South Florida Real Estate Trends: Apartment Market Stabilizes & Goes Back To Basics

Thursday, April 24 2008 @ 08:47 AM Central Daylight Time In the South Florida housing market, 2007 was seen as a transition period back to rental income fundamentals. Early in 2007, a lot of the submarkets here were adversely affected by large numbers of vacant units in failed condominium conversions, which were being reintroduced into the market as rentals.

The poor performance of these condo conversions has led to a dampening of rental income growth, and temporarily had a negative effect on occupancy performance. By the year’s end, most of this inventory had been absorbed, and occupancy rates showed signs of improvement in most submarkets, as rents appeared to have stabilized. By the end of 2007, market-wide occupancy levels were estimated at 95%.

How Large Are The Apartment Rental Markets In South Florida

Based on figures provided by REIS, South Florida has an estimated 237,388 rental units in communities of 50 units or more, and in 2007 the average monthly rent per unit was $1,062. The latest available figures show an average occupancy for the region at 94.9%, which is slightly down from 95.5% in 2006. When compared to other major metropolitan markets, apartment occupancy levels in South Florida exceeds most markets and remains thriving despite a challenging and quite unpredictable economic environment.

New Construction Levels For Apartments

The South Florida region has, for the first time in several years, a measurable amount of new rental apartment properties that are either under construction or currently proposed for development. Aside from these projects, there are a number of additional, well-located apartment areas that are available for sale and have a reasonable likelihood of starting construction and further development in the next 24 months.

Condo Conversions Fail To Realize Profit Goals

Most housing market analysts say that although fractured condo conversions seemed to dominate most talk about multifamily housing during the previous year, only a few of these types of properties have traded in South Florida, and this is primarily credited to o the considerable gaps in the bid or asking price that exist for most of these assets.

While it’s a fact that many buyers need fractured condo properties to make economic sense on a rental basis, however the increased risk, inefficient operations and high expense ratios related to these types of conversions have driven the buyer’s price point well below most of what sellers could afford to accept, and most condo conversion sellers and lenders as well must be able to accept major capital losses and loan write-downs, way before the transaction volume of these condo conversion projects could become meaningful.

The rental apartment market in South Florida by the end of 2007 appeared to be stabilizing and showed some signs of improvement. Most rental apartment market observers expect this trend to continue through 2008, which many view will lead to a gradual return to normal levels from an investment and transaction activity perspective.

However, a uneven percentage of non-traditional housing transactions, which include fractured condos, distressed sales and sales of non-performing loans, can be expected. Project Lenders who displayed immense patience with non-performing loans last year are likely to do quite well in 2008, either by formally taking over properties or collaborating with their borrowers and accepting write-downs to dispose of their unsold or vacant assets.

Vanessa Arellano Doctor


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