South Florida Multifamily 2020 Forecast

OUTH LO I A HISTORICAL & FUTURE DELIVERIES

GRAPH 4 ::SOUTH FLORIDA HISTORICAL & FUTURE DELIVERIES

MU LT I FAM I LY I NVE S TMENT | SOUTH F LOR I DA T E AM

12,000

10,000

8,000

6,000

# of Units

4,000

2,000

0

2,113

2,433

4,152

6,760

9,325

7,653

9,896

6,897

7,359

8,536

7,109

10,777

11,354

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

*Forecasted construction deliveries are as of Jan-2020. Actual deliveries may vary

LOOKING AHEAD The title of this year’s Weaver Report is “The Best Decade in South Florida Real Estate?” and there is strong evidence to support the claim.Will the good times continue or arewe setting ourselves up for another crash? The good news is the market is ideally positioned for continued long-term growth. Florida has a history of boom- bust real estate markets but excellent market fundamentals coupled with realistic underwriting and financing analysis will keep the market in equilibrium. The South Florida multifamily fundamentals are, and will continue to be, the single biggest driver of performance in the market. Population/household growth, low homeownership rates, higher home prices, demographic preferences to rent versus buy, low unemployment rate, higher wage growth, Hipsturbia: Suburban locations with interesting town centers, walkability and access to good schools. Millennials will start having families and will look at interesting suburban locations. Townhome rentals also stand to benefit from the demographic shifts. Build Market Rate Workforce Housing: Find relatively cheap land, build low cost market rate rentals with rents from $1,200-$1,600 per unit. Value-Add Class B and C Properties: Look for real value-add opportunities. Easier said then done. Submarkets with Upside: This involves going against the grain and looking for value before everyone talks about it. For example, Miami Beach lost its groove in recent years but will come back strong. Growing Cash Flow: Attractive debt and strong fundamentals provide attractive investor returns and cashflows. There remains a big runway. Value Creation: Little value-add then do value creation. Look for under performing assets that can be reprogrammed with better leasing and management. New Product: The cap rate spread between new and value add is narrow. Newer suburban product is attractive. OPPORTUNITIES

limited land and a wonderful lifestyle all contribute towards an extremely healthy market and we see no signs of that changing. Appreciation of values will continue, although many investors are looking at 5-to-10 year holds versus the quick “in-and-out” buys of previous years. Investors with a longer-term investment perspective of 7-to-10 years are securing debt accordingly. Investors are seeking cash-on-cash returns in the 6% to 8% range with IRR’s from 9% to 15% depending on asset quality. The forecast remains strong and simply leveling off from its steep upward trajectory. That’s not to say we are without challenges. The incredible growthof themarket has slowed. There are always opportunities and threats in any business. In no particularly order here are some I would consider: New Supply There is a record amount of multifamily construction being built, almost 10% of the existing rental inventory. Certain submarkets will see concessions and downward rental pressures. Potential Rent Controls New rent control legislation in New York, California and Oregon savaged the multifamily investment markets in these states. Florida remains a business-friendly place. I do not see similar regulations in Florida, but any serious discussion of rent control in the state could be an industry threat. Rent Burdens According to the U.S. Census American Community Survey, Miami has the highest proportion of cost-burdened renters in the nation with 53% of renters spending 35% or more of their household income on rent. Unless incomes increase how much more juice can be squeezed from the rents? THREATS

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