Staying Strong

Southeast's Multifamily Market Will Continue to Grow in 2004

By Scott Judy

High-flying and high-profile condominium projects have dotted the Miami-Dade and Broward skylines for years, and the number of projects isn't expected to decline anytime soon.

But the multiresidential, or multifamily, market isn't just condos, and it isn't just South Florida. The four-state area of Florida, Georgia, South Carolina and North Carolina continues to see strong development of both condominiums and large apartment complexes throughout many of the major urban areas, with significant activity in the coastal areas.

"The four-state Southeast region is a very important market for multifamily construction," said Kim Kennedy, manager of forecasting for McGraw-Hill Construction Analytics and Consulting Group. "Over the past several years, one quarter of all U.S. units started were located in the Southeast."

Kennedy said that in 2003, of the 419,000 multifamily units started in the United States, an estimated 102,350 of them were started in the four-state region of Florida, Georgia, North Carolina and South Carolina. Additionally, three of the nation's top 10 metro areas for this sector - Miami, Atlanta and Fort Lauderdale - are in the Southeast.

McGraw-Hill Construction is predicting the Southeast's multifamily market will increase by 4.6 percent in 2004, compared to a national increase of 0.2 percent. There will be strong deviations between the four states, though.

Florida, which makes up approximately 60 percent of the regional multifamily market, is expected to increase by 5.6 percent, while Georgia, after several years of decline, will see this sector grow by 20.4 percent. South Carolina, meanwhile, will see a 20 percent drop after two years of 20-plus percentage point gains.

The market for multifamily construction in North Carolina will be the most steady, declining an expected 1 percent.

Industry Perspective

Contractors and developers agree with Kennedy that this sector will remain strong in '04.

"The number of projects we see coming out in the planning stages seems to be growing," said Rick Kolb, vice president of Pavarini Construction, Miami Lakes, Fla. Some of his company's projects include the high-profile Jade at Brickell Bay in downtown Miami and the 51-story Acqualina in Sunny Isles Beach.

"We all anticipate a letup at some point, but Miami and South Florida is a unique market, given that a lot of people are still seeking investments here," Kolb added.

Ron Melendez, manager of business development for Turner Construction's South Florida region, said the condo market should remain "stable" in 2004. "We currently have in place many contracts with repeat clients that have built similar, condo-type units," he added.

Some of Miami-Dade's hot spots are moving north, away from the South Beach district. An example is Turner's Akoya project, a 47-story, 386-unit luxury development scheduled for a July completion.

Matt Robinson of Jacksonville, Fla.-based Summit Contractors, one of the top builders of apartment complexes in the country with activity in several states, sees more broad-based strength.

"We're building like crazy in Atlanta and the surrounding area," he said. "And we're starting to see more questions being asked and due diligence being done in the Charlotte area, which was really a down market for awhile."

Robinson added that Florida continues as one of the strongest states for this sector, and that multifamily developers from the Northeast have become active there recently in the condo and apartment markets. "Every time you think it's going to slow down it speeds up," he said. "It's kind of hard to catch your breath."

Another regional hot spot can be found along the coastal Carolinas. Shaw Dargan, president of Dargan Construction Co. in Myrtle Beach, S.C., sees this market regaining strength after a post-Sept. 11 retrenchment.

"You're going to see continued, steady growth," Dargan said, citing a recent upswing in area road construction that should facilitate further development. "We know there are several other projects coming up with three different developers. They continue to have a project or two in the wings."

The 50-year-old general-contracting firm works exclusively in the multifamily market and is currently working on the $75 million, 29-story Margate Tower luxury condo project at Kingston Plantation, as well as a $50 million contract to build Crescent Shores I and II along with a seven-story parking deck.

Chris Schroff, a co-developer of the 380-unit Avista project in North Myrtle Beach, characterized the market as "very strong at the moment," with a growing demand for upscale accommodations.

Tom Pegram, president of longtime multifamily designer Pegram Associates of Myrtle Beach, also reported an upswing in activity.

"It's active, a lot more so than last year or the year before," he said. "After 9/11, things kind of stalled because a lot of people were concerned about the economy and what was going to happen, so some of the projects waited almost a year to get going.

"In the last two or three months we've had several developers go ahead and look at new projects. We have seven more oceanfront towers that condo [developers] are looking at building this year."

He added that projects are beginning to be developed along the intracoastal waterway, in addition to current oceanfront developments.

Condo Trends

Georgia's multifamily sector will be one of the fastest-growing in the region. One of the bigger condo projects being built there is Turner Construction's $66 million Regent Tower project for Regent Partners. The all-glass high-rise in urban Atlanta is set for an April completion.

In addition to representing this increasingly strong local sector, the Regent may be an example of a trend toward more downtown, urban-type developments. Turner's Melendez sees that happening in Miami-Dade County, where more urban projects are catering toward younger owners.

Melendez attributed this trend toward an increasing desire of many professionals to live closer to where they work.

Miami-based MDM Development Group is hoping to capitalize on this trend with its $600 million Metropolitan Miami mixed-use development in downtown Miami. The 40-story, 447-unit Met 1 condominium will reportedly launch the development, though no timeline was given.

"Obviously there's a regeneration going on in downtown Miami," Pavarini's Kolb added. "[Miami's] urbanization [effort] is going very well."

A major urban multifamily boom is still progressing in Fort Lauderdale, where roughly 3,000 units will have come online within a year.

"There's finally a reason for people to live here," said Doug Eagon, president of Fort Lauderdale-based Stiles Corp. "There's finally enough quality-of-life [amenities] that people do want to live here."

Still, a local cap on residential units could cause a temporary slowdown.

Palm Beach County is also "booming," said Melendez. He cited the recent announcement of a major Florida development in Palm Beach for Scripps Research Institute, which will utilize several hundred acres of property, as a reason for an upturn in both property values and development activity.

Apartment Trends

The Southeast's apartment market has stayed strong, and Summit's Robinson expects it to do the same in '04. "We seem to stay very busy," he said. Robinson said he's witnessed some increase in the amount of affordable housing-type projects, referred to as the tax-credit market.

"We've seen a lot of tax-credit activity, which is somewhat normal, but it's sort of come to the forefront with market-rate opportunities dwindling," he added, referring to standard-type apartment facilities. This shift in developers is improving the amenities of tax-credit projects, he said.

"We're seeing some of the market-rate developers moving into affordable housing and bringing some of the cool designs and kind of taking it up a level, with more amenities than normal," Robinson said.

Improved amenities are a trend no matter the project type.

"You've got an age group of 25-35 that's about to explode," Robinson added. "That's why people are going ahead and using these low interest rates, biting the bullet and doing the multifamily construction, anticipating those primary renters." He added that this age group has become more accustomed to quality amenities, including high-tech, and will expect them in their housing.

This burgeoning age group, combined with the currently low interest rates, is what's driving the current level of apartment construction, which has been stronger than nationally high vacancy rates would indicate.

"It's been odd, because all you read about is that vacancy rates on a national level are the highest they've ever been, yet construction is just booming," Robinson said. "If the interest rates were higher you'd have a completely different mindset. But they're continuing to stay low, so investors are going to continue to buy land and develop projects and hope that in '05 and '06 the vacancies catch up."