Port Everglades Turning Notch Expansion Will Accommodate Larger Cargo Ships

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WSP USA’s extensive experience with maritime structures has helped facilitate a critical expansion at Florida’s leading container port – while at the same time mitigating the project’s environmental impacts.

The Turning Notch Expansion aims to increase berthing space to accommodate larger modern container ships at Port Everglades. The Port handles more than 1 million 20-foot-equivalent units of cargo volume and serves as a gateway to Latin America, the Caribbean, Europe and Asia.

The program is an important component of the Port Everglades masterplan which identified this project to double the containerized cargo capacity of the existing port over the next decade, and to allow for berthing of super post-Panamax vessels.

To accommodate these larger ships, the port initiated the redevelopment of 25 acres of container yard and berthing apron space at its Southport Turning Notch. WSP was hired by Broward County to provide civil and structural engineering design services and serve as a specialty consultant for port-related design issues for the $500 million project, which is scheduled for completion in the summer of 2023.

The project is being delivered via a general contractor/construction manager, where the contractor is selected and engaged early in the design phase of the project to help mitigate risk.

Infrastructure Improvements

The scope includes excavation of three million cubic yards of material to create a 42-foot-deep turnaround area for cargo ships, along with five additional berths, including a Super Post-Panamax berth. Marine and landside improvements entailed 5,000 feet of seawall/wharf and marine and utility infrastructure, including a stormwater drainage system comprising 7,200 feet of pipe and 1,900 feet of exfiltration trenches.

The project also consists of landside infrastructure improvements to support the acquisition of six additional Super Post-Panamax gantry cranes in Southport along Berths 31 and 32 as well as Berth 30. Additionally, the existing 100-foot gauge rails along Berth 30 project are also being extended westward to the limits of the new Southport Turning Notch Extension.

WSP’s scope for the expansion required the design of nearly one mile of new steel bulkhead wall, evaluation of an existing steel bulkhead wall, removal of several acres of land, container yard upgrades and improvements and fender and mooring hardware upgrades. Furthermore, Berth 30 – which is 970 feet long and located within the notch – has to remain operational during construction.

“WSP worked closely with the owner and the contractor team to execute the multi—faceted and highly publicized project in a timely manner within an operational terminal,” said Kosal Krishnan, WSP national maritime leader.

WSP also deployed construction administration staff and provided round the clock technical services in support of construction.

Marine Habitat Mitigation

To offset the project’s environmental impacts, WSP developed environmental mitigation to satisfy permit requirements. In the project’s first stage, the team restored approximately 16.5 acres of upland mangrove marsh by excavating fill to re-contour the marsh, then planting 70,000 Florida-native, nursery-grown mangrove and wetland transition buffer plants.

The mitigation design created additional mangrove habitat through the construction of riprap planters and restored the shoreline of an existing manatee nursery area by removing existing nuisance exotic vegetation and reconfiguring the eroded shore. For reef mitigation, 814 corals were relocated to create three acres of artificial reef habitat for natural recruitment, ultimately replacing nearly 15 acres of existing hard-bottom reef habitat.

“WSP monitors the mangrove and reef habitat on a quarterly basis to document the success of these mitigation areas, and ongoing observations of wildlife have revealed wading birds, shorebirds and other highly mobile avian species,” Krishnan said.

Located within the cities of Fort Lauderdale, Hollywood and Dania Beach, Port Everglades is in the heart of one of the world’s largest consumer regions, with a constant flow of approximately 110 million visitors statewide and six million residents within an 80-mile radius. The port has direct access to the interstate highway system and the Florida East Coast Railway’s 43-acre intermodal container transfer facility and is closer to the Atlantic Shipping Lanes than any other Southeastern U.S. port.

 

Source: wsp

 

Four Acres In Downtown Fort Lauderdale Up For Grabs, Bids To Start At $52M

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The state of Florida wants to sell a downtown office building and an off-site parking lot for more than $52 million.

The properties total 4.33 acres and includes the five-story Robert Hayes Gore State Office Building, at 201 W. Broward Blvd., and the 29,185-square-foot parking lot across the street.

David Wigoda and Lee Ann Korst, both senior VPs with the CBRE Group, will market the property on behalf of the state. They will accept sealed bids for the properties until Oct. 25 at noon.

