Skyscraper Buildings Made From Dollar Banknotes

Tony Arellano and Devlin Marinoff are co-founders and managing partners of Miami-based DWNTWN Realty Advisors.

The firm focuses on urban core transactions ranging from $3 million to over $20 million. GlobeSt.com caught up with them to discuss the long-awaited arrival of distressed assets on the market.

GlobeSt.com: When can we expect to see a high volume of completed distressed real estate transactions, and what opportunities are you already seeing?

Devlin Marinoff: Everyone in the industry knows what is on the verge of happening. We are starting to see the initial wave of bankruptcy and foreclosure filings, and this will accelerate quickly once the forbearance periods burns off during the fourth quarter. In Miami Beach alone, I anticipate at least 50% of the hotels there filing for bankruptcy in the coming months. We are already seeing notes on hotel properties in Miami Beach go on the market, and that’s before lenders start discounting notes to levels where investors will get interested. There have been some studies showing that up to 50% of retailers may not make it through this. This isn’t just local, statewide or national – this is global. The worldwide economy is going to be much smaller when we exit this pandemic. We will see many hotel, retail and even multifamily distressed opportunities in the fourth quarter and early 2021.

Tony Arellano: As with the broader market, the state of distressed real estate depends on the product type and neighborhood. It also comes down to the type of loan, whether it is CMBS, a conventional loan from a bank or private lender financing. Those factors will determine the urgency for a lender to get assets of their books, the appetite for acquisition and what makes for a truly enticing opportunity. Certain deals that are discounted by 20% will create a feeding frenzy. There are a lot of investors waiting for the market to flood with massive amounts of distress, but while there will be great opportunities to buy, I don’t necessarily think it will be an immediate glut of great deals.

GlobeSt.com: What are your investor contacts in South Florida and the Northeast saying about distressed real estate?

Devlin Marinoff: Pretty much every investor I know is calling me asking “what do you have?” There is an incredible amount of liquidity on the sidelines waiting for the non-performing loans to become available and for the forbearance extensions to end. It runs the gamut from small private investors to huge institutional funds with billions of dollars. Overall, there is more than $1 trillion just waiting to be deployed.

Tony Arellano: They are saying “send me every deal you have.” New York investors want out of New York and feel it won’t be investible for the next few years. They want to come to South Florida, but that doesn’t necessarily mean they will be able to understand what makes a good deal here. Real estate is local, and investors need to understand the supply and demand drivers and nuances of the different submarkets. South Florida is a particularly fragmented region with a mix of established core neighborhoods, emerging pockets and overlooked areas with upside potential.

GlobeSt.com: What do some of the high-profile South Florida assets going into special servicing (such as the Fontainebleau Hotel, Westfield Broward Mall and Southland Mall – now in foreclosure) tell us about where the rest of the year/early 2021 is heading?

Devlin Marinoff: The Fontainebleau belongs in its own category because I see that getting worked out due to the strength of Turnberry as a sponsor and size of the loan (nearly $1 billion). Every situation is unique, but there definitely are antiquated malls around the country that need repositioning. This cycle will expedite the issue of certain malls being obsolete. Looking broadly, a new Wells Fargo report showed that appraisals on CMBS properties in special servicing have averaged a 27% decline. That is staggering. For investors, the challenge with trying to acquire CMBS properties is that the servicer has all the power to make decisions with the goal of recouping the most dollars for the loan’s backers. Because of that, it’s a long road for an investor to get to the finish line.

GlobeSt.com: How is the investor interest in distressed real estate going to impact pricing?

Tony Arellano: The cost basis is relevant, but the most important thing moving forward is what the lending requirements are. It’s not about what someone paid or how much an investor bought below what someone else paid. The capital markets drive commercial real estate. If you can’t meet debt standards, coverage ratios or reserve requirements, the deals don’t work. Pricing will be determined by what something can be financed at and the underlying fundamentals. Is there a path to profit?

Devlin Marinoff: Investors are simply kicking tires until it gets to the level where they can obtain at least a 20% discount from the face value of the debt. If there is a $10 million mortgage on a commercial property previously acquired for $16 million, most of our investors would want to buy at $7-to-8 million and end up at a 50% valuation of the previous sale price.

GlobeSt.com: What are some of the challenges that could come from such a competitive environment for distressed assets?

