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Tampa Bay apartment rents keep rising. Here are some of the reasons why

Scores of apartment communities have changed hands in the last three years in Tampa Bay.

Tampa Bay renters, take note: If your apartment complex is sold, your rent almost certainly will go up. And there’s a good chance your complex will be sold.

Since 2013, the bay area has been one of the nation’s most active apartment markets. Investors — be they hedge funds, insurance companies or rich individuals — know they can make money from apartments as more people choose or are forced to go the rental route. And as the demand for apartments grows, prices climb for apartment communities.

"Pricing is so high on the investment side now that if they don’t raise the rents, the deal likely is not going to make any sense,'' said Darron Kattan, managing director of the commercial brokerage Franklin Street. "So the business plan from Day One is raising rents.''

Tenants are safe from rent increases until their lease is up. Once it is, nothing can to stop a new owner from jacking up the monthly rent by $30, 60, even $100 or more. Rents have increased so much that half of Tamp Bay renters are "cost burdened,'' a Harvard study found, and more than a fourth are "severely burdened.''

Darron Kattan, managing director of Franklin Street
Darron Kattan, managing director of Franklin Street [ Franklin Street ]

One reason rents are rising: the rapid turnover of apartment communities.

RELATED STORY: Here are Tampa Bay’s Top 10 apartment sales

In the past three years, at least 172 communities with 50 or more units have changed hands in Pinellas and Hillsborough counties. The record price paid so far was $126.3 million last year for Camden Pier District, a 19-story tower with 358 units in downtown St. Petersburg. Two other bay area communities have sold for more than $100 million each since July 2017, and four have sold for between $90 million and $95 million.

"There’s a lot of value appreciation in recent years, which is enabling people to make a big profit, which is why everybody buys commercial property,'' Kattan said.

In February 2017, Franklin Street brokered the sale of the 296-unit River View Apartments in Tampa for $23.4 million. A year and a half later, the complex sold for $31 million. "They did do work in that period,'' Kattan said, referring to improvements made by the sellers, "but that’s still a pretty dramatic increase.''

Though investors in commercial real estate typically have to hold a property five to seven years to turn a profit, Tampa Bay’s market is so strong that "people are hitting their five to seven years value in two years,'' Kattan said.

The apartment boom has its roots in the 2008 financial crash. Thousands of bay area residents lost their homes to foreclosure and have been renting ever since. Some millennials can’t afford to buy while others prefer the flexibility of renting. Many baby boomers no longer want the hassles of home ownership.

At the same time, companies that buy apartment communities have benefited from low interest rates and an abundance of investor funds.

"There is more money in equity and debt coming into the space than ever before,'' Kattan said. "It’s simple supply and demand — too much supply of money and not enough investments for the money to be spent on.''

Kristi King, chief operating officer and principal of Tampa-based Robbins Property Associates, said it’s getting harder to find the type of apartment communities that her company likes to buy — places that could stand improvement but are in "great areas'' that have good schools and are close to major employers.

“Interest rates have been so compelling, that’s really helped financing,'' King said. But ”Tampa has gotten pretty tight,'' she added, and while "Pinellas is hot, the things coming out (for sale) there are just not fitting our model.''


Apartment communities fall into three classes - A, B and C

A communities — like Camden Pier District — are new or nearly new, have high-end finishes like granite counters and are in areas with good schools and lots of jobs.

B communities might lack the latest finishes but are well-maintained, have good floor plans and are in good areas.

C communities are generally geared to working-class tenants for whom the amount of rent — not the finishes or amenities — is of overriding importance.

"We are very big on staying in A and B areas,'' said King, whose company has 10,059 units in more than 37 communities in Florida, Texas and Maryland. “We would rather buy a C property in an A or B area'' than a high-end property in a C area.

Kristi King, chief operating office of Tampa-based Robbins Property Associates.
Kristi King, chief operating office of Tampa-based Robbins Property Associates. [ KRISTI KING ]

Robbins has done "quite a bit of value add,'' King said — increasing the value of a complex through renovations, upgrades, management changes or all three. One example was Madison Place, a Class C community in Clearwater that Robbins bought in 2013 for $21.5 million. Built in 1975, the complex was run down and plagued with drugs and crime.

"We put money into it and just really improved the management and the reputation of the property,'' King said. "We got the people out that were causing problems. We brought it to a B level in an A area.''

Three years later, Robbins sold the community, now called the Standard, for $35.6 million. "It was actually the best return we had for investors,'' King said.

Robbins also purchases newer apartment communities. Anything built from 2014 on typically has granite or quartz counters "so we’re not able to do a whole lot to the interior,'' King said. In such cases, her company might improve the amenity package or some of the services in order to "drive the rent'' — raise it.

Apartment buyers do extensive due diligence before closing on a transaction. They can have engineers check out the structural integrity of the buildings. They can look at all of the rental files to see how much each unit rents for and the amount of the security deposit. They can see who the tenants are, where they’re employed and how much they make.

The amount of work and money that a new owner puts into an apartment community helps determine how much the rents will go up.

"Every deal is so different,'' King said. "In some cases with value add it might be $45 or on a major renovation, $250 or $300.''

The 15-story Icon Central Luxury Apartments at the corner of of Dr. MLK King Jr. St N and Central Ave in St. Petersburg is offering a month's free rent because some amenities are not yet finished.  [DIRK SHADD | Times]
The 15-story Icon Central Luxury Apartments at the corner of of Dr. MLK King Jr. St N and Central Ave in St. Petersburg is offering a month's free rent because some amenities are not yet finished. [DIRK SHADD | Times]

In a bit of good news for Tampa Bay renters, many apartment communities currently have move-in specials. ICON Central, a 15-story tower in downtown St. Petersburg where units lease for up to $5,800, is offering a month’s free rent because some of the amenities are not yet finished.

Kattan, the Franklin Street executive, said new rental complexes generally give concessions due to what he calls a "short-term oversupply'' of Class A apartments. But as Tampa Bay’s population grows, he predicts a “long-term under-supply'' of apartments because not enough new houses are being built to accommodate the demand. The shortage of entry-level, single-family homes enables multi-family properties to keep raising rents.

In the end, rents, like water, seek a level.

"If rents go too high, you have to have concessions,'' Kattan said. "Today’s brand-new construction in a year or two isn’t the shiniest new kid on the block. "That’s where you see rents not growing or going back down.''