Flagler 626 wasn’t always intended to be rental apartments.
In the fall, the City Commission unanimously approved a site plan and development permit for the 97-unit building, which the owners had designed and developed as a condo project. Shortly after Flagler 626 won city approval, the company behind the project, BRYL Development LLC, listed the development site at 626 Flagler Dr. for sale for $3.5 million. Property records show BRYL bought the site, three lots spanning 27,000 square feet, for $725,000 in 2014.
But the commercial real estate broker with the listing is marketing the Flagler 626 site to rental apartment developers.
“The market for for-sale product has changed dramatically over the last 12 to 28 months,” says Peter Mekras, senior vice president of Coral Gables-based Continental Real Estate Companies LLC. Principals of BRYL Development declined a request for an interview.
“If you want to build a ground-up condo today, you’re not going to get the financing to do it unless you get your project 80 percent sold [prior to construction]. And getting your project 80 percent sold is hard to do, and it’s a very long process,” Mekras says. “For that reason, when I proposed to the owners of this site to market it for sale, I proposed to sell it only as a for-rent development.”
Prominent among reasons for the condo market slowdown is the strength of the U.S. dollar against foreign currencies, making condos in the Fort Lauderdale more expensive for buyers abroad. “The vast majority of that demand was foreign,” Mekras says.
Not far from the Flagler 626 site, signs of a slowdown in condo development have accumulated. For example, the owner of the Conrad Fort Lauderdale Beach has renovated but not yet opened the hotel and condominium development at 551 N. Fort Lauderdale Beach Blvd. A real estate news website, The Real Deal, reported that developer Orchestra Resorts + Hotels needs to refinance its construction loan for the renovation work before it opens the Conrad. General contractor Moss & Associates in August filed a $1.4 million construction lien against Orchestra for its work on the Conrad.
Farther south in Hollywood, the developer suspended construction of a 15-story condominium after building 13 floors to seek more financing. The developer, Hollywood Station Investments, had reservations for 60 percent of the 247 units at the nearly finished condominium, called H3, when construction work stopped in September.
But the market for rental housing is hot. National commercial real estate brokerage firm Marcus & Millichap said in a third quarter 2016 report on Broward County that employment growth and elevated single-family home prices are enlarging the market for rental housing.
For example, more than 1,000 rental apartments are the centerpiece of a plan by Property Markets Group to redevelop Las Olas Riverfront, a once-popular food and beverage destination in downtown Fort Lauderdale that is nearly vacant now due to failed efforts to build condos there.
“Apartment construction has intensified in response to increased demand and rising land costs that have deterred single-family development … Most of the new construction is occurring to the west of Interstate 95, where large mixed-use projects are drawing more residents to the area,” Marcus & Millichap reported. The brokerage firm expects developers to open 2,750 new apartments in Broward this year, up from 2,630 in 2015. “When you look at the apartments we need to produce, we’re still at a deficiency. If the market delivers another 20,000 units this year and next year, we’ll still be undersupplied,” Mekras says.
Marcus & Millichap also said in the third-quarter report that it expected monthly rents in Broward to average $1,505 in 2016, a 5.5 percent increase from 2015, the county’s seventh consecutive annual increase in average monthly rent.
Mekras says the next owner of the Flagler 626 development could charge monthly rents averaging $2,200 if it were developed as an apartment building: “You can get the rent to justify the cost of construction … The design has the quality of a condo project.”
Stewart Robin of Nest Plan designed the units at Flagler 626 in sizes from 671 square feet to 1,580 square feet. Common-area amenities will include a miniature park, party room, gym and swimming pool, plus parking for mopeds, racks for bicycles and an electric-car charging station. Flagler 626 also would have a parking garage with 119 spaces.
Mekras is marketing Flagler 626 as a city-approved multifamily real estate development. “When a project is approved, it does not denote whether the developer should sell it as condominiums or rent it,” he says. “The fact that it is being built as rentals would not affect its entitlements.”
As this story went to press, BRYL Development was receiving offers for the development site. “We have a number of offers that already have been submitted that we’re considering,” Mekras says. It is possible that principals of BRYL Development will choose to develop Flagler 626 as a joint venture with another developer. “There’s always a possibility of it. We’re not closing the door to it. But my primary focus is finding someone who wants to buy the site,” Mekras says.
Although BRYL decided to develop Flagler 626 as a condominium when the condo market was healthier, the company’s decision to sell the development site was the result of personal preferences, not the slowdown in the condo market, he says. “Teeing up properties to flip them is not what this partnership is doing,” he says. “Right now, the personal dynamics of one of the key partners is leading them to sell the property … The only thing we’re fighting is, most of what you read in the press is a lot of doom and gloom about the market … Is the market as peachy as it was last year? No. But the sky is not falling.”