As shopping centre and high street landlords survey the wreckage left by coronavirus, warehouse owners are facing a different problem: how to deal with record demand.

The pandemic has pushed more consumers online, prompting a rush for warehouse space, from small “last-mile” delivery sites near city centres to cavernous “big-box” distribution centres

Amazon has led the charge. The company, which has added an eye-watering $600bn to its market capitalisation this year as sales have jumped, is inking lease agreements on mammoth warehouses around the world. It has committed to opening 33 “fulfilment centres” in the US this year, an additional 35m square feet spread from Atlanta to Arizona.

The US ecommerce giant is also the incoming tenant of a 2.3m square foot warehouse on London’s outskirts, according to people with knowledge of that deal. Amazon’s sprawling expansion is one reason why investors are sensing opportunity.

The take-up of UK logistics space hit record levels in the second quarter of the year, according to property group CBRE — despite the lockdown.

“Following a quiet few months after coronavirus hit, investors are back with a vengeance”, said David Sleath, chief executive of Segro, the dominant logistics company in the UK and a sizeable participant in Europe which last week said it had lifted first-half profit. “If you are a global institutional investor and you want exposure to commercial real estate, this is an attractive place to be.”

A decade ago, ecommerce accounted for 6.7 per cent of all retail sales in the UK, according to the Office for National Statistics. By February, the month before the outbreak, the figure was 19 per cent. By May it had hit 33 per cent. In April, 27 per cent of purchases were made online in the US, according to the commerce department and Bank of America.

Until recently, the most desirable property to own was a traditional mall. Malls had a natural moat, being difficult to develop and serving a catchment area

“That share was likely to diminish as stores reopened,” cautioned Mr Sleath, “but incoming tenants were looking to crystallise that temporary spike into increased capacity”.

“There’s a wall of cash coming into our sector,” said Marcus de Minckwitz, an investment adviser on European logistics at Savills property.

Every extra £1bn spent online means the addition of almost 900,000 square feet of logistics space, according to CBRE. New York-listed Prologis, the world’s largest warehouse company, estimates that 1.2m sq ft of space is needed for every $1bn in ecommerce sales in the US.

Gains from ecommerce tenants far outweigh the losses from bricks-and-mortar retailers, according to CBRE, one reason why Blackstone, the world’s largest private property owner, has described logistics as its “highest conviction” sector.

“Until recently, the most desirable property to own was a traditional mall. Malls had a natural moat, being difficult to develop and serving a catchment area . . . Logistics for a long time was viewed as the other end of the spectrum: not so exciting and more easily replicable,” said Ken Caplan, global co-head of Blackstone Real Estate. The rise of ecommerce had shifted that whole dynamic.”

In June 2010, Segro’s market capitalisation was less than £2bn, according to data from S&P Global. Now at £11.8bn, it is comfortably the UK’s largest listed property group; UK shopping centre owner Intu, meanwhile, has collapsed. The value of US peer Prologis has climbed a fifth this year to roughly $77.5bn.

Dozens of shopping centres in the US are being turned into industrial sites, according to CBRE, which says Covid-19 will accelerate the trend. This week, the Wall Street Journal reported that Amazon was in talks with mall owner Simon Property to repurpose department stores as distribution hubs.

Thanks to the ecommerce boom, CBRE predicts there will be demand for 333m sq ft of new space in the US by 2022 — treble its previous estimate — and expects rents to grow by about 6 per cent a year. Amazon is not the only eager tenant. Fashion retailers with a limited online presence have desperately sought space to park stock they could not shift in the pandemic.

“They already have warehouses full of clothes, then next season’s come in and they can’t stack it,” according to one UK property agent.

“But while some warehouse owners had suffered hits to rental income from retail tenants in particular, investors bidding for new sites were achieving few discounts,” said Mr de Minckwitz.

“Some indiscriminate investors were likely to get caught out, warned Mr Sleath. “There will be more retail fatalities, that will mean empty warehousing as well as shopping centres. It’s very important to think about where you place your money.”

Asset manager PGIM bought five German logistics sites last month and said it was optimistic that demand would only grow. Private equity firms are piling in too: as well as Blackstone, Meyer Bergman plans to raise €750m to invest in Europe.

“Investors needing long and strong sources of income, such as sovereign wealth funds and European pension funds, were also attracted by the sector,” said James Dunlop, a fund manager at Tritax Big Box.

“But some might come unstuck,” cautioned Adrian Benedict, head of real estate solutions at Fidelity. “There’s a flood of capital from retail to logistics. Inevitably, with every crisis, you see those poorly considered deals at the end of the cycle are the ones you really regret.”

 

 

Source: SFBJ

Looking for a safe place to put your money to wait out the coronavirus pandemic?

Healthcare stocks and real estate investment trusts in the sector aren’t a bad idea.

REITs and companies that own hospitals, medical offices, and medical science research facilities are expected to weather the pandemic and are considered safe bets even outside of health crises, according to CNN.

Kenneth Leon, an analyst with CFRA Research recommends three entities in particular: Alexandria Real Estate Equities, Healthcare Trust of America, and Medical Properties Trust.

They are each paying dividend yields of between 2.7 percent and 5 percent, making them attractive alternatives to bonds as the Federal Reserve slashes interest rates.

Companies that own senior living centers, however, probably aren’t the best bet. Leon said senior living centers will have trouble safely showing prospective new residents their facilities, pointing out that many underwent lockdowns during the flu seasons of 2018 and 2017.

