At his Douglas Enclave apartment building in Miami’s Little Havana, developer Henry Torres cut rents for some of the 199 units. Yet, his bottom line took no hit.
After completing the project in 2023, Torres decreased annual rates by an average of $3,000 and recouped the loss through a roughly $4,500 property tax break per reduced unit awarded by the Live Local Act. The total: about $450,000 in savings from his $950,000 tax bill this year.
The rent break also helped him fill the building faster. Amid South Florida’s stubbornly persistent and pervasive affordability crisis, tenants are on the hunt for a reprieve.
“It definitely got a lot more smiles on people’s faces. I can tell you that. People are struggling right now, especially the blue collar class,” said Torres, founder of the Coral Gables-based Astor Companies. “It helped us tremendously to get units rented faster.”
He’s no anomaly. South Florida apartment developers and landlords seized on the Live Local Act, a state law that incentivizes landlords to include workforce units at their buildings. Although much of the industry buzz has been over the law’s main perk for larger projects, its less touted bonus –– property tax breaks –– is already reshaping the multifamily market.
Under the legislation, landlords who finished projects in the past five years and designate at least 71 units as workforce or affordable get a carrot: a 75 percent tax abatement for apartments reserved for households earning from 80 percent to 120 percent of the area median income, and 100 percent tax relief for apartments for tenants earning less than 80 percent of the AMI.
Across South Florida, at least 48 properties qualified this year, according to data provided by the property appraisers for Miami-Dade, Broward and Palm Beach counties. Many weren’t planned as Live Local and were built before the law existed, and the developers brought the apartments under the state law’s purview retroactively to tap into its tax breaks.
Subscribe to TRD Data to unlock this content
It came at a critical time. Over the past two years, demand slowed compared to recent years’ boom, requiring concessions, and costs increased across the board.
“Developers are looking at projects and saying, ‘Alright, property insurance is going up, property taxes are going up. How do we offset things?’” said Matthew Scott, a Greenspoon Marder land use and zoning attorney. “They run the math and Live Local gives the tax benefit, so that’s less money they have to pay.”
Live Local math
Coral Rock Development Group completed the 204-unit Metropolitan in Coral Springs last year, a dicey time for multifamily.
After years of record in-migration and rent growth, developers jumped on the bonanza with new projects. By the time they completed a record 18,600 mostly market-rent units last year, outpacing 15,000 net new leases, the influx of out-of-staters had slowed and some transplants had returned home.
Lease-ups slowed.
Coral Springs wasn’t as overbuilt with apartments as other submarkets, but Coral Rock still converted Metropolitan, planned as market-rate apartments, to workforce via Live Local. The building reached full lease-up this fall with roughly 160 apartments for earners of up to 120 percent of the AMI, charging about $350 less per month than market-rate units at the Metropolitan.
“We determined through metric analysis that we would accelerate leasing and not lose money,” said Coral Rock’s Michael Wohl. “You need to lease-up faster and stabilize faster, so you can be eligible for permanent financing.”
For the math to pencil out, landlords ensure tax savings offset reduced rents. The delta between market rents and workforce rents can’t be too big, a condition far more common in suburbs far from the glitz of coastal neighborhoods that command top rates.
Out of the 28 Miami-Dade properties that received a Live Local tax break this year, 19 are in suburban areas. Hialeah, a western city that’s traditionally been a bedroom community offering cheaper housing, is home to nine.
IMC Equity Group’s Carlos Segrega said Live Local won’t work for properties in Coral Gables.
“The income demographics are higher,” Segrera said. But “if the market [rent] is at $3,000 and you can lease it at $2,700 … now the pro-forma pencils.”
At IMC Equity’s 340-unit The Upland in Hialeah, about 80 units qualified for the abatement, Segrera said.
At other Hialeah properties, the market rent already is at the rate for earners of 120 percent of the AMI. Such was the case with the 260-unit Pura Vida Hialeah, which Coral Rock qualified for the tax break before selling it earlier this year.
“You are not losing money on the rents, and correspondingly, you are getting the abatement,” Wohl said. “So you’d be an idiot not to.”
Workforce rentals specialist Affiliated Development received the tax break on four properties this year, without lowering rents since it already developed them underwriting below-market rates. The abatement covered unexpected increases in overhead.
“It was necessary because of the dramatic spike in operating cost. Insurance doubled. Materials, for when you turn a unit, skyrocketed,” said Nick Rojo of Affiliated. “It really helped offset those costs.”
“A business to run”
The tax reprieve comes with hurdles.
Landlords said they try to lease as many units as possible to earners of up to 120 percent of the AMI, but also can’t turn away prospective tenants with higher incomes. Qualifying for the Live Local tax break can be an administrative headache. The workforce rents are based on the lower of either the rent outlined by the Florida Housing Finance Corporation or 90 percent of the market rent in the area of their project.
Landlords have to collect tax returns or paystubs from households to confirm their incomes meet the workforce threshold.
Another kink is that lenders still don’t recognize the tax break.
“Fannie and Freddie, which is 85 percent of the permanent [financing] market, do not recognize Live Local savings, so it’s really hurt people from the total financing they could get,” said Alex Ruiz of Prestige Companies, which received tax abatements on four Hialeah properties this year. “If they were going to give me $10 million for a project, and with Live Local I should be able to qualify for $14 million, it doesn’t matter to them. They [still] give me $10 million.”
While the tax breaks are bad news for counties and municipalities that rely on the revenue, developers argue it’s a necessary tool for them to provide the same level of service and quality to the workforce.
South Florida’s affordability crisis isn’t lost on landlords.
At her 192-unit No. 17 Residences in Miami’s Allapattah, developer Lissette Calderon got the tax break after reserving some apartments for the workforce, offering one bedrooms below $2,000 a month and two bedrooms in the low $2,000. These rates are “unheard of in today’s market,” she said, adding the tax break has allowed her Neology Group firm to continue offering a coveted lifestyle with amenities like yoga classes. Otherwise, higher expenses would have dented budgets, leaving Neology with no choice but to raise rents, Calderon said.
“This has allowed us to continue to maintain the rents we were hoping to maintain and continue that aspirational living to the engines that drive our community,” she said, referring to the workforce.
Torres, too, is cognizant renters are struggling, saying it’s become normal for many South Floridians to pay half of their incomes for housing instead of the commonly accepted 30 percent, He is considering applying the Live Local tax break to some of his projects on tap.
“I have a lot of sympathy for people struggling, but I have to make sure our building makes money,” Torres said. “We have a business to run, too.”
Read more
Development
South Florida
“Don’t kill the market”: Developers keep building apartments in South Florida, despite supply overhang
Development
South Florida
Live Local Act scorecard: 3K units completed, another 42K in the pipeline