Devlin Marinoff: People will buy debt and distressed real estate in different ways. The Starwoods and the Blackstones of the world will come in and acquire big portfolios of debt, put receivers in place, keep core assets and sell others. The buyers of debt will eventually become the sellers of assets, so there are many layers to this. The hardest thing right now is you can’t get the data. We don’t know what’s going on with the banks, they are not so transparent, so we’re guessing at this point.

Tony Arellano: The current value opportunities are hard to understand. That’s the biggest challenge in the market. At DWNTWN we like to say that we don’t find good deals, we make them. It’s going to come down to being creative and having the wherewithal to see where values and fundamentals are trending.

 

Source: GlobeSt.

10349421 - hand of businessman holding dollars

The US commercial real estate market is looking very cheap to foreign investors, who find their currency hedging costs aligning nicely with the direction of interest rates.

Currency hedging costs are driven by interest rate differentials between two currencies. Low US rates translate to lower costs for foreign investors looking to hedge the currency risk of their US investments. Here is why this dynamic is expected to continue.

 “Short-term and medium-term rates drive hedging costs,” Ciccy Yang, director of Global Markets for Hudson Advisors told listeners in CBRE’s weekly podcast. “And on that front, the Fed’s been giving very strong hints that more fiscal stimulus is needed to keep the economic recovery on track.”

If the stimulus is less than what the Fed prefers, Yang thinks it may have a more significant role in spurring the recovery. Its tools include more quantitative easing for an extended period and a further delay on the next Fed hike.

“The Fed currently forecasts that they’re going to be on hold until the end of their forecast horizon at year-end 2023 as per their dot plots,” Yang says. “In other words, they’re already forecasting short term rates will be bound to zero for quite a long time. Now, we already saw significant hedging cost declines from the beginning of this year when US rates fell significantly in the flight to quality and Fed easing on the back of the onset of COVID-19.”

The five-year annual hedging cost for Euro-based investors in the US has fallen 100 basis points this year to 1.2% today, according to Yang. In the same period, it has fallen 50 basis points to 2.6% for South Korean investors.

“There probably isn’t that much more room for these levels to fall further,” Yang says. “But given the likely expectation of accommodative Fed policy, it does feel like the lower currency hedging costs are generally here to stay in the near term.”

So far though, foreign investors are, for the most part, not biting.

In Q3, cross-border investment fell 71% year over year to $3.5 billion, according to Real Capital Analytics. This is still better than the low of $0.5 billion seen in the depths of the Global Financial Crisis.

The drop-off in cross-border investment might be partially the result of the types of properties being sold. Cross-border groups find it easier to purchase larger properties. Sales for assets priced greater than $50 million fell 61% year-over-year in the third quarter, while properties priced $5 million and below fell 39%, according to RCA.

Some foreign CRE investors, however, are stepping up their US  allocations. In the first nine months of the year, Korean investors accounted for 8.6% of all overseas investment in U.S. commercial real estate, up from 3.7% a year earlier, accordingto the Wall Street Journal,  citing Real Capital Analytics numbers.

South Koreans invested $1.56 billion, up from $1.24 billion a year earlier, trailing only Canadian and German investors, the WSJ said. A year ago, South Koreans ranked 10th among foreign investors in U.S. real estate.

 

Source: GlobeSt

Amazon wants to build a 65,000 square-foot distribution center at the intersection of Woolbright Road and Military Trail near Boynton Beach but nearby communities are not exactly putting out the welcome mat.

Delray Dunes and Quail Ridge, two large golf-club communities, are gearing up for a major fight to kill the project.

Most Amazon facilities, they note, are in industrial centers, not adjacent to large residential communities. Amazon’s agent recently met with Village of Golf planners to request major changes to the town’s growth plan in order to accommodate the facility. Village of Golf Manager Christine Thrower said the process has just begun. Agents for Amazon were told to revise their plans to see if they can be made more palatable to area residents. Thrower said she expects the project to be discussed again at a meeting in January.

Amazon wants to build a 65,000 square-foot distribution center at the southeast intersection of Woolbright Road and Military Trail.

But the two communities along with the Coalition of West Boynton Residential Associations are expected to argue the location is not appropriate for an Amazon distribution center despite the nearly 100 jobs it may create.

The world’s biggest online retailer recently broke ground on a 1 million square-foot facility on 100 acres in the Palm Beach Park of Commerce, which lies west of Jupiter near the Beeline Highway. The company announced in July that it plans to open a delivery station in Boca Raton this year. Last October, it opened a 96,000-square-foot delivery warehouse on Belvedere Road near Florida’s Turnpike west of West Palm Beach.