The spread of Covid-19 is putting pressure on most other real estate sectors, particularly residential markets in areas with numerous cases of the virus. Home sales are down in Milan and Italy’s Lombardy region, for example. Daily deals in Seoul are down 90 percent.

Miami-Dade County has suspended all eviction activities as part of its declaration of a state of emergency.

New York landlords are stockpiling soaps and hand sanitizers and ramping up cleaning of their buildings. After an employee tested positive for the virus, Newmark Knight Frank stationed nurses at its Park Avenue office to screen clients and employees.

 

Source:  The Real Deal

Will the potential economic slowdown have a significant effect on the commercial real estate market in South Florida? Not really, says Nathan Perlmutter, vice president in commercial lending at TD Bank, in this podcast.

Listen to the podcast for more insights on:

  • Projections for the multifamily sector.
  • Miami office sector trends that CRE experts are watching in 2020.
  • The impact of the global trade war on the industrial sector’s growth.
  • How landlords are adjusting to major changes in the retail landscape.
  • The effect millennial preferences are having on the multifamily market.
  • The biggest CRE trend in South Florida in 2020.

 

 

Source:  SFBJ

Slashing taxes and taking a hands-off approach to governance attracted thousands of residents to places like in Lake Wylie, South Carolina. But politicians neglected to spend money on critical infrastructure, and now the Republican-led county council has placed a 16-month moratorium on all new development.

The York County Council said that the town, where the population has tripled since 2000, needs to get a better handle on growth, the Wall Street Journal reported. Several years of outsized development has strained Lake Wylie’s water system, schools, and roads.

The moratorium affects commercial and residential rezoning requests as well as considerations of new apartment complexes and subdivisions.

“New development in the town isn’t of the kind the town needs,” said Council member Allison Love. “For example, there are seven car washes and six self-storage facilities on the town’s main drag but few restaurants and doctors’ offices. Many residential subdivisions look almost identical.”

Love and her colleagues said they gathered thousands of signatures supporting the moratorium from residents of the town who are tired of overly long commutes caused by clogged roadways and water main breaks. Three mile drives across town can take up to 45 minutes in some cases and residents have seen a dozen boil-water advisories in the last two years.

Other towns in the Sunbelt region have struggled with similar issues related to development. Development firms like the Related Group have expanded into small towns across the region in search of returns.

The moratorium may be too late to relieve near-term pressure on Lake Wylie, though — there are currently around 3,000 new homes and apartments approved and in various stages of construction in the town.

 

Source: The Real Deal

Florida state sign

Florida‘s state legislature just convened for its 2020 session, charged with passing laws and an estimated $91.4B state budget over the course of the next 60 days.

In his annual State of the State speech to kick off the legislative session, Gov. Ron DeSantis touched on everything from raising teacher pay to reducing barriers for occupational licensing. DeSantis said he would like to see people who pollute water be penalized and that $1B in mitigation funds would soon be distributed to areas affected by hurricanes. The first-term Republican said the state had a chance to correct some environmental wrongs and brace for sea-level rise.

Real estate professionals from around the state talked to Bisnow about other measures the legislature will be considering that could affect the industry. Of the 3,000+ bills that get filed each session, fewer than 10% pass.

Florida NAIOP President Darcie Lunsford said her group will continue its years-long fight against the state charging sales tax on commercial rents — something that only Florida does. Some critics argue this amounts to double taxation in many cases, since tenants already pay for certain real estate taxes when they sign triple-net leases.

“It’s an onerous tax that is unique to Florida and makes us less competitive,” said Lunsford, an executive vice president at Butters Construction.

She said a bill hasn’t yet been filed, but probably will be in February. For three years in a row, the rate has been reduced by a fraction of a percentage point — it is now at 5.5%. Lunsford said that rolling back the tax is challenging because Florida doesn’t have a state income tax, so it relies on such measures to fund state government functions. She estimates the tax brings in about $1.8B per year. The recent reductions have resulted in about $156M less being paid to the state.

“NAIOP is pushing for legislation that would tax internet retailers the same way as brick-and-mortar retailers, which could bring in $300M to $400M annually,” Lunsford said. “It’s a way to shift some of the tax burden off the commercial real estate sector.”

NAIOP also hopes to revive the FAST Act, a measure that was proposed last year, which would require local governments to offer expedited permitting processes, cap fees, and establish timelines for issuing and replying to permits. Lunsford said that state law now requires permits to be issued within 120 days.

“But there’s no teeth in the law as cities struggle to keep up with demand,” Lunsford said. “Another proposal, HB469/SB1224, would drop the requirement that two witnesses sign leases, which is not necessary in the modern era, when people sign electronically.”

NAIOP will be hosting events at the Capitol Jan. 21 and 22 in Tallahassee.

The nonprofit 1000 Friends of Florida called for smart growth management, lest unbridled sprawl ruin the things that make the state an attractive place to live and visit. Water quality and traffic congestion are top concerns.

The organization has outlined its legislative priorities for 2020. These include repealing an amendment that passed last year that could make citizens pay a developer’s legal fees in certain cases — such as when a developer seeks an exemption to a local comprehensive plan, citizens oppose it, but the developer prevails.

“That amendment was tacked onto HB7103 on the last day [of the] legislative session. It never got vetted by the public, by committee, by subcommittee. There was no staff analysis,” 1000 Friends Policy & Planning Director Jane West said. “It was a dirty move — and it’s had massive repercussions in the state. People are dismissing cases that have been pending for years. People are opting not to challenge new projects.”

