Archives for posts with tag: recovery

This past year was one of growth in real estate, not only in South Florida, but all over the country. 2013 marked the first time since the collapse of the market that people truly started to feel a recovery. Putting the microscope over South Florida’s commercial real estate market, the year was littered with events that signaled the current and future expansion of our area. It was difficult to narrow it down, but below we have put together a list of the top five stories of 2013 according to the Top Commercial Blog.

5. Record Setting Deal on Lincoln Road

Lincoln Road is becoming the home for flagship retail and folks are looking to cash in on the trend. This December, Tristar Capital purchased 530 Lincoln Road for $30 million, setting a new record. At 10,000 rentable square feet, the deal amounted to $3,000 per square foot. The expectation is that Tristar will add more two-story, single tenant retail to accompany Forever 21, H&M, and Zara.

4. Swire Proposes 80-Story Tower

It wouldn’t be a countdown without mentioning Brickell CityCentre. This fall, Swire announced that they plan to add an 80-story tower to the already massive project to act as a gateway to the development. One Brickell CityCentre, as it would be called, would add more Class-A office space, condos, retail and even another hotel to the project. Phase one of the Brickell CityCentre is still currently set for completion in 2015.

3. All Aboard Florida Applies for Federal Loan

This past March, All Aboard Florida applied for a loan from the Federal Railroad Administration to begin work on their vision of a passenger rail service from Miami to Orlando. The train would also make stops in Fort Lauderdale and West Palm Beach. Commercial real estate would be a large part of the project, with around $325 million being dedicated to develop about 1 million square feet of commercial real estate. The planned opening of the service would be in 2015.

2. David Beckham Eyes PortMiami for Soccer Stadium

In November, all anyone was talking about was David Beckham’s plans to bring a new Major League Soccer team to Miami. The famed footballer was touring the city, looking for a location to build a new stadium. Then we discovered that Beckham was eyeing PortMiami. A soccer stadium in the port would fit right in with their  master plan for the southwest corner that would include a hotel, retail and office space. If this idea moves forward, Beckham and his team will have to figure out how to better flow traffic into Dodge Island.

1. The Miami Beach Convention Center Saga

If there’s one story with enough action, drama and significance to come out on top of this list, it’s that of the Miami Beach Convention Center. First there was the showdown between South Beach ACE and Portman-CMC for the development deal, but ACE’s victory only marked the beginning. The convention center project became a top issue in Miami Beach politics, leading up to a heated election in November. The vote resulted in more difficulties for the convention center, as any new leases would need to be approved by a super-majority. The drama here is expected to continue well into 2014.

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Another new year is upon us and, as we do every year, we will look back at the past twelve months and marvel at the swiftness with which they raced by. However, rather than being taken aback by this perpetual occurrence, perhaps it is vital to accept that a year is actually not that long a span of time to begin with.

Through this lens, the upward statistical trends that commercial real estate experienced in 2013 may just be the beginning of strong momentum in 2014 and beyond. This idea is supported through research in a recent article from the Wall Street Journal.

Investment & Leasing Markets

The expectation is that investment sales in the commercial real estate sector will continue to grow in volume through 2014. In 2013, lending actually began to accelerate once again after having stalled in recent years. This along with an increased volume of money flowing to the asset class attributed to the recovery of investment sales. The ball is expected to keep rolling in the coming months and the expectation for 2014 is 10 percent year-over-year growth.

For the most part, the leasing market in the past year has been flat. This has certainly led to some worries of a gap between investment and leasing. However, there are a few indicators that leasing will soon be tipping in the right direction, none the least of which is the strong improvements in occupier sentiment. Corporate profitability is also soaring, specifically in the retail sector where large retailers are having their best year since 2010.

Office Market

We recently discussed the snail-like pace of the office market, but this is a sector that is tied heavily to the tech and energy industries. As those sectors continue their economic growth, we can also expect the office market to make a marked improvement in the coming year. Forecasters expect office rents to grow at about 5.5 percent. Despite this increase, trends in construction are expected to be below average until around 2015. However, in tech and energy heavy geographies, progress is clearly on the horizon for the office market.

