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Business Observer Friday, Dec. 7, 2018 5 days ago

Skyhouse Channelside deal shows investors are still hot on Tampa's rental market

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Willner Realty & Development buys tower in $90 million deal
by: Kevin McQuaid Commercial Real Estate Editor

Last month’s $90 million sale of the Skyhouse Channelside apartment tower signals that investors remain bullish on downtown Tampa’s job and population growth prospects, despite the point in the economic cycle, developers and investors say.

Willner Realty & Development Co.’s acquisition of the 320-unit downtown multifamily building, at 112 N. 12th St. at the southern end of the city’s Channelside District, marks the latest in a string of major residential deals aimed at profiting from the growth in St. Petersburg and Tampa, which has continued largely unabated since 2012.

Since October 2017, more than a half-dozen significant, multifamily rental sales of mostly urban properties have occurred in excess of a combined $700 million, records show.

“Willner is really focused on the Tampa (metropolitan statistical area) as a prime market, and they’re long-term investors that are impressed with downtown Tampa and everything that’s occurring in and around Channelside,” says Luis Elorza, senior director of commercial real estate brokerage firm Cushman & Wakefield’s Florida Multifamily Group, who represented seller AVR Realty Co. of New York together with the brokerage’s Brad Capas and Robert Given.

Much of the activity around Channelside is centered on Water Street Tampa, the $3 billion development surrounding Amalie Arena by Strategic Property Partners, a joint venture between Tampa Bay Lightning owner Jeff Vinik and Microsoft Corp. Co-Founder Bill Gates’ Cascade Investments LLC.

But Elorza notes that attractions like Tampa’s Riverwalk and other attractions are also drawing tenants and investors alike.

At the same time, trends toward re-urbanization have boosted values for upscale residential properties in Tampa and elsewhere.

“The premium side of the multifamily market has done well, too, over the past year, especially, so there’s a good story to tell there,” Elorza adds. “All of Central Florida is very compelling to investors today.”

Officials from Willner, an Ardmore, Pa.-based firm, did not return multiple telephone calls for comment on the purchase of Skyhouse. Cushman & Wakefield says Willner intends to “make a series of capital investments” in the three-year-old property, but it could not be determined what improvements it will make or when.

In addition to its units, Skyhouse contains rooftop amenities such as a saline swimming pool, clubhouse, catering kitchen and fitness center, an adjacent 567-space parking garage and roughly 6,500 square feet of ground-floor retail space.

Unit sizes vary from studios to three-bedroom apartments and average 794 square feet. Rents range from $1,426 per month to $3,047 per month, according to Apartments.com.

Willner, formed in 1979, also is no stranger to the Tampa area. In all, the company owns four other complexes containing nearly 1,500 units in St. Petersburg, Riverview, Palm Harbor and Clearwater, according to its website.

Though it has invested in retail, offices, apartments, hotels and water parks in New Jersey, New York, Florida, Pennsylvania, Missouri and Israel, its multifamily rental properties are concentrated in Florida and Pennsylvania.

Skyhouse is its only urban residential holding.

“We are aggressively seeking to expand our apartment portfolio,” the company notes on its website. “Acquisitions considered will be in excess of 250 units ideally with a value add component and be located on the east coast,” Willner says.

The other major sales of roughly the past year include Northland investment Corp.’s $112.4 million acquisition of the 35-story Element tower in downtown Tampa; Camden Property Trust’s $126.3 million purchase of the Camden Pier District apartments, at 330 Third St. South in downtown St. Petersburg; and Gamma Real Estate’s $96.5 million deal for the Cove Apartments in Tampa’s Westshore district.

Significant transactions also include Greystar Real Estate Partners’ purchase of the Avana Westchase Apartments, also in Westshore; and Teachers Insurance and Annuity Association’s $81.1 million acquisition of the Fusion 1560 tower, also in downtown St. Petersburg.

For Skyhouse, the Willner investment marks the second time that the tower has traded in as many years. In late 2016, New York-based AVR Realty Co. bought the property for $88 million.

AVR indicated at the time that the deal was part of a larger plan to re-allocate its portfolio to newer, Class A properties and toward more urban assets.

It could not be determined why AVR sold Skyhouse after less than two years of ownership for roughly the same amount it bought the property for. AVR officials did not return a telephone call for comment.

The downtown Tampa deals come amid significant population and rental growth in the two cities, according to real estate research firm Axiometrics.

Despite years of growth and unusual economic expansion — over the past century most expansions taper into recession after seven years — Tampa continues to boost rental rates.

Next year, after four consecutive years of rate increases, Axiometrics expects rents to rise 2.9% — outpacing anticipated inflation. By 2022, the researcher anticipates further rental rate growth of 2.6% — even as average occupancy rates stay steady at historic highs of around 95%.

Much of the growth stems from employment gains. Next year, Tampa is slated to add another 2.1% to its labor rolls, and another 1.1% between 2020 and 2022.

The investment in Tampa and St. Petersburg apartments also stems from investors’ enhanced appetites for so-called “second-tier cities” as prices soar and returns diminish in cities like New York, Chicago, Miami, Seattle, San Francisco and Los Angeles.

“Investors aren’t just flocking to places like Tampa but also to other second-tier cities like Austin, Nashville and Raleigh,” says Ken Stoltenberg, a partner and co-founder of Mercury Advisors, a Tampa-based multifamily developer whose portfolio includes Grand Central at Kennedy and other projects in the city’s downtown.

“Many investors are seeing that it’s tough to get into some of those premier markets and execute, and these days they’re super expensive and extremely competitive,” he adds. “So they’ve expanded the list of cities where they’re willing to go, and Tampa is on that list. People see Tampa as just at the beginning of its growth curve.”

At the same time, renter demand continues to exceed supply in key Florida markets and elsewhere, according to a recent National Real Estate Investor survey of apartment industry participants.

A majority of respondents — 74% — also believe occupancy rates will rise or remain stable over the next year, while 80% contend rents will either increase or hold steady over the same period.

“The story is one of relative performance and job growth, and Tampa has simply outperformed — especially in its ability to attract Millennial renters who are seeking a more urban lifestyle experience,” says Matthew Gottesdiener, chief investment officer for Boston-based Northland Investment, which acquired the 35-story Element apartment tower in October 2017.

“We also believe we’re fairly late in the cycle, but that the best investments will involve multi-decade holds, the kind of which we’re making throughout Southwest Florida and it’s why Tampa is the place to be,” he adds. “You have to have that horizon.”

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