Apartment demand is sky high, supply low

Southwest Florida's apartment complexes are bulging at the seams with refugees from the housing wars — now a Tampa-based company is making a bold move to buy and upgrade local projects.

Meanwhile, three more complexes are being built and thousands more units are in the planning stages as a stratospheric 96.2 percent occupancy draws interest from developers.

The activity is part of a national trend that's especially strong in Southwest Florida, said Jack McCabe, a Deerfield Beach-based real estate consultant who tracks housing markets in Southwest Florida and elsewhere.

"We're in this paradigm shift right now," he said — especially in Florida. "In 2007 it was 70 percent buyers and 30 percent renters. Now it's 60 percent buyers and 40 percent renters."

Now, McCabe said, rental demand has continued to increase due in part to "renters with no choice. They had a short sale, got behind on their mortgage or had a foreclosure. Their credit's taken a pretty good hit. Banks are saying they're going to relax credit standards. I still haven't seen it happening."

As a result, both builders and buyers of complexes are stepping up their game.

So far this year, Tampa-based Blue Rock Partners LLC has purchased three complexes in Lee County for a total of $44.3 million — most recently Montego Bay on Colonial Boulevard, now renamed The Park at Positano.

"I think we'll probably buy a few more in Fort Myers," Blue Rock principal/owner Randy Ferreira said.

"It's a good market," he said. "In the last year it's strengthened significantly" with strong increases in rents and no new construction since the residential housing industry imploded at the end of 2005. .

Commercial real estate agent Jonathan Richards of CBRE, who specializes in multi-family properties, said the apartment market was made even tighter because at the height of the boom in 2004 and 2005. "We lost a lot of apartment complexes to condo conversion, or they were going to come out of the ground of apartments but they became condos," Richards said.

Blue Rock's strategy is to buy complexes that need some renovation to make them top-tier projects, Ferreira said. "We go in and reposition the complex, change the whole exterior and interior, from a B-minus to an A-minus."

Blue Rock brands all its communities with the same upscale amenities, he said: "Everywhere, the same coffee houses and clubs and fitness centers, decorated similarly."

But Blue Rock won't have an uncrowded competitive field for long. Tampa-based Aileron Capital Management has a new complex, the 325-unit Channelside, under construction at Pine Ridge Road and McGregor Boulevard in Fort Myers and other developers are not far behind.

"We expect to have the first phase complete by early next year and the last by about August," Aileron managing director Joe Bonora said.

He's aware the market is heating up and estimates that about 2,500 units more are being planned or built in Lee County at present. "I think there's going to be a pretty good jump in production over the next 12-18 months."

Still, he said, easier said than done.

"It's not easy to get all the stars to align," Bonora said — especially when it comes to finding the construction tradesmen to actually do the work in a tight job sector. "Some builders are having a lot of problems with labor and they can't take bigger jobs."

David Cobb, regional director in the Naples-Fort Myers area for housing data provider Metrostudy, which tracks pricing and new-home construction, said another clue to apartments' current popularity is that a lot of new arrivals are prime candidates to rent.

"Southwest Florida's been creating 15,000 jobs a year, most of those service jobs," he said. "They're not the sort of people who are going to be able to afford to live in a master-planned single-family community."

Could the apartment boom turn to bust if a glut of new units comes on the market?

"Timing's going to be very crucial," McCabe said. "I think there's going to be probably two and a half years more of this good marketplace. Then in 2017 I think there'll be a downturn. Buildings that are completed before then will be OK."

Already, he said, "Hedge funds are looking at near future exit strategies" for their multi-family holdings and their portfolios of single-family rentals. "One hedge fund called, they want me to find a realtor to move 20 homes on MLS as a trial balloon."

As the market heats up, McCabe said, "I think we're going to see a surge in inventory in the next couple of years. And boy, when it does, that's the time to get out quick."

APARTMENTS BY THE NUMBERS

• 96.2 percent of apartments in large complexes in the Fort Myers area are occupied, the highest in the state.

• 1.4 percent is the rate of increase in occupancy over the past year in Fort Myers, second only to 1.7 percent in Pensacola.

• 8.8 percent is the average rate of increase in rents in Fort Myers over the past year, highest rate in the state.

• 4 percent of complexes offer incentives, lowest in the state and down 83.3 percent from a year ago.

• $933 is the average rent, fourth highest in the state. Palm Beach is highest at $1,246.

• 0 apartments were added in the Fort Myers market in the past year.

SOURCE: ALN Apartment Data