THE REAL ESTATE MARKET
2ND Quarter 2015 APARTMENT Miami-Dade was late in joining the post recession national apartment developmentboom. When it did come
on board, delivering 2,504 market-rate units in 2013, its volumes were moderate. Indeed, 2014 followed with the
delivery of just 916 units. In both years, demand ran in rough tandem with new supply. The surge in
development will bear bigger fruit in 2015 with the completion of 3,925 units, 628 of which, in two projects, delivered during the first quarter followed by three more with a combined total of 1,220 units in April and May. With the larger completion volume, Reis expects demand to trail new supply by about 1,000 units this year. Per the date of this report, 16 projects with a combined total of 4,881 market-rate units were under construction. Among additional development items is the $108.35 million construction loan secured by an affiliate of ZOM for a 50-story apartment tower in the Brickell financial district, South Florida Business Journal reported in June. And
in May, Greystone & Co. secured a construction loan for a 36-story, 156-unit apartment tower in the Edgewater neighborhood, according to this source.
The market, however, is sufficiently tight and the imbalance sufficiently modest that the new supply is not expected to place the high occupancy profile in jeopardy. Vacancy ended the latest quarter at just 3.7%, lowest on Reis’s books for this market since 2003. While April added 50 basis points and additional increases should follow, the 4.4% rate currently projected for the end of the year keeps the market tight. And rent growth, if slowing slightly, should remain strong. At $1,250 and $1,205 per month, asking and effective respective averages for the first quarter were up 0.6% and 0.7% for the period, following gains of fully 5.3% and 6.1% all told last year. Growth is expected to remain above 4.5% in 2015. Gains of 0.3%, meanwhile, are reported for April for both rates. Condos hold the lead. The Miami-Dade apartment market stands out among the nation’s for the large role played by persistent condominium construction. The sluggish apartment development activity of the recent term was a reaction in part to the large number of condo units placed up for rent in competition with standard apartments. Meanwhile, the local condo sector, unlike many of the nation’s, maintains a heated development profile. According to Miami Downtown Development Authority’s second quarter [2015] market review by Integra Realty Resources as cited by the Journal, rental growth will be constrained over the next two years as more condo projects “are completed and delivered into the downtown rental inventory.” A case in point: “72.0% of the closed units at the Related Group’s Millicento have already been listed for rent.” Reis reports fully 7,259 condo units under construction in Miami-Dade in numerous condo projects, well in excess of current apartment development. As indicated, the excess of new apartment supply over demand in 2015 should not endanger the market’s tight profile. Rent growth should remain formidable. Market ReportTRANSACTION ANALYTICS Due substantially to a single major sale (see below), $245.2 million changed hands in 19 apartment investment
transactions during the first quarter of2015. The total for 2014 all told for 89 transactions was $474.3 million. Average selling prices for the latest quarter and last year all told were $124,000 per unit. The mean cap rate for first quarter sales was 6.8%. The 12-month rolling mean cap rate per quarter-end was 6.5%, down from 7.6% a year earlier. In the first quarter’s sale, largest by far in a year, AMLI Residential Properties paid Mill Creek Residential $104.5 million ($298,571 per unit) in March for the recently completed 350-unit Modera Dadeland
Class A market-rate property. No later than April, AMLI made another major acquisition, paying CC Doral Pebblewalk and AREA Property Partners $103.5 million for the 352-unit Signature at Doral property, South
Florida Business Journal reported at the time. SPECIAL REAL ESTATE FACTORS Apartment : “Condo sales prices and rental rates in downtown Miami are holding steady as opposed to taking off as weaker foreign currencies have diminished demand, according to Miami Downtown Development Authority’s second quarter market review by Integra Realty Resources [IRR],” South Florida Business Journal reported in June. “The U.S. dollar has grown stronger compared to most currencies in Latin America, where the bulk of the new condo buyers for downtown Miami reside. That has reduced their purchasing power here.” An IRR