SB250, introduced by Sen. Lori Berman (D-Palm Beach), would repeal that amendment. 1000 Friends is also fighting the amendment in the courts, hoping to have it deemed unconstitutional.

Lunsford said that the CRE industry would see a repeal as “going backwards,” and that the law as it stands could benefit not just developers, but either party that prevails.

The legislature last year also authorized three new highways. 1000 Friends is hoping to see that decision reversed, but it would require a repeal, plus de-authorizing related funding that passed. Instead, the group is calling for generous funding for land acquisition efforts, such as Florida Forever, the Rural and Families Lands Program, Florida Communities Trust and other land protection programs.

“Our environmental tragedy is the destruction of our raw lands,” West said. “You see it in every part of the state you go to … sprawl after sprawl after sprawl.”

The only sure way to save Florida‘s green space is to buy it and protect it in perpetuity, she said. The Florida Forever program is set up to acquire recreation and conservation lands. It is funded by doc stamps, a fee paid when people buy and sell property. It had been popular with both the left and right, including Gov. Jeb Bush, back to the early 2000s, but was essentially wiped out under eight years of Gov. Rick Scott. The current budget includes $33M for Florida Forever; DeSantis is asking that figure to be bumped to $100M in 2020-2021.

“We’d like to see it back to historic funding levels, over $300M,” West said. “But this is a nice start.”

Florida Realtors are also paying attention to Tallahassee. The group’s top legislative priorities for 2020 include environmental protection and full funding of housing trust funds, according to its website. For more than a decade, state money that is supposed to be in a trust fund to create affordable housing has instead been diverted for other uses, steering away some $2B.

Florida Realtors is also lobbying for a reduction in the business rent tax and will support initiatives that allow owners to rent out their private properties more freely on Airbnb, which was in a heated legal battle with the city of Miami Beach before settling in August.

Former Florida Speaker of the House Dean Cannon, the president and CEO of law firm Gray Robinson, now oversees lobbyists who closely monitor the state legislature. He said the commercial rent tax could likely get cut a bit more, and that water quality and environmental funding will loom large, especially because DeSantis has been vocal about those issues.

“The House and Senate will want to deliver a good environmental message because it’s an election year,” Cannon said. “I think they have the collective political will to get something done.”

Appropriations decisions — such as which projects get funding, and whether the affordable housing trust gets raided again — are likely be influenced by economic forecasts that legislators receive in February.

“That’s the last one we get before voting on the budget. It’s always sort of a question mark,” Cannon said.  “All budgeting is balancing an infinite number of priorities against a finite number of dollar. There’s no perfect policy — just a best effort at balancing the interests.”

 

Source: Bisnow

florida

Berkadia’s active presence in Florida’s CRE debt scene owes no small part to Charles Foschini, who co-heads its originations in the state from the company’s office in downtown Miami.

The University of Miami graduate, who spent nearly two decades at CBRE, has led some of Berkadia’s biggest Florida deals since he joined the company in 2016. Among them is a $121.5 million acquisition loan that helped Parkway Properties and Partners Group buy a set of six Tampa office buildings late last month. The firm has also been a key player in multifamily capital markets, putting it on the cutting edge of Florida’s changing demographics.

Foschini spoke with Commercial Observer by phone last week to discuss everything from the Sunshine State’s sunny skies to its business climate, transportation struggles and even its school system.

Commercial Observer: In a nutshell, what are your responsibilities at Berkadia?

Charles Foschini: I co-lead Florida operations in both a management and production role. I focus on a group of clients [for whom] I do a fair amount of their business … and that runs the gamut of any of their capital-market needs, from permanent loans to construction loans to bridge loans.

Commercial Observer: Florida’s shown a lot of momentum lately — throughout the state, but particularly around Miami. What do you see as some of the driving factors?

Charles Foschini: When I studied at the University of Miami, it wasn’t lost on me that the temperature was 78 degrees all the time. It’s a very enviable place to live, work and play. But you have to layer over that that our last two governors [Ron DeSantis and Rick Scott] have been very pro-business. We’ve had a lot of growth in the medical sector and a lot of employment growth. It’s not just a tourism economy anymore.

Commercial Observer: Berkadia has been a force behind some significant multifamily debt deals in the state this year. How is the state’s apartment market evolving?

Charles Foschini: We’re seeing unrelenting population growth and immigration to the state, and we’re seeing a continued evolution of employment. Some of the bigger submarkets have a lot of transportation challenges. Those factors have formed a confluence to create a need for multifamily near where people are going to work. That’s created a lot of new developments in suburban and urban markets. What’s more, the individual credit consumer has been harder to come by: Not as many people have been buying houses in this cycle. That has created a renewed demand for lifestyle residential, where people can get all the amenities that you couldn’t frankly afford or justify in your own home.

Commercial Observer: Reforms to Fannie Mae and Freddie Mac have been a never-ending discussion in Washington. Do you have any concerns?

Charles Foschini: Fannie and Freddie have been market leaders in multifamily finance, and they have very healthy allocations for 2020. I expect that to continue. But having said that, the economy and capital market side is extremely vibrant. You have CMBS lenders, banks, life companies and debt funds, all of which are available to a borrower in any given transactions. They’ll continue to have a significant market share in multifamily, too.

Commercial Observer: You mentioned some transportation challenges. Do you think the state’s urban areas need to become more commutable?

