Price Jumps
Investors are maintaining a keen interest in apartments in the South Florida market. Median prices in Miami, West Palm Beach, and Fort Lauderdale rose 25 percent in 2005, hitting $96,500 per unit in West Palm and Fort Lauderdale and $92,000 in Miami. Predictably, as prices have soared, cap rates have declined. They now average 4 percent to 6 percent, with condo conversion deals trading in the lower end of the range.
Given that South Florida’s conversion buyers are motivated by the potential capital appreciation of their newly purchased assets, apartment investors will have to adjust their customary holding periods and return assumptions if they want to be in the South Florida market. Some apartment buyers may have to wait patiently for the optimal deal to materialize, but their patience should be rewarded. While shrinking competitive stock and demand driven by displaced renters will support gains in property income during the near term, the area’s solid demographic profile and diverse economy portend steady property performance over the long haul.
Brownfield Boost
A new EPA rule could make the development of industrial sites less risky. Ever wanted to develop that abandoned factory site so close to downtown, but were scared off by the liability of tackling a possible environmental hazard? A new rule from the Environmental Protection Agency should help, provided you follow the required steps.
The EPA’s “all appropriate inquiry” rule, adopted in November 2005, spells out the steps a brownfield site buyer must take to ensure that it cannot be sued for environmental contamination under a past owner. Among the requirements from the EPA are that a buyer must have an environmental professional conduct a study of the site, and it must interview the seller of the site. “The phase one [study of the site] will cost the same, but it will bring more,” says Jeffrey Hanneman, an attorney in Chicago-based AON’s risk services division.
Experienced brownfield developers also see it as a positive step. “It basically tells you how to do your due diligence and, if you do your due diligence in this way, you will be protected,” says Brian O’Neill, founder and chairman of O’Neill Properties Group in King of Prussia, Pa. “It’s a roadmap. This is extremely clear and extremely helpful.”
–Les Shaver