Excerpted from August 2018 issue of Southeast Real Estate Business.
Fort Lauderdale’s multifamily market continues to show strength despite the threat of interest rate increases and indications that apartment prices may be approaching their peak. Several submarkets such as Fort Lauderdale Beach, Victoria Park and Coral Ridge are experiencing historically high sales prices and heavy buyer demand, particularly for privately owned multifamily. Also, apartment rents in Broward County are still rising, although at a slower pace than they did during the early postrecession period from 2012 to 2016.
So why hasn’t Fort Lauderdale’s multifamily housing market seen the same pullback that is happening in other cities across the country? The answer is two-fold. First, the success of Airbnb and other short-term rentals has created a whole new potential revenue stream for buyers. For example, local rents for a traditional one-bedroom, one-bath apartment appear to have capped out at about $1,400 to $1,500 a month. However, if an apartment owner were to change their business model to allow for short-term rentals, then they could charge $3,000 to $4,000 for that same unit during peak season. In other words, the boutique apartment building market has been totally repositioned to better meet renter demand.
Second, Broward County is undergoing a major construction boom with many new mixed-use developments featuring strong multifamily residential components. In the Flagler Village area near downtown Fort Lauderdale, developers recently broke ground on construction for a 218-room, dualbranded Hilton hotel. The hotel is a rarity for downtown, and community leaders expect that it will have a major impact on the local economy by attracting new visitors and potential future residents. The $50 million development is one of more than 10 construction projects being built within blocks of each other.
West of Fort Lauderdale, construction has started on Plantation Walk, a 32-acre, $350 million development that will include 700 luxury rentals, 200,000 square feet of retail shops and a 175,000-square-foot office building. Insurance giant Aetna has already announced plans to lease space and the project is expected to create a need for more apartments as other large companies move into the new offices. Plantation has various other mixed-use projects underway and just as many are being proposed in West Broward as are being planned in downtown Fort Lauderdale.
We are also seeing strong interest from out-of-state investors in New York and California as well as from foreign buyers in Canada. Many investors are willing to pay higher prices to plant their flag in one of the fastest-growing rental property markets in the country. South Florida’s wave of new construction and development, combined with the state’s tax incentives, will keep driving population and economic growth in the region.
The greatest challenge for the multifamily market may lie in how to bridge the gap between sellers’ price expectations and the perceived return on investment for investors if interest rates continue to go up. Only time will tell whether patience will pay off for multifamily investors that delay the need for immediate returns in hopes of seeing bigger gains through asset appreciation over 10 to 20 years.
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