With around 300 residents, the Village of Golf is one of the smallest communities in South Florida. It encompasses about 530 acres, including a Publix supermarket that is currently under construction. The supermarket, a self-storage facility, a gas station and retail outlets are all part of a master plan recently approved by the town as are the seven warehouses that Amazon wants to replace with one building.

The Village of Golf location would be an operation similar to Amazon facilities on Belvedere Road and in Pompano Beach in Broward County. Large tractor trailer trucks drop off packages to the facility that are then sorted and placed onto scores of delivery trucks.

“This is basically an around the clock 24/7 operation that is not suited for our community,” Delray Dunes said in a letter to the Village of Golf. “The high-intensity industrial use contained in a single 44-foot-tall building is not compatible with the surrounding communities and will impact all of us negatively.”

A number of Village of Golf residents also said they were opposed to the project during the recent meeting.  But Kelly Smallridge, president and CEO of the Business Development Board of Palm Beach County, told The Post that critics should understand that the 10-acre site is already approved for seven separate warehouse buildings that would generate far more traffic and employ far more people than the Amazon facility. Those seven warehouses would total 100,000 square feet as opposed to the 65,000 square-foot Amazon building.

Thrower said Amazon would need to either seek special exceptions or a zoning change to build one 65,000 square-foot building to replace the already approved seven buildings.

Delray Dunes noted that approving the plans would amount to a drastic reversal of a zoning code that has fostered “low density, neighborhood commercial development.” It questioned why the town would consider locating “industrial development” adjacent to Quail Ridge and Delray Dunes.

The Village of Golf has for the past 65 years held to a two-story height limit, even on its current commercial development in keeping with the surrounding residential neighborhood, Delray Dunes noted.

And Quail Ridge said it was concerned about noise pollution caused by back-up alarms on trucks and other heavy equipment that “will pierce the peaceful nights that our residents enjoy.” Even more important is that approval of Amazon’s plans will “set the precedent for years to come in future development of that property as well as the remaining unsold property along Golf Road.”

 

Source: Palm Beach Post

marina_canstockphoto2972331 770x320

Integra Investments principal Victor Ballestas accidentally stumbled into the marina industry.

After having worked on numerous condominium developments, he co-developed a project in Bay Harbor Islands, near Miami, that had a marina component with 14 slips. Seeing the high demand for them, his firm went on to buy marinas in the Florida Keys and even develop a marina arm within the company.

“The boater demand is growing like crazy, but the supply of new marinas is obviously not moving too much,” Ballestas said during a Bisnow webinar about the future of marinas Nov. 4. “That supply/demand constraint is where we think that the opportunity lies in the space.”

Powerboat sales had already been seeing consecutive year-over-year growth this past decade, and the industry exploded since the coronavirus pandemic began. According to the National Marine Manufacturers Association, 115,000 new powerboats were sold in May and June alone, a 30% increase over the same time period last year. Additionally, Europe exports nearly $20B worth of boats each year. This is fueling demand for marina space.

“There’s nowhere to put ’em,” F3 Marina President John Matheson said.

Seahaven Superyacht Marina Harbormaster Marieke van Peer agreed. “The water space is so limited that the only way to go is up, in my opinion.”

Matheson’s company is developing marinas in the U.S. and Central America. A focus is on taking boats that are 30 to 50 feet in length, moving them to dry storage where they can be stored and retrieved with automated high-tech systems, and leaving space at docks for larger vessels.

 

F3 Marina is being developed as a 130-foot-tall, high-tech marina in Fort Lauderdale (PHOTO CREDIT: Miller Construction)

Miller Construction Co. CEO Harley Miller, whose company is building an F3 facility in Fort Lauderdale, had already built a similar automated self-storage facility for cars.

“Your boat and all of its dimensions and information is programmed in the computer,” Miller said. At the push of a button, it can be plucked and dropped into the water.

While seeing demand from new boaters, marina developers are also facing resentment from middle-class boaters who feel that access to the water is being hijacked by private interests.

“Developers can get around that by focusing on visual appeal,” Matheson said, “Particularly if it’s a dry stack marina, and in the case of F3 Fort Lauderdale, there’s a perception that these buildings are these old corrugated metal panel buildings with noisy forklifts flying boats around. Nobody wants to have that in their neighborhood, so we had to demonstrate that this is a completely different building.”

