It's not easy spotting signs of life in real estate construction, but in one segment - apartments - developers see the start of a rally.
Land brokers, real estate lawyers and real estate finance companies all say developers are increasingly looking at land for future apartment complexes in the Tampa Bay area.
You won't see the bulldozers turning up dirt just yet, because many of complexes won't break ground for six months or longer and won't be finished until 2012. But developers see enough opportunity in cheap land prices and stabilizing apartment rents that they're jumping back into the market.
That could be a good sign for the economy. The apartment business is often one of the first industries to get pummeled in a recession. And, it's one of the first to spring to life when the economy improves, said John Stone, an apartment broker with Colliers International Tampa Bay real estate.
Camden Property Trust, a large owner of apartment complexes, is dusting off some projects it had to shelve during the recession, including two apartment projects in the Westchase area. Renters are returning, said Chad Weaver, a vice president for Camden. "People are becoming more confident that they're not going to be laid off," Weaver said.
This week Bill Eshenbaugh, a prominent local land broker, helped close a deal on land in Zephyrhills slated for an apartment complex. The original developer lost its financing, and the new owner, Richman Group, scooped it up at a discount. Executives with Richman Group did not return calls this week. Zephyrhills city records show the original developer planned a 240-unit complex at the site at Fort King and Daughtery roads, but Eshenbaugh said Richman may be planning around 110 units.
It was the second apartment land sale Eshenbaugh has closed on in the last few months. A Louisiana man popped into Seminole quickly this summer and bought land for a 219-unit apartment complex, although he may not build on it for a while, Eshenbaugh said.
Other people involved in real estate are seeing the same thing, although many of the deals are still tentative and secret.
Ron Weaver, a Tampa land-use lawyer, is working with developers on a few unnamed apartment projects in the area, and Bruce Erhardt, a land broker with Cushman & Wakefield real estate, has a couple in the works. Behind the developers' sudden interest is a fortuitous mix of factors unique to the apartment business. Industry insiders aren't seeing as much activity in other types of real estate.
Among them is stabilizing rent. Robert Smith and Geoff Harlan monitor apartment rents at dozens of complexes for a Web site called MyRentComps.com. Rents in the Tampa Bay area took a pounding a couple years ago from the "condo conversion" craze, Smith said. At the time, developers saw dollar signs in taking an apartment complex, gussying it up a bit and turning it into a condominium complex. But the condo conversion boom eventually flopped. Too few people bought the newly-converted condos, and developers were forced to turn them back into apartments. Suddenly, thousands of apartment units came back on the market and caused rental rates to sink, Smith said.
Today, some of those excess units are leased up again and the pain has subsided, Smith said. Rental rates are still relatively low - averaging $876 for all sizes and unit types - but apartment owners aren't forced to give away as many freebies as they were, such as a month or two of free rent.
Among other positive signs are:•More investment money. After a long slow period, traditional real estate investors such as life insurance companies and pension funds are looking at apartments again. •Low interest rates. Interest rates are low generally, but apartment projects enjoy the lowest rates of any type of commercial real estate, between 4 percent and 5 percent, said Bob Hernandez, a managing director with real estate finance company Northmarq Capital.
•Cheap land. Weaver, the land-use lawyer, said A-plus land might go for 70 percent of its previous price. Lesser-quality land might fetch just 40 to 50 percent. Alliance Residential of Phoenix couldn't resist all of those factors coming together this summer. In August, it purchased land for a stalled apartment complex near Sickles High School in Tampa's Citrus Park area for $3.75 million. Similar land might've gone for 40 percent more a few years ago, said Michael Ging, Alliance's managing director in Florida.
All told, the project will cost about $31 million and have 296 apartments. A pension fund is putting up 40 percent of the money, and a bank is providing a loan for the other 60 percent, Ging said.
What's happening in apartments doesn't mean all commercial real estate is rebounding. And, some industry insiders say money is still tight. Stephen Marshall, an executive with Grandbridge Real Estate Capital in Tampa, said banks still provide most of the loans for new apartment complexes. And for now, banks still require developers to put up so much of their own money that it's preventing many deals from taking off, he said. And, some existing apartments are still struggling. Recently, there's been a rash of apartment complexes filing for bankruptcy protection in U.S. Bankruptcy Court in Tampa. Still, developers are sensing better times ahead. So many people have lost their homes through foreclosure that they have to rent apartments. And developers figure that by the time their new apartments hit the market in 2012 or 2013, the economy will be back on track. "So we've got occupancies going up, rents going up and values going up," said Erhardt, the land broker. "All of those things make apartments the only product that there's a real need for today."