Back in 1987, Gordon Gekko enlightened us all when he declared that “money never sleeps” in the film Wall Street. Fast forward to 2011 and we are faced with a very different set of ground rules for the so-called ’smart money.’
According to Miami entrepreneur Daniel Cardenas, “the smart money is renting.” Cardenas is one of the tens of thousands of people riding the Downtown Miami rental wave that has taken shape following the building boom that saw more than 23,000 units deliver between 2003 and 2009. He, like many Miami residents, has opted to lease versus purchase a home, citing the financial security and flexibility that comes with renting. And it seems Daniel is not alone. The Miami Downtown Development Authority has found that roughly 50% of the people occupying units in the area are in fact renting. This trend equates to stable income for unit owners and big business for Downtown retailers who are flocking to Miami’s urban core to serve the area’s booming population. Perhaps most important, there are early signs that this uptick in demand for urban living among renters is inching the Downtown Miami residential market closer and closer to stabilization. Market-wide rental rates were up 2.2% last year and some properties, such as Brickell’s One Broadway luxury apartment complex, are seeing leasing rates approach pre-2008 levels and occupancy numbers eclipse 90%. See the below Miami Herald piece for the full story on what this means for a residential market that as recently as last year was making international headlines as the epicenter for the housing collapse.
Rental market on upswing in South Florida
As foreclosures and falling home values continue to slam the local housing market, the forecast for rentals is improving
By Toluse Olorunnipa
In the three years since Dan Cordtz moved to his one-bedroom apartment above Mary Brickell Village, a slew of restaurants have opened up, young professionals have swarmed the area and a New York-style street market has livened up South Miami Avenue on Sundays.
But the neighborhood’s blossoming has come with a price tag: As Cordtz’s lease at Camden Brickell was about to expire last month, he got a letter from his landlord saying his rent would be increased by 29 percent, or $358 each month, when he renewed.
“It struck me as being odd, given what I know about the market in Miami, that they would feel free to impose these increases,” the 83-year-old native New Yorker said.
In a housing supply-demand tug of war being pushed and pulled by falling home values, hard-to-come-by credit and a foreclosure tsunami, rentals could be the only upward trend in South Florida’s battered housing market this year.
Rising rents are unwelcome news for the everyday consumer, already struggling with stagnant wages and a turbulent job market, but some economists believe they foreshadow a tail end to the housing crisis.
A collection of recent research portrays a rental market that is likely to improve this year, even as most other housing measures — foreclosures, home values, new construction — are forecast to worsen.
“Significant increases in rents at upper-class properties will raise market wide rental rates modestly,” a fourth-quarter market report from real estate firm Marcus & Millichap said. “In the [high-end] segment, vacancy has fallen [in 2010], and operators continue to leverage modest improvements in renter demand in several submarkets to raise rents.”
According to that report and others published recently, South Florida’s rental occupancy rate is nearly 95 percent, and that number is expected to continue to increase as the economy improves. Rental rates, which fell significantly during the housing crisis, are expected to increase 2.3 percent this year in Miami-Dade County and about 5 percent in Broward.
“When the economy got to its worst point, a lot of younger renters ended up either doubling up or moving back home, and that took a lot of renters out of the market,” said Kirk Felici, vice president and regional manager at Marcus & Millichap’s Miami office. “Now as the economy starts to [improve], we’re seeing some of those renters come back.”
As failed condo projects turned to renters for relief, young professionals flooded submarkets like Brickell and downtown Miami, where leasing activity is up about 11.5 percent in the last year, according to a study by the city’s Downtown Development Association. Across Miami-Dade, occupancy was up slightly in 2010, with rent prices increasing about 2 percent to an average of $990, according to the Marcus & Millichap report.
Based on highest rent prices and occupancy rates, the healthiest market continues to be Miami Beach, where the average unit rents for $1,367. The occupancy rate there is about 96 percent.
In Broward, rent prices are forecast to increase 5 percent as occupancy rises 1.6 percent this year, according to Texas-based MPF Research.
Cities like Coral Springs and Hollywood saw prices increase last year, and analysts predict they will lead the way in Broward’s rising rental market this year.
Rising rent prices are generally regarded as a sign of an improving economy, but for renters who have gotten used to special deals from landlords desperate to fill units, they can be a nuisance.
Cordtz, the Brickell renter, wrote a letter to the management protesting the $358 rent hike, and finally agreed to pay a $200 premium. He now pays about $1,430 monthly, which includes cable, parking and a storage unit. A representative for Camden could not be reached for comment.
Alan Ojeda, who owns the 371-unit One Broadway luxury apartment building in Brickell, remembers slashing prices three years ago to compete with the new inventory of downtown condos available for rent. He says the rental market reached a turning point some time last year, and prices are on the rebound at his building, which he said is more than 90 percent occupied.
Even with 2011’s positive forecast, a host of challenges still face landlords . South Florida’s unemployment rate is still in the double-digits, the inventory of unsold condos remains high and the climb back to boom-era prices could take years.
Also, with home prices and interest rates at their lowest level in years, the rental apartments will likely lose some prime residents to homeownership this year. Spurred by low prices, buyers purchased more existing homes in 2010 than they did during the height of the housing boom in 2006.
Writing about Broward County’s rental market, Greg Willett, MPF’s vice president of research, pointed out the threat from the residential sales sector.
“The one real negative seen in Broward County’s current stats is that the typical monthly payment on a median-priced for-sale housing unit remains a little cheaper than the metro’s average apartment rent,” Willett said in an October letter.
But some say a fundamental shift away from homeownership occurred during the housing crisis, as a generation of younger, more mobile professionals has come of age and the fear of job loss and foreclosure has discouraged would-be buyers.
“If you bought a home or condo with a 25-year-mortgage, you thought that every month with your payment, a little bit went to principal, but you were building equity,” Ojeda said. “With these collapsing prices, your equity has been wiped out. Why would you do the same thing and buy again? Is that really the best way to save money?”
He may have a point: Housing prices are forecast to drop another 6.5 percent in South Florida this year, according to analysis by market research firm Clear Capital.
Daniel Cardenas, who has been renting for the past two years in Ojeda’s building, said he felt safer renting, and liked the option of being able to move after a year.
“I could’ve bought in the last couple years, and I haven’t,” said Cardenas, a 27-year-old entrepreneur. “The smart money is renting.”