commercial building roof_96854462_s 770x320

Insurers are increasing their scrutiny of the age and condition of commercial building roofs and imposing more restrictive terms under property policies, experts say.

Commercial buildings with older roofs that haven’t been updated and those located in regions exposed to windstorms, severe convective storms and wildfires are seeing insurance coverage for roof damage limited by policy provisions, they say. And coverage restrictions have accelerated in the wake of numerous named windstorms, tornados and hail events in recent years, according to several brokers.

Properties located in the south Florida tri-county region, comprising Broward, Miami-Dade and Palm Beach counties, are seeing the most restrictive roof coverage in policies, said Jeff Buyze, Fort Lauderdale, Florida-based national property practice leader at USI Insurance Services LLC.

Changes include covering older roofs on a depreciated, actual cash value basis rather than on a replacement cost basis, Mr. Buyze said. Initially, this applied to roofs that were more than 15 years old, but insurers are now limiting payouts to actual cash value on buildings with roofs that are just five years old, he said.

The definition of roof covering has also broadened to include roof decking, so that any damage to decking falls under the quote on roof covering, he said.

“Picture a 10,000-square-foot commercial real estate building. … The delta between replacement cost and actual cash value is quite often massive. You could be talking about hundreds of thousands of dollars,” Mr. Buyze said.

Occupancy classes seeing more restrictive roof terms include habitational accounts and public entity business, especially municipalities and school districts, said Peter Fallon, national property practice leader at brokerage Risk Strategies Co. Inc. in Boston.

“It’s those accounts where … they just haven’t put the money into the maintenance to make sure their roofs can withstand hail and wind damage, so underwriters are saying, ‘We are going to have to do something,’” Mr. Fallon said. “Tighter roof terms are impacting admitted as well as non-admitted risks. We’re seeing it in the standard market, too.”

Changes tend to be dependent on roof age, especially those that are more than 15 years old, Mr. Fallon said. Where coverage applies on an actual cash value basis, insurers may also impose a surcharge and a higher deductible, he said. Insurers may also add component deductibles to reflect an additional exposure such as water damage, he said.

Underwriting scrutiny based on roof materials is a focus in areas exposed to windstorm, hail and wildfire, said Michael Korn, global property and marine leader at EPIC Insurance Brokers in San Francisco.

“In the case of wildfire, underwriters are concerned that embers can travel miles from a wildfire and land on a combustible roof and start a fire in a different area,” Mr. Korn said. “Many roofs on buildings in California are constructed of wood or with shingles.”

Valuations are increasing to help cover the rising costs of roofs and to ensure buildings are insured to value adequately, said Randy Doss, Houston-based senior broker at CRC Insurance Services Inc.

“Let’s say the norm five years ago was $65 a square foot for frame buildings. Nowadays they’re up to $100 or $110 per square foot for frame buildings to kind of offset some of those roof costs,” Mr. Doss said. “Variations in building codes in different states and problems with roofing contractors in certain states might also affect the terms that are available.”

Values overall have become a focal point for the market, specifically on roofs in high-hazard zones that are subject to the vagaries of wind, rain and water damage, said Henry Daar, Chicago-based executive vice president and head of property claims at Willis Towers Watson PLC.

“Carriers don’t want to pay for the same thing twice or three times,” Mr. Daar said. “In the case of a roof that has been previously subject to loss but hasn’t been repaired, insurers will either exclude from coverage pre-existing unrepaired damage or limit what they cover to a percentage of the damage. Other clauses limit the amount insurers will pay out for so-called cosmetic damage to a roof — for example if a hailstorm results in pock marks but is not determined to have caused loss of structural integrity. Roof claims can be costly and based on the roof composition and building structure run the gamut anywhere from a $25,000 loss to a $5 million loss.”

 

Source: Business Insurance

 

construction_crane with sunset in background 8269062_s 770x320

The Pompano Beach City Commission recently approved a change to the city’s zoning code to incentivize well-designed mixed-use and mixed-income developments along the Dixie Highway corridor and along other specific commercial corridors within Pompano Beach.

The initiative began at the Pompano Beach Planning and Zoning Board meeting in February 2021, when Chair Fred Stacer started a discussion related to the city’s interest in beautifying the Dixie Highway corridor following the city’s investments in the roadway itself through the G.O. Bond program.

Stacer said the expectation of quality design for new development should increase. This discussion evolved into the creation of a Dixie Highway Task Force by the chair of the city’s economic development council, Tom DiGiorgio. Stacer was appointed as chair of the task force. The task force adopted the goal of creating mixed-income and mixed-use regulations for Dixie Highway, and ultimately, for all applicable commercial corridors of the city, with additional requirements and incentives in those areas where combatting poverty has been identified as a priority.

According to a study conducted on behalf of the city by the Lambert Advisory Group, Pompano Beach has the highest number of income-restricted housing units in the county (2,140 units), followed by Fort Lauderdale (1,941 units).

Additionally, Pompano Beach has the third-highest proportionate share of income-restricted units to non-income-restricted units in the County — for every 25 residential units in Pompano Beach, one unit is income-restricted. A large proportion of income-restricted units are being developed in census tracts where there is already a high concentration of existing rent-restricted or subsidized units.

The new change to the city’s code uses criteria set forth in the affordable housing incentive policy that Broward County adopted in March 2021. It also integrates the mixed-income housing policy the city adopted in December 2021 to encourage affordable housing and provide relief from the adverse impacts of the concentration of income-restricted housing within Pompano Beach.

