Demosthenes G. Mekras of Marcus & Millichap gives his take on the multifamily market in Miami-Dade County.
• What trends do you see presently in multifamily development in your area?
Multifamily development for rental projects has been limited to non-existent. Builders are expected to complete 380 units in 2009. This is a drop in the bucket in terms of supply, so one would expect for the fundamentals to be advancing on that metric alone. Unfortunately, continued local job loss and the shadow market have depressed rents and increased vacancies across the board. No class of building or size of project has escaped this downturn, and that is true for every submarket in Miami-Dade County.
• Who are the active multifamily developers in your area?
Affordable housing developers, such as Pinnacle Housing Group, have clearly been the most active, but they are not entirely sheltered from the turn in the market. In the market-rate arena, the most notable developer has been J. Milton & Associates, a local multifamily developer, owner and operator that is arguably the largest private owner in Miami-Dade County. They have a 97-unit tower under construction in the Fontainebleau submarket west of Miami International Airport, which is slated for a late 2009 or early 2010 delivery, as well as a 330-unit mid-rise building adjacent to their existing project, Country Club Towers in the Miami Gardens submarket. Apart from those, development has been mostly contained.
• Where is the majority of development taking place? Why is this area doing well?
Most of the development either still underway or recently completed is in the Downtown/Brickell submarket as well as the Edgewater/Biscayne Corridor and Miami Beach markets.
• What areas are doing well in terms of apartment leasing? Which areas are struggling with leasing?
The markets mentioned above, where new condo development has occurred, are suffering the most from the effects of the shadow market and the overhang of new supply. In the rest of the county, the higher vacancies and lower rents are more directly attributable to the general fallout of the economy resulting in job loss. One notable market that has remained the most unaffected is the Hialeah submarket in North West Miami-Dade.
• Please give a measure of apartment vacancy rates.
According to Marcus & Millichap’s research department and the 2nd Quarter 2009 Report, vacancy overall increased 70 basis points to 5.7 percent, which for many markets in the country is still enviable. The range of vacancies by submarket and more importantly economic vacancies can be as low as 3 percent to 4 percent in the Hialeah market to as high as 20 percent to 25 percent in a market like Liberty City.
• Please give a measure of condo sales activity in the area.
This sector of the market has been dominated recently by either the first time home buyer, empowered by the new $8,000 tax credit and FHA loans and investors. Both of which are cherry picking from an abundant yet decreasing supply of REOs from both market sales or auctions.
• What impact do current interest rates have on the apartment and condo markets? What predictions do you have for interest rates and their effect on the multifamily market in the next year?
Interest rates from the local and regional banks have increased by approximately 50 basis points in the last 3 to 6 months. That alone is only widening the already large gap that exists between the bid and the ask. We expect this trend to continue in the near term.
— Demosthenes G. Mekrasis an associate vice president of Investments in Marcus & Millichap’s Miami office. Mekras focuses on multifamily properties for Miami-Dade County.