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ApartmentResearch

M A R K E T
Miami-Dade County

R E P O R T
Second Quarter 2012

Vacancy Dips Again, Investors Size Up Miami-Dade


Plummeting vacancy and the gradual restoration of rents to former peaks continues to make Miami-Dade the strongest market in the three-county South Florida region. Tenant demand is the primary driver of improvements in property incomes, with recent gains in service-sector employment supporting the formation of new rental households, helping slash vacancy more than 100 basis points over the past year. Asking and eective rents have climbed each quarter during this time as operators exercise renewed pricing power while also weighing the ability of tenants to absorb rent increases as leases roll over and wage growth lags. Meanwhile, economic developments made news in the rst quarter. A statewide casino gambling initiative died in legislative committee, delaying for now the prospect of two large casinos and thousands of jobs coming to the county. Proposed new condo developments also garnered attention, as developers increasingly angle to capitalize on strong demand from Latin American and European buyers. An improving employment market and additional strengthening of property performance are supporting an active investment market. Despite an increase in deals over the past year, a mild disparity between buyers and sellers expectations lingers, impeding an even more liquid market from taking hold. Acquisition nancing is available at relatively low rates, but many investors remain circumspect despite stronger asset performance, and are generally unwilling to bid prices too high. Nonetheless, owners who bring properties to market priced on actual performance improvements over the past 12 months will nd numerous bidders and should be able to execute transactions. Generally, cap rates on well-performing Class B assets in the interior of the county vary from the high-6 to low-7 percent range, while Class C cap rates start a little higher. Properties in beach locations can trade somewhat lower and South Beach, in particular, remains an especially active locale for deals. Strong investor demand also persists in Hialeah, which is typically a stable Class B/C market.

2012 Annual Apartment Forecast


2.7% increase in total employment

Employment: In 2012, total employment in Miami-Dade will expand 2.7 percent with the addition of 27,000 jobs. Employers created 27,800 positions last year and 23,000 jobs over the past two years combined.

900 units will be completed

Construction: Developers will complete 900 units this year, an increase from 277 rentals in 2011. Key projects slated to come online in 2012 include the 270-unit Residences at Lakehouse in Miami Lakes and 250 units in the Gables Ponce.

60 basis point decrease in vacancy

Vacancy: Further expansion in service employment will stimulate household formation and generate a 60-basis-point decline in the vacancy rate in 2012 to 4.1 percent. Vacancy decreased 100 basis points last year.

3.6% increase in asking rents

Rents: In 2012, asking rents will rise 3.6 percent to $1,114 per month, while eective rents will tack on 4.3 percent to reach $1,063 per month. Both increases represent the largest annual gains in six years. During 2011, asking rents rose 0.7 percent and eective rents gained 1.0 percent.

Economy

Employment Trends
Metro United States

Local employers added workers for the fth consecutive quarter during the rst three months of 2012. Approximately 900 positions were created from January to March this year. Private-sector employers hired 25,900 workers over the past year, including a gain of 4,100 positions in the rst quarter. Service employment continues to grow, as exemplied by the addition of 3,300 leisure and hospitality jobs in the rst three months of the year. Trade, transportation and utilities employers made minor cuts to payrolls during the period, but the sector appears poised to expand as the year progresses and three new passenger cruise lines start sailing from the port. Slack in the labor market is easing gradually. The unemployment rate in the county decreased 20 basis points in the rst quarter to 10.0 percent. The rate peaked at 11.6 percent at midyear 2011. Outlook: Employers in Miami-Dade are on track to add 27,000 positions this year, expanding total employment 2.7 percent.

6%
Year-Over-Year Change

3% 0% -3% -6%

08

09

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12*

Housing and Demographics


Home Price Trends
Metro Median Home Price (Y-O-Y Change) United States

40% 20%

Over the past year, the median price of an existing single-family home in MiamiDade was virtually unchanged at $163,700; the median price fell 10 percent in the prior 12 months. Transaction velocity also leveled o over the past year, but remains considerably higher than the rate of sales two years ago. A strengthening job market has activated home builders. In the 12 months ending in the rst quarter, construction started on nearly 1,200 single-family homes across the county, marking a 23 percent gain from the preceding year. In the multifamily segment, builders started construction on 2,100 units over the past 12 months, achieving roughly the same level of activity as recorded in the prior year. Many developers have revealed intentions to build new downtown condos to meet demand from foreign buyers, but these projects are not yet fully reected in recent starts. Outlook: Housing construction continues to recover, albeit at a more restrained pace than during the previous housing boom. Housing demand in the county is increasing, as a projected 8,500 new households will be formed in 2012.