Optimum Asset Management USA Managing Director Matthew Barry is based in Miami and runs a fund out of Luxembourg. He is currently invested in the Monaco Yacht Club in Miami Beach, which has 39 residential units and 12 boat slips. Barry suggested that marina developers work harder to reach out to their adjacent communities.

“Get to know your neighbors, you get to know the land, you get to know the area surrounding it, and you find a public benefit. I think ultimately people aren’t necessarily against development,” Barry said. “They are against bad development. A public component can win over neighbors and politicians and bring up a neighborhood.”

One of the slips at Monaco Yacht Club is reserved for the whole building to use and a boardwalk along the back of the building allows public access directly to the water.

“While there are different considerations for all types of marinas, from boat storage facilities to destination marinas, developers should appeal primarily not to boat owners, but to their staff. Amenities like gyms can be key,” Van Peer said. “A happy crew is a happy captain, and a happy captain will keep coming back to the marina.”

 

Source: Bisnow

construction-plans 770x320

First Industrial Realty Trust continues to bet big on South Florida’s industrial market, this time with a warehouse proposal in Margate.

First Industrial Realty Trust wants to build FirstGate Commerce Center in Margate.
(IMAGE CREDIT: RLC ARCHITECTS)

The city’s Development Review Committee will consider the site plan for FirstGate Commerce Center on Nov. 10. The 9.3-acre property is at the northwest corner of Copans Road and Banks Road.

FR5355 Northwest 24th Street LLC, an affiliate of Chicago-based First Industrial Realty Trust, acquired the vacant site from AutoNation for $8.6 million in late 2019.

The site plan calls for a 131,680-square-foot warehouse with a 32-foot clear height, surrounded by 186 parking spaces.

Chris Willson, senior regional director at First Industrial, couldn’t be reached for comment. The developer is working with RLC Architects and Sun-Tech Engineering on the project.

There’s been strong demand for industrial space during the Covid-19 pandemic as the sectors of e-commerce and trade grow. First Industrial also has a large warehouse project in neighboring Pompano Beach.

 

Source: SFBJ

industrial 770x320

First Industrial Realty Trust aims to build two distribution warehouses in Pompano Beach, which has seen a flurry of industrial development recently.

The city’s Planning and Zoning Board will consider the plat application for the 19.4-acre site at 1001 and 1021 N.W. 12th Terrace on Oct. 28. It’s just west of Interstate 95.

FR NW 12 Terrace LLC, part of Chicago-based First Industrial Realty Trust (NYSE: FR), acquired the property for $19.8 million in 2019. It currently has 31,467 square feet of industrial buildings, which would be demolished.

The plat calls for two distribution warehouses totaling up to 500,000 square feet. It would be an expansion of First 95 Distribution Center, which will be delivered in early 2021 with 141,450 square feet.

Officials with planning firm Keith, which represents First Industrial in the application, declined comment.

Other pending industrial projects in Pompano Beach include the addition of industrial space to the redevelopment of the Isle Casino and an Amazon.com delivery station near Florida’s Turnpike. There’s been strong demand for space from e-commerce distributors during the Covid-19 pandemic as more people shop online.

banner in the form of an abstract American flag with text of EB-5 Visa

The EB-5 immigrant investor program, which has been used to fund major development projects throughout the United States, has been limping along for the past few years, and some have even predicted its demise after rules were tightened last summer.

How might the program, which awards U.S. green cards and visas to foreigners who put a minimum of $900K into a U.S.-based project that creates or retains at least 10 U.S. jobs, fare under a Biden presidency vs. a second Trump administration? That’s a question on the minds of wealthy would-be immigrants, as well as U.S.-based developers happy to borrow money from them cheaply.

The answer, though, is fraught with politics.

“This program is an economic development program, but it’s painted with the brush of immigration,” said Aaron L. Grau, executive director of Invest in the USA, a trade group.

“Immigration is really not being touched, because it’s politically a time bomb,” said Ronald Fieldstone, a partner with the law firm Saul Ewing Arnstein & Lehr in Miami.

EB-5 has been pitched as a win-win-win-win program: the investor gets visas for him or herself and family members, plus his or her money back with a little interest; developers get access to cheap capital; and American workers are employed. An entire industry of EB-5 regional centers, which pool and loan out the investments and facilitate the visa process, sprang up as well.

