Committed to South Florida. Director Multi-Housing Group 305 509 8336 wpierre@mhcreal.com
Multi-Housing Report Time to Monetize the value of your real estate while the market fundamentals are strong. The goal of this report is to help asset managers, landlords and investors maximize asset value and preserve wealth value by fully understanding and anticipating the trends of the current real estate cycle. Market Analysis The Palm Beach County apartment market has remained in the Hypersupply phase of this real estate cycle during the 3rd quarter of 2016 (3Q16). This market has posted its first negative net absorption since 2009 with capitalization rate increasing by 14 basis points from 6.29% in 2Q16 to 6.43% in 3Q16. This Hypersupply phase is characterized by a decreasing rental growth rate from 0.4% in 2Q16 to 0.1% in 3Q16, increasing vacancy rate from 5.2% in 2Q16 to 5.6% in the 3Q16, and rapid multifamily development with 4,428 units currently under construction within the county. The Boca Raton and Delray Beach Markets have experienced the strongest rent growth rate at 0.9% and 0.6% respectively, while West Palm Beach and North Palm Beach posted the highest vacancy at 9% and 7% respectively during this 3Q16. Tenants desire to save money over class A properties continues to push rents up for class B properties which also has a trickle-down effect on class C Properties, which experienced the strongest rent growth rate in the 3Q16. This Hypersupply phase will affect the apartment market rent growth rate tremendously in 2017, especially the West Palm Beach, Lake Worth, and Boynton Beach submarkets which already started to show signs of frothiness due to their low absorption level relative to the number of units in the development pipeline. Landlords need to assess how the upcoming administration s policies will affect the capital markets and property fundamentals in their respective submarkets. Landlords should assess the following Issues: How will the economy will sustain growth and create demand for apartments? How will the rise in interest rate affect capitalization rate and property value? How will Immigration reform is likely to impact apartments occupancy? How to mitigate the recession phase as this cycle matures? Axiometrics, REIS, Certified Commercial Investment Member Institute (CCIM), Costar Group, Mueller, Multi-Housing News, National Multifamily Housing Council, National Real Estate Investor, South Florida Business Journal, Multifamily Executive, MPF Research, Real Capital Analytics, Moody s, The Real Deal and US Bureau of Labor Statistics.
Multi-Housing Report Revenue Analysis Palm Beach County Rent Details Unit Mix Avg. Rent Avg. SF Avg. Price/SF Studio $ 1,057.00 630 $1.68 One Bedroom $1,111.00 785 $1.42 Two Bedroom $1,393.00 1,147 $1.21 Three Bedroom $1,670.00 1,439 $1.16 Average $1,307.75 1,000.25 $1.37 2.0% 1.0% 0.0% -1.0% -2.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Revenue Growth Comparaison 1Q16 2Q16 3Q16 Palm Beach County Northern PBC West Palm Beach Lake Worth Boynton/Delray Boca Raton Vacancy Rate Comparaison 1Q16 2Q16 3Q16 PBC Non-Form Employment Numbers Sept 2015-2016 Sector Gain/Loss Rate Professional and Business Services 4400 4.1% Trade, Transportation, and Utilities 1700 4.3% Education & Health Services 4600 5.0% Leisure and Hospitality 4100 5.3% Construction Services -200-0.9% Government Services 100 0.6% Development Analysis Unlike Broward County, Palm Beach County is not significantly affected by the recent economic slowdown in Miami Dade County where foreign money has started to dry up. From October 2015 to September 2016, Palm Beach County has experienced 19,400 jobs gained (or 3.4% job growth) in non-farm employment according to the US Bureau of Labor Statistics. Such a modest gain in the labor market has left its marks on the housing market due to