Charles Foschini: The demand for a live-work-play lifestyle is fueled both by millennials as well as those folks that are selling homes and moving back to the cities. They want to have everything in one place. The new Brightline train [which now connects Miami and West Palm Beach, Fla.] is so much more convenient than it was 20 years ago when you had to get in your car and commute. As South Florida and particularly Miami evolve as 24-hour cities, that means you have 24-hour traffic. Mass transit is a solution to that.

Commercial Observer: You mentioned that the state’s politicians have fostered a business-friendly reputation. How specifically has that helped drive new investment in the state?

Charles Foschini: One of Berkadia’s technology tools looks at IRS tax payments from one year to another. You can pick somewhere in the Northeast — anywhere in the Northeast — and look at the tax migration. For example, if you paid your taxes in 2018 in Connecticut and then in 2019, you paid your taxes in Florida, that net migration has been measured, potentially, in billions of dollars, and that’s continuing. In many cases, the Northeast is losing out to where it’s easier to live, easier to do business and where overall taxation on the same work dollar is lower. Florida is a huge beneficiary of that. Then there’s the fact that submarkets like Orlando and Tampa have very, very nice campus-style offices that rent for a lot less per square foot.

Commercial Observer: People often speak of talent pools as one of the deepest strengths of gateway cities like New York and L.A. How is Florida doing on that front?

Charles Foschini: I would say it’s evolving, and not fast enough. Our private school systems are exceptional. The Florida state schools are getting better. Five years ago, most of them didn’t have real estate programs, but now they all do. But the public school systems here for primary grades are not evolving fast enough. As our population grows, they’re not evolving at a pace to support that population. So that’s a challenge that municipalities continue to address.

 

Source: Commercial Observer

the road to 2020

So 2019 is drawing to a close, having given the world of commercial real estate things we expected — like a booming industrial market — and things we didn’t (WeWork and opportunity zones were among the greatest flops of the decade).

Bisnow asked some South Florida real estate pros what 2020 may bring. Here are their thoughts:

Jeff Gordon, Vice President, JLL

“We have a number of interesting new office developments delivering or in the pipeline across Miami’s office market over the next few years. This will create variety and optionality not previously seen in Miami as it pertains to emerging submarkets, deepening options in changing submarkets and the way in which the office use is amenitized with other product types across the market as a whole. This variability will provide opportunities for tenants that approach their future leasing with a proactive strategy. In line with this, it will also be interesting to see the impact that the continued expansion of the Virgin Trains stations will have on the connectivity of Aventura and Boca with our Central Business Districts and the continued goal of connecting Florida’s growing talent and workforce.”

Tere Blanca, Founder and CEO, Blanca Commercial Real Estate

“Miami’s vibrant and diverse economy, its business-friendly environment (and tax advantages) and its convenient lifestyle and connectivity to the world via Miami International Airport will continue to spur the relocation to Miami of talented professionals and companies across various industries both domestically and internationally. Key factors driving this movement include this increase in people relocating here due to tax incentives including the lack of a state income tax. The strong population growth in the past five years, with continued projected growth, will continue to motivate companies to establish a presence in Miami. Also, the uncertain political climate in key Latin American countries may attract investment into Miami from these markets that include Mexico and other nations. With limited new office supply delivering in 2020 and robust demand from companies touring the market, we expect the market to remain stable and steady with positive absorption and modest increase in rents. Also, new office deliveries in 2020 will be well-received given Miami’s persistent flight-to-quality trend and this in turn will drive owners of older, existing buildings to undertake strategic renovations to remain competitive. With flight-to-quality prominent among tenants today, we expect new supply to attract tenants across various submarkets, while also attracting new-to-market entrants.”

Cory Yeffet, Director of Acquisitions, Integra Investments

“We expect multifamily development and sales to remain active in 2020. Although rent growth has slowed due in part to significant new supply, demand remaining strong and multifamily cap rates remaining at record lows will continue to support a healthy development and sales environment. This is why Integra continues to be active in the sector, with four multifamily projects under development in South Florida, including the 315-unit Bella Vista project in Lauderdale Lakes, which we intend to deliver and stabilize in 2020. The biggest commercial real estate concern we see for 2020 is the uncertain impacts of the election year, and how global economic and sociopolitical dynamics may slow down private sector expansions.”

Doug Jones, Co-founder and Managing Partner, JAG Insurance Group

“For about the last 10 years, rates have consistently gone down. But with the influx of natural disasters, reinsurance went up in 2019 and that will continue in 2020. That trickles down to the consumer. Also, while risk of sea level rise continues to be a concern, thanks to the recent expansion of the private flood market, consumers will actually have more options in 2020 than ever before to make sure their assets have the proper coverage.”

David Druey, Florida Regional President, Centennial Bank

“I predict minimal, if any, slowing down in deal flow of construction financing in any of the major sectors. Smart developers are seizing the opportunities of low interest rates through use of bank financing for construction financing and securing forward commitments with institution investors for stabilized projects. The ongoing major risk is if the developer can actually complete the project on time and budget. Most of the more substantial projects, outside of apartments, typically have the stabilization piece solved prior to construction commencement.”

Ronald Fieldstone, Partner, Saul Ewing Arnstein & Lehr

“The new EB-5 regulations went into effect at the end of 2019 and we are still seeing increasing interest from investors, especially from Latin America, in the EB-5 program despite the higher threshold. Over the past 10 years, developers have grown dependent on raising EB-5 capital to finance their projects due to the low cost of EB-5 borrowing. We expect it to continue to remain a viable source of financing for development projects in downtown Miami west of Biscayne Boulevard, Little River, areas around Miami International Airport and certain sections of Coconut Grove.”

