COVER STORY, DECEMBER 2009

2010 SOUTHEAST MULTIFAMILY OUTLOOK

Orlando

The 212-unit Promenade Crossing traded for $20.77 million earlier this year in Orlando.

To gauge the health of Orlando’s multifamily market, take a look at condominium sales in the past few months. According to Kevin Judd of  Apartment Realty Advisors’ Orlando office, sale velocity has increased, creating a revitalization in what was a stagnant market. “That tells you that pricing is at a level where people feel comfortable to buy,” he says. “They feel comfortable that if they buy, they’re not going to lose 30 percent of the value of their home over the upcoming couple of years.” And when sales of condos increase, property sales can’t be far behind. Local, high-quality institutions with access to secure levels of equity and overseas institutions have entered the market looking for properties to snatch up at the right price. Apartment properties have been selling as well. In October, Shelton Granade and Luke Wickham of CB Richard Ellis’ Orlando office brokered the sale of the 212-unit Promenade Crossing for $20.77 million.

While the economy is still a real threat, brokers in Orlando have seen enough activity to feel good about the coming year. “In this economic climate, there’s always going to be some concern out there about what’s going to happen next,” he says. “There still is some caution, but it’s being overshadowed by a feeling of a return to a more normal market.”

Orlando seems to be returning to normal faster than other markets of its size because of the city’s strong fundamentals. Walt Disney World is a huge tourist draw; when Orlando’s high-tech, medical and financial fields are also considered, it’s easy to see why the multifamily market  in Orlando may be among the first in the Southeast to fully recover.

Around 2,500 units have been delivered this year. That number will diminish for 2010, but the demand for these new properties remains strong.

More than strong fundamentals, the multifamily market is ultimately tied to jobs. Judd says before the recession hit, the Orlando economy was generating 30,000 jobs a year. Compared to that number, Orlando is in dire straits, but the job situation is improving.

“We’re starting to see some better news in the market. Primary economic indicators are leveling off,” Judd says. “In general, job losses have slowed, and we’re starting to just get to a level job base.”

Baltimore

Employment levels are intertwined with the success of the Baltimore multifamily market. According to Mike Rudolph of CB Richard Ellis’ Baltimore office, the area has gained 15,000 jobs in the past 8 months. This increase creates a nice cushion for the apartment and condominium sectors. While rents are currently flat or have decreased slightly in submarkets such as the Inner Harbor, many areas have seen rent increases due to tight occupancy.

“Baltimore’s always been a steady-Eddie kind of market,” Rudolph says. “It didn’t get too frothy — it didn’t get overbuilt.” He attributes this to the lack of land available to developers.

Buyers and sellers have been wary of the market, but Rudolph sees signs that transaction velocity will soon increase. For one recent Class B deal in the city, he fielded 20 to 30 offers, a number that would have been hard to fathom 6 months ago.

“The buyer pool has really expanded in the last 90 to 120 days,” he says. “We’re seeing a lot of money starting to look back in the market.” This financing also is coming from new buyers. Parties interested in the multifamily market are either recent city transplants or haven’t been active in real estate for at least a decade, according to Rudolph. The problem, however, is that all these buyers are competing for a small number of properties because there aren’t many sellers in the market.

“We don’t have a buyer issue, we have a seller issue,” Rudolph says. “Last year, we had a buyer issue because nobody wanted to put their money out the door.”

The development pipeline in Baltimore sits at 3,400 units, but the relative strength of this number is hard to grasp. Many of these projects won’t break ground for at least a year, and some might be scrapped altogether. Only a few developers who have access to financing will be able to pursue projects in the current market. So, this means the official number of 3,400 units may be overly optimistic.

“How much of that is actually going to get to the shovel stage is anyone’s guess,” Rudolph says. “We do think that development has slowed down. There’s not many projects being started, for sure.”

But with the lack of development comes opportunity. Rudolph predicts the market will stabilize by the end of 2010, and vacant space will be gobbled up, thanks to the dearth of new projects. This will create the perfect landscape for landlords and those looking to buy or sell properties.

“There’s going to be more opportunity at the end of next year. Landlords will be excited because there’s not that much new development coming on to the scene. The markets will stabilize and only remain a little soft around the harbor and other big growth areas,” he says. “In Baltimore, we’ve weathered the storm fairly well. We think that it will be a slow growth until 2011.”

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