principal said, “Now’s a great time to be a domestic buyer in downtown Miami because there is less competition from foreign allcash buyers.” There are 26,263 condos in the pipeline in downtown Miami, according to the study. “The bulk of the activity is in Brickell, the Central Business District, and Edgewater. There was a 26.0% spike in projects announced since the last quarter.” “Sale prices of existing condos downtown did not increase from January to May, staying at $430 psf,” adds the
Journal. “That’s coming off price hikes of 22.0% and 16.0% in 2013 and 2014, respectively.” “‘Pricing has slowed as the market begins to realize top-level pricing,’” according to the study. “‘Integra projects that a number of recent and pending land sales are being made by long-term investors with plans to sell or develop the site in five to 10 years after the current pipeline has been absorbed.’” last update October 2015 APARTMENT SPECIAL REAL ESTATE FACTORS 1ST Quarter 2015 Supply and demand: a convergence. “The trend lines look positive for apartment landlords in South
Florida, and the market metricssupport the construction of more units,” stated South Florida Business Journal in a late-November report. “Given the growing population in South Florida and the
creation of new jobs, the market is ripe for more renters.” It may be ripe for owners as well, if the condo construction boom is taken into account. last update August 2015 APARTMENT TRANSACTION ANALYTICS 1st Quarter 2015 The low apartment development activity level seen for a number of years in Miami-Dade was an effect, in large part, of a strong preference for condo ownership. Indeed, a condo conversion trend prior to the recession resulted in a notable reduction in existing apartment inventory. Nor did the national apartment development boom that emerged in 2010 and after carry over to the local market. Shadow rentals—troubled condo and single-family units placed up for rent in the wake of the post-2008 condo market crash—brought elements of uncertainty to rental development. Finally, though, apartment development has picked up—but not in isolation: it runs side by side with a new condo development cycle. Per the date of this report, more condo units than rentals were under construction in the county (see below).
Following the delivery of 2,504 market-rate rental apartments in 2013, the completion of 916 units in 2014 was only a temporary slowdown in the pace of completions; construction has continued. Net absorption for the year, meanwhile, led at 1,084 units. Respective completion and net absorption totals for the fourth quarter alone were zero and 88 units.
January 2015 followed with zero and 82. Reis’s late-March report on individual Miami-Dade apartment construction reports 20 projects with a combined total of 6,083 market-rate units under construction.
Notably, however, the condominium under-construction total is even greater—31 projects with a combined total of 7,484 units. “Foreign investments will continue to be key to Miami’s transformation,” a condo development executive with The Related Group informed South Florida Business Journal in December comparing Miami to New York, London, and Paris as a safe haven for investment. Both condo and apartment development are concentrated most heavily on Miami Beach and in the city of Miami. Among the latest projects to come forth is Adler Group’s plan for a 25-story, 294-unit transit-oriented development (TOD) apartment high-rise at 6900 SW 84th Street near Dadeland North Metro Rail Station.
The apartment market, meanwhile, is exceedingly tight. At just 3.8%, fourth quarter vacancy was down 10 basis points for the period, down 30 for the year, and stands as the lowest rate on Reis’s records for this market since 2005. January’s small positive net absorption total reduced the rate by 10 additional basis points. Year-end Class A vacancy—perhaps a gentle warning with respect to development—was notably higher at 6.0%.
With new development concentrated in the upper tier, any increases in vacancy in the period ahead likely would be felt most acutely in that sector. Rent growth has been robust. At $1,242 and $1,196 per month, asking and effective respective averages for the fourth quarter were up fully 5.3% and 6.1% for the year. Fourth quarter increases were 0.3% and 0.5%. January followed with respective gains of 0.1% and 0.2%. At $1,586 the fourth quarter Class A asking average was up 4.4% year-over-year.
The vacancy rate could increase minimally in 2015 as a result of the large pending addition to supply. Rent growth in the vicinity of 4.5% on average is expected for the year. The robust condo development cycle bears watching.
last update July 21, 2015
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last update July 2015