0% -20%

-40%

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Construction Trends
Completions Multifamily Permits

Construction

6.0
Number of Units (thousands)

4.5 3.0 1.5 0.0


Supply growth construction remains limited. Only 277 units were placed in service during the 12 months ending in the rst quarter. During the preceding year, 260 units were delivered. Several projects remain under construction. The largest of these is the 270-unit Residences at Lakehouse in Miami Lakes, which will come online in the fourth quarter this year. Approximately 3,900 rentals are planned in the county, up from about 3,300 units at the end of last year. The pipeline of planned condominiums swelled from 4,000 units to roughly 6,400 units during the same span. Outlook: Developers will complete 900 units in Miami-Dade this year. Most of the rentals are scheduled to come online in the fourth quarter.
Marcus & Millichap

08

09

10

11

12*

* Forecast

page 2

Apartment Research Report

Vacancy

Minimal completions and additional occupied units pushed down the vacancy rate 30 basis points in the rst quarter to 4.4 percent. Since the rst quarter of 2011, the vacancy rate has plunged 120 basis points as 1,900 additional rentals were absorbed.
Vacancy Rate

Vacancy Rate Trends


Metro United States

10% 8% 6% 4%

In the Class B/C segment, vacancy stood at 4.6 percent at the end of the rst quarter following a 30-basis-point drop in the period. The vacancy rate in Class B/C properties has declined 100 basis points in the past year and 140 basis points since hitting its high mark two years ago. Roughly half of the Class B/C rentals absorbed over the past year were in the central Miami-Dade submarkets of Kendall East/Coral Gables, Kendall West and Kendall Lakes/Hammond. The lower-tier vacancy rate in the area fell 180 basis points during that time to 3.6 percent in the rst quarter. The vacancy rate in the three submarkets was 3.1 percent at the start of the recession. Outlook: After ratcheting down 100 basis points in 2011, the vacancy rate in the county will fall an additional 60 basis points this year to 4.1 percent.

2%

08

09

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12*

Rents

Year-Over-Year Change

Average asking rents in the county advanced 0.8 percent to $1,084 per month in the January-to-March period, the fourth consecutive quarterly increase. Over the past year, asking rents have gained 1.7 percent, marking an acceleration from a 1 percent bump in the preceding year. Eective rents in the county rose 1.1 percent in the rst quarter to $1,030 per month. Since the rst quarter 2011, eective rents have gained 2.1 percent, compared with a 2.4 percent rise recorded in the previous year. Overall, Class B/C asking rents continue to climb. A 0.7 percent gain to $974 per month was posted in the rst quarter. Year over year, marketwide Class B/C asking rents have increased 1.6 percent. Outlook: In 2012, asking rents will rise 3.6 percent to $1,114 per month, while eective rents will tack on 4.3 percent to $1,063 per month.

Rent Trends
Asking Rent Effective Rent

8% 4% 0% -4% -8%

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Sales Trends**

Median Price Per Unit (thousands)

The strong demand-driven recovery in property operations is encouraging investors. Over the past 12 months, transaction velocity surged 40 percent. As measured in dollar volume, private investors claimed an 84 percent market share during the period. In the past 12 months, the median price of properties sold slipped about 3 percent to $69,800 per unit. The median price fell about 8 percent in the preceding 12-month stretch. Mostly Class B/C assets change hands. Cap rates for Class B properties typically vary from the high-6 to low-7 percent range, while caps rates on Class C product start closer to 8 percent. Outlook: Strengthening property operations, keen investor demand, and low interest rates will sustain deal ow and provide greater transparency on property values in the months ahead. Favorable currency valuations may enable foreign investors to claim a larger share of the investment market.

