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Is South Florida Approaching the Tipping Point For Luxury Rentals?

With More Than 17,600 Units Planned in Next Few Years, Some Observers Wonder About Overbuilding
January 30, 2018
The 35-story New River Central luxury apartment in Fort Lauderdale is expected to be delivered by 2021.
Rendering: Silverback Development and Bizzi & Partners Development

Nine days into the new year, a development partnership announced plans for yet another luxury rental in downtown Fort Lauderdale, FL, this one featuring 401 units in a 35-story tower with 5,500 square feet of ground-floor retail.

Silverback Development and Bizzi & Partners Development said they expect the $125 million New River Central to break ground at 100 SW Sixth St. later this year, with an anticipated completion date in mid-2021. It's the second luxury apartment tower in South Florida for Bizzi, which is building Eighty Seven Park at 8701 Collins Ave. in Miami Beach.

Josh Schuster, managing principal of New York-based Silverback, said through a publicist that New River Central rents have not yet been determined, and he declined an interview request to discuss the project and how it fits into the larger luxury market. In a statement, he said, "We look forward to delivering a world-class residential building to Fort Lauderdale's rapidly transforming downtown neighborhood."

New River Central is the latest in a wave of luxury apartments coming to South Florida, prompting some multifamily observers to wonder whether that segment of the market is getting overbuilt.

In and near the city limits of West Palm Beach, Fort Lauderdale and Miami, 28 high-end rentals featuring nearly 9,500 units are under construction, according to Reinhold P. Wolff Economic Research in Oakland Park, FL.

The pipeline of projects is even more pronounced: 50 projects and 17,632 units in some stage of planning, Wolff figures show. High-end rentals are planned for Miami Worldcenter in downtown Miami, and the Stiles real estate firm has announced projects on SE Second Avenue and New River Drive in downtown Fort Lauderdale.

Those units will be in addition to the thousands already delivered over the past several years.

Miami has the most number of luxury rentals currently under construction (13), while Fort Lauderdale leads with 20 in the pipeline. West Palm Beach has only three under construction, but 14 projects with 4,224 units are in the works.

Many of these luxury developments will have such perks as dog parks, community kitchens and large spas and fitness centers. Monthly rents likely will extend from $2,500 to several thousands of dollars for the most prestigious units.

L. Keith White, president of Wolff, said he doesn't see a problem with the developments under construction, but he wouldn't be surprised if at least half of the proposed projects are shelved or canceled.

White isn't declaring the South Florida luxury rental market overbuilt, "But there's enough there to raise an eyebrow," he said.

Jack Winston of Goodkin Consulting in Miami isn't as concerned. He and other analysts insist there's still plenty of pent-up demand for top-of-the-line apartments due to the lack of construction during the six-year housing bust and Great Recession. They also point to continued population growth and a new appreciation for the flexibility and financial benefits of renting among millennials.

But the luxury rentals aren't just drawing millennials, noted Winston, "It's becoming a very attractive product for empty nesters."

Empty nesters are downsizing and want to rent in a downtown setting, where they can be near shops and restaurants, according to Winston, who said developers are catering to that demographic by building larger units with lots of amenities.

Still, at least one South Florida developer is taking note of all the luxury rentals and purposely trying to avoid that sector.

On Jan. 18, Property Markets Group closed a $55 million deal for 400 Biscayne Blvd. in downtown Miami. Plans call for 700 rentals above 20,000 square feet of retail on a site overlooking Biscayne Bay. Rents haven't been set yet, but Ryan Shear, principal with Property Markets, said the apartments will be smaller and more affordable for young professionals.

Property Markets expects to open another Miami project, the 464-unit X Miami, this summer. Rents there will start at $1,600 a month, Shear said.

The developer also is building 1,200 apartments in downtown Fort Lauderdale on the site of the former Las Olas Riverfront property west of Andrews Avenue. Shear said most of the units there will rent for less than $2,000 a month.

All three developments are part of Property Markets' X Social Communities portfolio, offering convenience - including co-working spaces - at an attainable price point downtown. The developer is planning more than 5,000 of these units nationwide over the next five years.

Shear said his firm wasn't interested in adding to the landscape of upscale apartments. "I just think that's crowded space," he said of the luxury rental market.

Although the U.S. Census Bureau said the nation's homeownership rate rose slightly to 64.2 percent in the fourth quarter - the first year-end increase since 2004 - developers and lenders remain bullish on the multifamily sector because they're convinced that consumers will continue to favor renting in large numbers, according to Jack McCabe, a housing consultant in Deerfield Beach, FL.

McCabe said it's obvious when a market starts to turn because developers will offer incentives, such as free rent, and he has seen very little of that so far. But it's coming for the luxury market, he said.

"In 2018, I think we're going to reach a point where these projects aren't going to lease up as fast as they have been," McCabe said. "It seems like one out of every 20 projects announced looks like it might be affordable and the other 19 are being built for consumers that I would consider affluent."

McCabe said there's a big need for affordable apartments with basic amenities and modest rents, but developers remain fixated on the luxury sector because the demand is strong and the potential for profits impressive.

"We in South Florida are so heavily service-reliant," he said. "If those workers can't afford to live here, they're going to start to look at other areas (outside the state) where they can have a better standard of living."

Paul Owers, South Florida Market Reporter  CoStar Group   
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