Rent growth expected to lag during next five years.
Orlando Business Journal - July 20, 2007
Staff Writer
Photo by Sara Rubin Guillermo Avello shows off one of the remodeled kitchens at Vista Verde, a condo conversion in MetroWest. View Larger After watching the condo-conversion craze take out an estimated 17,000 rental units in metro Orlando, the multifamily market now appears to be entering an adjustment period.
Kyle Riva, president of apartment developer Epoch Properties in Winter Park, says the market adjustment is being driven, in large part, by the number of units that were part of condo conversions that didn't sell.
Now, he says, they're being put back in the rental pool at a faster rate than if they were new construction. For that reason, the market will continue to adjust until the inventory is absorbed.
While Orlando's average market rent is at an all-time high of $817 for a one-bedroom unit, the rate at which rents are forecast to grow is expected to lag over the next five years. Cushman & Wakefield's Mid-Year 2007 market report predicts rent growth will fall from 5.9 percent in December 2006 to 3.5 percent in December 2011.
Occupancy rates, meanwhile, were at a four-year low at 91.3 percent through the second quarter of 2007, the report says. Much of the reason for softening occupancies is failed condo-conversion units re-entering the market, Riva says.
However, some Central Florida submarkets did show some positive numbers, as Kissimmee/St. Cloud reported a nearly 95 percent occupancy rate, and Apopka was at 94.5 percent, the report says. The lowest occupancies were found in the south Orange submarket, which reported 87.1 percent.
Sales of multifamily complexes, meanwhile, also are at a much lower volume so far this year than in the past, mostly because the condo-converters who put such a high demand on properties for the last few years have now slowed down. The Orlando area had 89 deals totaling more than $2.2 billion that closed in 2006, but only 23 were completed through the first half of this year that are expected to total between $377 million and $464 million, the report says.
The average sales price per unit had dropped from nearly $100,000 last year to less than $80,000 this year.
Shelton Granade, vice president of CB Richard Ellis' Multihousing Group in Orlando, says the market is returning to more traditional sales activity.
The past couple of years, condo converters snapped up much of the available multifamily properties, which escalated prices beyond traditional buyers' means, Granade says.
"This year, we're back to investment groups that are traditional industry apartment owner/operators," Granade says. "There's still a lot of those groups that want to be in Orlando."
Plowing ahead with condo plans While most real estate investment firms appear to be backing away from converting apartment complexes to condominiums, Ashkenazy and Agus Ventures LLC is going full steam ahead.
The South Florida-based firm earlier this year bought what may have been the last rental community in MetroWest, The Greens at MetroWest, to turn it into condos. Last month, the company announced its affiliate firm, Miami-based Tower Development LLC, would start sales of the newly dubbed Vista Verde, a 200-unit golf course community. Prices start at $215,000 for a one-bedroom unit and $287,000 for a two-bedroom.
At a time when the local market is suffering from a glut of condominiums, and unsuccessfully converted units are returning in droves as rentals, many question the firm's motivation.
But Jonathan Agus, president of Ashkenazy and Agus Ventures LLC, says his firm has come into this with the right attitude -- and with the right price point for the location. The company has invested an undisclosed amount into renovating the complex's amenities and enhancing the area around it with parks and other public green space, he says.
Agus adds that his firm also has the ability to wait out the slower sales market. "We obviously have a more patient attitude toward the process, not like a few years ago when people expected things to sell out in six months."
Anjali Fluker can be reached at (407) 241-2910 or via e-mail at afluker@bizjournals.com.
