Perhaps no sector of the commercial
real estate market has seen more
volatility over the past three years than multihousing. From a market position grounded in strong fundamentals to
a euphoric run to conversions, the apartment market is again beginning to stabilize for owners, potential investors and
tenants.
“The good news is that the effects of
‘conversions’ to ‘reversions’ over the last
two quarters of 2007 are being addressed
and we are seeing an increasing degree
of equilibrium return to the market,”
says John Selby, a multihousing specialist and senior vice president with CB
Richard Ellis in Tampa, Fla. “As such we
are encouraged to enter 2008 with some
clarity as we seek to provide guidance to
our clients.”
Smart Business talked with Selby for
his insight on this segment of the real
estate market that truly hits home for
many.
Can you quantify what the ‘conversion’
effect has been on the Tampa Bay apartment market?
Between 2004 through 2006, approximately 35,000 apartment units were purchased for the purpose of converting to
condominiums. That number represents
about 18 percent of the total multihousing inventory in the Tampa Bay area.
Most were Class A properties, but many
were older buildings that required extensive renovation and upgrades. Initially,
sales were very strong as buyers made
very aggressive offers, capital was readily available for 100 percent financing,
and qualification and income standards
were relaxed. In the midst of this buying
frenzy was always the question of real
demand by buyers intending to occupy
their home versus artificial demand from
investors or speculators. By early 2007,
the weaknesses suspected in this over-heated sector became evident, forcing
some property owners to start leasing
unsold units by offering reduced rent
and substantial concessions. These new
offerings of upgraded condominiums, as
well as investor-owned single-family homes, began to affect the traditional
apartment properties. These properties
had been benefiting from high occupancies from tenants previously displaced
by conversions. In the end, approximately 25,000 of the original 35,000 units purchased for conversion will remain as fee
ownership.
How did this scenario in Tampa compare to
other Florida markets?
On a stand-alone basis, the area fared
very well, especially as much of the
growth via new construction served to
foster opportunities for residential living
in Tampa’s central business district.
Statewide, the comparison that draws
the most interest is to the phenomenal
plan to deliver nearly 60,000 units in
Dade County alone. While there are a
variety of opinions attempting to assess
that market, it is interesting to follow the
current activity taking place. Foreign
investors seeking to take advantage of
quality product, softening prices and a
weak U.S. dollar are now aggressively
buying in the international city of Miami.
Overall, Tampa’s underlying strong fundamentals have served to bring a quicker sense of stabilization to its market.
Is ‘work force housing’ viable in today’s
market?
Yes, if there is a will to make it happen.
While there are a variety of incentives
potentially available to deliver affordable inventory, the only true variable factor is the cost of land. For instance, if
publicly controlled sites can be made
available, and there is some flexibility in
issues such as density and parking
requirements, then the numbers can
work. This is a very important component to the overall housing picture in any
major city.
From an investment standpoint, what is the
status of the multihousing market as we
begin 2008?
With equilibrium returning to the market, there are still opportunities for both
sellers and buyers. For the seller, cap
rates have not increased in proportion to
the rise in interest rates and loan
spreads. Subsequently, values have held
up well and the demand for quality product is still strong. For the buyer, a recovering market that should be back to full
strength by the third or fourth quarter,
combined with moderated but solid
employment and job growth, as well as
limited new sites for new development,
bode well.
An additional key factor is the
increased demand from renters. Many
simply chose the flexibility of renting as
a lifestyle and now have more attractive
options. Additionally, there is an expanded pool of tenants who will rent by
necessity based on issues caused by the
effects of the adjustable and subprime
mortgage fallout.
JOHN SELBY is a multihousing specialist and senior vice president with CB Richard Ellis in Tampa. Reach him at (812) 273-8413 or
by e-mail at [email protected].