Built in 1979, the Robert Hayes Gore building is 113,710 square feet on a 3.66-acre parcel. It houses offices for the state’s Department of Juvenile Justice; the Department of Children and Families and Adult Protected Services; the Department of Management Services; and the Bureau of Fire, Arson, and Explosives Investigations.

The properties are nearby Brightline’s Fort Lauderdale station, the Broward Center for the Performing Arts, the Museum of Discovery & Science, and the Nova Southeastern University Art Museum of Fort Lauderdale. They’re also zoned as a downtown regional activity center, which is “one of the most open zoning designations in Fort Lauderdale, CBRE added in its marketing of the properties.

 

Source: SFBJ

Industrial Outdoor Storage Is The New Hot Commercial Real Estate Type

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Industrial outdoor storage has gone from being a niche in the industrial sector often owned by small private investors and mom-and-pop operators to a market estimated at $200 billion.

During the past three years, IOS has been growing dramatically and increasingly attracting the attention of—and significant outlays—from institutional investors and private equity firms.

“There is a lot of institutional capital chasing deals right now in the IOS space and it’s happened very quickly. I have two or three new groups calling me every week that I previously didn’t know about,” Zach Harris, a director at Stan Johnson Co. based in Tulsa, Okla., told Commercial Property Executive. “They’ve got committed capital and they’re ready to spend it. There’s definitely a rush to acquire product as quickly as possible.”

The demand for industrial storage space increased during the pandemic as e-commerce exploded and continues to be a significant part of the supply chain as more businesses seek locations for last-mile delivery and also want to be near ports and major industrial corridors. This hot commercial property type is mainly used for truck terminals, trailer storage, container storage, pallet storage and construction or heavy equipment yards. Trucking and truck parking are the heaviest users, particularly by third-party logistics companies.

Some of the biggest players in the IOS subsector include J.P. Morgan Global Alternatives and Zenith IOS, which formed a $700 million joint venture in February to create a national IOS storage platform and are aiming to build a portfolio worth $1 billion within the next two years. They kicked off their joint venture with the acquisition of four facilities in Dallas, including a nearly 27-acre property at 2118 California Crossing about 1 mile from Interstate 35 and 10 miles from Dallas Fort Worth International Airport.

Alterra Property Group closed its Alterra IOS Venture II LP fund in March with $524 million in total commitments, well beyond its original fundraising goal of $400 million. Limited partners in the fund included public and private pensions, endowments and foundations, asset managers, family offices and high-net-worth individuals. Alterra was an early entrant in the IOS market, launching its strategy in 2016.

Also in March, investor and developer Criterion Group and Columbia Pacific Advisors formed a joint venture aimed at deploying more than $2 billion in capital in IOS properties across the U.S. by late 2023. The joint venture’s first acquisition was a 41-property portfolio covering 520 acres across 11 states valued at $360 million. In June, Criterion Group announced the acquisition of eight IOS properties totaling 151 acres for an aggregate purchase price of $45.3 million. Criterion’s IOS portfolio now has 50 properties in 13 states valued at $550 million, including its first purchases in North Carolina and Virginia.

In June, Iconic Equities, a Miami-based real estate investment and development firm focused on industrial assets, and Leste Real Estate U.S., the real estate investment strategy of alternative investment manager Leste Group, formed a programmatic joint venture backed by about $150 million in institutional capital to acquire $400 million of industrial outdoor storage facilities across the U.S.

Iconic Equities—formed about 18 months ago—made IOS investments a core focus within the last six to nine months after focusing initially on more traditional industrial acquisitions and development in markets like Charleston, S.C., and Phoenix, according to Founder & CEO Tim Bishop. In Phoenix, the firm is set to break ground on approximately 1.2 million square feet and acquiring an additional 110,000 square feet in a forward takeout structure, .

The joint venture partners are looking for sites ranging from 5 to 15 acres in top U.S. logistics markets including New Jersey; Atlanta, Dallas, Los Angeles; the Bay Area; the Inland Empire; Nashville, Tenn.; Columbus, Ohio; Savannah, Ga., and South and Central Florida.

