Now that they’ve been built and filled with tenants, Palm Beach County’s newest apartment complexes are commanding eye-popping prices.
In one example, the Quaye apartment complex near Interstate 95 in Palm Beach Gardens sold in late July for $118.35 million, or $348,000 per door. In another high-dollar deal, the Boca City Walk in downtown Boca Raton sold this week for $80.5 million, or $352,000 a unit.
The next question is whether this boom is on the verge of creating its own bust. Hundreds of new units are under construction in downtown Boca Raton, and hundreds more are coming to downtown West Palm Beach, raising questions about whether the lofty values will hold.
In four sales since mid-July, Palm Beach County apartment complexes fetched more than $360 million, according to property records. Investors are drawn by a combination of trends, including Americans’ shift away from homeownership and Palm Beach County’s strong job market — not to mention the bells and whistles offered by the shiny new generation of rental units.
These apartments no longer are characterized by noisy neighbors and coin-operated washing machines. The new breed of rentals comes with soundproof walls, high-end appliances and luxurious health facilities.
“It’s a whole new game now,” said Dick Donellan, an apartment broker at ARA Newmark in Boca Raton. “The product is outstanding.”
Since the Great Recession, Palm Beach County property developers have been cautious about breaking ground on offices, retail space, condos and houses. But they’ve been far more eager to build rental residences.
Hundreds of new apartments are under construction in downtown West Palm Beach, including 290 units at the Park-Line project next to the Brightline train station, 210 units at The Alexander and 315 apartments at Broadstone City Center. And just north of downtown, the 100-unit 312 Northwood is open to tenants.
In Boca Raton, under-construction projects include the 378-unit Palmetto Promenade and the 366-unit Via Mizner. They’re vying with other recently built projects, including 229-unit Boca City Walk. At Boca’s fanciest new project — the Mark at Cityscape, which sold in 2015 for nearly $400,000 a unit — some apartments rent for more than $4,000 a month.
Both Boca City Walk and the Mark at Cityscape are owned by Monogram Residential Trust (NYSE: MORE) of Plano, Texas.
Developers and landlords are betting on economic and demographic trends that seem to favor rentals. On the economic front, unemployment in Palm Beach County and nationally has returned to pre-crash levels.
Despite good times in the labor market, the American homeownership rate fell in the second quarter of 2016 to 62.9 percent, a 50-year low, according to the U.S. Census Bureau. While homeownership ticked up to 63.7 percent in the second quarter of 2017, the rate remains well below its boom time levels of 69 percent.
“At first, people thought it was just because of the millennials,” said Jim Costello, senior vice president at Real Capital Analytics, a commercial real estate firm in New York. “But across all age cohorts, homeownership is less popular than it used to be.”
Indeed, landlords say some baby boomers are becoming renters by choice.
That was the case at the Quaye apartment complex, which opened to tenants in 2015 and was designed to appeal not just to traditional twentysomething tenants but also to their parents and grandparents.
Some units include garages and were designed to look and feel similar to for-sale townhouses. The new owner is an affiliate of PGIM Real Estate in Atlanta. The seller was South Gardens LLC of Tampa.
In another recent deal, the 259-unit Loftin Place complex in downtown West Palm Beach sold in July. The newly built complex traded for $63.5 million, or $245,000 a unit.
The new owner is Castle Lanterra Properties of Suffern, N.Y., and Chief Executive Elie Rieder said tenants are young (median age is 34) and affluent enough (average income of $140,000) that they could buy homes.
“It’s mostly high-income earners who have disposable incomes, and they want the amenities we offer,” Rieder said. “Millennials today generally don’t want to be tied down to any one location.”
He’s not concerned about a glut of downtown apartments. In fact, Rieder said, he sees room to increase rents at Loftin Place, which average $1,800 a month.
“We’re not planning on raising it aggressively, but slowly and steadily,” Rieder said.
Older apartment complexes are selling too, but at a smaller premium. The 488-unit Delray Verana apartments at Linton Boulevard and Congress Avenue in Delray Beach sold in late July for $102.5 million, or $210,000 a door. That property was built in the early 1990s.
The new owner, the Bainbridge Cos. of Wellington, plans an extensive renovation, Donellan said.
And he predicts no slowdown in sales of apartment complexes to deep-pocketed investors.
“There’s just a lot of capital out there seeking return and yield,” Donellan said, “and investors like having apartments as part of their portfolios.”