Tampa Bay's multifamily market 'still has room for rent growth'
By Ashley Gurbal Kritzer
Tampa Bay Business Journal
Published: May 13, 2022

The numbers are nothing short of staggering: Apartment properties in Tampa Bay are routinely selling for prices once reserved for the very upper crust of the market.

A property under construction in downtown Tampa — the first residents don't move in until June — sold for $124 million or $353,173 per unit in late April. An Ybor complex built in 2017 fetched $90 million or $376,141 per unit, with the buyers promising improvements to the property. That's a 56% increase in price in less than two years; the apartments last sold in late 2020 for $58 million or $241,667 per unit.

Investors are interested in apartment properties in the Tampa area because rents are at all-time highs, driven by a post-Covid influx of new residents. In January, Tampa and St. Petersburg ranked second and third respectively in the U.S. for the fastest-growing rents year-over-year, according to Apartment List.

Eric Fixler, a CBRE senior vice president who arranged the financing for the buyers of the Ybor City property, says that despite the top-of-market pricing, there's plenty of runway left in Tampa Bay's multifamily market. He spoke with the Tampa Bay Business Journal about what he sees in the market — and what comes next.

The following conversation has been edited for brevity and clarity.

Where are we in this real estate cycle for the multifamily sector in the Tampa Bay area? The opinion across the board from all lenders and some equity shops we deal with is that this is a place that they're interested in continuing to do business with. They're not looking at any plateaus. They still see room for rent growth and opportunity in the new projects coming out of the ground. The colleges and schools are all expanding, and between the financial services and medical sectors, there's been a huge influx of new people moving to Tampa.

Let's talk about value-add deals — when investors buy apartments that they plan to renovate and subsequently raise rents. Is there any opportunity left for those types of deals in Tampa Bay? We start seeing the cliff, or whatever you want to call it, in terms of value-add, 1970s vintage properties. I think from an acquisition perspective, the value-add is going to be in assets above the 1970s, meaning built in the 1980s and newer. The 1960s and '70s properties have already gone through their value-add. A '70s property going through another renovation – I don’t believe there’s much more you can do; the bones are what they are. You can’t make it into a Class A project. But early 2000s-built properties — those are still 20 years old.

Cap rates are at record lows. Can they go lower? We are getting to a position from a financing perspective where interest rates are going to start to have an impact on cap rates, because if you’re buying at a 3.5% cap rate and borrow at a 3.74% or 4% interest rate, you're in essence getting negative leverage the minute you buy the property. So you’re buying expecting you can raise the rent. I don’t foresee cap rates falling farther because they're already pretty low, and the debt market is going to have an impact.

How much do you expect rents to grow in the months ahead? We’re still seeing a runway for rent growth. There are more people who need multifamily housing and more people moving to Florida than ever before, and they’re not taking low-paying jobs. The properties are seeing the larger rent growth because they can afford to charge those rents — [tenants] are getting paid well enough, and the properties are located in hot, work-live-play neighborhoods. Will we continue to see the meteoric rise we saw in the last two years? I don’t know about that.