The Commercial Real Estate Alpha Site

 

^{By: Danielle Grimelli and Evan Snow, CoStar Market Analytics.}

Looking across the Sunshine State, the Daytona Beach metro has enjoyed strong rent growth and a historically low vacancy rate that surpassed the national level starting in 2014. Strong job growth above the national average is expected to continue supporting low vacancy levels at a minimum. 

With its most recent acquisition, The Collier Companies has entered the central Florida market and, in partnership with ApexOne Investments, paid $30.25 million, or about $102,000 per unit, for the 3-Star, 296-unit Ocean Oaks Apartments in Port Orange, FL. As of the last report in July 2017, the property was 95% occupied. Per a corporate release, the buyer plans to add upgrades, including washers and dryers for all units, exterior paint and other interior upgrades.

 

Northern Florida

The Ocean Oaks purchase is the second time in one month they partnered with ApexOne to purchase a Florida apartment community. In August, they bought Avenue 29 Apartments in Tallahassee, FL for $24.57 million, or about $76,000 per unit. After taking over, the buyer finished a full interior and exterior renovation. Minimum rents at the complex subsequently grew 21.6%, to $950 from $745, and 13.3% for the maximum rental rates, to $1,005 from $925 per month.

While the rent increase may seem uncharacteristically high when taken out of context, there are a few factors that should be noted. First, the property is located in the Northeast Tallahassee submarket, where asking rents average about $950 per month, above the metro average of approximately $870 per month. Second, Avenue 29 was undergoing renovations at the time of purchase. The Collier Companies completed the renovations and overall process of switching from a focus on University of Florida student renters to local professionals. Third, going back to the metro level, Tallahassee has seen more distinction between asking rents and effective rents than Daytona Beach. This trend can be seen in Avenue 29’s renting history as well.

Central Florida

The Collier Properties may be continuing this strategy with the Ocean Oaks acquisition, entering one of the submarkets with the highest rent across the state, conducting value-adds, and capitalizing upon them. Growing investor interest, for instance The Collier Properties’ foray into Daytona Beach, supports the existence of strong renter demand and low vacancies seen in the metro since 2014.

This report is co-authored by Danielle Grimelli, a market analyst and Evan Snow, a market economist with CoStar Market Analytics, covering the Florida markets.

Though job growth was expected to continue its trend of surpassing the national level, some have expressed concern over whether the growth of household income will result. The median household salary in Volusia County is $42,000 and is only slightly higher at $44,000 in Port Orange, per the U.S. Census Bureau. Average asking rents are about $950 per month across the metro, with Port Orange the highest submarket at around $1,130 per month. It remains to be seen whether rents can continue at recent historical highs without household income increases to support them.

South Florida

Palm Beach County may be turning into the next place for investors to look for core multifamily assets. While often thought of as secondary to nearby Miami, Palm Beach has seen an impressive number of institutional transactions recently. As multifamily construction has ramped up over the past few years, new properties have been flying off the shelves upon demonstrating a successful lease up.

The latest example of this is The Quaye at Palm Beach Gardens. The 4-Star, 340-unit community located in its namesake community recently traded hands in July, just over a year after it’s opening in 2016. The property was sold from Carlyle Investments, Inc. to PGIM Real Estate for $118 million, reportedly generating a 4.75% cap rate.

This sale may seem familiar to eagle-eyed trackers of the Palm Beach multifamily market, as it occurred in the same month that the new Boca City Walk community was sold. Monogram Residential purchased the 229-unit property for $80 million before it had even finished leasing up. A 4.6% cap rate was reported for the sale. Similar to The Quaye at Palm Beach Gardens, this transaction occurred less than one year from the property’s opening day. This has become an emerging pattern in multifamily investment in Palm Beach County, with properties such as Loftin Place, SofA Delray, and The Mark at Cityscape providing more examples of communities being snatched up by investors nearly as soon as they reach stabilization.

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