Stephen Rutchik, Executive Managing Director, Colliers International

“Although one of the original iterations of coworking, WeWork has collapsed on a corporate level, I expect that the concept and most of the existing locations will continue to perform well over the next year. On a larger scale, office landlords in South Florida are increasingly incorporating the coworking concept into existing office buildings. This is attracting new tenants who previously would have either been priced out of traditional office space or who require flexibility that a traditional lease cannot provide. The coworking concept is much larger than WeWork. It has quickly become a part of the American office culture and I expect this trend to grow in the coming years.”

Adam Lustig, Partner and Incoming Real Estate Practice Group Leader, Bilzin Sumberg

“With continued low interest rates, increased employment and significant population growth, I expect the South Florida real estate market to remain strong in 2020. In particular, I see health-related real estate and senior housing as areas of opportunity with the aging of the population and the need for urgent care centers, hospitals, medical office space and senior housing facilities. As shopping center owners try to adapt to dramatic changes in the retail market, medical, health and wellness uses will continue to expand. The major threats to continued growth in South Florida remain traffic, lack of public transportation and affordable housing. One other threat that is not being talked about enough, but that we are very focused on, is the phase-out of Libor at the end of 2021 which affects trillions of dollars of commercial real estate loans.”

Chris Chakford, Managing Director of Origination, Kawa

“Kawa sees ground leases as an ongoing trend in 2020 as banks pull back on commercial fee simple financing in non-core markets, most notably in hospitality and office sectors. With sponsors needing creative solutions to fill out capital stacks and lessen their equity requirement, Kawa has created a ground lease program that offers a complete financing solution to meet these needs. This type of financing vehicle offers a highly adaptable bifurcation structure that accommodates owners’ needs while typically enhancing returns, providing tax benefits, being nonrecourse, and mitigating interest rate risk by offering perpetual financing. In the last three years, Kawa has executed 12 ground lease transactions with a total value in excess of $652M and anticipates ground leases to be a prominent alternative for providing creative financing solutions with flexible capital that can be deployed quickly as we look ahead into 2020.”

Peter Mekras, President of Aztec Group

“2020 is likely to be a year filled with volatility. Interest rates and the political environment both locally and nationally will be the main drivers of market volatility in 2020. Irrespective of the trend of volatility in 2020, we expect capital markets to remain liquid. Equity capital will continue to flow into Florida real estate in 2020. Florida will maintain its label as one of the few states positioned for strong long-term fundamentals and a uniquely favorable business environment for real estate investors. Florida is projected to experience better than national trend employment growth and will continue to benefit from strong population growth. Rental apartments, senior housing and well-located office and shopping centers will be the beneficiaries.”

Lissette Calderon, President and CEO of Neology Life Development Group

“Allapattah is seeing significant residential and commercial real estate investment underway that will enhance the neighborhood’s appeal and quality-of-life offerings. With Miami’s growing population seeking lifestyle living alternatives within the urban core at attainable price points, our mission is to provide a solution to this need by developing attainable luxury rental units that are modern, functional and offer upscale amenities.”

Michael C. Brown, Executive Vice President and General Manager, Skanska USA Florida

“Come the new year, I anticipate the two sectors poised to fuel Miami’s economic growth will be healthcare and higher education, which continue to be the largest sectors for us across the state and in South Florida. I believe we will also continue to see a more pronounced shift into environmentally friendly building, specifically with companies looking to minimize their carbon footprints.”

Martin Melo, Principal, The Melo Group

“2020 will prove to be a year full of challenges, mostly driven by the political landscape throughout Latin America, the upcoming elections and the increasingly low interest rates and low income tax in Florida. We can expect to see an influx of new residents who come to South Florida searching for a more attractive and stable socioeconomic climate as opposed to the current situation in their own countries. The demand for multifamily and market-rate apartments will continue to rise and interest rates will remain low, which will ultimately spark a bigger interest from developers and investors in the area.”

Shawn Gracey, Executive Vice President of Hospitality, Key International

“As the hospitality industry becomes increasingly diverse, there will be even more emphasis on presenting a unique value proposition to today’s travelers. We’ve found that our customer profile is seeking experience-based and design-driven accommodations in key coastline cities, which led us to develop the AC Hotel by Marriott in Fort Lauderdale Beach, which will be one of the newest, upscale select-service properties in the area when it’s delivered next year.”

Rishi Kapoor, CEO, Location Ventures

“Pointing to various indicators, the fortress submarkets of Miami’s luxury condo inventory are the prominent choice in 2020, compared to areas of oversupply. Foreign buyers will remain a challenge, despite promising pockets from target countries in Latin America; the true stability is in the end user, who traditionally purchases a primary residence rather than investment product, and is more likely to focus on lifestyle moves in the market. This is why more protected submarkets, such as Coral Gables, will be a strategic play, as we’re seeing a wave of retirees or empty nesters, coupled with growing families, seeking to place roots in a neighborhood with a thriving business environment, limited top-tier condo product and a historic record for stability.”

Miguel Díaz de la Portilla, Attorney, Saul Ewing Arnstein & Lehr

“2020 will be an exciting year of American Dream Miami. We have our land use and zoning approvals in place and will be finalizing the design of the project, applying for administrative site plan approval, and moving forward with continuing to work on infrastructure. This will all be happening at a time when people from all over the world are beginning to experience the magnificence of American Dream Meadowlands in New Jersey. Triple Five just opened the entertainment center that serves as a sneak peek to how American Dream Miami will look and the tremendous benefit that it will have on our local economy.”

