Brokers are giddy over the Fed’s announcement, while some caution fundamental challenges remain.
Commercial broker Jaret Turkell is ready to rock and roll. Turkell posted a GIF of Minions dancing with the tagline: “It’s time to PARTYYYYYY!” shortly after Federal Reserve Chairman Jerome Powell announced that the Fed was keeping interest rates unchanged, and signaled it would make three 0.25 percentage point rate cuts next year.
“We are back baby. LFG!!!!!!” reads another tweet from Turkell, who focuses on multifamily and investment land sales at Berkadia in South Florida. (LFG stands for “let’s f**king go.”) The sentiment changed almost overnight,” Turkell said, tempering his initial enthusiasm a bit. “I’m not saying we’re back to 2021. Valuations will start to get a bit more attainable. Massive distress is going to be somewhat off the table, at least I hope so.”
The Fed’s decision is expected to boost confidence across commercial and residential real estate, especially in South Florida. The region has been somewhat insulated from headwinds in other U.S. markets since the Fed began hiking rates in the spring of 2022, but investment sales volume is way down.
More than anything, the expected cuts are a sign of improving — not worsening — conditions. That could result in a boost of sales and financing in the second half of next year, brokers and attorneys say.
“Real estate is not a liquid asset, and it takes time for things to change. It takes time for that sentiment to build into transactions,” said Charles Foschini, senior managing director at Berkadia.
Still, the planned rate cuts won’t solve all problems, experts say. The high cost of insurance and construction will continue to hamper deals, brokers say.
“While South Florida maintains advantages over other major metros in the U.S., its biggest downside is insurance,” Foschini said.
Eternal Optimism Meets Reality
Some pointed to the stock market rallying and the drop in inflation as breadcrumbs indicating that more good news is on the way.
“The signal that rates have stopped going higher and will go lower, psychologically is very impactful,” said industrial developer and broker Ed Easton. “But it’s not earth-shattering,”
In fact, most expected Powell would leave rates unchanged.
“No one was anticipating anything more than a standstill at this time of year,” said commercial broker and developer Stephen Bittel, chairman of Terranova Corp. The expected cuts are “not an enormously meaningful adjustment, but it does telegraph future expectations.”
Jaime Sturgis, CEO of Fort Lauderdale-based Native Realty, said he is already seeing that confidence translate into better terms.
“That will continue next year,” Sturgis said.
Still, asset classes like office and multifamily could suffer disproportionately, especially as suburban office tenants continue to downsize and multifamily landlords struggle to turn a profit.
“There will be pain and distress in that market, no question about it,” Sturgis said. “Some multifamily landlords and developers were already operating on razor thin margins to begin with. The smallest variations in that model can break it.”
Multifamily developer Asi Cymbal, who has projects in Miami Gardens, Fort Lauderdale and Dania Beach, agreed that rate cuts won’t solve major problems, such as if a developer overpaid for land.
But, Cymbal said, “the worst is over.”
Cymbal and others expect more groundbreakings in 2024, with some self-funding initial construction, expecting that they can secure a loan. He plans to self-fund the groundbreaking of Nautico, a $1.5 billion mixed-use development fronting Fort Lauderdale’s New River, in the next 90 days.
“The Fed news could help top tier developers get lower rates on construction. But not most,” Cymbal said. “Lenders will continue to be conservative.”
“Some prospective buyers who were ready to purchase may postpone their decision until rate cuts happen,” said Bilzin Sumberg partner Joe Hernandez.
Source: The Real Deal