The County’s policy allows additional density (more dwelling units per acre) in residential land use categories and unlimited density in “Commerce” and “Activity Center” land use categories for projects on eligible roadways that include affordable housing.

The city’s new mixed-income housing policy intends to be more restrictive than the County’s policy: A minimum of 50% non-income-restricted residential units will be required in residential developments that are within a half-mile radius of an income-restricted residential development project.

Density for properties with a B-3 Commercial zoning, which is predominant along the commercial corridors, will be regulated by the city’s zoning code. Along Dixie Highway (between city limits) and North Powerline Road (between Atlantic Boulevard and NW 15th Street), a minimum of 80% non-income-restricted residential units will be required. The city would provide a minimum 50% density bonus as an additional incentive to redevelop those properties inclusive of the non-income-restricted units.

The new regulations also set design standards that must be maintained by all development along these commercial corridors, including light industrial uses such as warehouses, which are permitted along corridors like Dixie Highway. In addition, a screening requirement was added for visible parking garage façades, as recommended by Stacer.

In addition to Dixie Highway and Powerline Road, the eligible commercial corridors within the ­­­­­­city where the new regulations can be applied include Federal Highway, Sample Road, Copans Road, NW 31st Avenue, Atlantic Boulevard and McNab Road west of Dixie Highway, a portion of Andrews Avenue, and the western portion of MLK Boulevard.

Only properties that have a Commercial land use designation and are abutting those corridors will be eligible to receive residential entitlements through the County’s policy.

Speaking to the City Commission at its March 22 meeting, Stacer said he talked extensively with the redevelopment team of John Knox Village to make sure the three blocks that abut Dixie Highway from SW 3rd Street to SW 6th Street were properly integrated into the city’s new policy for the commercial corridors, as well as the desires of John Knox Village.

 “The new policy is probably going to be cutting edge for the county,” Stacer told the Commission.

Deerfield Beach city officials have taken interest in it, and in the future, there may be opportunities for Pompano to coordinate with them regarding what happens on the Dixie Highway corridor, said Stacer.

Stacer noted that the new guidelines will bring the city’s corridors into the 21st century design criteria, and will help protect single-family residences from the “massive amount of pressure” the city is going to experience due to an increase in population.

“This sets the stage for years to come,” said Mayor Rex Hardin. “It’s not going to transform any roadway today, but this will help guide development in the future for many, many years.”

 

Source: Point!Publishing

 

wooden number 10_95825388_s 770x320

LaSalle is expecting a high-impact second half of 2022, according to its Mid-Year Update.

The firm provided the top 10 issues it believes could steer commercial real estate’s direction, including those related to bonds, returns, capital flows, expenses, energy, construction and central banks.

GlobeSt.com highlighted LaSalle’s No. 1 top issue: Cost Of Debt.

Following are the others that made its list and LaSalle’s assessment, as well as commentary from others in the industry.

2. Rising Corporate Bond Yields – Upward pressure on discount rates and exit cap rates.

Jon Spelke, managing director of LFB Ventures in El Segundo, tells GlobeSt.com, “Cap rates will continue to follow interest rates upward trends to avoid negative leverage situations. It will be difficult to underwrite a deal with negative leverage and relying on rent growth to bail out the deal. Especially while expense growth continues to trend and at an equal rate as rents.”

3. Higher Required Returns – As a corollary of No. 2, investors will seek slightly higher returns from real estate, given that alternative credit market products will now be priced at higher yields.

Spelke added, “Unlevered yields will continue to follow interest rates and as asset pricing adjusts to the new financing norms (i.e. sellers come to grips with the current asset pricing versus what they thought they could get 90 days ago) deal flow will resume. This economic situation was/is not caused by the real estate industry, (i.e., over building, etc.) so real estate remains a healthy asset class in most regions and submarkets. Once values adjust, the deal flow will resume with strong fundamentals following.”

4. Capital Flows To Real Estate – Despite the mixed impacts listed above, real estate’s reputation as a better inflation hedge than fixed income will likely maintain its status as a favored asset class while the securities markets experience volatility.

Eli Randel, chief operating officer, CREXi, tells GlobeSt.com that increasing costs of capital will likely result in expanded yields and softened values, however, large supplies of capital seeking deployment may help sustain current asset values.

“Commercial real estate, even at compressed yields, remains a more attractive investment vehicle to many relative to cash, bonds, and equities and as a result quality assets in quality markets will find abundant capital demand even at still high-prices,” Randel said. “Look for low-leverage, negative-leverage, and all-cash deals to become more prominent with pricing on those deals reflecting sub-optimal levels. An institutional flight to quality will create a bifurcation in the market where core deals will trade at aggressive pricing with suboptimal deals seeing a decline in value.”

5. Capital Market Shifts – Investor demand moves away from fixed long-term leases and toward shorter indexed leases.

Jeff Needs, director, Moss Adams Real Estate Advisory, tells GlobeSt.com, “As markets continue to search for price stabilization, expect to see shorter-term leases, reduced capital improvements and negotiating leverage continuing to tip to tenants. Vacancies that are best suited to be used in ‘as-is’ condition will lease first, and some landlords will do minor tenant improvements upfront to be more competitive. Though individual markets perform at their own pace, we haven’t reached the bottom yet so expect this to continue until there’s a turning point.”

 6. Rising Cost Of Construction – Chilling effect on construction, wherever rents can’t keep pace.

“As the market slows, the upward pressure on cost (labor and materials) should ease for a bit,” Spelke said. “Subcontractors looking to keep crews engaged will look to be more competitive as projects are put on hold and shelved.”