While EB-5 was a lifeline of capital for developers when banks curtailed lending during and after the Great Recession, the program has been beset by ongoing allegations of fraud. It has been continually reauthorized by Congress, but only for short periods of time. It is currently reauthorized through Dec. 11, after which any new administration will likely re-examine it, potentially through a foreign investment lens.

Generally speaking, President Donald Trump has cut immigration to a trickle, though he’s spared people immigrating via EB-5. Former Vice President Joe Biden‘s platform is more open to immigration, but both politicians are wary of political backlash, Grau and Fieldstone said.

“The Obama administration was relatively neutral about EB-5,” Fieldstone said. “There are also other factors at play, such as who wins the Senate control of the Judiciary Committee, which oversees Homeland Security, which oversees USCIS,” the U.S. Citizenship and Immigration Services, which runs the EB-5 program.

Fieldstone said that legislators don’t always support EB-5 along party lines, but instead because of rural/urban concerns since most of the program dollars get invested in urban areas. Sen. Chuck Grassley of Iowa and Democratic Sen. Patrick Leahy from Vermont have led the charge calling for reform of the program to stem fraud and abuse.

“There’s a good chance one of them could come to chair the Senate Judiciary Committee and set the tone for EB-5’s future,” Fieldstone said.

Grau pointed out that significant changes were made to the program last year, most notably that the minimum investment went up from $500K to $900K.

But interest in the program has dropped precipitously since the coronavirus began, as stricter rules and additional factors have dampened enthusiasm. Sharing an analysis of USCIS data, Lee Y. Li, director of policy research and data analytics for IIUSA, noted that 4,285 EB-5 investors filed petitions for immigrating in the first half of fiscal year 2020, but most of those probably invested funds before the new regulations took place.

“And only 21 I-526 petitions were filed in Q2 FY 2020, when the new regulations fully went into effect,” Li said.

The USCIS website shows that more than 100 regional centers have closed this year. But developers would still love to have cheap EB-5 loans as part of their capital stack.

“Developers will still be interested in using EB-5 funds due to the extremely low rate of approximately 1%,” said J.C. de Ona, Southeast Florida Division president of Centennial Bank. “With banks lending more conservatively nowadays, EB-5 funds can be used to bridge the capital gap required by a senior lender. If done correctly, it can be a win-win for everyone.”

Going forward, Grau said that industry leaders would be happy to find common ground to assuage concerns about the program.

“Senior staff at USCIS, Sen. Grassley’s office, Sen. Leahy’s office, the Judiciary Committee staff on the House side all agree that any reauthorization of the program needs to include integrity measures,” Grau said. “There will be material changes regardless of who is president. Right now, the law does not require that annual reports be provided to investors. The devil is always in details, but the industry is behind integrity measures. There’s no requirement that there be third-party evaluations or audits. We support that.”

Families that pursued visas so that young people could attend college in the U.S. have been put off. In April, Trump issued a temporary ban on immigration that has since been extended through the end of 2020 (though it spared people using EB-5).

Rohit Kapuria, counsel in Saul’s Chicago office said. “There is a sentiment globally that the U.S. under this administration is not immigrant-friendly,” which has led to a drop in demand from would-be foreign investors.

The administration has fought legal battles over whether students stuck abroad during the pandemic would meet their visa requirements, and over wages for workers on H-1B visas. Furthermore, the State Department now recognizes Hong Kong as a part of mainland China, which will result in longer backlogs for applicants.

“It’s those types of restrictions under this administration that have had a very negative effect on EB-5, because the bottom line is: The U.S. is no longer an immigration-friendly jurisdiction,” Kapuria said. “So EB-5, by default, obviously, take the hits. Other countries are now capitalizing on investment-based immigration services, such as New Zealand, Portugal, Australia, Cyprus. These are all immigrant-friendly jurisdictions. In Canada, people are basically saying, ‘Why go to the U.S. if there’s a certainty of more anti-immigrant flavor?’ They’d rather go elsewhere. That’s been something that we are concerned about, at least in the immigration world. What would happen if we have four more years?”

“For now, the focus of the market will be on who wins the general election, as investors try to price in risk under each possible administration,” Fieldstone said. “No. 1, getting the election over is good. It doesn’t matter who wins. It’s good to get the election over so the uncertainties in positions taken by the politicians and the parties will become much more clear.”

 

Source: Bisnow

silver-beach-industrial-park 770x320

A group of developers announced plans to build a major industrial park one week after acquiring a 24.2-acre property in Lake Park.

