MIAMI—ARA's Florida office has closed $1.04billion in multifamily investment sales, landsales, equity capital placement, and financing so far this year—andthe firm doesn't expect the pace to slow down. After closing 42multifamily deals in 2014, the firm still has 19deals under agreement and 20 more active marketing assignments inthe pipeline.

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Multifamily investment sales remain a hotinvestment product due to high occupancies and strong rent growth,”says ARA founding principal Richard Donnellan.“With limited supply available, particularly in South Florida, coreproduct continues to be highly sought after by both institutionalbuyers and large private groups.”

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ARA Florida has eight brokerage professionals that domultifamily deals across Florida. The team hastransacted more than $14.4 billion since its launched in 1995. Butthe multifamily landscape is changing.

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“We are seeing a compression in cap rates for properties acrossvirtually all markets in Florida as demand continues to outpacesupply,” said ARA founding principal MarcdeBaptiste. “Currently there is a lack of product for salecompared to 2013.”

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Nevertheless, ARA principal Hampton Beebe saysinvestment sales are strong—for now. The firm has closed over $1billion in class A multifamily sales since2013.

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“We continue to see a very attractive interest rate environmentthroughout this year and should continue through the first half of2015,” says Beebe. “We have secured several acquisition, equitycommitments and construction loans for our clients that aredeveloping new product.”

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According to the Census Bureau, the US home ownership ratepeaked at 69.2% in June 2004, fell to $64.8% in the firstquarter of 2014. The forecast calls for home ownership to drop to55% within a few years.

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“Each 1% drop in the homeownership rate adds one million rentersto the market,” says Donnellan. “In addition, the state of Floridaestimates that 1,000 people are moving to Florida every day as thestate continues to add jobs and retirees migrate to thesunshine.”

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Multifamily development is certainly explodingin Florida. ARA principal Avery Klann saysdevelopers are scrambling to meet this pent-up demand. “However,”he added, “construction costs have been rising, making it difficultto achieve the economics needed to get projects off the boards.This will impede the pipeline going forward in 2015.”

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According to ARA Florida's research, about 25,000 units arerecently built or under construction with another 13,000 unitsplanned in the South Florida metro area of Palm Beach, Broward, andMiami-Dade Counties. The combined Tampa Bay, Orlando, andJacksonville markets are seeing 25,000 units recently completed orunder construction with an additional 5,200 planned.

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“Rents are above pre-recession levels and don't show signs ofabating,” says Klann. “Occupancy throughout Florida remains above95%. In addition, the condo market is strengthening and convertersare back in the market, looking for multifamilyproduct to reposition as for-sale, which will further constrainsupply. This shortage is due partly to changing demographics, thefact that 60,000 rental units were converted to condominiums in thelast cycle and that the recession halted development for a numberof years.”

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Even with significant new development in 2014, ARA principalPatrick Dufor says he expect to see a netshortfall of 25,149 units in South Florida, 9,338 units in Orlandoand 942 units in Tampa compared to 2004 inventory levels. And ARAprincipal Kevin Judd is quick to point outvalue-add as another important investment play in the currentmarket.

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“Investors needing a stronger return on investment are biddingon the older deals, and adding value by updating and upgradingproperties with new kitchens, baths and flooring,” Dufor says. “Wehave seen investors add between $5,000 and $10,000 per unit inupgrades.”

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Finally, ARA principal Dick Donnellan notesthere now about 80 million Millennials—which are defined as peopleranging in age from 18 to 33 years old. Between 60% and 70%, hesays, are more likely to rent than to buy.

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“They are delaying marriage and want flexibility in where theylive and work. There are also 76 million baby boomers that areliving longer and having just gone through a nightmare during thelast recession, are choosing to rent,” Dick Donnellan says. “Thesetwo powerful demographic forces represent 50% of the U.S.population and they are favoring renting today. This will bode wellfor multihousing investments for years to come.”

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