7. Higher Energy Prices – Higher occupancy costs will erode tenants’ ability to pay higher rents.

Marilee Utter, CRE, global chair of The Counselors of Real Estate, tells GlobeSt.com “The consequences building and that business owners are facing – and need to consider in business continuity and resiliency planning – include rising insurance costs and increased investment in on-site energy resilience.”

8. Slowing Demand – While central banks attempt to cool off overheated sectors, broad-based tenant demand will likely step down a notch because monetary policies are blunt instruments that don’t distinguish well between sectors. In some parts of the world, ‘recession’ danger signals are flashing.

9. Currency Movements – Differentials in interest rates/inflation will favor currencies with rising interest rates and could raise hedging costs for currencies with lagging interest rate increases.

10. Rising Expenses – Just about every expense category associated with operating a property will be under upward cost pressure. Operational-intensive properties that require a lot of headcount or energy consumption could be most affected.

As a corollary to No. 5, LaSalle said net leases will be preferred by investors, but tenants will be under new cost pressures that could affect their ability to renew or to expand. Long leases to real estate operators whose margins could be squeezed by both rising occupancy and labor costs are an example of the kinds of risk to avoid.

Michael Busenhart, Vice President Real Estate at Archer, tells GlobeSt.com that with the recent inflation increases, owners are feeling the benefit on the rental income side, but also feeling the pressure on the expense side.

“As multifamily owners look to maximize LOI, many are seeking an edge to curb expense spending,” Busenhart said. “To do this, they can review financials internally to notice increased trends, or use data that enables asset managers to benchmark their properties/portfolio against the competition to seek areas where they can improve against the overall market.”

 

Source: GlobeSt

pier sixty-six 770x320

Sky-high towers as tall as 500 feet could start cropping up all over Fort Lauderdale, critics fear.

It could happen if a controversial proposal goes through that would raise the height cap to 500 feet on projects that get special zoning. The new ordinance would apply citywide, not just in high-rise-friendly downtown, where zoning already encourages supersized towers. So far, the idea is getting a chilly reception.

“We are not Sunny Isles. We are not Miami. We are not New York,” said longtime resident Nancy Thomas. “I’d rather have it shorter and denser. If we get into this height request we’re going down the wrong path. We are going to start looking like Sunny Isles.”

John Burns, president of the Venetian Condo Association, also has reservations about making such a drastic change that would apply to the entire city.

“Once it’s there, everyone’s going to want it,” Burns said. “You could have 500-foot buildings popping up everywhere. It’s a dangerous path.”

Who Wants Taller Buildings?

Some are wondering what’s behind the push for taller buildings. Look no further than the plan for Pier Sixty-Six. Tavistock, the developer redeveloping the landmark site, wants to build three luxury condo towers that would rise 480 feet high in a neighborhood with a height cap of 120 feet.

“Proposing taller buildings with fewer residential units and less commercial uses will significantly reduce traffic, preserve views and create more open space — all things that we heard were imperative to our neighbors,” said Jessi Blakley, vice president of the Orlando-based Tavistock Development Company. “Our vision will make Pier Sixty-Six a destination gateway and icon once again.”

The developer revamping the Pier Sixty-Six property in Fort Lauderdale hopes to build three luxury condo towers that would rise to 480 feet. Two towers would sit on the south side of the 17th Street Causeway bridge and the third would sit on the north. The plan is not an option unless the commission changes the code to allow building heights of 500 feet outside the downtown area. (RENDERING CREDIT: Arquitectonica)

The vision is not an option unless the city commission changes the code to allow building heights of 500 feet outside the downtown area for projects that apply for Planning Development District zoning. The current code, in place since 2013, caps the height at 300 feet. The code would need to be rewritten, changing the height cap from 300 feet to 500 feet to pave the way for developers to build higher. And the change would require commission approval.

Outside downtown, a developer needs at least two acres to apply for the PDD zoning. Only half an acre is required for properties downtown. It was unclear whether that would change as well.

At a recent City Hall meeting, longtime resident Marilyn Mammano warned the commission they’d be opening up a can of worms by changing the code.

“No one is demanding taller buildings. This is being done at the developer’s request,” said Mammano, president of the Harbordale Civic Association.

Housing Costs ‘Just Crazy’

During the meeting, Mayor Dean Trantalis argued that allowing buildings to go higher would help build up Fort Lauderdale’s housing stock.

“We hear the drumbeat from the community: People say we’re overdeveloping, we’re overbuilding,” Trantalis said. “And at the same time people say the price of housing is just crazy. More development stabilizes the price of housing. We have to have a ‘Come to Jesus’ moment and decide if we are going to allow development to continue to come to this city.”

Commissioner Heather Moraitis countered that many of the projects are considered high-end and would not help boost affordable housing units throughout the city. The mayor and the commission suggested city staff seek feedback from neighborhood leaders and report back before any commission vote is scheduled.

“Let us not be the ones to decide,” Trantalis said. “Let the community decide.”

Staff is planning to present information in November to the Council of Fort Lauderdale Civic Associations, but is welcoming comments at any time, according to a city email dated July 15 that went out to neighborhood leaders.

Leslie Fine, whose condo sits on Fort Lauderdale’s Galt Ocean Mile, didn’t get the email but has a message for the city: This is a bad idea.

“This is not Dubai,” Fine said. “Why does everything have to be so tall? It’s not like people come here because we have tall buildings. It puts more stress on the streets, the sewers, the waterways, the storm drains. Those tall buildings can cast tall shadows. And the roads can’t handle the people we have now.”

