Southern Waters Capital Benefits from BTR Demand with “Achievable Market Rate” Developments

0

On the picture : Dean Myerow, Ray Mazzie

Inflation has become the dominant economic theme that tenants and developers must strive to overcome. Southern Waters Capital (SWC), based in Fort Lauderdale, is a real estate development company that has found a solution in its platform for developing accessible rental housing at market rates.

Founded in 2020, SWC has built a strong development pipeline that includes over 1,600 units, all located in the state of Florida. SWC’s goal is to add 1,000 new units per year in the future. The product is “accessible at market rate,” meaning it provides quality housing for the American workforce and the projects do not require government subsidies to succeed.

A key element of SWC’s success is tackling rights risks head-on to create value and opportunities to develop large-scale build-to-let (BTR) and multi-family communities. SWC focuses on two simple principles to stay effective: location and base.

“First, if you have an unquestionably good location, your asset will be resilient over the long term. you can never change your location and you can’t change your purchase price,” he says.

SWC focuses on identifying supply and demand imbalances. “It’s a simple strategy, but that doesn’t mean it’s easy to pull off,” says Dean Myerow, co-founder and CEO of SWC. “Successful execution requires discipline, a deep understanding of market drivers, and a relentless effort to find a good site in a fundamentally healthy market.” According to Mazzie and Myerow, the firm’s methodology begins by answering simple questions coupled with empirical data. This in turn proves SWC’s thesis on the underserved market it targets. How many units have been delivered to a particular area in the past 5-10 years? What kind of growth is happening? Is there diversity in economic growth? Who is moving to the area, how many people are moving there per week, and how likely are these people to be renters? It’s not exactly a complex process, but finding great sites at the right price is like finding a needle in a haystack, notes Mazzie.

Mazzie and Myerow also believe the real “x-factor” to SWC’s success is its team. Myerow spent 30 years on Wall Street focusing on asset management, credit adjustments and project finance. He sold his investment bank and brokerage to BB&T, now Truist, in 2005. BB&T then brought on Myerow to lead its capital markets strategy through 2015.

Mazzie was a real estate attorney and has extensive experience in government operations from his time in Governor Scott’s service and with state agencies, including the Florida Housing Finance Corporation. SWC gained additional development experience by adding Andrew Sinclair, construction finance manager at Turner Construction for six years, where he gained experience working on such major projects as the Blue Origin launch complex of Amazon on the Space Coast of Florida.

Growing demand for BTR

SWC has fully embraced the newly recognized BTR asset class and is redoubling its efforts to become a major player in the space, especially in the state of Florida. “Coming out of the pandemic, people were clamoring for more space and millennials, in particular, continue to move into these communities due to affordability issues in the housing market,” says Myerow. Millions of potential buyers have been shut out of the market due to rising mortgage costs. “Affordability, the desire for more space, and freedom really seem to be driving factors that drive tenants to master planned BTR communities,” he says.

Rental rates across the country have skyrocketed over the past two years, due to migration and a shortage of supply. According to CBRE, the national average mid-year vacancy rate for apartments was hovering at 3.1% with an effective annual rental growth of 14.6%. Although recent double-digit rental growth has provided a strong tailwind for the BTR space, SWC remains very conservative on its underwriting.

“Those who bet on a growth in rents of 5 to 10% for the years to come are disconnected from reality. One only has to look at wage growth to see that this assumption is untenable for the average American,” Mazzie says.

Yet even with cautious underwriting, BTR is a compelling story for investors. “When you look at the total value of a project based on a capitalization rate, you think almost all projects are worth building, but when you justify the projections on a dollar value per unit, the story changes,” Mazzie said. Initially, it was difficult to convince investors of the rent premiums BTR would obtain compared to traditional apartments in the same market. However, the premiums projected in the BTR strategy were confirmed in the data.

For example, SVN | SFR Capital Management predicts that BTR can achieve psf rents 10 to 30% higher than traditional apartments. Tenants speak with their money when they rent in a highly-appointed BTR community that offers all the benefits a Class A apartment would have, plus a backyard, more common open space, and larger floor plans for their families, notes Myerow.

Good place, good price

SWC focuses on the fundamentals. The development team works to identify imbalances between rental housing supply and demand, a strategy that naturally leads the company into underserved markets. For example, instead of focusing on Orlando where property values ​​have skyrocketed, the company is active in Ocala, Wildwood and Cocoa. SWC is currently developing a project in Ocala that has the potential for rights that allow for up to 360 units. “SWC is thrilled to partner with Merrimac Ventures, led by Dev and Nitin Motwani, the iconic development family behind Miami World Center, the Four Seasons Hotel & Residences on Fort Lauderdale Beach, and more than $3 billion worth of developments. extra,” says Mazzie.

“The strongest testament to the hard work and discipline of the team at SWC is the simple fact that every unit we’ve contracted over the past two years is still under contract and still under consideration today because we found the right site at the right price,” says Mazzie. “We go that extra mile to identify and secure markets that are equally strong from a fundamental standpoint, but go unnoticed because they’re not hyped up by the media,” he says. Every market that SWC examines has occupancy rates above 95% and annual rent growth well above 5% or even 10%, and a shortage of supply.

The true friends of the circle of friendship

It’s not just about generating alpha at SWC. The company is a sponsor and strong advocate of the Friendship Circle of Greater Fort Lauderdale, a non-profit organization that provides job training and social programs for people with special needs through various life skills programs. Myerow is chairman of the nonprofit’s advisory board. He also founded the Friendship Café where Mazzie sits on the board. This new training program is a fully functional restaurant and catering business located on bustling Las Olas Boulevard. in Fort Lauderdale. The Friendship Café was a huge success that received too much national publicity, garnered United Way support and most importantly the Café served hundreds of Friends over its two years of existence.

“This cause is personal. My nephew Damon has special needs and I completely understand how imperative it is that we support creating independence in the lives of people with developmental disabilities,” says Mazzie.

“As an entrepreneur, I’m proud to give back in a way that gives our Friends the opportunity to earn an income, gain a sense of pride, and develop their life skills,” adds Myerow.
The Friendship Circle of Greater Fort Lauderdale is hosting the Friendship Circle Charity Classic at Plantation Preserve Golf Course & Country Club on November 17, 2022. If you would like to know more about the event or the organization, please contact Ray Mazzie at [email protected] or Dean Myerow at [email protected]. Sponsorship opportunities and other supportive efforts are available and welcomed.

Share.

Comments are closed.