Shopping for B and C buildings
A slowdown in apartment construction in South Florida could encourage more acquisitions of multifamily properties by both domestic and foreign investors. Minimal construction of less-than-luxury apartments already has sparked investor interest in Class B and Class C properties in the tri-county area.
Though the foreign market for South Florida condos has receded, foreign investors in rental apartment buildings are “very active,” Weaver said. “Canada is probably the No. 1 buyer of apartment buildings. But there is still a lot of Latin American money and European money. And Chinese money continues to look at deals.”
Plantation-based Hernando Perez, director of multifamily investments for brokerage firm Franklin Street, said investor demand for apartment buildings in South Florida is “unlike anything I’ve seen in my life. I can’t satisfy it. There’s not enough inventory in the marketplace.” He went on to say, “I promise you if I put something on the market, it’s going to trade. It’s just a matter of what price it will trade for.”
For example, Perez said, his brokerage got the listing for a 65-unit apartment building near Interstate 95 in Fort Lauderdale’s Sistrunk neighborhood. The building is located next to an elementary school and a Salvation Army soup kitchen “where people congregate around 5 o’clock to see what they can get,” he said. The listing nevertheless attracted dozens of investors in New York and New Jersey, the Mid-Atlantic and South Florida. “We put it on the market for $7 million,” Perez said. “We showed this property over 40 times in about a three-week span and put the deal under contract with a noncontingent cash buyer at just slightly below $7 million.”
Many investors shopping South Florida want to buy Class B or Class C rental apartment properties at prices below replacement cost, then spend $1 million or more to upgrade them and make them more competitive with Class A rental apartments.
“We have a lot of investors looking at B- and C-class assets as opportunities,” Perez said. “Right now, there’s not a lot of players in the Class A airspace doing a lot of deals.”
He also said luxury apartment rents are under downward pressure: “There is a softening in the rental range in the Class A, luxury apartment buildings. … Some people are still willing to pay $1,500 or $2,000 for a one-bedroom apartment downtown. Will that continue? That’s still to be determined.”
Some one-bedroom downtown apartments outside Miami also rent for over $1,500. In downtown Fort Lauderdale, for example, rents for some one-bedrooms are on the high end of the $1,500-$2,000 range, Perez said. Overbuilding could still cap rents, though.
“We may potentially see a concession-driven market like we did in between 2000 and 2005 prior to the condo conversion boom in South Florida,” he said. “That’s very likely if we overbuild.”