weak household formation growth, declining rent growth, and increasing vacancy. The capital markets have recently been very reluctant to finance new construction in South Florida as lenders perceive the market as being saturated with luxury units that households with the area s median income cannot afford. Such a slowdown in construction financing does confirm the nervousness of developers because of the disproportionate amount of luxury units being built compared to affordable units that the market needs. Currently Boca Raton has 1,794 units under construction and has already posted a negative net absorption of -13 units for the second quarter in a row, whereas West Palm Beach has 344 units under construction, and posted its first negative net absorption of -13 units. Landlord in oversupplied markets should closely monitor their submarket property fundamentals to remain competitive, as turnovers might be higher than usual in 2017. Landlords should pay close attention to the 1,029 units coming online in West Palm Beach, Boynton Beach, and Boca Raton in the 1Q17. Landlords should expect concession wars to pick up as developers will be competing more aggressively for tenants to occupy their units. 561 471 8000 561 394 5200
Realizing potential, delivering results. Multi-Housing Report. Inventory Analysis Palm Beach County Buildings Characteristics (Data Metrics: 348 properties with 50 units or more) By Age Percentage Criteria Low Average Medium High Before 1970 4% Year Built 1966 1994 1992 2016 1970-1979 7% Property Size 54 Units 246 Units 224 Units 548 Units 1980-1989 28% Distance to Highway.1 Mile 0.9 Mile 0.8 Miles 2.8 Miles 1990-1999 24% Distance to CBD 2 Miles 12.8 Miles 11.3 Miles 26 Miles 2000-2009 22% Distance to the Beach 0.7 Mile 3.9 Miles 3.8 Miles 11 Miles Post 2009 16% Concessions 0.0 Month 0.58 Month 0.6 Month 1.4 Month Expense Ratio 34% 39% 40% 52% Palm Beach County Building Inventory Analysis: Class-A Buildings Year Completions Vacant Units Occupied Units Absorption Asking Rent Rent Growth Net Rent 2010 217 1,648 22,531 740 $1,327.00 2.9% $1,236.00 2011 318 1,356 23,141 610 $1,351.00 1.8% $1,277.00 2012 308 1,310 23,495 354 $1,381.00 2.2% $1,308.00 2013 1,959 1,686 25,078 1583 $1,461.00 5.8% $1,368.00 2014 1,176 1,797 26,143 1065 $1,501.00 2.7% $1,404.00 2015 1,362 2,100 27,202 1059 $1,567.00 4.4% $1,454.00 1Q16 807 2,038 28,388 786 $1,572.00.3% $1,466.00 2Q16 0 2,066 28,539 54 $1,586.00.4% $1,478.00 3Q16 0 2,329 28,276-105 $1,573.00-0.6% $1,453.00 Palm Beach County Inventory Analysis: Class-B & C Buildings Year Completions Vacant Units Occupied Units Absorption Asking Rent Rent Growth Net Rent 2010 0 2,416 27,413 343 $942.00 0.0% $856.00 2011 0 2,255 27,574 161 $948.00 0.6% $876.00 2012 0 1,735 28,094 520 $975.00 2.8% $918.00 2013 0 1,506 28,323 229 $999.00 2.5% $948.00 2014 0 1,293 28,536 213 $1,039.00 4.0% $993.00 2015 0 1,204 28,625 89 $1,081.00 4.0% $1,037.00 1Q16 0 1,052 28,777 51 $1,087.00 0.5% $1,046.00 2Q16 0 1,104 28,725-18 $1,094.00 0.4% $1,053.00 3Q16 0 1,082 28,747 96 $1,096.00 0.6% $1,056.00
We increase property value. Multi-Housing Report. Absorption Analysis 1Q16 2Q16 3Q16 Markets Units Built Absorption Units Built Absorption Units Built Absorption Palm Beach County 807 838 0 33 0-13 Northern Palm Beach County 0 6 0 37 0 9 West Palm Beach 807 738 0 23 0-13 Lake Worth 0 2 0 5 0-5 Boynton/Delray Beach 0 27 0-23 0 9 Boca Raton 0 65 0-9 0-13 Palm Beach County Construction Analysis Name Address Unit Type # of Units # of Buildings # of Floors Status Completion Atlantico Alton Rd, Palm Beach Gardens Apartments 353 2 5 Construction Jun-17 The Quaye 12300 Central Blvd., Palm Beach Gardens Apartments 341 29 3 Construction Feb-17 3 Thirty Three Downtown 331 Fern St, West Palm Beach Apartments 205 1 19 Construction Dec-16 Parkland Apartments 312 23rd Street, West Palm Beach