 

Source: Bisnow

cash

With the Thanksgiving holiday weekend behind, it is not too soon to look at what will be the top investment strategies for next year.

Seven top CRE investment strategies for 2020 include:

1. Sell Overpriced Industrial Assets

The industrial market has been booming for the last few years and is the favored asset class among institutional investors. The market is “hot” because of the strong economy, increased demand for warehouse and distribution space due to rising Internet sales and last-mile same- day delivery of online goods. Cap rates for industrial properties have compressed 1.5% to 2.0% during the last 18 months and we would be net sellers of industrial assets in this market.

2. Acquire Beaten Up Retail Assets

Many shopping center and mall real estate assets are selling at 7.0% to 10.0%+ cap rates and some of these assets should be bought. Retail assets have been out of favor for the last few years and although there are tenant risks, with bankruptcies and store closures, they can still provide a higher risk-adjusted return than other CRE assets. A number of the public retail malls are also selling at deep 50%+ discounts to net asset value and are also ripe for a buyout or being taken private. These distressed retail deals are opportunistic investments and need significant renovation and releasing.

3. Invest In Data Analytics Companies

One of the key growth areas of CRE is in data analytics. Data analytics encompasses all aspects of big data for CRE including; demographics, ownership data, property data, historical value information, sales/lease data and financial analysis. The data analytics space is very fragmented with a few large companies like CoStar, RealPage, REIS (a unit of Moody’s) and many local and start-up companies. These larger firms have been acquiring smaller competitors to expand their service offerings and customer base. Recently, CoStar acquired Smith Travel Research, the leading hotel/lodging consulting firm, for $450 million and RealPage acquired Buildium, a property management software firm, for $580 million. As the industry grows, there will be more consolidation and an opportunity to acquire these smaller private firms and even establish a platform to consolidate these entities.

4. Sell Overpriced Core Assets and Reinvest In Opportunistic Assets

The risk and return for various CRE investment strategies range from the lowest risk, core investments, which are typically fully leased, institutional quality, Class A properties with little or no leverage, to value-added strategies which are higher risk strategies that involve some property redevelopment, tenant adjustment or leasing or with operational problems to opportunistic strategies, which are the highest risk category that involve a high degree of redevelopment, leasing, tenant relocation or change or may be in financial distress. Many core properties are still trading at 3.0% to 4.5% cap rates and should be sold. The proceeds should be reinvested in higher return opportunistic strategies, as discussed in #2 above, buying beaten up retail assets.

5. Provide Participating Mezzanine Loans

Even though there is a lot of capital sloshing around chasing deals, there is a dearth of debt/equity capital for the portion of the capital stack above the first mortgage at about 65%-70% and below the minimum owners’ equity investment of 10.0%. This slice of 20% of the capital stack is ideal for a participating mezzanine loan. The participating mezzanine loan may have terms as follow; interest rate at LIBOR plus 4.0%+, loan fees of 1.0%-3.0%+ and 20.0% to 30.0%+ ownership of the deal. The mezzanine lender will typically not be secured by a second lien on the property but by an ownership guarantee and assignment of the owner’s interest in the property. The lender is entitled to the equity kicker because it is taking some of the equity risk of the project. Internal rates of return of 12.0%-15.0%+ can be delivered with this strategy, which is very attractive for a fixed income investment.

6. Perform A Systematic Review and Analysis Of The 15 CRE Risks

As we have discussed before, there are 15 risks inherent in CRE investment as follows:

  • Cash Flow Risk-volatility in the property’s net operating income or cash flow.
  • Property Value Risk-a reduction in a property’s value.
  • Tenant Risk-loss or bankruptcy of a major tenant.
  • Market Risk-negative changes in the local real estate market or metropolitan statistical area.
  • Economic Risk-negative changes in the macroeconomy.
  • Interest Rate Risk-an increase in interest rates.
  • Inflation Risk-an increase in inflation.
  • Leasing Risk-inability to lease vacant space or a drop in lease rates.
  • Management Risk-poor management policy and operations.
  • Ownership Risk-loss of critical personnel of owner or sponsor.
  • Legal, Title, Tax and Political Risk-averse legal, tax and political issues and claims on title.
  • Construction Risk-development delays, cessation of construction, financial distress of general contractor or sub-contractors and payment defaults.
  • Entitlement Risk-inability or delay in obtaining project entitlements.
  • Liquidity Risk-inability to sell the property or convert equity value into cash.
  • Refinancing Risk-inability to refinance the property.

All investors that own CRE should perform a detailed and systematic review of the above risks and their potential effect on an asset or portfolio.

7. Acquire Small Capitalization Public And Private REITs

There are more than 30 public REITs with market capitalizations less than $1 billion that are trading at or less than their net asset value. These REITs are ripe to be acquired or taken private by other REITs, real estate private equity firms or other institutional investors. It also may be possible to get control of the board of directors of some of these REITs via a proxy contest.

Any acquisition or merger opportunity will have to comply with the REIT tax rules including, the 5 or 50 rule which states that 5 or fewer individuals cannot own more than 50% of the value of a REIT during the last half of the year. Also, more than two-thirds of REITs are incorporated in the state of Maryland which has broader liability protection, more flexible voting provisions for stockholders, easier Bylaw amendment provisions, better protection against hostile takeovers and easier stock issuance procedures. Notwithstanding a Maryland incorporation, there are still opportunities via a friendly acquisition or proxy contest.