The vacant property is on the north side of Silver Beach Road, just east of Congress Avenue. It was acquired for $17.2 million by ASVRF Silver Beach Road, a joint venture between Ridgeline Property Group, Mitchell Property Realty and American Realty Advisors.

The developers said the project, dubbed Silver Beach Industrial Park, would total 363,288 square feet in four buildings. Each building would total 90,822 square feet with a 32-foot clear height. That would make them ideal for distribution businesses.

“It is excited for us to be partnering with RPG in Florida,” said Ed Mitchell, president of Mitchell Property Realty. “We believe their national relationships with capital sources, brokers and tenants, coupled with our local market expertise, creates an exceptional platform for us to grow our industrial presence.”

The project has yet to secure approval from town officials. The developers plan to deliver it in the first quarter of 2022. Robert Smith of CBRE was retained to lead the marketing effort.

There aren’t many large tracts of industrial land left in eastern Palm Beach County, yet demand for space is growing as more people order goods online. The property isn’t far from the Port of Palm Beach, which has a busy shipping operation.

 

Source: SFBJ

Midsection of businessman with true and false wooden blocks on seesaw at desk

Panelists representing the industrial, office, retail and multifamily sectors of commercial real estate made the case for investment in their respective sectors at NAIOP’s CRE.CONVERGE, the virtual conference recently taking place.

In a real-time audience poll, the attendees cited industrial as the sector they would be most likely to invest in.  However, much of the discussion pointed to the upsides in what, so far in 2020, has been mostly seen as a negative story for the other sectors.

“Retail may be the sector everyone loves to hate, but all that means is that it’s at the bottom of a cycle that is going to rebound,” said Wade Achenbach, executive vice president, Portfolio Management at Kite Realty Group. “The strip sector and the mall business were struggling for a lot of reasons, and COVID has dramatically made them the hardest hit. If you just look at that trend alone, that’s going to be short lived. You have to be very careful of what you’re looking at. There is no online-only retailer that’s making money today, nor has there ever been. What’s really happening when somebody says e-commerce?  It’s more of an omnichannel. Even Amazon realizes the value of stores with its purchase of Whole Foods.”

The old adage, buy low and sell high, applies.

“I think there is more of an opportunity (in retail) than any of the other sectors,” Achenbach said.

Speaking on behalf of the office sector, which many are questioning in light of the shift to work from home, George Hasenecz, senior vice president, Investments at Brandywine Realty Trust, said its demise has been incorrectly predicted in the past — just as it is now.

“When you think about all the economic events and social trends that have occurred, the dot com bust, September 11, the densification of the office and COVID, people have always said that office is dead. Office has always reinvented itself,” said Hasenecz. “Work from home has been successful in response to the crisis, but it’s very difficult to work in a collaborative environment. How do you maintain your culture, bring new employees on and recruit? Work from home really does go against people’s needs and desires to come together. We think that Class A office is going to be in high demand. Companies want to make sure their employees and their talent feel safe. There still is the competition for talent and office space will be used as a recruiting tool.”

A similar story is playing out in the multifamily sector, said John Drachman, co-founder at Waterford Property Company. The pandemic has driven many people out of dense urban areas and into suburban multifamily units. The turnaround has been sharp in large markets such as New York, San Francisco, Los Angeles and Chicago, where vacancies are increasing and rents are falling. One year ago, the main story line in these markets was a lack of affordable housing.

“As with retail and office, a wider perspective will benefit investors,” Drachman said. “People will move back to urban areas. If you can stomach a little bit of pain, over the long term there could be great buying opportunities for urban apartments.”

Rene Circ, senior managing director and COO at GID Industrial and GID Investment Advisors LLC, spoke on behalf of the industrial sector, which to no one’s surprise seems to be strong. He said there are essentially very few people who are not buying things online.

“I would argue that too much capital is allocated to multifamily and way too much is allocated to retail,” Circ said. “Investors will need to invest in industrial.”

The panel was moderated by Will McIntosh, head of Research at USAA Real Estate.

 

Source: GlobeSt.

double down

For some Miami developers, the last few months have provided an opportunity to “double down.”

“Our affordable division is extremely active,” Jon Paul Pérez, executive vice president of Related Group, said during The Real Deal’s latest episode of Coffee Talks.

Pérez noted that Related has broken ground on three projects in the last 45 days.