Sales Trends
$100

$80

$60

$40

$20

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* Forecast ** Trailing 12-Month Period Sources: Marcus & Millichap Research Services, CoStar Group, Inc., Real Capital Analytics page 3

Marcus & Millichap

Apartment Research Report

Capital Markets
By WILLIAM E. HUGHES, Senior Vice President, Marcus & Millichap Capital Corporation

Visit www.NationalMultiHousingGroup.com or call:

John Sebree Director, National Multi Housing Group Tel: (317) 218-5300 john.sebree@marcusmillichap.com

The national apartment markets strong performance continued in the rst three months of 2012 as the vacancy rate slipped 30 basis points to 4.9 percent, marking the eighth consecutive quarterly decline. As conditions continue to improve, renancing and disposition options for owners will expand to some owners that were underwater two years ago. Despite a brief increase to approximately 2.3 percent during the period, the interest rate on the 10-year Treasury ended the rst quarter at about 2 percent. Capital continues to ow into safe-haven investments such as U.S. government debt amid lingering uncertainty over the eurozone. Fannie Mae and Freddie Mac will have unlimited nancial support from the federal government through the end of this year. However, Congress will weigh a number of proposals to sunset the GSEs over the next decade and privatize the secondary mortgage market. The entities accounted for 65 percent of apartment mortgage originations last year. Access to acquisition nancing continues to improve. Loans from portfolio lenders are issued at LTVs ranging from 70 percent to 80 percent, while the government agencies will work at the high end of the range on the highest-quality properties. All-in rates on mortgages of $3 million and more start in the mid-3 percent range for terms of ve years, while 10-year debt varies from the low- to mid-4 percent region. Rates for smaller assets can rise up to 30 basis points to 75 basis points higher. New additions to the pipeline of planned rental projects consist of the 685-unit Princeton Commons in Homestead the 245-rental Renaissance at Dadeland in the Kendall East/Coral Gables submarket. Neither of the projects, however, is slated to break ground. Combined Class B/C asking rents in the Kendall East/Coral Gables, Kendall West and Kendall Lakes/Hammond submarkets rose 2.8 percent in the past year to $997 per month as vacancy plummeted. Among all submarkets, only OpaLocka/Brownsville registered a slight drop in lower-tier asking rents over the 12 months ending in the rst quarter. Proximity to major employment hubs supported the creation of new rental households in the Airport West submarket, fueling a substantial drop in vacancy over the past year. Demand for Class A units was strong, as the vacancy rate at high-end complexes fell 150 basis points over the past year to 3.3 percent.

Submarket Overview

Prepared and edited by

Art Gering
Senior Analyst Research Services For information on national apartment trends, contact

John Chang
Vice President, Research Services Tel: (602) 687-6700 john.chang@marcusmillichap.com Miami Oce:

Submarket Vacancy Ranking


Rank
1 2 3 4 5 6 7 8 9 10

Kirk Felici
Regional Manager kfelici@marcusmillichap.com 5201 Blue Lagoon Drive Suite 100 Miami, Florida 33126 Tel: (786) 522-7000 Fax: (786) 522-7010

Submarket
Miami Kendall East/Coral Gables Kendall West South Beach/Miami Bayshore Miami Lakes Hialeah Kendall Lakes/Hammond Airport West North Dade South Dade/Homestead

Vacancy Rate
2.7% 3.1% 3.1% 3.2% 3.9% 4.4% 4.7% 5.0% 6.4% 8.7%

Y-O-Y Basis Point Change


-110 -90 -200 -30 -60 -70 -160 -170 -180 -200

Effective Rents
$896 $1,231 $1,014 $1,427 $991 $856 $1,015 $1,087 $899 $618

Y-O-Y % Change
2.2% 2.1% 2.6% 1.7% 1.6% 2.6% 3.5% 1.2% 0.9% 1.1%

Price: $150

Marcus & Millichap 2012 www.MarcusMillichap.com

The information contained in this report was obtained from sources deemed to be reliable. Every eort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Note: Metro-level employment growth is calculated using seasonally adjusted quarterly averages. Sales data includes transactions valued at $500,000 and greater unless otherwise noted. Sources: Marcus & Millichap Research Services, Bureau of Labor Statistics, CoStar Group, Inc., Economy.com, National Association of Realtors, Real Capital Analytics, Reis, TWR/Dodge Pipeline, U.S. Census Bureau.