ORLANDO-Like other major Florida metros, multifamily is the real estate du jour in Orlando. The recovery is official, and two ARA closings are continued proof.
The firm just closed on Pine Harbour, a 366-unit, class B garden apartment community
in one of the strongest submarkets in the Orlando region as well as the Preserve at Econ River, a 356-unit garden style apartment community in the East Orange/UCF submarket.
ARA Orlando-based principal, Kevin Judd, along with ARA Boca Raton-based principal Marc deBaptiste, and ARA Tampa-based vice president Patrick Dufour, represented the institutional seller in the $31 million Pine Harbour transaction. The property is 95% occupied.
Judd tells GlobeSt.com that demand for class B multifamily in solid locations has been on the rise for more than a year. And with historically low interest rates and strong fundamentals, he expects this trend to continue.
“Demand is driven by multiple factors but one of the most significant is replacement cost in infill areas,” Judd says. “Buyers see class B, infill properties as being very insulated from potential new competition. In addition, replacement cost in infill areas would be significant. In general, they feel upgrading units and increasing rents is a more cost effective way to achieve return hurdles.”
Pine Harbour is located along the East-West expressway and near major employers, such as Lockheed Martin, Central Florida Research Park businesses, Waterford Lakes Mall and UCF. It was constructed in 1991.
On the $20.75 Preserve at Econ River deal, Judd, Dufour and Atlanta-based ARA vice president Matt Wilcox represented the seller, JLC Southeast. Pollack Partners and the Carlyle Group, a private equity fund, snapped up the property. Constructed in 1998 and located near UCF, the Preserve at Econ River recently underwent a $2 million renovation including new hardi-plank siding on the first floor. The property is 92% occupied.
“The Preserve at Econ River offered the buyer an excellent opportunity to acquire a well located garden apartment community with significant upside potential,” says Judd. “With the expiration of the original tax credit status of the property in June of 2009, rent increases have been significant and will continue to grow as the remaining low-income units are turned and rented at market rates.”
There is additional upside potential as the units turn due to temporary concessions offered during the initial renovation and re-tenanting of the property in summer 2010. From ongoing lease expirations or move-outs, approximately 81% of the units are eligible for full market rents. The remaining 19% of units—and others that recently became eligible for market rents—present a significant upside opportunity for the buyer.
Only 400 new apartments will come online in 2011, down from more than 1,300 units last year, according to Marcus & Millichap. The planning pipeline remains modest, numbering roughly 8,000 units. None of the planned projects is slated to start construction. But that could quickly change with the market demonstrating strong demand.
“In certain areas we may see some effect due to increased concessions and lower effective rents during lease up,” Judd says. “However, the number of units expected to be delivered over the next two years is not anticipated to be sufficient to meet demand. In essence, we don’t think the market will be impacted very much.”