 

Source: GlobeSt.

There is a wave of investors who are currently selling their New York-based properties to invest in the South Florida area. Why?

Mainly because of the recent rent control law and its negative impact on returns on investments. It has been estimated, for example, apartment property values dropped 20%-30% as soon as the laws went into effect. Some investors are now mainly focused on getting their money out of New York and are looking to invest in properties that will produce better yields—specifically in non-regulated rent control markets, such as South Florida.

Why South Florida?

“There is zero incentive for New York multifamily investors to purchase a building and spend money on renovations if they can’t raise rents in these rent-controlled environments. Florida has always been a market with attractive yields. This is why most NY investors are choosing South Florida,” says Rafael Fermoselle, managing partner of Eleventrust Real Estate. “They either have their New York properties under contract to be sold, have already sold them, are in 1031 exchanges, or in some cases looking for diversification.”

Investors are selling their assets in New York and reinvesting in deals that yield more and ideally, are located under one roof. However, since Miami’s inventory is compressed with a lot of smaller multifamily properties and it’s difficult to find buildings with high unit counts under one roof, investors are turning to multifamily portfolios that are comprised of 4 – 8 buildings totaling 50-120 units. Although not all under one roof, investors are finding the 100+ units they are seeking with room to add value.

“Investors are working closely with Eleventrust because we have the inventory other brokerages don’t, plus, many of the deals they are transacting are happening off market, which many investors prefer,” explains Fermoselle.

Opportunity Zones

Opportunity Zones are another big reason why this new wave of investors are looking to South Florida. Miami, Fort Lauderdale and West Palm Beach are among the best places to invest in Opportunity Zones. There are about 123 Opportunity Zones in South Florida, including 67 in Miami-Dade, 30 in Broward and 26 in Palm Beach counties.

“Almost 16% of South Florida’s commercial assets are located in Opportunity Zones, one of the highest rates in the nation,” Fermoselle tells GlobeSt.com.

Tax Savings

New York investors looking to move to Florida also benefits from the state not having an income tax for Florida residents. New York state tax rates range from 4% to 8.82%. Additionally, the effective real estate property tax rate for Florida residents is approximately 0.98%, compared to 1.68% in New York.

New York investors will also save on capital gains tax in Florida where the top marginal tax rate on capital gains in Florida is 25% and top marginal tax rates on capital gains in New York is 33.82%.

“We currently have 4 successful deals with New York investors including multifamily properties with 9-18 units,” says Fermoselle. “We also have properties located in emerging neighborhoods that are garnering interest from east coast investors.”

 

Source: GlobeSt.

Panelists spoke at the RealInsight’s Florida Commercial Real Estate Summit at the Hyatt Regency Miami on Wednesday, October 16, highlighting the potential for distribution centers, hotels, shopping malls, technology hub and sports stadiums in Florida’s major cities.

Despite years of continuous activity, Florida’s industrial and multifamily sectors still have room for growth,  said Crocker Partners Managing Partner Angelo Bianco, Mitchell Property Realty President Ed Mitchell and Merrimac Ventures President and CEO Dev Motwani.

“Industrial is where we get our stuff,” said Mitchell.

His company recently bought industrial warehouses in Fort Lauderdale and Tampa, and is soon closing on one in Miami.

“Capital lenders are all over you. It’s nice. Everybody wants to do industrial now,” Mitchell said when asked how capital partners influence his acquisition strategies. “But land costs present a challenge. It costs more to get land in Miami than to build.”

The average land acquisition price per square foot costs $60 to $70 a square foot.

In Boca Raton, Crocker is creating a campus with a food court and STEAM lab maker space, hoping to draw a tech company.

“The idea is to make the workplace like a hotel.” Bianco credited WeWork for the concept. “Their loss is our gain,” referring to the company’s recent woes.

The retail category drew little enthusiasm from panelists, especially at this time when national chains are flailing.

“The spaces are of interest only when there is a big box that you can tear down and add multifamily,” said Motwani. “Multifamily developments continue to generate strong returns, especially in the luxury market.”

As for why affordable projects don’t draw greater interests, Motwani pointed to the financial realities.

“Concrete costs what it costs. Land costs what it costs,” said Motwani. “From a financing perspective, it makes sense to get luxury condos done, not affordable housing.”

But municipalities can encourage affordable housing development through incentives, including fee relief, parking ratios and adding density bonuses, agreed Motwani and Bianco.

 

Source: Miami Herald

With two well-situated Opportunity Zones, zoning changes and a robust street improvement program, the City of Hollywood is attracting major commercial real estate developers and investors.

“Our strategic location and public investments – coupled with the tax benefits of the federal Opportunity Zone program – have set the stage for new developments that benefit our community,” said Herb Conde-Parlato, economic development manager, City of Hollywood. “We are now reviewing three new projects that could add vitality to our local economy by creating new jobs, while offering a wider array of housing, dining and shopping options to our residents.”

