Domino Effect The combination of these economic and quality-of-life factors have made Jacksonville a hot spot for multifamily investment and development. Most would agree that the market’s multifamily units are under more value pressure today than at any other point in recent history, in part because of the rising popularity of the community but also, more significantly, because of rock-bottom interest rates.
The cycle is a common one across the nation right now: Interest rates fall, making it easier for individuals to buy a home. This, in turn, increases demand for single-family and townhome/condominium properties, and permits and building activity push skyward. Developers rush to break ground on new communities while investors with an eye toward conversion rush to buy complexes suitable for repositioning as for-sale units that can fill buyer demand. At the same time, land values increase, also requiring multifamily developers to lean toward condominium and townhome projects that offer a higher return on investment and will return acceptable profits.
In Jacksonville, this domino effect has transformed the traditional apartment deal. Properties with units typically valued in the low $80,000s are being bid up to $90,000 and higher among converters that don’t have to work on apartment or rental fundamentals because they know that, once it’s converted, they can sell the same units for as much as $140,000 each.
Montecito Property Co. renovated two such projects in the greater Jacksonville market last year. The first is a 328-unit property located south of downtown Jacksonville at St. Augustine’s Anastasia Island. The company purchased the project in 2004 for almost $28 million, or $85,000 per unit, then converted and sold out in just a few weekends at more than $100,000 per unit. The second, also a 328-unit project and also in St. Augustine, was purchased in 2004 for $35.5 million, or $108,000 per unit, and sold in the mid-$150,000s per unit.
Sperry Van Ness recently pursued a B+ class, 2004-built property in the St. Augustine submarket that was listed at $16.5 million—or $88,000 per unit. The project instead sold for around $19 million to an investor that also immediately converted. According to a late 2004 report by Real Capital Analytics, 96 percent of buyers in Jacksonville, and the ones pursuing these conversion opportunities, are private individuals.