The Expert: Florida’s Silver Lining

Market-based discussions are back, and among the hot topics is the outlook for Florida’s apartment market, in which investors are probing for opportunities. Apartment values are down between 25 and 45 percent, depending on the submarket. Condominiums have traded for as little as 40 percent of development costs. Is it time to buy?In 2008, Florida experienced a 3.2 percent job loss and ended the year with unemployment at 8.1 percent. The drop in employment has hurt apartment occupancy and rent growth. In the major markets, transaction volume was down between 31 and 77 percent, according to Real Capital Analytics Inc. The only segment that had a pick up in activity was the sale of failed or fractured condominiums, up from two transactions in 2007 to 14 in 2008.There is no doubt that sellers have to be willing to transact at the market price in order to sell today. The consensus among active buyers is that pricing has to reflect lower leverage and higher equity returns. In addition to the sale of collateral by financial institutions, several types of owners are selling at market to raise cash for redeployment of capital, debt retirement, redemptions and quick ratio tests. These include REITs, life companies, advisors and developers.It is interesting that elements of the downturn have created some compelling reasons to anticipate a recovery in Florida multi-family. One of the cornerstones of the job market in Florida is the affordability of labor, based in large part on the affordability of housing. The median home price reached a high of $250,500 in November 2005 during the bubble but in December dropped back to a level comparable to December 2002, at $155,500. Florida has lost jobs in real estate and real estate finance, but other sectors have not been hit as hard and are expected to rebound rapidly when the economy turns the corner.Meanwhile, development activity has come to a complete stop. Florida apartment prices are below replacement cost, and debt for development doesn’t exist. With constrained supply, the beginnings of an economic recovery will lead to a spike in occupancy, rents and values. Investors who seize the opportunity today may be buying before the bottom but should have excellent returns over the medium term.