support rent control because they want to appear to be tackling the affordable housing issue, even if most economists agree it is not an effective solution. He said it is up to commercial real estate leaders to come up with better solutions to the problem before more governments enact rent control.

“There is an affordable housing issue, and as an industry we have to do something to help solve it, because if we can’t, it will be solved for us by politicians that are going to do rent control,” Einsel said.

Jefferson Apartment Group CEO Jim Butz said he sees housing affordability and rising rents in major cities as an important issue, but he said cities trying to address it with rent control laws are only creating new problems. He is worried about the increased regulations spreading across the East Coast.

“One of the bigger trends we have to be careful about in Washington, in Philly, obviously in New York, and a little bit in Boston, is rent control,” Butz said. “That would potentially shut down the market and really put a chill on institutional investment.”

Morgan Properties President Jonathan Morgan, one of the region’s most active multifamily buyers in recent years, said rent control measures are forcing investment firms like his to expand to less-regulated markets.

“We’re concerned about rent control as well,” Morgan said, after hearing several other investors express their concerns. “The affordability issue in this country is not going away any time soon, but rent control I think is the wrong solution … it’s making a lot of the owners like us and others invest in new markets.”

The criticism of rent control at Thursday’s event was not limited to investors that own apartments — a federal government official also referred to the local laws as having harmful consequences.

Department of Housing and Urban Development Deputy Chief of Staff Alfonso Costa Jr. cited reports from the National Multifamily Housing Council and Stanford University that detail the negative impacts of rent control.

“Although rent control in the short-term might reduce displacement, it can have a very deleterious impact on housing supply and prices,” Costa said. “You have landlords that are going to be less likely to address capital repair needs, that will defer maintenance and will turn their rental units into owner-occupied units and sell them. Ultimately it can have a very adverse impact and unintended consequences.”

Costa joined NHMC CEO Doug Bibby and U.S. Sens. Chris Van Hollen (D-MD) and Todd Young (R-IN) on the event’s keynote panel. The senators did not discuss rent control, but stay tuned for more coverage on the ideas they raised to address housing affordability.

Source:  Bisnow

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Developers Targeting Multifamily Properties In Little Havana

Developers are targeting multifamily properties in Little Havana, especially ones recently built.

An investor recently flipped a Little Havana apartment building for $6.2 million after buying it a few months ago.

In September, Bar Invest Group sold an apartment building it built in Little Havana for $7.1 million to Beraja Investments.

Earlier this year, Key International sold Havana Palms II, a 79-unit multifamily complex at 931 Southwest Third Street, for $10.1 million, or about $128,000 per unit. In April, a group of investors acquired a 103-unit apartment portfolio in the neighborhood, with plans to upgrade the properties and flip them.

Unlike Brickell, most of Little Havana is zoned for medium-density development – either T4 or T5. That means that development is capped at five stories and 65 residential units per acre.

Investors also are proposing new apartments in the neighborhood. Ricky Trinidad’s Metronomic is planning several developments in Little Havana, including a series of two-story residential projects called La Elaina, and a five-story office building called SieteOcho at 640 Southwest Eighth Avenue.

 

Source:  The Real Deal

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South Florida Developers Riff On The Shift From Condos To Rentals

The cyclical nature of Miami’s condo market has many developers shifting toward rentals – but not Michael Shvo.

The New York developer, who is making a big push in Miami Beach, said that as long as you have the right site and project, the overall market’s performance is irrelevant.

“It doesn’t really matter what the market is. You build something special in the right location, you’re not competing with something in Brickell or in Wynwood,” Shvo said at The Real Deal’s Sixth Annual South Florida Showcase & Forum on Thursday. “I don’t lose sleep at night over oversupply or undersupply.”

Shvo will be redeveloping the Raleigh hotel in Miami Beach. A partnership led by Shvo, Bilgili Group and Deutsche Finance Group bought the 83-room Raleigh for $103 million from a Tommy Hillfiger and Dogus Group, and also purchased the Richmond Hotel and the South Seas Hotel.

