Miami apartments

Vacancies are increasing, concessions are on the rise and revenue streams are on the decline for the majority of the long-term apartment operators in Miami-Dade County.

DEERFIELD BEACH - It’s a tough market for long-term apartment operators in Miami-Dade County, but developers are taking advantage of the recession to secure development sites for new product despite the massive oversupply in units.

Rental rates were flat during the most recent boom in condo development and conversions, said Jack McCabe, CEO, of McCabe Research and Consulting. Would-be apartment developers couldn’t justify new projects due to land costs.

But things are changing, McCabe said. National operators and other apartment developers are returning to South Florida in search of land positions. While price declines have been more substantial in Palm Beach and St. Lucie counties, he said, costs have moderated in Miami-Dade as well.

“They realize these opportunities in South Florida were unthinkable just a few years ago,” he said, adding that developers are watching the unemployment numbers and sense a need for apartment housing that will manifest itself in a couple of years. This year alone, he said, Miami-Dade County has seen 75,000 residential foreclosure filings, adding 38% of those will end in foreclosure sales.

“When people can’t buy, they have to rent. There’s going to be an increase in rental demand,” McCabe said. “Many of these people will have dings on their credit. We’re going to see the long-term operators relax their credit standards in many cases. This is an untapped market that will be very strong for many years.”

Meanwhile, vacancies are increasing, concessions are on the rise and revenue streams are on the decline for the majority of the long-term apartment operators in Miami-Dade County, McCabe said. Some pockets - working-class areas like Hialeah and Doral - are stable and maintaining occupancy in the low-90s, he said, but the shadow market of failed condo conversions and now single-family homes is giving long-term operators stiff competition.

“In many cases, they are speculators or banks or troubled developers letting out units they can’t sell. They’re willing to take rates that do not cover operating expenses to be competitive with the long-term operators,” he said.

Apartment rental rates run the gamut in Miami-Dade - from $0.85 psf for older, inland product to $2.50 psf for new Miami Beach projects, McCabe said. Well over 50% of long-term operators are offering some type of concession - sometimes as much as three months of free rent.

“The Miami-Dade rental market is highly competitive, with thousands and thousands of units of inventory meant for sale that have bled over into the rental market due to the lack of demand by buyers,” he said.

Two more factors will add to the challenge for apartment operators, McCabe said:

- More condo units will be coming online. The shortage in building materials and labor during the construction boom has caused some projects to be delayed, and they will be coming to market at the worst possible time.

- Many condo buyers early in the cycle used exotic financing to close on their units. Now the resets are kicking in, and owners can neither afford the payments themselves nor rent for enough money to cover them. In some buildings, 30% of the units are now in foreclosure. Homeowners association dues aren’t being paid, and the physical structure is feeling the effects.

Stats illustrate link in apt., condo fates

MIAMI - The fates of the rental apartment and condominium markets in Miami-Dade County remain intertwined, according to statistics provided by Jack McCabe, CEO of McCabe Research and Consulting in Deerfield Beach.

During the most recent boom period, some 38,000 new condo units were added to the inventory countywide - 22,384 in the city of Miami alone, McCabe said. With historic absorption at 1,000 units per year, “we’re left with years of supply,” he said.

Those units continue to come back to the market as rentals, McCabe said. In Downtown Miami, about 62% of the condo units are occupied, but most of that activity has occurred in the last year as demand from renters.

And all of this is occurring in an environment of declning employment and slower population growth, McCabe said.

“I’d say that 1,000 people a day moving to Florida has been a myth for at least five years now,” he said.