Other Factors

Once again, the millennial generation will play a critical role in the improvement that we do or do not see in the coming year. As we know, this demographic holds a special place in their heart for urban environments. Most would project activity to continue to increase in these areas, but this does not spell doom and gloom for the suburbs, though we do expect them to adjust accordingly.

Most importantly, 2014 should see a genuine increase in demand, which is the most important factor for generating sales. The labor market has seen a long and steady pace of moderate monthly job growth. As a result, most industries have recouped job losses from the recession and demand is ready to be stimulated once again.

Lastly, a key contributing factor to the growth in commercial real estate is the accelerated growth in housing. Though the housing market has steadied in the past couple of months, experts had been waiting for a recovery like we saw in 2013 for several years. Continued growth in housing during 2014 will lead to more development, lending, retail and jobs growth.

This past week Miami Today spoke to FA Commercial Advisor’s very own, Fabio Faerman to get his perspective on the booming real estate market in Miami’s downtown area. Faerman divulged some interesting tidbits for investors interested in the future of Brickell.

Take a stroll down the streets of downtown Miami these days and it is easy to see that times are once again changing. While South Florida may have experienced one of the largest busts in the real estate crash years ago, the recovery, particularly that of the Brickell area, may be one of the most rapid in the nation. Several sites are set for demolition and construction cranes have now become the “unofficial bird” of our city. Existing buildings are chipping in, too. Many office buildings have begun pouring millions of dollars into upgrades.

Faerman says that all of this excitement is attracting celebrities, financial advisors and families alike to move downtown and experience life on Miami’s sunny shores. Faerman receives calls from buyers looking to invest in Brickell about one to two times per day.

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The beautiful Brickell skyline

Last year, a buyer purchased a package from Faerman that included the landmark Tobacco Road, River Seafood & Oyster Bar, as well as six parcels on Seventh Street for $12.45 million. With values currently sky-rocketing, Faerman estimates that the same assemblage would be sold for double that amount this year.

Those are prices that buyers these days are more than willing to pay, if the investment properly fits their objectives. For example, this past summer Swire spent $64 million to acquire 700 & 710 Brickell in order to build One Brickell CityCentre, the 80-story gateway to their $1 billion Brickell mega-project. Faerman believes this deal was good for Swire because it gave them the Brickell Avenue frontage that their project needed.

Faerman touted a river-facing site behind Brickell CityCentre that could have that type of value for the right buyer. The 2.52-acre off-market property would give a potential investor the opportunity to create a mixed-use project of up to 1.98 million square feet. The owners are seeking a buyer in the range of $100 million for this site, which Faerman says has, “huge potential.”

The investors behind the new Miami Worldcenter development in downtown are hoping to bring in some flagship retail for their 750,000-square-foot-mall, and they just may get it. Earlier this week, the South Florida Business Journal reported that the Worldcenter hopes to land Macy’s to anchor acres of restaurants and retail.

For those that have not yet heard, the Worldcenter is yet another mega-project set for development in downtown Miami. The project will be located within blocks of Biscayne Boulevard, the Metrorail and the Metromover. It will also stand between downtown landmarks such as the American Airlines Arena, where the last 3 NBA Final’s champions have been crowned, and the Adrienne Arsht Center, home to Broadway in Miami.

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Rendering of the Miami Worldcenter

Investors in the Miami Worldcenter are turning to The Forbes Co., and Tauman Centers to help snag Macy’s for the upcoming development. Forbes and Tauman already have a level of familiarity with Macy’s. Their Orlando mall, The Mall at Millenia, already has one. Another well-known retailer may also be in the cards for the Worldcenter. Bloomingdales, which does not yet have any stores in the downtown area, has also been rumored to be part of the move.

Spokespeople for Macy’s, as well as those for the Worldcenter, would not comment on whether or not a deal between the two was in the works. However, if the Worldcenter manages to find big name restaurants and retail capable of fitting their square footage, this could be one of the more exciting developments out of many in the downtown area. The Worldcenter may have the potential to be on the same level as Swire’s Brickell CityCentre, with the capability to transform the downtown landscape.

