Turnbury Park

TAMPA, FL-The housing crisis along the Gulf of Mexico coastline appears to present an advantage for apartment landlords. As underwriting on home mortgages becomes more restrictive, the longer tenants have to stay put and continue writing monthly rent checks.

This trend will likely benefit owners of class A apartment complexes in Tampa, St. Petersburg and surrounding cities, according to a research report by Marcus & Millichap. However, the firm forecasts an areawide vacancy rate of nearly 10% this year, while asking rents are expected to fall a full percentage point to $834 per month.

Despite an unusually high rate of home foreclosures within the Tampa Bay market, Marcus & Millichap says apartment owners have not seen a material increase in renter traffic as a result. That’s because many foreclosed homeowners are choosing to rent single-family homes, deferring demand for traditional apartments until the housing market shows a rebound.

From an investment standpoint, class A apartment complexes are now trading at cap rates of approximately 6%, while class B and C properties are between 7% and 8%, Marcus & Millichap estimates. Top-quality assets in strong submarkets will sell for under 6% if a buyer can underwrite reduced concessions and modest rent growth through the first two years of ownership.

“In the near term, investors will remain highly selective concerning a property’s specific demand generators,” says Bryn Merrey, regional manager for Marcus & Millichap in Tampa. He notes that properties near back-office financial service centers may be examined more closely to better understand their tenant mixes.

Apartment developers are scouting sites in the path of projected population growth in Hernando and Pasco Counties, as well as considering previously overlooked locations in core areas such as South Tampa and neighborhoods surrounding Tampa International Airport, Merrey says. Untapped opportunities also exist in the southern end of Hillsborough County, east of Tampa Bay, plus other areas north and south of the bay along Interstate 75.

On the south end, the 286-unit Turnbury Park at Palm Aire apartment complex in Sarasota sold in late January for $23.1 million, or nearly $81,000 per unit. B&M Development Co. bought the 10-year-old complex from iStar Financial, which stabilized the property after a failed effort to convert its rental units to for-sale condominiums.

“The Sarasota market is poised for a rebound,” says Byron Moger, executive director of Cushman & Wakefield’s Florida Apartment Brokerage Services in Tampa, which represented the seller. Moger and colleague Luis Elorza also handled the sale of the 176-unit Bay Oaks apartment complex, along Tampa’s Bayshore Boulevard, to Carter-Haston Real Estate Services by Crescent Resources for $11.4 million, or $64,500 per unit.

Among other recent local apartment transactions, the Boca Ciega rental townhome complex in St. Petersburg sold for $7.8 million, or $72,000 per unit, to a California-based investor. The fully occupied complex sold at a 9.5% cap rate, according to John Burpee, chairman of Seminole-based NAI Tampa Bay.

“We believe the market has bottomed in the multifamily sector,” Burpee says. He adds that his firm has noticed a “dramatic” increase in transactions involving properties with at least 100 units.

Marcus & Millichap notes that job losses in the Tampa market are expected to be fewer this year than in 2008, at 2.3% or 28,000 positions. At the same time, approximately 900 new units are expected to be completed in 2009, roughly 40% of the volume delivered last year.

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