REAL ESTATE DEVELOPMENT

The key to Related’s ambitious push in rental apartments

 

At a glance

Related Development LLC, part of Related Group

• President and CEO: Steve W. Patterson

• Headquarters: Miami

• Focus: Rental-apartment development

• Pipeline: 12 projects with nearly 4,000 rental units

• Turf: Miami-Dade, Broward, Palm Beach counties; Tampa; Texas


mbrannigan@MiamiHerald.com

Jorge Pérez will probably always be known as Miami’s condo king, and with good reason.

The founder and chairman of Miami-based Related Group has reshaped the skyline with thousands of luxury condominium units across South Florida and elsewhere, and he now has 11 condominium projects with 2,500 units in the works.

Yet long before Pérez launched his first condominium, Portofino Tower in Miami Beach, in 1997, he was developing rental apartments.

Related’s mainstream rental-development business went dormant during the last condo boom. But since demand for new construction of rental housing took off a couple years ago, the rental development side of the business is again providing healthy diversification for Related.

In 2010, Pérez tapped Steve W. Patterson, a veteran in multifamily-housing development in South Florida, as president and chief executive officer of Related Development LLC to lead efforts to capitalize on the wave of demand for rental housing in the region.

Fueling the demand for rentals are several factors: Since the real-estate downturn, a growing number of people, in South Florida and around the nation, are looking to rent because they lack the financial means to buy. Many others prefer the simplicity and convenience of renting. A leaky faucet or broken appliance, for instance, means calling the maintenance department instead of shelling out cash for unexpected expenses.

“The love affair with homeownership has waned a little bit, because people had a hard time. With the whole housing debacle, renting became popular again,’’ said Patterson, who since joining Related has launched a dozen apartment projects totaling nearly 4,000 units. That compares with none in the pipeline when he came onboard. “We’ve gotten busy in a hurry.’’

Patterson’s bailiwick is “market rate’’ apartments that cater primarily to middle-class people with household income in the $60,000 to $80,000 range, sometimes higher. Rents range from about $1,000 to $5,000 a month.

A separate unit called Related Urban focuses on building affordable housing with the help of federal tax credits. That unit is developing another 5,000 rental units.

Rental apartment development inherently entails tighter budgets than luxury condominium building. Still, Patterson said, Related focuses heavily on the design and ambiance of its apartments, just as it does in its marquis multimillion-dollar condominiums.

Patterson, who previously worked many years at Zom and competed with Related, said he shares Pérez’s passion for design.

“We’re always trying to do something that will create emotion,’’ Patterson said. “It’s part of our brand.’’

He asserted that Related, which is the largest apartment developer in Florida and one of the largest in the nation, can offer more value than small players, because it buys in bulk.

“We buy cabinets and floor tiles for 1,000 apartments at a time,’’ said Patterson. “I buy in Greece, Italy, China, things you couldn’t afford to put in’’ on a small scale.

The architectural design and style vary by project. Doral View in Fontainebleau at 701 NW 97th Ave. is going for a mission-style, old-world feel in three-story garden apartments. In Delray Beach, Related is building more edgy, urban-style units close to the beach at SOFA (which stands for South of Atlantic.)

Related has concentrated on building apartments in urban infill sites and emphasizes energy efficient “green’’ buildings, he added.

The challenge of building an attractive product at a reasonable price has been getting harder as the real-estate market recovers.

While Related had begun snapping up land during the downturn when prices were cheap, it now faces rising prices for sites.

“I’m in competition with condo developers for land, and they can pay more for land than apartment developers,’’ Patterson said.

Costs for building materials and for labor also are expected to rise as construction in various sectors continues to pick up.

New apartments are tending to be smaller, but with more efficient layouts than the past. “Hallways are a no-no,’’ Patterson said. “You can’t sleep, eat or watch TV in a hallway. We try to avoid them like a plague.’’

Many experts believe the pendulum will continue to swing toward fewer homeowners and more renters. The homeownership rate fell to 65 percent in the first quarter of 2013, down 0.4 percentage points from a year earlier, according to the U.S. Census Bureau. The rate peaked at 69.2 percent in the fourth quarter of 2004.

Adding to demand is the large number of children of baby boomers now ready to leave the nest and form new households.

“Reflecting on the housing bust, there is the recognition that housing isn’t necessarily an investment: there is a downside potential,’’ said Craig Werley, president of Focus Real Estate Advisors, a real-estate consulting firm in Coral Gables. “The more important driver for younger generations going for rentals instead of purchases is for the flexibility [to move easily from place to place].’’

The supply of apartment housing hasn’t kept pace. During the last boom, apartment construction was shelved in favor of condominiums and many existing apartment buildings, especially in South Florida, were converted into condominiums for quick profits.

“We had virtually no [apartment] supply added in that 8-year period [from 2004] and baby boomers’ children are now entering the rental age,’’ Patterson said.

Big institutional investors are eager to lend on apartment development and to own apartment buildings for the steady stream of income. Meanwhile, lenders have been reluctant to dive back into financing condo development, except on projects with high lots of equity.

Many market watchers are predicting that some of the current wave of apartment construction will end up getting converted to condominiums. “If history repeats itself, we’d anticipate at least half of the rental apartments being built today will be converted to condominiums,’’ said Peter Zalewski, principal of Condo Vultures LLC in Miami. “Once again, Related is ahead of the game.’’

Patterson said such a switch definitely is an option for Related Development’s projects. “Everything we build in apartments we build with the possibility of conversion in mind,’’ he said.

That entails soundproofing units for the privacy levels that owners would demand. Utilities are installed with an eye toward use as a condo. And interior finishes of apartments typically include things like porcelain-tile floors, stainless-steel appliances and granite countertops.

“We design the units to be comfortable enough that someone would want to be in them long term,’’ Patterson said.

Projects most likely to end up as condos are the coastal-area apartments. “The closer you get to the water, the higher the probability of such a switch to condo from apartment,” Patterson said.

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