Apartments 105 1 4 Construction Jul-16 Casa Del Sol 4330 Gun Club, West Palm Beach Apartments 34 1 2 Construction Sept- 16 Villages at Lake Osborne 2430 Lake Worth Rd, Lake Worth Apartments 118 3 3 Construction Nov-17 Aura Seaside 1400 S Dixie Hwy, Lantana Apartments 246 2 5 Construction 500 Ocean 101 S Federal Hwy, Boynton Beach Apartments 341 1 6 Construction Dec-16 Quantum Lakes Park Ridge Blvd., Boynton Beach Apartments 80 4 2 Construction Feb-17 High Ridge Landing 3145 High Ridge Rd, Boynton Beach Apartments 184 8 3 Construction Cortina N Congress Ave, Boynton Beach Apartments 350 4 4 Construction Depot Square 1740 NW 2nd Ave, Delray Beach Apartments 296 9 3 Construction Jan -18 Delray Preserve 2001 N Federal Hwy, Delray Beach Apartments 188 7 4 Construction Uptown Delray 190 SE 5th Street, Delray Beach Apartments 146 2 5 Construction Dec-16 The Danburg 6780 Congress Ave, Boca Raton Apartments 282 5 7 Construction Dec-17 Altis Boca Raton 5700 N Military Trail, Boca Raton Apartments 398 Construction Jun-17 Palmetto Promenade 300 E Promenade Park Rd, Boca Raton Apartments 378 3 10 Construction Apr-17 101 Via Mizner 998 S Federal Hwy, Boca Raton Apartments 366 1 12 Construction Nov-16 850 Boca 850 Broken Sound Pkwy, Boca Raton Apartments 370 1 5 Construction Apr - 17 Total Units 4,428 561 471 8000 561 394 5200
Sales Analysis Palm Beach County Sales Comparables Name & Address Sale Date Sale Price $/SF $/Unit Cap Rate # of Units Total SF Palm Hill 5101 Palm Hill Dr, West Palm Beach 11/4/2016 $13,750,000 $81.13 $64,252 7.50% 214 169,488 1984 Elysium at Osprey Oaks 7085 Merganser Ct, Lake Worth 10/17/2016 $5,974,000 $138.76 $161,459 5.80% 37 43,053 2013 Serenity Place 100 Claremont Ln, Palm Beach Shores 9/30/2016 $1,699,000 $201.97 $169,900 5.25% 10 8,412 1964. Via Delray 5482 Via Delray, Boynton Beach 9/29/2016 $ 5,083,520 $125.71 $137,392 6.50% 37 43,437 1973 South Apartments 712 South F St, Lake Worth 9/26/2016 $510,000 $65.48 $63,750 7.80% 8 7,789 1973 Banyan Apartments 809 815 817 2nd St, West Palm Beach 9/21/2016 $575,934 $61.47 $47,995 11.25% 12 9,369 1960 Lantana Palm 303 S Broadway, Lantana 9/21/2016 $575,000 $124.03 $82,143 6.10% 7 4,636 1957 Boston Terrace 3895 Everett Court, Lake Worth 9/15/2016 $740,000 $108.79 $61,667 6.75% 12 6,802 1973 Henrietta Place 612 8th St & 617 7th, West Palm Beach 9/15/2016 $1,000,000 $64.54 $52,631 7.50% 19 15,494 1963 Pat Reeves Village 1318-1320 Henrietta, West Palm Beach 9/7/2016 $950,000 $84.07 $50,000 7.25% 19 11,299 1965 Moon Quadplexes 805-817-821 S H St, Lake Worth 8/30/2016 $775,000 $79.07 $64,583 7.00% 12 9,801 1970 Lilac Park 10034 Plant Dr, Palm Beach Gardens 8/19/2016 $1,700,000 $76.56 $121,429 5.25% 14 22,206 1963 Blue Heron Apartments 1500 W Blue Heron Blvd, Riviera Beach 8/12/2016 $4,300,000 $70.43 $58,904 6.75% 73 61,056 1967 Boca Manor 2500 N Federal Hwy, Boca Raton 8/4/2016 $13,500,000 $151.41 $158,824 5.15% 85 89,160 1969 Lajoya Place 4575 24th Place S, West Palm Beach 8/1/2016 $775,000 $75.61 $59,615 8.15% 13 10,250 1971 Averages: 95.19 $86,019.47 6.43% Year Built Valuation Analysis The apartment market is still experiencing a shortage of apartments due to the severe shortage of construction during the last recession. The current high development cost environment has skewed the delivery of apartments coming to the market, and the newly built apartments are mostly luxury units that command premium rent instead of the needed affordable units. Such a mismatch between the needed affordable units versus the delivered luxury units is negatively impacting the overall strength and equilibrium of the apartment market. Certain submarkets in South Florida will likely experience a correction within the coming year due to oversupply of luxury units, price bubble, and an imminent increase in interest rate. Our team recommends apartment owners with