Commercial Arcadia at Hwy 20 - 352 Apartments in Freeport

[Jim Tucker]

The agenda item coming forward with the most proposed units was Arcadia at Hwy. 20, consisting of 352 multi-family units on 26.9 acres.

The property is located on the southeast corner of the Hwy. 20/CR-83A West intersection, west of Freeport. It had been rezoned by the Walton County Board of County Commissioners (BCC) on Nov. 22, 2022, from a Rural Residential to a Commercial future land use and from a Rural Village to a General Commercial zoning district (the Patterson Small Scale Amendment).

In February 2023, the Walton County Zoning Board of Adjustment (ZBA) had approved a conditional use to allow for multi-family development without ground floor commercial use and requiring a dedication of 20 percent income-restricted units (affordable housing) on the property.

Stephen Schoen of Walton County Planning and Development Services introduced the project at the Nov. 15 TRC meeting, noting that the application was submitted by McNeill Carroll Engineering, Inc., on behalf of applicants TLV RE MF V Freeport II Owner, L.L.C.

The application was presented with 20-percent income restricted units on the 26.9 acres.

Schoen noted that reviewer comments from Walton County Fire Rescue were currently missing. However, he said the applicants did not indicate any concern about satisfying any of the outstanding reviewer comments.

Representing the applicants, engineer Robert Carroll said he did not foresee any issue with meeting fire rescue requirements.

Based on the nature of the remaining reviewer comments and the character of the development in providing income-restricted units in keeping with the Walton County Land Development Code (LDC) and Comprehensive Plan (CP), Schoen recommended moving the proposal forward to the next step in the county review and approval process, a hearing before the Walton County Planning Commission. This was on the condition of the remaining comments being satisfied in advance of that hearing.

The committee members approved a motion in line with this recommendation.

 

[Joe Batrich]

Y'all better fight this tooth and nail, you do not want this many apartments, nobody does. Nobody.

 

[Matt J]

Y'all better fight this tooth and nail, you do not want this many apartments, nobody does. Nobody.

Too late now. Any suggestions on how to fight this?

 

[Joe Batrich]

Too late now. Any suggestions on how to fight this?

File a suit against the county and developer for diminution in value to the surrounding properties. But the county attorney firm is Atkins Law Firm, and the commissioner is Clay Atkins. How this got approved is just corrupt and mind-boggling. How did this happen?

 

[Jim Tucker]

File a suit against the county and developer for diminution in value to the surrounding properties. But the county attorney firm is Atkins Law Firm, and the commissioner is Clay Atkins. How this got approved is just corrupt and mind-boggling. How did this happen?

In case you didn't know, there are thousands of apartment units under construction and thousands more about to to start construction in SoWal from I-10 to the beach. Most are along US 98 and US 331.

 

[Matt J]

File a suit against the county and developer for diminution in value to the surrounding properties. But the county attorney firm is Atkins Law Firm, and the commissioner is Clay Atkins. How this got approved is just corrupt and mind-boggling. How did this happen?

Go right ahead. Keep in mind as of July 1 of this year you better have a solid legal argument behind your lawsuit or you'll be paying the developers legal costs as well.

Clay Atkins is commissioner of what?

 

[PJJ]

Hammock Bay is *asking* $1.82 per foot and is at 9% vacancy with a great amenity package. Market is at 13% vacancy (all per CoStar). Anyone breaking ground is building into a massive loss, assuming they can even raise the debt/equity. With construction costs, interest expense, insurance, etc nothing pencils below about $2.25 per foot, and that's not even diving into the crazy oversupply in this market.

 

[Jane]

Hammock Bay is *asking* $1.82 per foot and is at 9% vacancy with a great amenity package. Market is at 13% vacancy (all per CoStar). Anyone breaking ground is building into a massive loss, assuming they can even raise the debt/equity. With construction costs, interest expense, insurance, etc nothing pencils below about $2.25 per foot, and that's not even diving into the crazy oversupply in this market.

Please explain like I'm a 5th grader. Are you saying no one should be building apartments?

 

[Matt J]

Please explain like I'm a 5th grader. Are you saying no one should be building apartments?

I believe so. The pricing is per square foot rent rate. One of the older apartment complexes is constantly on hear running specials so I believe the demand has died and we're about to see some "ownership opportunities" in condo conversions.

 

[PJJ]

It's more of a supply issue than a demand one here. TerraMar was the first true modern multifamily property in Walton Co and it was only delivered 10 years ago. They are fine at sub 5% vacancy, and their debt doesn't mature until 2030 so they're sitting pretty. That looks to be 310 units but it was delivered in phases and I think the first phase was about 120 units. Since then we've had thousands of units delivered and many more proposed and under construction. There's demand but nowhere near to the amount of supply that's come online which drags down rental rates. Quantity demanded vs demand is the issue but that's getting into nerd territory trying to explain.

Asking rents are at $1.78 next to Dune Lakes, 280 units delivered in 2020 and still at a 17% (!!!) vacancy. 331 delivered in 2018 asking $1.74 and at 12.5% vacancy. We are in year 6 and they still haven't hit what would have underwritten as their stabilized occupancy (probably 95%, but at least 90% (edit - everyone underwrites that to year 3)). Also those are properties in South Walton - and that's not even counting all of the other newer multis in lease up. Freeport would have worse economics unless there's a massive job supplier coming that I don't know about. I would bet that within 2 years the multi under construction at Moll trades at 50% of the cost it takes to build it (no offense to anyone involved). Not trying to be Shelly here but absolutely no one underwrites a 17% vacancy on year 4 (DL) or 13% in year 6 (331) (edit - and no one underwrites interest rates more than doubling or flat rents). Maybe costar's info is dated but it's usually pretty accurate.

So to answer the first question, it doesn't make sense to build any multi in this area because it's already oversupplied. Too many units sitting empty to justify building new ones. It doesn't make sense nationally to build unless you can hit rents at least $2.25/$2.50 per foot. Construction costs are too high, debt is too expensive, equity needs higher returns to invest, etc. You'd build something for $100 that is worth $70 when it sells because investors could purchase US treasuries at a higher yield than what you'd be trying to sell to break even and they are considered far less risky and they are what multi long term debt is based. Companies that build multifamily (developers) aren't companies who own multifamily (REITs), so just marketwise there isn't really a buy and hold strategy unless it's forced. Happy to elaborate further (and there is a lot more that goes into it) if that doesn't explain it.