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There is a wave of investors who are currently selling their New York-based properties to invest in the South Florida area. Why?

Mainly because of the recent rent control law and its negative impact on returns on investments. It has been estimated, for example, apartment property values dropped 20%-30% as soon as the laws went into effect. Some investors are now mainly focused on getting their money out of New York and are looking to invest in properties that will produce better yields—specifically in non-regulated rent control markets, such as South Florida.

Why South Florida?

“There is zero incentive for New York multifamily investors to purchase a building and spend money on renovations if they can’t raise rents in these rent-controlled environments. Florida has always been a market with attractive yields. This is why most NY investors are choosing South Florida,” says Rafael Fermoselle, managing partner of Eleventrust Real Estate. “They either have their New York properties under contract to be sold, have already sold them, are in 1031 exchanges, or in some cases looking for diversification.”

Investors are selling their assets in New York and reinvesting in deals that yield more and ideally, are located under one roof. However, since Miami’s inventory is compressed with a lot of smaller multifamily properties and it’s difficult to find buildings with high unit counts under one roof, investors are turning to multifamily portfolios that are comprised of 4 – 8 buildings totaling 50-120 units. Although not all under one roof, investors are finding the 100+ units they are seeking with room to add value.

“Investors are working closely with Eleventrust because we have the inventory other brokerages don’t, plus, many of the deals they are transacting are happening off market, which many investors prefer,” explains Fermoselle.

Opportunity Zones

Opportunity Zones are another big reason why this new wave of investors are looking to South Florida. Miami, Fort Lauderdale and West Palm Beach are among the best places to invest in Opportunity Zones. There are about 123 Opportunity Zones in South Florida, including 67 in Miami-Dade, 30 in Broward and 26 in Palm Beach counties.

“Almost 16% of South Florida’s commercial assets are located in Opportunity Zones, one of the highest rates in the nation,” Fermoselle tells GlobeSt.com.

Tax Savings

New York investors looking to move to Florida also benefits from the state not having an income tax for Florida residents. New York state tax rates range from 4% to 8.82%. Additionally, the effective real estate property tax rate for Florida residents is approximately 0.98%, compared to 1.68% in New York.

New York investors will also save on capital gains tax in Florida where the top marginal tax rate on capital gains in Florida is 25% and top marginal tax rates on capital gains in New York is 33.82%.

“We currently have 4 successful deals with New York investors including multifamily properties with 9-18 units,” says Fermoselle. “We also have properties located in emerging neighborhoods that are garnering interest from east coast investors.”

 

Source: GlobeSt.

With healthy employment growth continuing, Berkadia predicts this year’s apartment market in South Florida will have the most deliveries in more than two decades.

Their 2019 South Florida Multifamily Market Outlook said construction was scheduled to be complete on nearly 12,000 units by year-end, up more than 18 percent from deliveries in 2018.

“Apartment leasing is expected to remain healthy too as employment growth – particularly in the professional and health sectors – is expected to outperform the national average in 2019,” the report found.

“South Florida’s apartment fundamentals continue to be exceptional thanks to sustained job and population growth combined with a trend away from homeownership,” said Charles Foschini, Senior Managing Director and Berkadia Florida Co-Leader. “There are an increasing number of ’lifestyle renters’ – people who could buy but want to live in a more dynamic, amenity-rich setting. Apartment owner/operators have been very creative in catering to that segment of the market.”

Added Mitch Sinberg, Senior Managing Director and Berkadia Florida Co-Leader, “The market for buying and selling apartment properties also remains healthy, although given where we are at the cycle, we anticipate deal volume to dip slightly in 2019. Interest rates have risen, but we anticipate a tightening of spreads will compensate for any price increase.”

Trends Include 2.1 Percent Employment Growth

Berkadia’s Florida Investment Sales and Mortgage Banking teams collectively completed over $4.5 billion in multifamily and commercial property sales and financings in 2018.

Trends cited by Berkadia:

  • Employment growth of 2.1 percent should drive leasing activity higher than inventory growth.
  • Healthy demand should shift average apartment occupancy up 50 basis points to 95.5 percent by the fourth quarter, which is slightly above the five-year average.
  • Average effective rent is forecast to rise 3.7 percent to $1,606 per month.

 

Source: GlobeSt.