Shvo was joined by Laurent Morali of the Kushner Companies, Florida East Coast Realty’s Jerome Hollo, and developer Lissette Calderon on the panel, “The next wave of South Florida development,” moderated by TRD’s Editor-in-Chief Stuart Elliott.

Hollo acknowledged the slow luxury condo market.

“People are looking to place their investment in a little bit of a safer asset, which right now is multifamily. If that cycle turns again, you’ll see a lot of those buildings convert to condos,” he said.

His firm built the luxury mixed-use building Panorama Tower in Brickell, with rentals, retail, office and hotel components. The 2.6 million-square-foot, 85-story tower was completed in 2018 and secured a $425 million refinance earlier this year. It’s about 70 to 75 percent leased, he said.

“Renting is good for everyone now,” Hollo said. “Wherever they are in their life cycle, they love renting.”

Kushner Companies has purchased or is under contract to buy three sites in South Florida, and all of them will have rentals as opposed to condos, Morali said. In Edgewater, where it’s planning an 1,100-unit apartment development, the property is in a designated Opportunity Zone, giving Kushner substantial tax benefits.

But Morali said recent changes in the federal tax code and the wave of rent reform legislation in markets like New York and California didn’t impact Kushner’s decision to target South Florida.

“We’ve been looking [in Miami] for five years,” he said.

Calderon, president and CEO of Neology Life Development, said it was a personal choice to go from building condos to building rentals.

“It was a natural progression to go into the rental side, [with me] wanting to make an impact on the community we’re in,” she said.

Targeting the right renter and buyer via social media is vital to a project’s success, the panelists emphasized.

“You really have to be hyper-focused in terms of authenticity, local context,” Calderon said, referring to when she became a young, successful profession. “I had two options: living in the suburbs or living in the urban core with my mom. There was no product for someone like me.”

Hollo, whose firm coined the term “Brickellista” to market Panorama to renters, said that now with social media and technology, developers can hyperfocus on a certain demographic.

“There’s traffic, and then there’s traffic that might not be great for your product,” he said.

Shvo took offense to the term “demographic.”

“I think you have to stop using the word demographic,” he said. “Because demographic doesn’t matter anymore. … It’s all about the psychographic. What’s their lifestyle?”

 

Source: The Real Deal

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The ‘Incredible’ Flow Of Capital Into Multifamily Is Expected To Increase In 2020

The U.S. multifamily sector has emerged as a top investor target during this cycle, and despite concerns of a looming recession, industry leaders expect the flow of investment to only increase next year.

Top capital markets executives, speaking Wednesday at Bisnow’s Multifamily Annual Conference New England, said they expect equity and debt flow into the sector to continue to rise. They said they see institutional investors allocating more money toward multifamily, banks aggressively competing to provide loans for apartment and condo projects, and Fannie Mae and Freddie Mac beginning a new spending cycle next week with a combined $200B budget.

All of this competition to provide equity and debt for multifamily projects has narrowed the yields on these deals, but with uncertainty in other sectors of the economy, experts believe investors will be happy to accept slightly lower returns.   Gregory Bates, the chief operating officer of developer GID, said his firm manages money for some of the world’s largest pension funds and sovereign wealth funds. He said they remain bullish on the multifamily sector. GID’s portfolio comprises more than 30,000 residential units and it has a 10,000-unit construction pipeline.

“Real estate allocations are going to stay where they are or go up,” Bates said. “Apartments and industrial are at the top of everyone’s list … There are terrific tailwinds on the capital side.”

Walker & Dunlop Managing Director Andrew Gnazzo also foresees an increase in institutional investment.

“Life insurance companies this year have allocated more money to multifamily, and everything we’re hearing is they’re going to allocate more in 2020,” Gnazzo said.   In addition to large amounts of incoming equity, Gnazzo said debt providers are also clamoring to loan money on multifamily projects.   “There is an incredible amount of capital in the debt space,” Gnazzo said. “There is a really nice bucket of capital on both the debt and the equity side.”

