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Commercial Real Estate
Business Observer Thursday, Jun. 25, 2009 12 years ago

The Right Time

Zaremba is focusing on Florida and Arizona for its upscale apartment projects.

Zaremba is focusing on Florida and Arizona for its upscale apartment projects.

Today's apartment residents do not like using stairs to walk to their unit. So Zaremba Residential Co. is designing elevators or parking structures into its projects so residents can be closer to their front door.

By attempting to itself apart, Zaremba Residential, an apartment-building division of Zaremba Group LLC, a commercial and residential developer, gets a foothold in its markets and creates a potentially successful project for itself and its equity investors.

“We try to be state of the art, to make sure properties have amenities,” says Joe Urbancic, president and chief operating officer of Zaremba Residential.

After finishing the 249-unit Vintage Loft apartments near downtown Tampa, Zaremba is working on three other apartment projects: Fusion, a 326-unit project just north of Tropicana Field, opening next summer; Tortuga, a 295-unit project on Gandy Boulevard in St. Petersburg, opening in March; and a 250-unit project that is planned for the Connerton neighborhood in Land O' Lakes.

The company is also on the hunt for distressed properties it can redevelop.

Zaremba builds, manages and owns its projects. Its ownership stake and how long it holds the property depends on the development agreement it strikes with the client.

“It depends on what they (equity investors) bring to the table,” he says.

Zaremba works with large equity sources to do its projects, such as state teachers pension funds. On the Vintage Lofts project in Tampa, it did the project on a pre-sale arrangement with a large REIT.

It usually owns its properties seven to 10 years, depending on the preferences of its investing partners.

It looks for markets with strong job and population growth, such as Florida and Arizona, for its projects. Those have been its two main states for work in recent years. Zaremba locates its apartment projects near successful shopping centers and well-traveled roads and highways.

“Florida and Arizona are both strong markets and they will bounce back,” Urbancic says.

St. Petersburg was attractive to Zaremba because a new apartment project hasn't been done in years. There was also strong demand and dense development, with very little usable land.

Cutting edge
Zaremba's niche is that it tries to build projects appropriate to an area and it tries to keep up with changing customer tastes.

When it starts research on apartment projects, it looks at the hospitality industry for cutting-edge examples to make customers feel more comfortable, says Ashley Combs, development manager for Zaremba.

For example, if the apartments are in a resort community, that might mean slightly smaller units, with higher-quality features.

The Zaremba apartment project on Gandy Boulevard, near the dog track in St. Petersburg, is modeled after the Rosemary Beach apartment project in the Florida Panhandle. It is similar to a New Orleans project, with a boutique hotel style.

“We feel that style of apartments will fit there,” Combs says.

Zaremba, based in Cleveland, has been in business for more than 80 years. Its main areas of real estate development are open-air shopping centers, offices and apartments. In the 1980s, its work in Florida was mainly retail.

Some of its clients include Progressive Insurance and CVS drug stores.

New development regulations are getting tougher in every state, making planning, zoning, engineering and construction more challenging.

“Every state is difficult,” Urbancic says. “They've all gotten more difficult.”

Some projects, because of their location, are more complex. For example, Zaremba had to drive 363 pilings 86 to 90 feet deep to build a parking garage over a creek in St. Petersburg.

Still, the company seems ready to adjust. One of it current goals, to look for distressed property for redevelopment, will require flexibility.

“We are keeping our eyes and ears open,” Urbancic says. “Some of the projects could need an overhaul or a facelift. Some condos could be made into apartments. But in that case, you don't want a lot of pre-sales.”

From a financial investment perspective, Zaremba's timing in Florida has been mainly correct. It bought the land for its projects in October 2007, when prices were coming down, yet before the economy started to soften. That meant it could get its approvals and construction started in 2008.

“If it was a year beyond that, we wouldn't be doing the projects,” Urbancic says.

The Florida Bankers Association and individual banks in Florida stress that Florida banks continue to lend, that the freeze on loans is a myth because loaning money is how banks make money. But Urbancic, and other real estate professionals, see it differently.

“Financing has gone quiet,” he says. “Banks are not lending. Later this year, things should loosen up.”

Another challenge for Zaremba has been a “shadow market,” a term for the people who own homes and other property and are renting them out. That competes with Zaremba's apartment projects.

Still, Zaremba likes Florida's population and job growth. And despite government regulations, it considers the Gulf Coast one of its primary development markets.

“Every state has issues,” Urbancic says. “We don't mind barriers to entry.”

And he does not see a problem for Zaremba to recoup its investment, even if its rents are higher than older apartment properties. The current economy will simply make that more difficult.

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