Their first acquisition was the $9.5 million acquisition of Garnett Storage, a 5-acre storage site in Coral Springs, Fla., which is leased to nearly 300 tenants seeking outdoor storage for boats, trailers, motor homes and commercial vehicles. The joint venture recently acquired a 6-acre IOS site in Fontana, Calif., in the Inland Empire and has deals in contract in the Inland Empire, Los Angeles and Columbus.

“Warehouse development in super infill locations near ports and in the major MSAs that typically sacrifice parking spark demand for IOS sites that can provide parking for trucks as well as storage for containers and pallets,” Bishop told CPE.

The Iconic team uncovers the opportunities for the joint venture, establishes the deal flow and structures the deal flow while Leste focuses on the capital market side of the transactions.

“From an institutional capital perspective, the reason this has become such an interesting niche over the last six months and really the last several years is it’s under penetrated by the institutions.” Leste Managing Director Josh Patinkin told CPE. “That coupled with really strong fundamentals in rent growth and tenant demand for these types of assets has come together to create a growing niche.”

Chasing Yield

There’s another important reason IOS has become increasingly popular with institutional investors. They are chasing higher yield.

“This strategy affords institutional capital the opportunity for higher yielding investments when their two biggest apprehensions right now are cap rate expansion and interest rate risk,” Bishop said. “When you get higher yield, you’re kind of insulated from that.”

The IOS market is not quite as mature as other real estate asset classes. Many of the properties are still owned by mom-and-pop operators and deals can be off-market or represented by local brokers rather than national brokerage platforms, Patinkin said.

“It’s not a very liquid market,” Bishop added. “There’s a lot of inefficiency in pricing and in evaluating risk and return and it’s especially extenuated in IOS because they’re smaller opportunities, they tend to have less institutional ownership and less of a national brokerage presence.”

Bishop and Patinkin also noted there are high barriers to entry in IOS due to a limited supply and many municipalities frown on these kinds of properties and are not likely to approve new uses in their communities.

“It’s one of the very few strategies where you can say supply is decreasing because a lot of these sites are very infill and tend to get redeveloped into other uses like traditional warehouse and there’s only so many of these permits that are out there,” Bishop said.

The IOS submarket in the Denver region has been growing organically over the past three years with a focus on infill sites close to the city, according to Cushman & Wakefield director Joey Trinkle.

“It’s harder to find buildings with outside storage and lower coverage in a strategic location close to the urban core that is also close to major interstate access,” said Trinkle. “There is higher demand from both the end user and investor sides to finding locations closer in.”

Rising Rents

Similar to the industrial sector as a whole, rents have also been rising in the IOS space, where leasing is priced by the acre rather than square footage.

“A few years ago, we were seeing deals done for outside storage without a building on site for about $5,000 an acre,” Trinkle told CPE. “Now we see $6,000 per acre triple net, which really speaks to the value. Outside storage properties bring a unique mix of users, some are local trucking and transportation companies that are local to Denver. But we also see national credit corporations looking for strategic sites. That’s really who these investors are targeting.”

Trinkle and Managing Director Matt Trone are currently marketing a 27-acre industrial storage yard/trailer site at 409 W 66th Ave. in central Denver recently acquired by IG Logistics, Imperium Capital’s industrial platform than owns and operates properties with large outdoor storage or transportation components, and Meadow Partners, an institutional middle-market real estate investor, for $19 million. IG Logistics launched last year with plans to invest $250 million in IOS properties and specializes in acquiring and developing infill assets in high barrier to entry, urban growth markets where demand for logistics real estate is driven by e-commerce, with a focus on last-mile facilities.

The central Denver property is a vacant lot that is zoned for outdoor storage and includes a 10,000-square-foot industrial building with about 6,500 square feet of office space, two drive-through service bays and 14 feet of clear height. It’s also situated near the confluences of I-76, I-25, I-270 and US 36 and near the BNSF Intermodal Facility and UP Intermodal Facility.

Trone described the former auto auction site as a “rare and very attractive piece of property” that can be divided down to three or four tenants, with options to share the building and office space, or some can just use the property for pure yard space.

In June, Trone and Trinkle and colleague Steve Hager represented a partnership of Biynah Industrial Partners and Platform Ventures in the $9.5 million acquisition of a 12.2-acre IOS property in central Denver from Prime Inc., in an off-market transaction. BIP, a Minneapolis-based private equity firm that invests in industrial real estate, and Platform, a Kansas City, Mo.,-based real estate investor and asset manager, plan to invest at least $150 million in IOS assets over the next two years.