Those Opportunity Zone projects include:

  • Parc Place, the former “Bread Building” at 1745 Van Buren Street just south of Young Circle Park. Redevelopment stalled about a decade ago, but has been revived by developer BTI, said Conde-Parlato. Plans call for a 25-story tower mixed-use luxury apartment complex development in one phase. The project consists of 433 new apartments, 560 parking spaces and 17,000 square feet of commercial retail space. “This development would bring residential and retail vitality to our city and contribute to the walkability of our downtown core.”
  • Soleste, a residential-retail project at 2001 Hollywood Boulevard in the downtown area. Miami-based Estate Investment Group is planning the development, which would include 350 apartments, 30,000 square feet of retail space and 497 parking spaces.
  • A new hotel and restaurant at 2801 Greene Street in the South Florida Design and Commerce Center, a 150-acre mixed-use business park along Interstate 95. This $35 million investment would include 242 rooms and 162 parking spaces.

“We have many other new retail, office, multifamily and industrial real estate projects in the pipeline, but not all are seeking tax benefits under the Opportunity Zone program,” said Conde-Parlato.

Established by the U.S. Tax Cuts and Jobs Act of 2017, Opportunity Zones are designed to spur economic growth by reducing capital gains taxes on qualifying investments in designated geographic areas. The City of Hollywood moved quickly to capitalize on two large-scale Opportunity Zone designations, one in the downtown that includes all of Young Circle and the area between two major corridors, Federal Highway and Dixie Highway, and another on both sides of I-95 between Sheridan Street and Stirling Road.

By creating Opportunity Zone funds, investors can acquire and improve properties in these areas, while deferring any taxes on capital gains until Dec. 31, 2026. If the investment is held for five years, the original capital gains taxes are reduced by 10 percent; after seven years that deduction increases to 15 percent.

“Those opportunity fund investments must be entitled before year-end 2019 in order to take advantage of the 15 percent deduction,” said Raelin Storey, director of communications, marketing and economic development for the City of Hollywood. “That’s one reason why our city is seeing an upswing in development activity in the past few months. The City of Hollywood was ahead of the curve in marketing its Opportunity Zones, drawing a wave of interest among property owners, developers and investors. The tax advantages have helped make new projects more feasible, since the funds can be included in the development team’s capital structure. It’s an innovative approach to creating new business and real estate opportunities. Now, the city is working with the real estate investment community to bring forward well-designed projects that meet the standards of the city’s commercial and mixed-use zoning codes.”

Looking ahead, the city’s Opportunity Zones hold a potentially even bigger benefit for long-term investors – a permanent tax break.

“If you sell your investment after holding it for 10 years or longer, you would not have to pay any capital gains on the increased value of the property,” said Storey. “That’s really the ultimate advantage to investing in our Opportunity Zones.”

 

Source: SFBJ

brightline train

Brightline station is coming to Boca Raton. It’s not official. But it’s obvious.

On Tuesday, September 24th, the city council members heard details from Virgin Trains USA executives about the company’s revised offer.

“Brightline has moved a lot,” said Jeremy Rodger.

And he’s correct. Gone is the company’s demand that the city donate two pieces of land in addition to the parcels for the station and a parking garage next to the downtown library. Virgin Trains now wants only first dibs on an option from the city for those properties. Gone is the demand that the city build a pedestrian walkover. Virgin Trains now will help the city seek federal or state money for the project. Gone is the demand that the city pay for a shuttle.

Most notably, gone is the demand that the city pay the entire cost of the parking garage. Company officials said that Virgin Trains USA would pay for the 58 spaces for library patrons that construction would displace.  The city would pay based on the 342 spaces for train passengers. There is no estimate for the cost of the 400-space garage, but current industry figures cite a price of about $20,000 per space.

Mayor Scott Singer noted that the council only was telling City Manager Leif Ahnell to proceed further with negotiations. But the council members’ comments revealed what the outcome will be.

— Andy Thomson: Virgin Trains has “heard us loud and clear on our concerns.” The company has acted in “good faith” and been “responsive and forthcoming.”

— Andrea O’Rourke: “We have to move forward.”

— Rodgers: “A lot of good can come from this.”

— Mayor Scott Singer: The new offer “feels more like a partnership.”

— Monica Mayotte: “This will be a very good addition to our city.”

Virgin Trains felt confident enough to prepare a statement before the meeting and hand it out afterward: “This marks another significant step in expanding Virgin Trains to Boca Raton.”

Not that everyone’s happy. Residents of Library Commons, which is north of the library, packed the chambers Tuesday to complain about the size of the garage and how near it will be to their community. Company officials say they will work Library Commons residents on lighting and setbacks.

Though the library still would have 181 overall parking spaces, members of the Friends of the Library expressed concern about patrons getting from the garage to the library. Virgin Trains said passengers and patrons would use separate entrances and that the company would provide security in the garage.

One major question, however, remains: What might Virgin Trains—or a developer partner—do with that city land if the company acquires it?

Boca Raton had designated land east of the library for a train station. That decision envisioned commuter service—station and parking only.

Optioning the land, however, could put added development next to the library and Library Commons. Jose Gonzalez is executive vice president for real estate development of Virgin Trains’ parent company. He told council members that the possibilities include residential, office or a hotel. Those possibilities worry the Friends of the Library, who already weren’t too keen on the garage.

 “The station isn’t the end of the story.” one speaker said,

Gonzalez said the idea of building on that city land “might go nowhere.” But officials in West Palm Beach and Fort Lauderdale tout the stations’ role in spurring development. Gonzalez wants Virgin to have an “exclusive conversation” about the properties and “preserve our optionality.” Delaying that decision delays the potentially more controversial aspect of the station.

Virgin Trains wants a vote from the council next month. The company would like to open the station by the end of next year. At this point, there’s no reason to think that won’t happen.

 

Source: Boca Magazine