considerable gains on their properties that cannot afford a sale to monetize their profits by refinancing while property fundamentals are strong, and capitalization rates are at historically low level. Expert Insight The policies of the incoming administration are likely to affect the apartment market through its impacts on the job market and the investment environment in the following instances: The enactment of a Comprehensive Tax Reform is likely to benefit investors, thereby supporting GDP growth and promoting job creation, which should be a positive for apartments. The expected changes in the Dodd-Frank Act should remove some of the burdensome regulations on the financial market consequently providing more liquidity and perhaps stimulating the single-family home buying market, which may not be a positive for apartment properties. Infrastructure Spending is expected to increase productivity and add value to surrounding properties which should ultimately promote jobs and resulting in demand for apartments. An Increase in the Federal Funds Rate and Interest Rate is expected to discourage asset bubble, which may lead to higher capitalization rates and a decrease of property value, at least in the short term. The stronger dollar will deepen the pullback of foreign money in the South Florida property market which may decrease competition and reduce real estate value. As a rule of thumb, commercial property markets trail the residential property markets by about 18 months; with residential having peaked in 1Q16, investors should expect the commercial market to soften in 2017. Overall, there are valid reasons for landlord to be optimistic about the apartment market during the upcoming administration; however as we are already in the Hypersupply phase of this real estate cycle, it is imperative that landlords remain diligent in monitoring the real estate market.
Multi-Housing Report. We listen more than we talk and proceed to develop the best plan of action by looking at your overall strategy, presenting you with valuable options aligned with your goals. With approximately 5 million square feet under management, we pride ourselves on our reputation for well maintained and managed office, industrial, retail and corporate facilities. We advise you on strategic investments through in-depth market insight and knowledge, providing maximum impact for enhancing asset value and boosting sales potential. We offer comprehensive development services from concept to completion. We provide a single source to manage the entire process from site selection and feasibility analysis, to zoning, construction management and design. As a central point of contact for all of your commercial real estate needs, we can help you evaluate opportunities and optimize existing portfolios through first class tenant representation including site analysis, lease negotiation, planning and reporting. MHCapital Funding LLC is an independent CRE financing company that provides capital markets based financing for properties throughout the State of Florida. Let our Multi-Housing Team maximize your asset s value and protect your wealth. Feel free to contact us at 561 471 8000 Director Multi-Housing Group Economics & Entrepreneurship University of Miami Cell 305 509 8336 Fax 561 640 7855 wpierre@mhcreal.com #1 Commercial Real Estate Firm in Palm Beach County -South Florida Business Journal Book of Lists Neil E. Merin, SIOR CCIM as Top 100 Heavy Hitters -South Florida Business Journal Book of Lists Palm Beach County Top 10 Leasing Firm -Costar Power Broker Award Palm Beach County Top 10 Sales Firm -Costar Power Broker Award 5M SF Under Management NAI/Merin Hunter Codman
Multi-Housing Group 305 509 8336 wpierre@mhcreal.com 1601 Forum Place Suite 200 West Palm Beach, FL 33401 561 471 8000 951 Yamato Road Suite 102 Boca Raton, FL 33431 561 394 5200