Developments such as these make it clear that now is the time to invest in South Florida. The South Florida real estate market, which was originally not projected to rebound until 2016, has seen the median sales of condos spike 27.5 percent in one year, to go along with a 20.5 percent uptick in single-family home sales. With every passing day, as new cranes go up in the downtown skyline, South Florida is quickly becoming the place-to-be for affluent buyers.

The Federal Bureau of Economic Analysis recently released new numbers indicating that the real estate sector accounted for nearly a third of South Florida’s economic growth last year. The $274 billion economy expanded at a rate of 3.5 percent, the largest that the tri-county area had seen since 2006 and well past the national average of 2.5 percent.

Miami-Dade, Broward and Palm Beach have the real estate sector to thank for their exceptional rate of expansion. In 2012, real estate accounted for $52 billion contributed to the South Floridian economy. That number represented an 8.4 percent growth from real estate’s contribution in 2011.

Much like the overall numbers, real estate also experienced it’s best year since 2006, displaying the close-knit relationship that the sector has with the area’s economy. South Florida also experienced the sharpest growth rate of all of Florida’s largest economies.

Trump-Hollywood-Condo-Tower

Condo prices have seen strong increases in each of the past 26 months

This report comes on the heels of more good news for the real estate sector in Miami-Dade. The month of August brought another double-digit surge in the year-over-years numbers for prices and sales in the area. Single-family home sales experienced an increase of 15.1 percent from August of 2012, while condo sales also gained 7.9 percent from last year.

The median sales price of a single-family home in Miami-Dade increased 2.2 percent to $235,000 from July to August. That price represents a 20.5 percent surge from the previous August. The price of condo sales saw a spike, as well. The new median sales price of $180,500 represents a 5.3 percent increase from last month and 27.5 percent year-over-year growth. Condo prices have seen strong increases in each of the past 26 months.

Real estate, however, was not the only contributing factor to the surprising growth rate in South Florida. Sectors such as trade, finance, retail and information also played an integral role in the area’s progress. The success of the retail sector speaks volumes for commercial real estate prospects in the South Florida area.

There seems to be a growing trend amongst Americans, and it is one that has the potential to largely affect the real estate market and the economy as a whole. Findings in the latest Census strongly suggest that more and more people are choosing to live alone. According to the findings, one-person households now account for more than one in four households in America.

In the past 40 years, the percentage of Americans living on their own has gone from 17 to 27. This share is greater than at any time in the past century. A close look at the numbers shows that around 33 million people in America live alone, a number that has tripled since 1970.

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Graph courtesy of U.S. Census Bureau

There are many reasons that this phenomenon has taken place. An obvious reason is that less people are getting married and having children or, at the very least, they are waiting until later to do so. Since 1970, the Census has found that the share of households consisting of married couples with children has declined from 40 percent to 20 percent.

The advancement of technology has also played a tremendous role in helping connect the world in ways that do not require as many people to live together. Technological and medicinal advancements are also to thank for the fact that most people are living longer, which means many of these single person households belong to the healthy elderly folks who are no longer in need of nursing homes.

Most would assume that the recession had caused the pace of this trend to slow down, due to younger adults moving in with their parents and others moving into homes together in order to share expenses. However, the Census also found that since 2007, 2 million more Americans live alone. Surprisingly, the Great Recession may have contributed to the trend since marriage rates tend to hit a lull in poor economic times.

Overall, the trend may actually have a positive impact on real estate and the economy as a whole. Of course, less people sharing homes means more homes will be sold. This also means that less supplies and energy will be shared. While this naturally would not be ideal for the environment, it also points to an upward trend in the rate of consumer spending.

As we have previously discussed, the South Florida market is, for better or worse, in the midst of a development boom. The origins of this boom, however, may not be coming from the community itself. More and more it seems as though foreign buyers are the ones leading the climb back to prosperity for South Florida’s real estate market. Cash buyers from Brazil are at the top of that list.

