Basic Fundamentals of Multifamily Development in SW Florida

By | June 24, 2022

Nationwide, the multifamily real estate sector seems to be a dominant food group of the market coming up in meetings, business gatherings, and events.  It’s true, at least in Lee County, Florida.  Rental rates are up from last year, capitalization rates are continuously being suppressed, and there are waiting lists at rental communities.  Replacement cost is catching up with the market and discounts on multifamily properties are a thing of the past.  At this time last year, I stated that new development was much needed.  In South Fort Myers, there is a demand for 900 new market rate units, according to a Market Feasibility Analysis performed by Reinhold P. Wolff Economic Research, Inc.

Currently, there are less then half of that in construction, permitting, and planning stages.  Our research indicates that taking the risk of building and stabilizing can lead to a profitable return on investment.  The competitive advantage to new development is new innovative ways to build and site prep to take advantage of favorable lending and insurance terms.   Just as a reference, if you are looking to develop on infill land sites, say 5-15 acres, density is typically 6-8 units per acre.  Now, let’s discuss a few basics.

Build-To-Rent Versus Build-To-Sell

Once you determine if you are bankable and/or have the cash to make such an investment,  the first thing to address are your goals and preference to “build-to-rent” or “build-to-sell”.  There are significant differences between the two, but both can provide great returns.  As of today, the market conditions are favorable for new development.  The housing market is up as are rental rates.  If you can throw yourself into the market at current competitive levels on your end product, your units will have the upper hand on pre-existing inventory for many reasons.  Keep in mind, on a “build-to-sell” product,  a prospective homebuyer is typically willing to pay 15-20% more for a new home rather than a much older one.  On a “build-to-rent”, a tenant is typically willing to go 10% higher then comparable properties.

Homeowners Association Versus Condo Association

Next, if you are “building-to-sell”, do you know the difference between a Condo Association (CA) and a Homeowner’s Association (HOA)?  My preference has always been a Homeowner’s Association, wherever practical, however, in most cases it makes sense to use a  Condo Association structure if you build stacked  units, such as a 2-story apartment building or coach homes.  Anything where your neighbor is upstairs almost always requires a CA, largely because of the “common elements”, ie.. roof, hallways, etc.  If you you are building townhomes, villas, or any other units that sit on their own sites or are under their own roofs and don’t have common hallways, you can likely qualify for an HOA.  HOA’s are controlled by the homeowners, usually an easier to manage situation.

In a “build-to-rent”, it is important to learn the market entirely.  Sometimes, if I haven’t spent the time focusing on market trends, I find my perceptions out of sync with market details, because the market is changing so quickly.  Understanding inventory, vacancy rates, and pent up demand is critical.  Hiring professional like me can reduce your  legwork since we have trends, market information, and other important details.


In selecting your location, it is a good idea to play devil’s advocate.  What if you buy the land and in the end decide not to build?.  So, the first thing I look at is what I call “First Phase Exit Plan”, in other words, “What will we do if we need to dispose of this property if construction is not elected?”  Well, vacant land is valued differently from fully entitled land.  Fully entitled land is what us real estate nerds call “Shovel Ready”.  In many cases, if you buy the land right, you can almost assume that you can get out of your land by entitling your land for development and selling to someone who wants to build.  You will have removed a significant amount  of the work and expenses from the next owner and added value. This will require professional expertise, an engineered site plan and local building department approvals. Once you have covered some of the basic fundamentals now we can assist in helping you connect with a full development team.  A full team consists of a Broker who is an expert in multifamily development, Engineers, and a highly experienced General Contractor. If you would like to discuss additional basics or are looking to invest in Multifamily Development, give me a call at our office in South Fort Myers. We would be happy to sit down and discuss the market and development process in detail with you and assist in a financial analysis to help you make a more informed and much more educated decision.