Mary Peloquin, president of Council of Fort Lauderdale Civic Associations and a board member of the Coral Ridge Civic Association, did get the email.

“Everybody is concerned about this,” Peloquin said. “Tall buildings all sounds fine until they come to your neighborhood. Tall buildings make residential backyards not private. Tall buildings are great downtown but we don’t have any workable mass transit. And that needs to be fixed if we’re going to have a dense area downtown and in other areas.”

‘Only Way To Go Is Up’

Fort Lauderdale’s Regional Activity Center zoning paves the way for taller buildings and dense development downtown.

Construction cranes abound on Wednesday in downtown Fort Lauderdale. A new proposal would pave the way for 500-foot-high towers throughout the entire city. And the critics are already lining up. (PHOTO CREDIT: John McCall /South Florida Sun Sentinel)

The RAC has no height cap, but so far the tallest building downtown (100 Las Olas tower) stands at 499 feet, a foot under the 500-foot limit set by the FAA. That could change if the FAA says yes to new development requests to build towers closer to 600 feet.

Jim Concannon, president of the Sunrise Intracoastal Civic Association, says he understands the push to allow taller buildings. But he worries it could change the character of neighborhoods outside downtown.

“There’s no question that the city is going to be growing a lot,” Concannon said. “And the only way to go is up. But you’re losing that small-town character. By allowing 500-foot buildings to be anywhere in Fort Lauderdale, you’ve changed the character of the city.”

Local developer Charlie Ladd declined to say whether it was a good idea to change the height cap, but did say it’s important for the residents to be onboard.

“These are big changes to our city,” Ladd said. “We all need to be on the same page. We need to make sure we get it right when these other portions of the city look to redevelop.”

This week, Trantalis had more tempered comments about the whole plan.

“I think there needs to be significant community outreach,” Trantalis told the South Florida Sun Sentinel. “I’m not hearing a lot of support for it, but the process is still ongoing and we are trying to be objective about the issue. I don’t think there’s much of an appetite on the commission to change the ordinance since it would affect properties citywide. We realize the growth needs to focus on the downtown area and not impact neighborhoods that have long been established.”

Real estate analyst Jack McCabe says he would expect an outcry from residents across the board if the commission were to approve the plan. He pointed to the wall of condos that line the beach in Surfside.

“There’s so many condos so close together, the locals call it the wall,” McCabe said. “And you can’t see the beach by noon because of the shadow. If you could make a case that Fort Lauderdale is built out and they need 50-story buildings all over town, maybe then there’s a reason to change the rules. But people are going to be up in arms if all these 50-story towers start going up blocking their views and snarling traffic in an already snarled traffic system.”

 

Source: SunSentinel

 

Businessman looking through binoculars

As we round the halfway mark of 2022, dynamics are shifting in the commercial real estate investment environment.

Preliminary data from SitusAMC Insight’s second quarter 2022 institutional investor survey shows changing preferences among property segments.

Compared to the previous quarter, the percentage of investors selecting industrial as the best property type over the next year plummeted from 47 percent to 11 percent, citing major concerns that the sector is overpriced. Apartment was the most favored segment among investors; 56 percent of investors ranked apartment as the best sector, up from 21 percent last quarter.

Skyrocketing mortgage rates are putting a crimp in single-family affordability, resulting in strong demand conditions for apartments. Several investors also remarked that apartments were the best inflation hedge among the property types. Retail appears to be making a comeback, with investor preference for the sector climbing to 33 percent from just 11 percent last quarter, citing opportunity for yield plays. Investor sentiment on office, on the other hand, is extremely bearish; no investors selected it as the top property type, with the sector falling from 16 percent in first quarter.

SitusAMC is seeing these sentiment shifts play out in their client work. After so many quarters of seemingly unstoppable growth, the industrial sector is starting to show initial signs of a slowdown, even though fundamentals are still strong. While rents are still growing in most markets and investors are still anticipating widespread above-inflationary rent growth and are underwriting to these assumptions, it is unrealistic to expect another quarter of 8 percent to 12 percent rent growth. Meanwhile, the buyer pool for industrial has been shrinking since the beginning of the year, and some of the larger portfolios are not being financed or traded.

Some Value Deterioration

The value driver for apartments in the second quarter was market rents and rent growth. There is still very strong sales activity, but, as with industrial, there are fewer investors at the table when the bidding reaches the best and final round. Regardless, the fundamentals remain very strong. For the first time in several quarters, low-rise apartments are performing better than garden apartments. Suburban is still outperforming urban, but some urban locations are showing signs of growth.

Investment rates are not decreasing across the board— they are very specific to the assets and the submarket. Gateway markets are lagging but improving. New York is the leader of the gateway markets, and Chicago is seeing improvements in rent growth, which is translating into some value improvement. San Francisco is starting to produce positive indicators as well, and Boston and Seattle are experiencing growth momentum. SitusAMC Insight’s proprietary multifamily affordability indexes indicate improved affordability in gateway markets vs. affordability deterioration in non-gateway metros.

SitusAMC’s retail valuations were slightly up in second quarter. Leasing activity has picked up, with many reflecting short-term mid-pandemic leases that are expiring and being renewed. A couple of large deals involving grocery-anchored centers have signaled very strong cap rates, in the low-to-mid 4 percent range, in strong markets like San Diego and Miami. However, these rates were negotiated at the beginning of the year when the debt markets had not yet changed.

Some SitusAMC clients are repricing their assets down slightly because of the debt market environment. In addition, recent strong retail sales are unlikely to continue as inflation erodes consumers’ disposable income and redirects spending to everyday necessities like gasoline and food. Retail outlets that provide essential goods, such as neighborhood and community centers with grocery anchors, will likely maintain steady income streams. Malls could be hurt by the decline in nonessential spending.

