BTI Managing Partner Noah Breakstone reveals how the company finds financing for its developments in Florida and the southeastern United States, and what he expects from the year ahead.
Ten years after the financial crash, the smartest players in the industry are still reaping the benefits of their thorough planning and prudent ventures throughout the tough times. BTI Partners is one of the companies that used the effects of the Great Recession as part of its long-term investment strategy. As Managing Partner Noah Breakstone revealed, BTI acquired assets at low prices and sold them to developers once the market started to recover. His company also found creative ways to finance its projects. Breakstone discussed why he is optimistic about 2018 and which markets will lead the next wave of development.
BTI Partners’ strategy involves community development district bonds. What can you tell us about this way of financing construction of new residential communities?
Breakstone: Community development districts (CDD) are once again gaining popularity among developers, years after the Great Recession. The advantage of these districts is that they can issue bonds to help pay for the infrastructure of a development, including roads, water and sewer lines, lighting, and much more. The bonds save Florida developers the cost of building the infrastructure and they pass that saving to the homebuyer. At the height of the last real estate cycle, Florida had close to 600 CDDs, which had issued more than $6 billion in municipal bonds to finance their infrastructure.
When the economy collapsed, a large number of those districts defaulted on the bonds and bondholders foreclosed on them. Our company actually developed a strategy to step in the shoes of the bondholders to eventually get title to nearly 8,000 acres of ready-to-build land. Once the real estate market came back, we sold a lot of that land to national homebuilders.
The new tax reform is expected to impact special district financing through the elimination of the private activity bond deductibility. How do you expect things to play out?
Breakstone: This doesn’t apply to the bond issuances we typically do, so we do not believe there will be a material effect to us.
Which do you think will be the hot markets for multifamily development and growth in 2018?
Breakstone: Tampa and Central Florida are two markets experiencing demographic and job growth. Those are two of the main fundamentals that spur demand for new apartments. BTI Partners is very bullish in those two markets and we are building multifamily products in Tampa and Orlando. In Tampa, we are the master developer of a 52-acre master-planned community that will include several luxury rentals to be built by Lennar Corp., WCI Communities, The Bainbridge Cos. and The Related Group. We are keeping a portion of the waterfront parcel to build a luxury condo tower called Marina Pointe.
Markets with strong demographics and job growth will lead the next wave of development.
Noah Breakstone, BTI Partners
In Orlando, we are opening in phases a luxury condo hotel resort called the Grove Resort & Spa near Walt Disney World. We are capitalizing on the nearly 70 million visitors who travel to Orlando every year and would like to own a vacation home with resort-like amenities near the theme parks. We expect 2018 to be a year of growth for us in the multifamily sector, including condos, and in the residential sector as well. BTI Partners is actively seeking real estate investment opportunities, including potential acquisitions or partnerships not just in Florida’s hot markets, but also throughout the southeastern U.S.
What should we expect in 2018 when it comes to financing multifamily development?
Breakstone: We will continue to see financing for multifamily projects, but each project will have to prove that the market needs that type of product. Markets with strong demographics and job growth will lead the next wave of development. Non-bank lenders will continue to play an important role in the lending world of multifamily projects, including condominiums. Non-traditional lenders will continue to compete favorably on high loan-to-value loans of mezzanine, construction and transitional loans, compared with banks and insurance companies.
The supply of affordable housing is low in the country’s major markets. What can you tell us about affordable housing development in South Florida?
Breakstone: Addressing the demand for attainable-priced homes for the middle class does require creativity to overcome the high cost of land in South Florida. One strategy we are applying to help solve that problem is building single-family homes on land we acquired very cheap during the Great Recession. Back then, we acquired defaulted muni bonds backed by large development sites and eventually took title to the ready-to-build parcels.
As a result, we are now able to offer a product that is affordable to the middle class. For example, we just started construction of Arbor Parc, consisting of 500 single-family lakefront homes and townhomes in the heart of Palm Beach County. The median price of a single-family home in the county is close to $340,000, but our home prices at Arbor Parc start in the $200,000s. Arbor Parc offers a solution to our region’s affordability problem and the homes are designed for families who not only want to enjoy a comfortable lifestyle but also build wealth in years to come.
Image courtesy of BTI Partners