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TIGHT TIMES DRIVE APPEAL OF RENTALS

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By SHANNON BEHNKEN

The Tampa Tribune

Published: May 3, 2008

TAMPA - When Tiffany Duffie makes out her $995 rent check each month, she tucks a little money away in the family's house fund.

For the past year and a half, the family of four has rented a two-bedroom unit at The Pavillions at Ballast Point in South Tampa. She loves the location near MacDill Air Force Base, where her husband is stationed. The couple look out on mature trees from a small patio where they keep the children's bicycles and outside toys.

Money is tight, and Duffie said she fears that if her rent goes up, they won't be able to save for a down payment on a home. Because of the credit crunch, she worries the family might not qualify for a mortgage.

"I really want a house," she said. "I want a yard for my kids. It would be so nice to have something to call your own."

As the economy weakens, more people who would have qualified for home loans a few years ago no longer do. And scores of homeowners losing their homes in foreclosure are turning to apartments. Others who could qualify for a mortgage are opting for luxury apartments instead, seeking to wait out the housing bust. The mixture is starting to heat up the Tampa Bay area's apartment market, which has struggled to fill thousands of units the past couple of years as renters rushed to buy homes.

Anticipating increased demand, developers are shifting focus, too, from home building to apartment construction. There are 3,646 units either under construction or recently completed in Hillsborough and Polk counties, according to Triad Research & Consulting. Another 12,300 units are proposed for construction this year or next in Hillsborough, Pasco, Pinellas and Polk counties, the firm said.

During the past few years, hardly any apartments were built, and developers built condominiums or tried to sell their apartments as condos.

Phillips Development in Tampa is one of the companies planning to build apartments. It recently bought two parcels in Brandon near the Selmon Crosstown Expressway and plans to start construction this year on two complexes with a combined 590 apartments.

"It used to be that people rented by choice," Don Phillips said. "For many people, they now are renters by necessity."

The complexes will have smaller units and fewer amenities than Phillips typically builds, he said, so the company can offer competitive rates for people on a budget. This is in stark contrast to another complex the company recently built, Casa Bella, a luxury apartment complex along West Shore Boulevard in South Tampa. Originally built as condominiums, it converted to apartments at midconstruction last year when sales lagged.

"Renters now are most concerned with their monthly rent check," he said. "Most of our growth in the past was because of job generation, and now it's because people can't afford or qualify for a home."

Failed Conversions, Private Places Compete

The apartment market isn't strong yet, though.

There are still plenty of complexes with vacancies; many of those are failed apartment-to-condominium conversions.

Since 2004, nearly 29,000 apartments were converted to condominium units in Hillsborough, Pinellas, Pasco and Hernando counties, according to New York-based research firm Real Capital Analytics. So far, 3,500 units in the Tampa area have reverted back to apartments, according to the firm.

The flood of newly available converted condos has kept the apartment market soft. Landlords also are competing with private owners trying to rent homes and condos. As a result, apartment complex owners have offered incentives, such as free rent and upgrades, to lure renters.

But that's changing, said Jim Bobbitt, senior vice president of CB Richard Ellis. The rental occupancy rate in the Bay area is 92 percent, and Bobbitt said he expects it to hit 94 percent by the end of this year. When that happens, rents will likely increase, he said.

As the occupancy rate increases, the need for new apartments will grow, and that's why it's a smart time for builders to focus on new complexes, he said. It takes about 24 months to get apartments built, including the planning and development, he said.

The average rent for a two-bedroom apartment in Hillsborough County is $952, and it's $1,026 in Pinellas County. It is $870 in Polk and $830 in Pasco, according to Geoff Harlan of Triad Research. Rents likely will start to increase later this year, he said.

Cheaper land costs also lure developers. Phillips, for example, bought its land in Brandon from developers who had planned to build town homes. The company paid roughly $10,000 per unit, Don Phillips said, about a third of what it could have sold for during the housing boom.

"Construction costs have gone down, too, so it makes it feasible for us to build apartments now," he said.

Choosing Lifestyle Of Luxury

Tight credit, foreclosures and conversions are helping fuel apartment demand. But so is luxury rental living. Some developers see potential in luxury apartments, as some people who could afford to buy homes choose the lifestyle of apartments.

Houston luxury rental developer Hanover Co. opened Lodge at Lakecrest in December, near the University of South Florida and Moffitt Cancer Center. It will have 400 apartments and 80 town houses when construction is completed late this year. Rents range from $899 for a 764-square-foot apartment to $2,699 for a 2,544-square-foot town home.

Lakeside is the company's first complex in Florida, but Diane DellaZanna, the leasing director, said the company plans more over the next several years.

The housing downturn is good for apartment builders, even luxury ones, DellaZanna said, because more people are deciding not to buy. The Hanover company chose the Tampa location, she said, because it thought workers in Tampa may want short-term luxury housing.

And the complex has a lot of offer, such as a gym with a complimentary trainer and an on-site movie theater stocked with DVDs, popcorn and candy.

Krystle Jones, a medical student at USF, and her sister, an undergrad, recently looked for an apartment at Lakeside and said they were impressed with the quality but concerned about the rent for a two-bedroom apartment: $1,359.

"There aren't a lot of apartment complexes we like in the USF area," Jones said. "Some of my friends commute to school from South Tampa. It's nice to have a complex like this one opening up."

Reporter Shannon Behnken can be reached at (813) 259-7804 or sbehnken@tampatrib.com.

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