Office values remained relatively flat in the second quarter; most of the increases in values seen were owing to contractual rent increases. Overall office values are skewed, however, by strong growth in life science. SitusAMC is seeing many tenants downsizing. Daily office occupancy is mired around 40 percent, and it might not exceed 60 percent in the long term. There has been a flight to quality as employers try to attract top talent during a tight labor market.

On the bright side, near-term market rent growth has steadily increased over the past year, however, and is getting closer to the standard 3 percent. The strongest growth markets continue to be in the Sun Belt and the suburbs, which are doing better than CBD and gateway markets, but rents are increasing in those areas, as well. There have also been a lot of early renewals—near 10 percent, the highest level since 2015—though this is partly due to leases that expired during the pandemic and were renewed on a short-term basis.

 

Source: Commercial Property Executive

construction site with sunset sky background_26174032_s-770x320

When it comes to housing in South Florida, homebuyers and renters aren’t the only ones grappling with sticker shock.

Developers often face construction costs that are 20% to 30% higher than a year ago – a trend that’s already stalled some projects at a time when local residents struggle to secure housing. That means builders have to weigh whether to accept smaller profit margins, eschew some projects altogether or, in the case of affordable housing, seek more money from public funding sources to complete those jobs.

The tri-county region has become one of the most expensive U.S. metropolitan areas to live in due to the heated demand for housing and shortage of developable land. Much of that stems from the influx of out-of-state residents who flocked to the area in record numbers during the Covid-19 pandemic.

The rising cost of materials such as lumber, steel, fuel and iron, as well as tariffs, trade issues and surging labor costs have also driven up construction costs, resulting in higher rents for residential and commercial properties. And rising interest rates also are bringing down some sale prices, which impacts developers’ profit margins.

The spike in construction costs has led some developers to question the viability of taking on certain projects. For example, if construction estimates for condos come in too high, it may not make financial sense to build them, industry insiders say.

Developers and contractors must budget for construction cost increases and prepare for shortages in the supply chain. Items such as concrete, appliances, glass and steel are just some of the necessary staples that can delay the completion of the buildings.

“Construction costs have been as volatile as I’ve ever seen them in my 40 years in the market,” said Michael C. Taylor, CEO of Pompano Beach-based Current Builders. “From August of last year, we are seeing 20% to 25% increases. We don’t have any line items not increasing.”

Typically, Taylor tells developers his quotes are good for six months. But now he can only guarantee prices for 30 to 60 days, as delivery times on certain products have jumped from three months to nearly a year, he added.

Supply chain shortages and material costs are escalating at a pace he’s never seen, said Chris Long, president of Delray Beach-based Kaufman Lynn Construction.

“There’s great demand for housing as people continue moving to Florida, but this has led to affordability challenges,” Long said. “There’s some concern out there that we reached the peak and things need to normalize. They are trying to get deals done before the bubble bursts.”

Construction costs for commercial projects are up 7% to 10% a year, so it’s less severe than for residential projects, said Michael C. Brown, executive VP of Florida for Sweden-based construction firm Skanska. Nevertheless, many of its health care and education clients are scaling down the size of projects – an eight-story hospital wing instead of 10 stories, for instance – to move forward.

Contract Sticking Points

In many cases, the rise in construction costs has created friction between developers and general contractors.

Contracts inked a few years ago couldn’t factor in dramatic building cost increases or supply chain delays, so the parties have to determine who pays for those additional costs, said Lisa Colon, a construction attorney with Saul Ewing Arnstein & Lehr in Fort Lauderdale.

“Owners are making concessions because of supply chain issues that they would not have made two years ago,” Colon said. “Profit margins are less, but you can push it down to the consumer. The consumer will continue to see an increase in rent. Many developers and contractors are now adding price escalation clauses that specify a larger commitment from developers to cover cost overruns. It’s a false thought that contractors are making all this money as prices are going up. Nothing could be further from the truth. Their profit margins are being squeezed even tighter.”

Construction contracts should also address delays and whether material shortages should result in financial compensation, because most contractors will insist on avoiding liability when material shortages are out of their control, said Jordan Nadel, a construction attorney at Miami-based Mark Migdal & Hayden.

 

Source: SFBJ

redevelopment on a post it note_149519455_s

Multifamily giant Morgan Group could redevelop a former Kmart store in Lantana into an apartment complex.

The Town Council will consider the rezoning and site plan on the evening of July 11 for the 18.6-acre site at 1201 and 1301 S. Dixie Highway, plus 457 Greynolds Circle. It currently has a vacant 84,350-square-foot retail box that Kmart left in 2019, a 68,836-square-foot retail building anchored by Winn-Dixie and 11,765 square feet of retail for multiple tenants.

The property was acquired by Lantana SDC LLC, an affiliate of Miami-based Saglo Development Corp., for $10.2 million in 2017. However, the application states the Kmart parcel at 1201 S. Dixie Highway is under contract to Houston-based Morgan Group and is slated for redevelopment. The other two retail buildings would remain, as Winn-Dixie and some other tenants have long-term leases, according to the application.

The property was approved for “mixed use” zoning in 2019 with the potential for 279 apartments. But now that it’s clear only the Kmart parcel could be redeveloped, the property owner wants the zoning changed to permit 231 apartments on just that part of the land.

Lantana Village would have five buildings of four stories each, plus a clubhouse and a pool. There would be 442 surface parking spaces. The entrance would be from Greynolds Circle. The developer said the project would cost about $65 million to build.