The Cushman & Wakefield brokers are also marketing the property that has access to the major Denver highways and the two intermodal facilities.

“The previous owner was only using about 4 acres,”Trone said, “while the new owners plan to pave the unused land to maximize the space for interested tenants.”

They expect strong demand since development of infill locations over the past several years has displaced companies that need parking for trailers and heavy equipment.

“The renewal rate for tenants in the IOS sector is greater than traditional industrial properties,” Harris told CPE.

But they also tend to sign shorter leases, generally in the five- to seven-year range, which is attractive to institutional owners looking for value-add assets that will potentially see more frequent rent increases. With demand outpacing supply, owners also don’t need to worry about replacing tenants who leave. Triple net leases can often be found at IOS properties, where operating expenses in general are lower than traditional industrial properties.

Despite the increased investments in IOS in recent months, Leste’s Patinkin says the market is big enough to accommodate all the interested investors—at least for the next two or so years.

But Patinkin has advice for those considering investments in IOS: “You have to have really good access to capital because the credit markets are very young in IOS and there’s not a lot of participation yet. So, you have to navigate that. You have to be fairly deep pocketed and have support. You’re not going to get competitive individual small loans on an asset-by-asset basis. You have to know how to access the broader capital markets to navigate this strategy.”

 

Source: Commercial Property Executive

How CRE Investors Can Still Create Value In A Rising Rate Environment

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A building that makes “no sense” to most investors could be a diamond in the rough to another — and knowledge and information is key in the current rising rate environment, according to one industry watcher.

“You can’t add value to bonds — and unless you own a VC firm or you’re Warren Buffett or Elon Musk, you really can’t create value by owning stocks,” says Marcus & Millichap’s John Chang. “Other than owning a company or a franchise, only real estate allows investors to roll up their sleeves, either physically or metaphorically, and create value in an investment.”

And Chang says this happens in one of three ways: repositioning, management, or knowledge.  Repositioning can be as simple as upgrading common areas and as complex as transforming high-rise office towers into apartments (a trend that’s happening at a rapid rate in some major metros).  It can also fall somewhere in between those extremes: think moving a Class C property to Class B or repurposing an outdated shopping mall into a mixed-use asset.

“Creating value in management can also run the gamut,” Chang says. “At the simplest level, an investor may see some high value but basic operational things that can be done — perhaps just cleaning up a property, adding professional management and moving the rents to market. Something more complex may be re-tenanting a building. An office investor I know bought a very large property with an enormous vacant space. He already had a major tenant lined up so he bought the building, restructured the space a bit and then plugged the new tenant in. Boom: the building went from 25% occupancy to 90% occupancy and the property value changed dramatically.”

Chang also draws on another anecdote, this time in the multifamily space, to illustrate this point further. He says an investor he knows with a great apartment management team bought several small- to mid-sized near the ones he already owns and leveraged that team across multiple units.

And finally, there’s knowledge, which Chang says is “all about finding market inefficiencies and exploiting them.” This could include acquiring assets based on emerging demographics or population migration, or could come on the heels of a major employer changing its HQ location or in advance of a tax or policy change. Chang says there are ample opportunities to “capitalize on information where the pending changes are not baked into an asset’s price.”

Several recent examples bear that out: the global supply chain dilemmas plaguing virtually every sector of the economy have prompted many companies to consider re-shoring or near-shoring to mitigate those types of risks in the future.

“These and more opportunities are out there, and a lot of them will make sense regardless of rising interest rates or other factors affecting the market,” Chang says.

 

Source: GlobeSt

Insurers Increase Scrutiny Of Older Commercial Building Roofs

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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

 

Pompano Amends Its Code To Encourage Mixed-Use, Mixed-Income Development On Commercial Corridors

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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

 

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Ten Issues That Will Impact CRE For The Rest Of 2022

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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

Critics Question Push For Taller Towers In Fort Lauderdale

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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

 

Commercial Real Estate Investor Sentiment Signals A Changing Outlook

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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

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Building Burden: Rising Construction Costs Weigh Down Profits

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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

Former Kmart Could Be Redeveloped Into Apartments

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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 Mall In Pompano Beach To Be Replaced With Warehouses

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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