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The Miami Tower shining for Brazil

In 2012, approximately 690,000 Brazilians visited Miami and injected $1.5 billion into the local economy. Brazilians officially overtook Canadians as the city’s top international tourists and, more importantly, the top international buyers of Miami real estate. This feat was made possible by the 123 weekly flights between Brazil and Florida, a number which is expected to continue rising before the end of the year.

Another factor that continues to stimulate Brazilian tourism in Miami is the extremely favorable exchange rate. What does this mean for those looking to invest in Miami’s recovering real estate market? For the same price of a property investment in Miami, buyers would end up spending nearly three times as much in Sao Paulo or Rio de Janeiro. Ironically, Brazilian buyers may have been driven to South Florida’s real estate market after the global crash in order to take advantage of softer pricing.

Not only did Brazilians lead the pack amongst foreign buyers of real estate last year, according to the Miami Real Estate Agents’ Association they represented 6 out of 10 foreign buyers. A good portion of the buyers (41.9 percent) intend to use their property as a vacation home for themselves and their families. On top of that, 78 percent of Brazilians paid for their property in all cash purchases, a trend that may prove troublesome for U.S. tax authorities in Brazil.

Brazilians have created a massive trend of investment in the South Florida real estate market, not simply because of the previously mentioned factors, but also due to their close-knit culture. Local brokers that have worked with Brazilians claim that if you can sell to one, you can sell to more, given that they tend to enjoy living near one another. This characteristic makes Brazilians a truly great friend for the South Floridian economy.

In the United States, office occupancy growth and rental rates saw some progress in the 2nd quarter. Office rents experienced a 2 percent increase in the first half of the year. While still not ideal, it is more momentum than was seen in the first half of 2012 when rents increased by 1.7 percent. The increase in rent should lead to stronger net operating income for investors in office properties as leases expire and are renegotiated at the current higher rates.

National office vacancy also inched closer to 12 percent in the previous quarter. On a more local level, 61 percent of U.S. submarkets have seen a decline in vacancy rates. Over the past year, national vacancy has moved from 12.7 percent to it’s current state at 12.1 percent. The positive news is that it is heading in the right direction, closer to the 11 percent mark needed for a healthy office vacancy rate. However, at the current pace, most forecasters do not expect that mark to be reached until around 2016.

On the downside, there are also several negative indicators for the office market. For example, the historically low rates of new office construction, which most believe are assisting in the decline of the national vacancy rates. Once the demolition of obsolete office space is factored in, net office completion only grew by 5 million square feet or 0.06 percent of nationwide office inventory. Demolition of office space is also playing a role in the decline. The country has seen a decrease of 80 million square feet in office inventory.

If the office market does see a pick up in activity any time soon, the key factor will end up being the jobs recovery. While corporate profits have seen all-time highs, companies have been adding more workers, which means that they will soon need to start leasing more space. An initial worry we had when discussing the challenges of the office market was that the modern worker would not commute to an office, but instead work from home as an independent contractor. For now, however, office-using employment growth has been outperforming the results of the broader job market.

For more on the current office market, take a look at this piece by Mark Heschmey in which he discusses some road blocks to closing deals on office investment properties.

The economic data is in and things are just heating up. In May of 2013, prices in the commercial real estate sector continued building on a strong recovery according to the CoStar Commercial Repeat-Sale Indices (CCRSI). According to CoStar, the indices measure the change in prices by using a repeat sales methodology. Simply put, when a commercial property is sold, the indices calculate the difference between that sale and the previous sale of the same property.

However, there are several indices used to give a clearer picture of the environment in commercial real estate. This past May, commercial real estate saw price growth across the board.

Beginning with the value-weighted U.S. Composite Index, a measure which is influenced by the fewer, but larger commercial real estate transactions. In May, the value-weighted index saw an increase of 0.7 percent, but that does not tell the entire story. From the low point of the index in 2010, the measure has increased by 41 percent. That’s a rate of about 3.4 percent per quarter.WEB-SoldSign-SubjecttoContract-WP_304

The other important measure in the CCRSI report is called the equal-weighted U.S. Composite Index. This measure is the counter-balance to the value-weighted, as it is heavily influenced by many smaller magnitude commercial sales. The equal-weighted index increased by 2 percent in May, bringing the measure to a 10 percent increase from it’s bottom in 2011. With this strong May number, there is reason to remain hopeful that this index may just be hitting it’s stride.