With 157,413 square feet of leasable space, the units would range from 585 to 1,242 square feet. There would be 51 studio apartments, 105 one-bedroom apartments, and 74 two-bedroom apartments. In addition, the developer said it would perform renovations and façade improvements to the remaining shopping center.

“Placing a residential development within walking distance to commercial uses that conveniently serve the surrounding neighborhood, such as a grocery store, restaurants, retail, and personal services, creates a sense of community and will retain the ‘small town’ character that Lantana is known for,” the developer stated in the application.

Fort Lauderdale-based attorney Cushla Talbut, who represents the developer in the application, couldn’t be reached for comment. Miami-based MSA Architects designed the project.

While the retail market in South Florida has outperformed much of the nation, it can still be difficult to replace a big-box retailer like Kmart. Apartment rents are rising rapidly, so the land is likely worth more as multifamily than retail.

Click here to view a slideshow of the proposed Lantana Village Apartments project.

 

Source: SFBJ

Festival Flea Market 770x320

A developer and warehouse operator won approval from the Pompano Beach City Commission to replace the Festival Flea Market Mall with about 470,000 square feet of warehouse space.

North Miami-based IMC Equity, led by owner and CEO Yorham Izhak, is working with Atlanta-based IDI Logistics to demolish the Festival Flea Market Mall on the southeast corner of the Florida Turnpike and Sample Road, and redevelop the site as a warehouse complex with a 412,347-square-foot building and a 58,962-square-foot building.

The Pompano Beach City Commission just voted to rezone from “general business” (B-3) to “general industrial” (I-1) a 23.8-acre portion of the 37-acre Festival Flea Market site. The rest of the site, which is at the corner of Sample Road and Northwest 27 Avenue, remains a commercial outparcel for a proposed Racetrac Gas Station and Market.

The city commission also approved a text amendment and a map amendment to the local land use plan for the Festival Flea Market property. IDI Logistics filed the application for the land-use amendments, and a company controlled by IMC Equity applied for the rezoning.

In 2018, IMC Equity paid $25 million to acquire the Festival Flea Market Mall at 2900 West Sample Road and another $31 million for the mall business itself. The flea market rents space to tenants that sell apparel, shoes, bags, luggage, jewelry, and electronics, among other types of goods.

“It will be at least a year before the tenants would have to leave,” Dennis Mele, an attorney for IMC Equity, said at a June 14 meeting of city commissioners, who voted then to table their consideration of the warehouse project.

Mele said the Festival Flea Market project will be the fourth warehouse development that IDI Logistics has pursued in Pompano Beach. The Atlanta-based company owns and operates the Pompano M Business Center, the Pompano II Business Center, and the Rock Lake Business Center, which is just south of the Festival Flea Market Mall.

Commissioner Beverly Perkins said after the Festival Flea Market Mall is demolished, the city should assist tenants of the mall, including some who have leased space there for more than 20 years.

The trend toward online shopping, which the pandemic strengthened, is driving the industrial redevelopment of the Festival Flea Market Mall, according to the rezoning application filed by IMC Equity. The location of the mall also allows fast access to the Turnpike, I-95 and the Sawgrass Expressway.

“The impacts of COVID-19 will likely impact the way people shop well into the future, which will continue to reduce the need for brick-and-mortar stores as people continue to do much of their shopping online,” according to the rezoning application.

Industrial vacancy in Broward County plunged to 4.7 percent in the first quarter from 8.7 percent during the same period of last year, as tenants absorbed new warehouses and other types of industrial property, according to a report by Avison Young. The vacancy rate in the first quarter was 4.1 percent in Pompano Beach, which has 29.6 million square feet of industrial space, the largest inventory among seven sub-markets in Broward County, Avison Young reported. Industrial space under construction in the first quarter totaled 285,176 square feet in Pompano Beach, nearly 600,000 square feet in southeast Broward, and 1.6 million square feet county-wide, according to Avison Young.

Broward County had a 4.2 percent industrial vacancy rate in the first quarter, compared with 2.6 percent in Miami-Dade County and 4.5 percent in Palm Beach County, according to industrial market research by JLL.

 

Source: The Real Deal

construction-plans 770x320

Five developers filed land use amendments for industrial development in the Agricultural Reserve in southwest Palm Beach County.

All five applications are in response to a county-initiated process to establish a Commerce Future Land Use category in the Agricultural Reserve to allow light industrial projects. The County Commission is set to vote on this in August.

The Agricultural Reserve is traditionally a rural and agricultural area. Most of the development allowed there has been for single-family homes, creating one of the fastest growing neighborhoods in South Florida. Residential developers must set aside land for preservation in the Agricultural Reserve, and industrial developers would be required to do the same.

Five sites in the Agricultural Reserve in Palm Beach County have been proposed for light industrial development.
(MAP CREDIT: JMORTAN PLANNING & LANDSCAPE ARCHITECTURE)

Amid huge demand for industrial space throughout Palm Beach County, all of the industrial land along Atlantic Avenue just east of State Road 7 has been approved for development and there’s a need for more development to serve the residents, said Lauren McClellan, senior project manager for Palm Beach Gardens-based JMortan Planning & Landscape Architecture, which represents all five land use applications.

“Now that most of that pre-existing industrial land has been entitled, it is apparent that the demand for various types of industrial space (including but not limited to office warehouse, landscape services, cold storage, and last mile distribution) continues to grow,” McClellan said. “If the Board of County Commissioners adopts the Commerce language in August these five applications will become requests for the Commerce Future Land Use designation.”

