How In-Migration Shielded Tampa’s Multifamily Market
Pandemic-induced relocations to smaller cities have supported Tampa’s rental market in the past year, say experts from The Multifamily Firm. Here’s what they expect now for Florida’s West Coast.
Sun Belt markets were a magnet for Millennials and Baby Boomers long before the pandemic, but the health crisis accelerated people’s quest for less dense urban settings. Tampa, Fla., was one of the beneficiaries of this trend, with in-migration contributing substantially to the metro’s stability during the past 12 months.
Experts at real estate brokerage company The Multifamily Firm told Multi-Housing News that, except for some short-term rent collection challenges at the beginning of the crisis, rent payments were generally similar to pre-COVID-19 levels throughout the second half of 2020. Managing Director Phil Ginexi and Managing Partner Kyle Keelan are optimistic about the metro’s multifamily outlook. The pair share their insights and expectations for Florida’s West Coast in 2021.
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How would you describe the metro’s multifamily market performance last year?
Keelan: I would describe it as remarkably durable! However, I believe this resilience also has a lot to do with how the state of Florida managed the lockdowns versus other states. Although there was an extended lockdown period, I believe the decisiveness to reopen small businesses such as restaurants ahead of other states substantially helped isolate and limit the economic hardship to tenants and landlords.
In a sense, it provided the perception of a light at the end of the tunnel and helped landlords work with tenants on rent payment plans. Now that the dust has settled, I think this resiliency is further evidenced by the current immense demand for multifamily assets from out-of-state investors, particularly from states like New York and California.
The Tampa Bay area as a region has evolved into several decentralized business locations, with metro markets layered in and around those locations. Tampa and St. Petersburg each have their own respective downtown hubs consisting of high-rise office buildings, high-rise luxury residential buildings and direct access to major highway systems. On the outer boundaries of those downtown hubs has been the growth of business centers such as Westshore in Tampa and Carillon/Gateway of North St. Petersburg. Traditional metro areas of the region have blended in amongst all of these business centers and have performed very well as they provide a more cost-effective rental environment.
To what extent has unemployment affected Tampa’s multifamily market?
Ginexi: There has been little to no impact on the multifamily market in the Tampa Bay region over the past year due to pandemic-related unemployment. Migration and population growth in the region has and will continue to have a positive impact. Any specific negative situations have been isolated and short in duration. Most notably, the hotel/motel segment has seen some financial distress among undercapitalized operators, but that appears to be substantially rebounding this year as a result of the migration surge.
What can you tell us about rent collections in the second half of 2020?
Keelan: During the second half of 2020, rent collections were generally on par compared to pre-COVID-19 time periods. In most cases, tenants with rent balances were directly correlated to missed or reduced rent payments in March/April of 2020 during the lockdown period. In the second half of 2020, nearly all tenants were consistently making their current rent payment. However, some were struggling to get caught up on their balances from March/April.
One of the factors of rent collections that became glaringly obvious during the second half of 2020 was the effectiveness of property management. In nearly all instances, properties with solid professional management in place performed far better than those that were not.
What type of multifamily properties are in the highest demand now in the Tampa MSA?
Keelan: In my opinion, the midlevel “affordable” housing multifamily property type is in the highest demanded right now. That would be tenants that rent by necessity but are not receiving any type of rent subsidy. Many of the properties in the region that facilitate this tenant base were built in the late ’60s to’70s. So in most cases, there is substantial upside potential to increase rents by performing interior/exterior improvements. Additionally, this property type is often occupied by numerous long-term tenants, so it provides stable and predictable cash flow, allowing an investor to systematically renovate units without a significant spike in vacancy.
Which areas of the metro are the most sought-after now and why?
Ginexi: Tampa, from downtown to the Westshore region as well as to the north, continues to flourish as development moves forward on new office buildings and residential development. Downtown St. Petersburg to the east and north continues to see rapid growth, and in all of these cases, population growth and business relocation to the region have been the key driver. The Sarasota region is also highly desirable as it continues to see growth on par with St. Petersburg, in terms of employment, business growth and migration.
Generally speaking, we’ve also seen a slight shift in demand for assets that are located in more suburban settings versus downtown metro areas that have been so highly demanded over the last five years. This shift is probably a direct result of the pandemic, as some individuals have decided to reside in a more spread-out setting versus the urban setting.
Please share a few details about notable deals you have brokered recently.
Keelan: Notable multifamily deals we’ve brokered recently consists of a 27-unit apartment complex in St. Petersburg; a 20-unit apartment community in Sarasota, Fla.; a 16-unit apartment community in Nokomis, Fla.; an eight-unit apartment building in Bradenton, Fla., and a six-unit apartment complex in downtown Sarasota, Fla.
Furthermore, under contract until recently, we have a 16-unit apartment building in Sarasota; an 11-unit apartment community on 6.4 acres with the opportunity to develop 58 total units on the parcel; an 11-unit apartment community in Sarasota; a 10-unit apartment community in Bradenton; and a four-unit apartment building in Sarasota.
With interest rates at historic lows, what are your expectations when it comes to deal volume this year compared to the previous one?
Ginexi: We expect 2021 to be record-setting in terms of year-over-year deal volume growth compared to 2020. Overall demand for multifamily assets was certainly high before COVID-19. However, this year, demand appears to be surpassing those levels. On-market supply has remained low and thus fueled more demand, however, we anticipate on-market supply to significantly increase as owners begin to hear about the record-breaking sales occurring right now. Even with an increase in supply, as long as interest rates remain low, we expect values to continue to rise and cap rates to continue to compress.
How do you expect the Tampa multifamily market to perform this year?
Ginexi: We see continued growth in demand and valuation in the coming year. We expect new development efforts to get right back on track after COVID-19, and we anticipate continued population and migration shifts significantly toward the Tampa Bay and Florida West Coast region. All those factors combined appear to be great news for the Tampa multifamily market this year.