Rovner’s Shift to Sunshine State a Savvy Business Decision

By Dennis Kaiser

Mike Rovner Construction has expanded beyond its roots in California for another sunny state, Florida. The contractor has worked for some of the biggest real estate investment companies and larger private owners in California, while buying some smaller properties and redeveloping and repositioning them.

That Golden State experience prepared the company to take on a larger footprint. An exploratory tour of Florida real estate during a business/vacation trip last year led company founder Mike Rovner to take a deeper dive into the Sunshine State.

“We noticed that the real estate out there had some similar fundamentals to California,” says Rovner. “Those included people were moving to the state and rents were on the increase. We decided to look closer at the real estate, and discovered that there were tremendous opportunities that did not exist in California.”

What he uncovered was a market that presented more properties with more room for increase, without the high volume of competition that exists in California. Rovner says, “Florida properties start at a higher cap rate and have an opportunity to grow. For example, starting at a 6 cap and being able to raise to a 9 cap, those type of investments do not exist in California.”

Not only are there a wealth of opportunities that exist in Florida, Rovner says, “there are not nearly as many sophisticated owners in the middle level markets, in particular, the B and C level properties in Florida, which creates much more opportunity.”  Also, he points out, “it is not as common in Florida for an owner to do a reposition and renovation as it is in California. So, since it is not as commonly done, it presents us an opportunity to do that work.”

The lack of contractors and a smaller workforce compared to California presents a challenge for Rovner in Florida. “In California, even in today’s market where the contractors are diluted, there are still a mass amount of contractors,” says Rovner. “In Florida, there are not as many contractors, especially not as many that are used to doing the work like we do in California.”

He also points out the quality of the workers is not as good, since California has such a big market for construction. “So, our challenge has been to find qualified workers to do the work and to build crews that can perform to our standards,” says Rovner.

The Florida market also differs from California in that rents are lower and thus more affordable. “In California, the rents are so high that it makes it difficult for people,” says Rovner. “We have more of a housing shortage in California.”

The positive part for Florida is that it is on the coast, the weather is good and many people are moving to Florida every year, notes Rovner. “They have zero state income tax, and we just see it as a really good long-term future play to put some resources and assets into that East Coast market that is also right on the coast,” he says.

Among the solutions and strategies Rovner finds are being met with the most positive response there include taking an older Florida property and repositioning it. “Renovations are being met very positively because it is just not very commonly done,” says Rovner. “The property that we bought in particular is 145 units, and three other people had purchased the property and started the remodel, but had not gotten very far.”

He notes the attention of not only the existing tenants, but also the community. “They are seeing this complete property transformation that is just not commonly done in this market,” says Rovner.

A trend Rovner is seeing occur in Florida is price increases. “We actually saw that after we bought our first major property there in January of 2017, we have seen the apartment market drastically increase over the last 9-10 months.” That’s because the market has shifted, and people from California and other cities on the East Coast are starting to invest into the multifamily market in Florida. They, too, see the fundamentals of rent potential and rent increase in the high single digits that are possible in Florida, and that’s driving increases in property values.

That kind of upward trajectory in Florida real estate values validates Rovner’s decision to expand beyond California. It is also proving to be savvy business move for the company.

For comments, questions or concerns, please contact Dennis Kaiser