Another guest on the episode, Dezer Development founder Gil Dezer, also remains bullish on building across Miami. Last week, Dezer received the first approval for a massive project at North Miami Beach’s Intracoastal Mall, despite opposition. When asked about financing for the project, Dezer said that his company has been covering all costs.

“We don’t have financing today, but we don’t necessarily need it today either,” Dezer noted.

For Pérez and Related — the largest developer in South Florida — there are opportunities away from the luxury beachfront markets.

“We’re very bullish in Wynwood,” Perez said. “I think that’s one of the neighborhoods that has the most growth potential.”

He noted that Related owns four sites there, which it will transform into 2,000 units, and is finishing a new headquarters in Coconut Grove.

The pair are competitors and collaborators: Dezer and Related teamed up on the Residences by Armani/Casa last year. Closings began in December 2019.

“It was just in time, Dezer said. “We had our opening party, and a week later, Covid happened. Sometimes you have more luck than brains.”

Click here to watch the YouTube video Coffee Talk with Gil Dezer & Jon Paul Pérez for more top developer takes on the Miami market.

 

Source: The Real Deal

American dollars grow from the ground

As the Covid pandemic begins to taper off, the CRE industry is ready to get back to work and take advantage of the underlying strong economy.

There are of course distressed real estate sectors caused by the pandemic like hotels, struggling malls and blue city apartments and office buildings. However, this is an excellent time to invest in these and other areas of CRE to take advantage of the distressed assets with historically low prices and the potential for significant increases in occupancy, revenue, and cash flow.

Here are five post Covid investment strategies:

1. Acquire Deeply Discounted Hotels In Suburban Markets

The hotel market has been hurt more than any other property type, by the pandemic with significant declines in occupancy, RevPAR, and cash flow. Most hotels are operating at 40% occupancy and for an asset that has high fixed costs, this is unsustainable for long periods of time. Many hotels will close permanently like the New York Hilton in Times Square, while the majority will limp along or be foreclosed by the lender until the economy recovers. However, this represents a great opportunity for hotel owner/operators to acquire these hotels at deep discounts. It is recommended that investors focus on hotels in suburban markets with national franchises and close to airports that will benefit from the return of business travel. At 40% occupancy most hotels lose money, but, as the economy improves and the deferred demand from business and leisure travel kicks in, the properties should see tremendous increases in net operating income and cash flow.

2. Sell CRE Apartments And Office Buildings In Blue Cities; Reinvest In Red Cities

It is recommended that investors sell apartments and office buildings in these markets and reinvest the proceeds in red states and cities and in select suburban markets that surround blue cities. Per Real Capital Analytics, distressed sales of office and apartments during Q2-20 totaled 18 deals worth over $403 million. This will be just the tip of the iceberg as distressed sales will increase significantly during the next six to twelve months. It is expected that a diversified portfolio of CRE assets in red states and cities to outperform a similar portfolio in blue states during the next ten years.

3. Acquire Deeply Discounted Mall Assets For Repurposing

The distress in the retail sector has been amplified by the pandemic and many retail experts expect 15,000 stores to close in 2020. This is up from 10,000 closures in 2019. However, there is a burgeoning CRE industry in buying old, dilapidated, and distressed retail malls and repositioning them with hotels, industrial space, bowling alleys, food courts, pop-up drive inns, medical tenants (see the article on the growth of medical retail) and residential space. There have been numerous examples around the country of CRE firms acquiring old malls and power centers at deeply discounted prices of $20-$50 per square foot, closing 50% or more of the retail space and converting the vacant space to other uses as shown above. There are very few firms around the country that have the CRE investment and development expertise to complete these types of deals which require a change in the “highest and best use” of the asset. Although these projects have high risk and are difficult to finance, they can produce substantial investment returns.

4. Develop Suburban Office Buildings Around Blue Cities

The flight of individuals and businesses from blue cities is real and one of the prime beneficiaries will be suburban office markets that ring these blue urban locations. The suburban office building market nationally had been fairly anemic pre-Covid, with vacancy rates over 12% and slow rent growth. Many suburban markets are littered with 1980s and 1990s vintage office buildings that never attained an occupancy above 85%. However, in a post Covid world, this metric will turn around with a substantial increase in demand for suburban office product. Currently, the bright spot is suburban Class A office which saw an addition of 3.9 million square feet (aided largely by flight to quality and expansion into new campuses) and an increase of .3% in average rents to $32.15 per square foot. During the first half of 2020, the U.S. office market per Jones Lang Lasalle, recorded 14 million square feet of occupancy losses, bringing the net absorption to a negative 8.4 million square feet, or -0.2% of inventory. The blue cities of New York City and San Francisco, which have seen substantial out migration of companies and residents, were responsible for 26.7% of all net occupancy losses in the second quarter. Sublease space rose by 10.6% and 5.2 million square feet to a mammoth 61 million square feet nationally. Developers of office buildings should shift their focus to blue and red state suburban areas as demand for quality office space will surge.