Gunster attorney Brian Seymour, who represents Fort Lauderdale-based BBX Capital Corp. in the largest application, said it was filed so the company could get a head start on the long process of a land use change amendment so it will already be in the works should the County Commission approve the Commerce designation. He noted that the light industrial category would not permit heavy industrial uses or self-storage facilities, but it would be appropriate for small-bay warehouses, last-mile distribution centers, and cold storage.

David A. Menchof, an associate professor of supply chain and operations management at Florida Atlantic University, authored a letter for BBX stating that building last-mile distribution centers in the Agricultural Reserve would reduce traffic because goods can reach residents there faster without having to be delivered from distribution centers further away.

Here’s a look at the five applications:

  • State Road 7 Business Plaza: BBX Capital has 40 acres at 9863 and 9773 Happy Hollow Road under contract from Suzanne, Diana, and James Mulvehill. The maximum potential would be 600,000 square feet of light industrial space or 315,000 square feet of flex space with office and light industrial.
  • Boynton Land Commerce: The 8471 Boynton Beach Land Trust, led by Peter Patel in Boca Raton, acquired 15 acres at 8421 S. State Road 7 for $8.53 million in 2021. The land use amendment would permit up to 294,030 square feet of light industrial.
  • BC Commerce Center: BC Boynton Industrial LLC, managed by Malcolm Butters of Coconut Creek-based Butters Construction & Development and Jon Channing in Palm Beach Gardens, has 9.3 acres at 8255 Boynton Beach Blvd. under contract from Paul B. Dye, Randall Thorne, Kimberly Tiernan, Martha Ely and Randy T. Ely. The land use amendment would permit up to 181,515 square feet of light industrial.
  • EJKJ Industrial: Fort Lauderdale-based EJKJ Development LLC, managed by Donald M. Allison and Edward Jackson, paid $3.36 million in April for 7.9 acres on the west side of State Road 7, across from Rio Grande Avenue and just south of Atlantic Avenue. The land use change would allow up to 155,444 square feet of light industrial.
  • Morin/Connolly Commerce: Howard C. Morin, the Robert Morin Trust, and Carol A. Connolly are the long-time owners of 3.4 acres at 9819 S. State Road 7, which currently has 4,040 square feet of warehouse and storage space, along with truck parking. The land use change would permit up to 66,843 square feet of light industrial.

The County Commission is also considering a county-initiated land use change to permit apartment projects there.

 

Source: SFBJ

 

10349421 - hand of businessman holding dollars

Bridge Industrial paid $20 million for the Park ‘N Fly lot serving Fort Lauderdale/Hollywood International Airport.

Atlanta-based PNF-FLL LLC, part of the company that operates Park ‘N Fly in multiple cities, sold the 22.4-acre site at 2200 N.E. Seventh Ave. in Dania Beach to Bridge Point Dania 161 LLC, an affiliate of Chicago-based Bridge Industrial. It’s located between the airport and Port Everglades.

The property last traded for $4.8 million in 2017.

On its website, Park ‘N Fly says the Dania Beach location will close after June 26. Two privately-owned off-site parking lots remain for the airport.

 

Source: SFBJ

Paris, France - December 15, 2016: Amazon Prime Parcel Package. Amazon, is an American electronic commerce and cloud computing company,based in Seattle, Washington. Started as an online bookstore, Amazon is become the most importrant retailer in the United States by market capitalization

Amazon.com Inc. is expected to scale back its warehouse holdings nationally, including in Broward County.

At a June 8 public meeting, John Biggie, chairman of the Coral Springs Economic Development Advisory Committee and principal of JBI Development, said the Seattle-based e-commerce giant has “nixed” plans to move into 225,000 square feet within the Commerce Park of Coral Springs, at 4000 N.W. 126th Ave. The facility was slated to hire 200 people, according to previous announcements from Amazon.

Yuri Quispe, a broker with JLL and a member of the committee, said Amazon will also pull out out of a lease deal that it signed 2.5 years ago at a couple warehouse facilities near Sample Road and the Florida Turnpike.

In May, it was widely reported that Amazon executives said the company was losing billions of dollars due to fewer e-commerce sales and an overabundance of warehouses. As a result, the company planned to shrink its national industrial footprint.

Within South Florida, Amazon controls 8.7 million square feet of distribution space. Of that amount, about 2.3 million square feet has yet to be occupied, according to figures from CoStar Group.

Aside from Commerce Park, a source said Amazon has yet to fill an 823,000-square-foot facility at 4600 N. Hiatus Road in Sunrise, a 216,000-square-foot facility at 3750 Palm Drive in Homestead, and 1 million square feet at 13200 S.W. 272nd St. in unincorporated Miami-Dade that it purchased in 2020.

Keith Graves, senior VP of Berger Commercial, said that in the “big scheme of things,” Amazon will have a minimal impact in this industrial market, which has more than 45 million square feet of inventory.

“We are in the single digit vacancy rates. It’s not going to have a dramatic effect,” Grave said.

Nationally, the industrial market is shattering records. However, Quispe and Biggie warned that rough times may be ahead for Coral Springs’ industrial sector.

“We are starting to hear key indicators of leasing activity drying out and demand slowing, of not enough money to put a down payment,” Quispe said during the meeting. “All these ingredients are adding up … and if we are not proactive … when it hits it is going to be very bad.”

Biggie added: “The market has changed dramatically in the past 60 days.”

