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Business Observer Friday, Aug. 18, 2017 1 year ago

Going Uptown

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Aileron Capital Management is pushing ahead with a 32-acre Cape Coral apartment complex, despite increased lender caution.
by: Kevin McQuaid Commercial Real Estate Editor

With projects like the Channelside and Midtown apartments under its corporate belt, Aileron Capital Management has developed a track record of completing deals and building quality multifamily projects in Lee County.

But when the Tampa-based company sought capital for its latest venture, a 320-unit complex that will be part of a 32-acre, mixed-use development in Cape Coral, it ran headlong into the new realities of multifamily financing.

Aileron's Uptown at Liberty Park penciled out from an underwriting standpoint, and had solid demographic in-migration in its favor. The developer also enjoys a good relationship with lender American Momentum Bank, which financed Channelside in 2014.

But because the $50 million complex will be among the first new multifamily deals developed in Cape Coral, American Momentum didn't throw itself into it.

“The financing climate is definitely tougher than it was a year ago,” says Joe Bonora, Aileron Capital's managing director and a Lee County native.

“Lenders are reacting to regulatory changes, and banks are taking a more cautious approach because they are seeing what's happening nationally, in terms of supply, and in some cases, they're pulling back.”

American Momentum committed to finance the apartments at Uptown, but only if Aileron agreed to inject a larger amount of equity — 32% — than would have been necessary in 2015.

To further mitigate any risk, the Texas-based bank capped its exposure in the deal to $28.5 million — or 85% of the total debt — and partnered with MidWestOne Bank, which lent $5 million more.

“We had worked with the developer before, so we had a degree of comfort in them, and the location was very compelling,” says Porter Smith, American Momentum's Tampa Bay market president.

“The lack of new supply there, coupled with population growth, was a big driver for us ultimately,” he adds. “The amount of growth there over the past 10 years, especially, has been amazing, without any real corresponding increase in supply.”

Still, Smith acknowledges that banks in general aren't embracing new multifamily developments as they did between 2014 and 2016, when lower home ownership rates and collateral from the last decade's financial crisis pushed many Americans to rent versus own.

“We're taking a cautiously optimistic approach,” he says. “The Central Florida economy is still growing and it's very solid. For the right multifamily project, we've still got money to lend.”

But many lenders are shying away from multifamily rentals -- after rushing to finance new projects following the recession.

“Lenders are typically requiring more equity now,” Smith says. “They're looking at where we are in the cycle, and how much of any asset class they are carrying on their books, and how much overall has been built in, say, the past five years.”

He notes, too, that each new development must be evaluated on a case-by-case basis.

“It's really a matter of considering project to project, and market to market,” he says. “Downtown Tampa and Cape Coral, for instance, are very, very different.”

Bonora and Mike Allan, an Aileron vice president, say the mix of uses planned for the $75 million Uptown at Liberty Park project will provide residents with much-needed services and amenities.

In addition to the apartments, Aileron is planning as much as 25,000 square feet of retail space along Pine Island Road, together with a 131-unit assisted-living and memory care center.

“We think the services will enhance the project and the community overall,” Bonora says.

He hopes to have the senior housing component completed around the end of next year, and the entire project wrapped by the close of 2019. In addition to its multifamily developments, Aileron also manages roughly 150 senior housing communities nationwide.

It is the apartments, though, which will rent for about $1,100 monthly, that will be the centerpiece of Uptown.

Bonora expects to deliver the first of the residential units early next year, and complete them all in fall 2018.

“We're building there for what we see as the broadest demographic possible,” he says.

Unlike many garden-style apartment complexes, Uptown will four floors — not three -- and provide elevators in each of the community's eight buildings.

“We've gotten pretty good at figuring out where to spend money in a project to attract the most people,” Bonora says. “And we're comfortable being the first out of the ground there. There aren't a lot of sites in Cape Coral large enough to do apartments, and we liked that barrier to entry.”

Currently, there are only three apartment projects underway or planned in Cape Coral -- and Aileron's Uptown and 90-unit Midtown complexes are two of them.

“Over the next 24 months, we think the whole area is really going to mature,” Bonora says.

Not that Aileron will be static long enough to witness it: The company already is planning a 280-unit multifamily development in Fort Myers.

As for American Momentum, Bonora isn't concerned that the bank's underwriting may be changing -- especially after the company sold its 325-unit Channelside project, which American Momentum financed, for $55 million.

“They have some well-placed confidence in us that we'll be able to deliver.”

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