The second quarter of 2013 has also been extremely strong for Net Absorption, which measures the change in space for the three main commercial sub-categories: office, retail, and industrial. This measurement, however, has been strong for the past three years, indicating that the fundamentals of commercial real estate may be stronger than previously perceived. The investment grade, a part of the equal-weighted index that measures upper-middle tier properties, also grew by 2.6 percent in May and by 24.6 percent since a 2009 trough.

Perhaps the most optimistic data comes from the decline in distressed sales. No measurement points more strongly to a fundamental commercial real estate recovery. In April and May, properties sold at distressed prices decreased to 14.1 percent, this two-month average is the lowest it has been since 2008. Less properties sold at distressed prices indicates that prices are moving in an upwards direction, giving both buyers and sellers the necessary confidence to achieve stronger deals.

As those in the market continue to remain weary of economic headwinds, the data is pointing in the right direction. With rapid increase in prices, a bigger fear could possibly be pricing certain buyers out of the market. However, the fundamentals of the commercial real estate sectors are strong for the moment and the momentum seems to be in our favor.

The moment is finally here. Those who closely follow Miami’s progress have been seemingly waiting a lifetime for this decision to be made. Now they have less than a week. Commissioners are set to make a final decision on which Miami Beach Convention Center proposal will move forward.

Both groups, Portman-CMC and South Beach Ace, have identified over $1 billion in renovations to be made to the convention center. Both groups are projecting to create well over 10,000 jobs for the community. Most excitingly, both groups have taken the initiative to team up with world-class architects, Portman-CMC with Bjarke Ingels and South Beach Ace with Rem Koolhaas. Neither proposal is anything less than extraordinary and the community of Miami Beach is extremely lucky to have these two groups competing for their approval. Though it has made for an unbelievably compelling race, there can only be one victor crowned. So without further ado, we shall take a look at a brief summary of both proposals.

Portman-CMC

The Portman-CMC group has proposed creating a central square, which will be surrounded by a Latin American Cultural Museum, City Hall, and the landmark Jackie Gleason Theater. A low-height hotel will be attached to the southern end of the convention center. The planned hotel will be a monument to healthy living, as it is rumored to feature daylight-simulating alarm clocks, vitamin-c showers, and other mind-blowing innovations. The hotel will also have a viewing terrace on the roof, with a view of the planned “art roof.” The 17th Street garage will also be completely rebuilt and low-rise residential buildings will surround the west of the ballroom.

Here’s a preview:

 

South Beach ACE

The South Beach ACE proposal is just as exciting, though strikingly different. They have proposed completely reorienting the convention center, adding a concourse to the south and a loading & unloading area to the north. Their hotel will be built on top of the convention center and contain 800 rooms, each with their own private balcony. With Rem Koolhaas on the job, one can be certain that these balconies will be of the highest quality art deco design. Hotel meeting spaces will also be on top of the main convention center. The defining feature of the ACE proposal is their expansion of the botanical garden. Their desire is to surround the center with greenery and create a Central Park atmosphere for the Miami Beach community. A plaza to the south of the center will link the Miami Beach City Hall, Jackie Gleason Theater, and a retail/residential area to the west. The ACE plan also includes a preservation of the 17th Street garage, with added ground-level retail.

Here’s a preview:

 

Endorsements

So far each proposal has their fair share of endorsements. South Beach ACE recently received a big endorsement from the Miami-Dade Chamber of Commerce as well as Planning Board Chair, Charles Urstadt. Amongst their endorsements, Portman-CMC can point to a 4-3 vote in their favor from the Miami Beach Convention Center Advisory Board. However, none of that matters after next week, when the final decision is made. Residents of Miami Beach and admirers of the South Florida culture are on the edge of their seats.

For more information on the race, take a look at this brilliantly detailed overview of both proposals from The Miami Herald: http://www.miamiherald.com/static/media/projects/convention-center-comparison/