The 430,000-square-foot Commerce Center of Coral Springs was built in 2018 by Pennsylvania-based EQT Exeter. Exeter paid $14.88 million for the site a year prior. EQT Exeter sold Commerce Center to an unknown buyer in late 2021 as part of a $127.8 million deal. EQT Exeter still manages the site.

 

Source: SFBJ

 

Close up image of human hands holding sprout

It’s rare for a property type to extend a growth cycle beyond a decade. But industrial real estate’s dominance only seems to grow — attracting newcomers while big players scrap for the materials and land they need to keep their projects moving and potential clients happy.

While longtime powerhouses like Prologis and Panattoni plow forward with their own mammoth projects — and Amazon admits that it has too much industrial space on its hands — other companies are making their debut, hoping to seize on some of the continued demand and expanding yields.

Although the industrial market has been on an expansion trajectory for years, there seems to be plenty of room for newcomers.

“It’s no secret why industrial is doing so well, with the e-commerce boom really accelerated by what’s happened in the last couple of years with the pandemic,” said Scannell Properties Director of Development in Southern California Jay Tanjuan. “People were almost forced to order online, and many realized how convenient it was. E-commerce has huge demand, and so there’s the need for warehouse.”

There seems to be widespread consensus that the industrial heyday is far from over.

“We’re in an ongoing industrial real estate boom. We had been in an above-average growth phase pre-pandemic and obviously, the pandemic accelerated that. Post-pandemic, it continues to grow,” said RBC Capital Markets Director Michael Carroll, an analyst who covers Prologis and other REITs. “I don’t think we’re at the end of it, it’s still ongoing.”

Carroll pointed to the nationwide vacancy rate for industrial space — 3.3% in the first quarter, according to Cushman & Wakefield, with lease rates up 15.2% on average compared to a year ago — and a rapid pace of leasing that means new spec development is snapped up as soon as it’s finished, if not before.

Among the industrial newcomers is Peterson Cos., the Virginia-based developer of residential communities, huge retail districts and data centers. Peterson took the plunge into industrial development last year, and has two projects totaling 334 acres underway in the Washington, D.C., area, with another 915 acres in the planning stages, according to Peterson President of Development Taylor Chess.

“We started looking at industrial eight to 10 years ago, seeing that as the wave of the future,” Chess told Bisnow. “We felt as though distribution was going to become a much more integral part of the retail market. But we kept getting beaten out by people buying land for data centers, so we pivoted to data centers.”

Now, as the company’s initial prediction proved out, hastened along by the pandemic, Peterson doubled down on its efforts, launching an industrial arm in earnest to capitalize on the staggering demand.

 

“There’s no question that internet sales and distribution were going to become a key industry eight years ago, and that’s why we started teeing it up. We had no idea it was going to accelerate as fast as it did,” Chess said.

Peterson’s not alone. Nationwide companies that have operated successfully for decades in other property types are also diversifying their efforts by turning to industrial.

South Carolina-based Greystar, for example, is a bastion of multifamily development and management, with thousands of units in major markets across the country. But Greystar in March paid $43.7M for 154 acres near the Phoenix airport, setting up the company’s first large-scale industrial project. Greystar got a leg up on its foray into a new product type by purchasing a parcel with plans that were already approved by the local planning authority. Greystar will work with a development team assembled by the former owner of the land, a Phoenix-based company called Unbound Development, according to a press release announcing the deal.

Similarly, private equity giant KKR & Co. earlier this month announced a dramatic push into industrial development, with plans to build 1.8M SF worth of mid-sized warehouses in last-mile distribution locations in Atlanta, Dallas, Denver, and Orlando, Florida.

And Tishman Speyer, known for its office buildings, hired Andy Burke, formerly of industrial developer Terreno Realty Corp., as its managing director to oversee industrial acquisitions and development. Tishman Speyer in December 2021 announced that it acquired two middle-mile distribution centers in Colorado and Pennsylvania.

Each of these new entrants to the industrial market appears to have a focus on last-mile distribution, which is basically the white whale of industrial development right now, according to Carroll, thanks to its demand paired with a lack of available land.

“Companies are trying to build industrial warehouses close to consumers because it reduces shipping costs and labor costs,” Carroll said. “It’s important to be as close to consumers as you can, but most cities don’t want industrial warehouses because they want the highest value for their tax base and the least traffic. It’s hard to build industrial warehouses where they actually need to be.”

The lack of available land is something about which Chess at Peterson knows a lot.

“This has never been an industrial market, it’s always been a government market,” Chess said of his company’s target market around the nation’s capital. “Zoning is a challenge, as well as finding large tracts of land. Many other areas have large industrial sections of their metro area that have already been designated or are being redeveloped from manufacturing. D.C. doesn’t have that, so finding the right location has been a challenge.”

Land availability is just one of the challenges for any company trying to develop industrial properties right now. Shipping delays and turbulence in markets and foreign countries continue driving up the cost of materials, and labor is difficult to find in most markets. This doesn’t just make buildings cost more, it impacts a key factor for potential industrial tenants: speed to market.

“The biggest issue with leasing is that when tenants enter the market, they want it now. That is the biggest issue. The tenants are there, but we have to finish building to be able to put them in. That’s why going spec is so important,” Chess said.

With so much competition for land, materials and labor, the addition of new players to the marketplace could be considered a negative for existing companies that are already battling to get what they need.  But Tanjuan says that for those who are committed to the product type, there’s a way forward.

“There are opportunities out there for everybody,” Tanjuan said. “It’s competitive, and finding space is extremely difficult, but there are opportunities out there. If you’re out there and being proactive, you’re going to run into something.”

 

Source: Bisnow