The inflow of debt is not just seeking apartment projects, Cornerstone Realty Capital President Paul Natalizio said, but lenders are also bullish on condos, a sector they have had concerns about in the past.

“There is a surprisingly very strong market for condos,” Natalizio said. “It’s an entirely different market now. Lenders will tell you there are not enough condos … Banks have come a long way in that area, they’re very aggressive.”

Fannie Mae and Freddie Mac are also expected to pour more money into the multifamily space in the coming months.

The two government-sponsored enterprises pulled back on spending over the summer, experts said, but last month the Federal Housing Finance Agency announced new loan purchase caps that will allow Fannie Mae and Freddie Mac to spend a combined $200B over a 15-month period from the start of Q4 through the end of 2020.

“The clock starts Oct. 1,” National Multifamily Housing Council Vice President of Capital Markets Dave Borsos said of the Fannie and Freddie allocation. “From that point to the end of 2020, each enterprise will have $100B to purchase loans.”

Gnazzo said this is an encouraging sign for multifamily owners and developers who utilize debt from Fannie and Freddie.

“As Q4 goes on and into Q1 and Q2, I think [Fannie and Freddie] will put their foot on the gas; they have to spend $200B,” Gnazzo said. “It’s encouraging for all that have enjoyed agency debt.”

The inflow of money to real estate comes as economic indicators, such as the inverted yield curve, point to a coming recession. Investment managers and brokers said capital providers are looking to multifamily real estate as a more stable sector than other portions of the economy, and are willing to accept lower returns than they may have in previous years.   Bates said his firm, GID, believes there will be a “hitch” in the economy at some point and it will slow the net operating income growth of apartment buildings. He said this may hurt investors who buy projects with three- or- five-year sale horizons, but those with time to wait should still see positive returns. He thinks investors are adjusting their expectations accordingly and would be happy with returns in the 6% to 7% range.

“Every investor we know, they won’t tell you this today, but 10 years from now they’ll be tickled pink if they get 6[% returns],” Bates said. “They think there will be a scarcity of product and believe producing 6 or 7 is going to be incredibly attractive relative to other global options.”

The expected returns on a multifamily project vary in different markets, CBRE Capital Markets Senior Vice President Todd Trehubenko said.

In Boston, where Wednesday’s event was held, he said investors’ return expectations have dropped from the 9%-to-10% range to the 5%-to-6% range.

“The amount of money out there chasing deals is astounding, and you have groups willing to accept low returns,” Trehubenko said.

Weston Associates Head of Acquisitions Elliott White agreed that return expectations are down for the Boston market, leading his firm to look elsewhere.

“A ton of institutional capital is coming in and saying, ‘We can’t buy anything with less than [10% returns], so my advice would be don’t buy deals in Boston,” White said. “The Boston market is still strong and will stay strong, but it won’t be the same source of high-yield investments.”

White instead said he is looking at the Mid-Atlantic, Gulf Coast and Midwest regions as areas providing higher returns to investors. The Davis Cos. Vice President of Investments Rachel Edwards agreed that investors need to look south for better yields.

“I do have to leave [Massachusetts], and the Southeast is the place I’m focused on now, from the Mid-Atlantic to Florida,” Edwards said.

Her firm is far from alone in moving south to find yield.

“It’s getting pretty competitive down there,” she said.

 

Source:  Bisnow

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Miami Adding 7,000 New Apartments This Year, More Than Any Other U.S. City

Miami is the top city in the U.S. for new apartment construction in 2019, according to new statistics from Rentcafe.

A total of 6,989 new apartments will be built in Miami by the end of the year, more than any other U.S. city.

The number of new apartments is more than double what was delivered last year. A total of 3,148 units were built in Miami in 2018.

Miami is unusual compared to other U.S. cities, since most new apartment construction is concentrated in the urban core (generally within city of Miami limits).

In the Miami Metro area, a total of 13,031 apartments are expected to be delivered in 2019, ranking fourth among metro areas nationwide.

 

Source:  The Next Miami

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