Monday, August 26, 2019

Lack of Affordable Housing Turns Dated Apartments Into Investor Darlings

Lack of US Affordable Housing Turns Dated Apartments Into Investor Darlings

Renovated Projects Increasingly Trade for Profit, Outdraw Luxury Towers

The Avant at Pembroke Pines is selling for the third time in 10 years. (CoStar)
The Avant at Pembroke Pines is selling for the third time in 10 years. (CoStar)
To a potential renter, older, nondescript apartments may be unremarkable but cost-effective places to live. To investors though, they're an increasingly popular financial strategy.
Apartment investors across the country are more and more bypassing luxury towers to unlock the potential of these more humble buildings amid a nationwide shortage of affordable housing.
In one of the latest examples, a 1980s-era apartment complex northwest of Miami is poised to sell for the third time in 10 years, setting a South Florida sales record each time. NexPoint Residential Trust, a Dallas-based real estate investment trust, announced it has a contract to buy The Avant at Pembroke Pines for $322 million, or more than $211,000 per door.
Investors in Boston, Phoenix and Atlanta have focused on suburban propertieswhere rents are lower, and have more room to increase.
Even so, South Florida has particularly strong demand because it is a land-constrained market and wedged between the Atlantic Ocean and the Everglades, a unique geography that creates a land shortage across the region. And when it comes to commercial real estate, South Florida sometimes can provide a glimpse of where the national multifamily market is headed, as was the case when it was the first region to signal the Great Recession was coming.
With value-add plays, owners make changes, such as improving the landscaping, refurbishing the pool and clubhouse and adding granite countertops in the units, all to raise rents and boost returns at the property. Nationwide, these second-tier apartments have outperformed luxury projects in rent growth and occupancy in recent years, according to David Kahn, CoStar's managing analyst for the South.
Across the Southeast, value-add rentals are trading hands every few years, some with huge price increases. The 936-unit Gulfstream Isles in Fort Myers, Florida, sold this month for $109 million, three years after fetching $95.25 million. In Norcross, Georgia, the 684-unit Canopy Glen sold for $90 million in May after fetching $49.25 million in 2016.
Rising costs of land, labor and materials have made it more profitable for developers to build luxury projects, leading to a shortage of units for middle-class residents, brokers and analysts say. In fact, government assistance is needed to close income gaps so more people can reduce exorbitant housing costs, according to a report released this summer by the Joint Center for Housing Studies at Harvard University.
"It's very difficult, almost impossible, to develop the kind of apartments that the working class can afford," Zach Ames, senior director for the Franklin Street brokerage in Tampa, Florida, said in an interview. "I don't know that that's going to change. It will continue to make value-add a hot subsection of multifamily."
Canopy Glen in Norcross, Georgia, sold twice in three years. (CoStar)
Some investors worry that the value-add market has peaked, but the lack of affordable construction and large number of low-wage jobs being created have kept the workforce housing renter pool strong in recent years, "allowing for landlords to continue to hike rents at an accelerated pace," Kahn said.
The sale of The Avant at Pembroke Pines is due to close by Aug. 30. The 1,520-unit property at 11801 Pembroke Road in Pembroke Pines, Florida, broke apartment sales records across metropolitan Miami in 2010 at $193.5 million and 2013 at $225 million, according to CoStar records. The seller is an entity tied to GoldOller Real Estate Investments of Philadelphia and the Carroll Organization of Atlanta.
The complex, built in phases from 1986 to 1990, was more than 96% leased with an average monthly rent of $1,487 at the end of July, according to NexPoint.
The REIT wrote in a summary of the planned acquisition that it has “identified value-add opportunities that will enhance the interiors and common areas of the property, providing our tenants with higher-quality living spaces and attractive returns for our investors.”
The Pembroke Pines-West Miramar apartment market in western Broward County is an affluent area known for its premium properties and rents, according to CoStar Market Analytics. The area, popular among millennials, has seen its population grow by more than 10% over the past five years, making it one of the fastest-growing areas in Broward, based on CoStar data.
Western Broward is home to the major mixed-use project Metropica, which is under construction near Sawgrass Mills, the largest outlet mall in the country. Christos Costandinides, a CoStar economist in Miami, said these developments have led to a "suburban renaissance" in South Florida.
"That's the place most people want to be in Broward right now," he said. 

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