Rental rates may moderate in '07
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South Florida renters may still see their rates rise in 2007, but the worst is probably over.
The apartment rental business is still hot, which is good for landlords and not so good for renters. In October, real estate advisor Marcus & Millichap said Miami-Dade County remains strong and Broward is one of "the strongest apartment markets in the country."
But going forward, the squeeze on renters might ease because more rentals are coming onto the market. With condo sales slow, some condo investors are putting their units up for rent instead. And others who converted their rentals into condos in the hope of quick gains are deciding to convert them back.
While the size of this "shadow market" of inventory is hard to gauge, it is having an impact.
"The shadow market has definitely affected the rental market. Whereas a year and a half ago the market was really tight, now you find an abundance of rental property," said Jay Massirman, a former vice chairman at commercial brokerage CB Richard Ellis in Miami, who recently launched his own company to develop and invest in apartments.
A report by property industry watcher Reis predicts 2006 will be the peak for South Florida rental growth rates. By Reis' estimation, rental rates jumped 7.5 percent in Broward in 2006 and 6.9 percent in Miami. Other observers peg the number much higher.
The New York-based real estate research firm predicts annual rent increases in Fort Lauderdale of 5.6 percent by 2007 and ultimately 2.8 percent by 2009. Similarly, Miami annual rental rate hikes are projected at 4.1 percent next year and 3.1 percent by 2009.
The firm expects occupancy rates, which are already high, to remain steady in South Florida.
"The rental market has gone from incredibly strong to very strong," said Kevin Judd, senior vice president of Apartment Realty Advisors in Boca Raton. "Six months ago a renter could not find a concession anywhere. Now you can find a half-month or month offered for free in some places."
Alan Ojeda, among the few developers to build an apartment rental tower in South Florida in recent years, said fully two-thirds of rentals converted into condos are now going right back in the rental market.
"It is going back as rental supply, but under a different owner," he said.
Some 4,000 apartments set to be converted to condos have already reverted back to rentals, according to McCabe Research & Consulting, who has long predicted a meltdown in the condo market. The company only tracks market rate apartments of 100 units or more.
Earlier this year Pembroke Cove, a rental community in Pembroke Pines, was set to be sold as condos. Now the 302-unit complex is renting again, with five apartments available.
Raul Nobili, vice president of Pasque, a small Miami Gardens company that owns a handful of Miami-Dade rental complexes, explains the change: "I used to get three calls a week from buyers wanting to buy the apartments and turn them into condos. Now I get two calls a week and they ask if we are interested in buying other rental buildings."
The new condos are spinning off rentals as well. Roughly 10 percent of the units at Neo Vertika, a recently-completed 443-unit condo along the Miami River, are for rent. With thousands of condos under construction across South Florida, the number of new rentals could quickly rise.
In June the website uscondex.com, where condos can be bought and sold online, started offering condos online for rent. Richard Swerdlow, the company\'s CEO, said that, with the exception of October, searches for rentals on the site increased more than 10 percent each month.
"It is more than we anticipated," Swerdlow said.
The market's dynamics are also changing. The model of a single landlord owning multiple units is being turned on its head. Increasingly, multiple landlords each own a single unit.
"It is a fragmented marketplace, where each landlord has their own desires," said Sep Niakan of Colfax Realty Group in Miami.
Still, for all the changes, some say the rental market is still strong enough that the market can use more rental properties. Some builders are readying for a push into rental construction, seeing that and moderate to low-priced housing as the two big needs in the current residential market.
Wood Partners, a condo and apartment rental developer in Marietta, Ga. that ranks among the biggest in the nation, plans to build more South Florida rentals. Jay Jacobson, a director at Wood Partners, argues the high cost of homeownership will continue to drive people into rentals.
"I think the rental market is strong enough that it can absorb a substantial number of shadow inventory plus new inventory," said Jacobson. "We are making a substantial push back into the rental business."
Miami Herald - BY MATTHEW HAGGMAN - Posted on Sun, Dec. 24, 2006