5. Sell Urban High-Rise Apartment Buildings; Reinvest In Suburban Garden Apartments

The out-migration of renters from high priced blue cities that are technology centric is a permanent structural change for the rental markets in the U.S. According to Yardi Matrix, YoY rent growth through August 2020 has declined -5.5% in San Jose, -5.1% in San Francisco, -1.0% in Portland, -2.1% in Los Angeles and -1.8% in Washington D.C. Forecasted rent growth for these same cities for the rest of 2020 will decline further and substantially. If you are a millennial tech worker and can work from home, why would you spend $3,500 per month for a one-bedroom apartment in San Francisco, if you could rent an apartment in Lake Tahoe or Reno, NV, for $1,200 per month? Even though apartment metrics will further deteriorate in these urban wastelands, demand will surge in suburban markets that surround these areas. One of the most over-priced CRE assets during the last few years has been new urban high-rise apartments that were trading at sub-4.0% cap rates in many core markets. Owners of these assets should sell them before they fully realize a decline in net operating income and higher cap rates.

 

Source: GlobeSt.

10349421 - hand of businessman holding dollars

A key component of a successful real estate investment is choosing the right asset class to invest in within the given market.

Supply and demand is constantly changing, meaning what was a lucrative investment one, two, or 10 years ago may not be worthwhile today. See what types of real estate are in high demand right now and how investors can participate in the growing market.

Before we dive into where opportunity lies, note that just because there’s a general demand for these types of real estate doesn’t mean there’s opportunity for them in every market. Real estate is a very localized business that operates on a macro and micro level. For active investors, it’s important to identify what opportunities lie in your local market or participate in a more diversified investment portfolio specializing in these asset classes through a real estate investment trust (REIT).

1. Cold Storage

Cold storage is a type of industrial real estate responsible for the storage and transportation of cold goods, including food products. The global pandemic interrupted the food supply chain, making consumers and large grocery retailers adapt to the shift in consumer preferences for online grocery sales as well as the need for more cold storage as a whole.

This specialized niche has several barriers for entry, making it a difficult asset class to invest in outside of Americold Realty Trust (NYSE: COLD). Americold is the only industrial REIT specializing in cold storage, owning more than 1 billion cubic feet of cold storage space. The company is well positioned financially to grow with the increased demand.

2. Data Centers

We are undoubtedly in the age of technology, with more people and products becoming reliant on the efficiency, ease, and convenience of technology. Data centers are responsible for safely storing and computing data for the government, large corporations, cloud companies, and even data used from phones.

Demand for data centers has been on the rise over the past decade, but COVID-19-related work-from-home orders have put even more pressure on this growing sector. While demand as a whole is up, certain markets are leading the sector, including northern Virginia and Atlanta.

Data centers are another unique sector to invest in with large barriers for entry, making any of the top data center REITs a wonderful way to participate in this industry.

3. Residential Housing, With Emphasis On Affordable Housing

A study conducted by Freddie Mac found that the U.S. is short 2.5 million to 3.3 million housing units in 29 states, with states like Oregon, California, Texas, Minnesota, Florida, and Colorado the leaders in the housing shortage. These states, among others, are also home to some top-tier markets, where housing prices far outpace wages for the area, putting affordable housing in serious demand.

This means multifamily properties, single-family homes, and new construction can potentially be good investments in the right markets. This asset class is the easiest point of entry for investors, with dozens of options available to participate in actively, like fix-and-flip or rental properties, or passively through residential REITs.

However, it’s important to note that with current eviction moratoriums and a record number of tenants being unable to pay rent, the rental industry is facing tough times, making this a volatile market to participate in right now as a smaller investor. However, this industry is fairly resilient, and while it’s currently facing unique challenges, this market clearly has long-term demand and should bounce back in time.

 

Source: The Motley Fool