Commercial Luxe Apartments - 240 Units in South Walton

[Mike Jones]

https://walton.civicweb.net/document/519837/Luxe%20Apartments%20-%20Acceptance%20of%20the%20ALJ%20recomme.pdf?handle=2866DECEEB964F789655647D2F796BF0

Luxe Apartments - Acceptance of the ALJ recommended order and approval of a final order. Project number MAJ25-000040 is being reviewed by Tim Brown. This is a major development order application submitted by Jenkins Engineering, Inc. on behalf of JCDC Holdings, LLC, requesting approval to develop a 240-unit apartment complex with clubhouse, pool amenity, public recreational facilities and associated infrastructure on 24.47 +/- acres with a future land use of Mixed Use and a zoning category of Village Mixed Use. The property is located in District 5 on the north side of U.S. Highway 98 West, east of Veterans Road and west of Old Blue Mountain Road and is identified by parcel number(s) 25-2S-20-33190-000-0480, 36-2S-20-33290-000-0330, and 0340.

 

[PJJ]

I've been tracking the multifamily situation in Walton Co for a while.

Walton, Okaloosa officials meet to discuss housing challenges

Good time to revisit this out of my own curiosity. These are as of 10/4/24. All info from costar. Madison at Owl's Head - 300 units - 88% vacant - asking $1.95 per foot. 0% concessions (I know this is wrong) Riverwalk - 312 units - 36.7% vacant - asking $1.52 per foot. 4.1% concessions...

sowal.com

In south Walton, rents average $1.88 per foot and 28% of the units of the 6 projects I'm tracking (Sanctuary, Dune Lakes, Jewel, Saltaire, Terra Mar and Beacon by SWHS) are empty - about 500 empty units of the 1,778 total. I'm only tracking the larger projects like the proposed project would be. Rents at $1.88 per foot are vastly overstated though due to the 2-3 month concessions (free rent) being offered by most of these projects. Let's just go with 2 months free on average and effective rents are $1.57 per foot on average in south Walton today.

At bare minimum this is an $80MM ($80,000,000) project. Probably closer to $100mm but I'm trying to present the best case here and will make the most optimistic of assumptions. Underwriting to year 3 delivering at current market rents (avg not the lower effective) and stabilizing without concessions and rents/expenses trended at 3% per year following delivery. I'll assume they stabilize 3 years post delivery at 90% occupancy and rents at $2.05 per foot (after 3 years of trending) with no concessions. Assuming well run with a 35% expense ratio.

I haven't seen a unit mix but assuming the above with an average unit size of 1,000 SF (about where the market is), you're stabilizing 6 or so years from now (edit - including time to construct) at $3,453M net operating income. At a 5.5 exit cap that's just under $63mm selling price.

To capitalize this you'd take bank debt of 55% at most and take mezzanine financing of another 30% at most. Honestly don't know that you'd find it for this market but this stuff keeps getting built so lenders must be hungry for losses. Assuming everything pans out rosy and it's only $80mm to build, the senior lender is made whole, the mezz has a small loss but writes off their low teen accrual and equity is completely wiped out, probably after a few extra capital calls, and 6 years of work.

In short it's a total loss to build this.