Gables Chamber panel: Now is time to capitalize on real estate deals — as long as you have liquidity
By Risa Polansky
Now is the time to buy commercial real estate, players say — you just need the equity to do it.
With the right fundamentals, deals are being made, even through today's economic rough patch, bankers, brokers and developers said last week at a Commercial Real Estate Outlook Luncheon at Coral Gables' Biltmore Hotel.
Recovery forecasts varied, but panelists agreed: there are opportunities now.
"It's equity time. In order to get deals accomplished, you're going to need to come to the table with equity, liquidity," said panelist William Heffernan, president and chief executive officer of Miami-based TotalBank.
Rafael Saldaña, president and chief executive officer of Coral Gables-based BBU Bank, attended the event and agreed with Mr. Heffernan that "there has to be more equity" to secure a loan today.
In these times, he said, it seems "happiness is a positive cash flow."
Mr. Heffernan acknowledged lending challenges, one being that "banks have tremendous pressure on them right now regulatorily."
In the aftermath of a nationwide bust, there's pressure on banks to get out of real estate, Mr. Heffernan said — a tough task in Miami.
"The market down here is all related to real estate," he said. But "if a deal is a good deal, I want to do it. So it's all about the fundamentals."
Case in point: event attendee Kenneth D. Rosen's purchase this month of two Coral Gables office buildings, Park Place I and II.
He snapped up the buildings only hours after they'd been put on the market, securing a 25-year loan from Miami-based Ocean Bank — 80% financing at 6% interest for the $8.5 million deal. The bank had appraised the buildings at $9.25 million.
Banks are eager to lend when it comes to "good deals," Mr. Rosen said, adding that a handful vied to finance his.
"They say there's no funding available today [but] banks have got plenty of money, local banks," he said.
The catch: the money's there for "good deals," and only 5% of commercial properties in the US fit the bill, Mr. Rosen said. "The trick is to find them."
The other trick is to want to and believe you can, said Thomas Byrne, a broker with Esslinger Wooten Maxwell's commercial division and a panelist at last week's event.
"It's one of the best times ever" to buy commercial real estate, he said — but it's all about attitude.
It's been his goal for more than 20 years to buy one piece of commercial real estate a year, and with a positive mindset, Mr. Byrne said, "there's never been a better time."
Developer W. Allen Morris, another panelist and chairman and chief executive officer of The Allen Morris Co., also lauded investment opportunities in today's market.
"Miami has the best office market in America, and now we have maybe the best investment opportunities in a generation," he said.
A building he bought in the mid '90s for about $19 a square foot is now renting for the same price, he said.
"These are the windows of opportunities in the marketplace."
Vacancy rates in Miami-Dade's office market hit 11.8% in the first quarter of this year, with average quoted rates at about $38 a square foot for Class A space, Mr. Morris said.
Of the about 3.8 million square feet under construction, 35% is pre-leased.
Of the 790,300 square feet under construction downtown, about 33% is pre-leased, he said.
Overall, the downtown market showed a 13.7% first-quarter vacancy, with average quoted rates at about $43.45 a square foot for Class A space.
In Brickell, vacancies hit 15.9%, and average quoted rates for Class A space sat at about $42.45 a square foot.
Of the about 1.2 million square feet of office space under construction in Brickell, about 4.5% is pre-leased, Mr. Morris said.
He observed that one of the new buildings could end up boarded up to wait out the economic storm — something that he's seen happen in other parts of the country.
"When a hurricane comes, you board up," he said. "And when the hurricane passes, you take off the boards and you get back to business as usual."
In Coral Gables, the office market showed a 13.3% first-quarter vacancy, with average quoted rates at about $41 a square foot for Class A space.
About 83% of the 381,464 square feet under construction is pre-leased, Mr. Morris said.
He noted also a trend of businesses moving from elsewhere in the county to Coral Gables, listing 495,841 square feet worth of tenants, including Bacardi, which is set to move out of its longtime Biscayne Boulevard headquarters and into the Gables.
Barbara Tria, senior commercial associate with Coral Gables-based Kerdyk Real Estate and another panelist, also highlighted area bright spots, hers in the retail market.
At 3.4%, Coral Gables boasts one of the lowest retail vacancy rates in Miami-Dade, which has an overall 4.6% vacancy, she said.
And the county is faring better than the rest of the country, where the national vacancy rate is about 7.2%, she said.
Countywide, rental rates generally continue to decline, sitting in the mid-$20 range, she said, but rates vary among the county's markets.
Though "bankruptcies and closings are on the rise" nationwide, "value retailers" are continuing to expand even in this tough climate, she said, noting that stores such as Nordstrom Rack and Best Buy are setting up shop in new developments Fifth and Alton in Miami Beach and Miracle Marketplace on Coral Way.
And retailers are fixing to move onto Miracle Mile, she said, including a gallery and the first Miami-Dade location of restaurant Seasons 52.
Things are moving in the market, Ms. Tria said.
"It's out there. It takes longer to get accomplished, over the finish line, but the activity is there."
It will be creativity, ingenuity and intelligence — an "entrepreneurial approach to deal making" — that will carry businesses through this tough time, she said.
Panelists at last week's outlook event gave varied forecasts as to how long the tough time will last.
Mr. Morris — referencing the Federal Reserve's forecasts — predicted that, through 2009, office vacancies will rise while rental rates and property values soften.
In 2010, we may see office vacancies, rental rates and property values stabilize, he said.
And by 2011, occupancy will begin to increase along with rental rates and property values, Mr. Morris said.
"It takes a long time to turn this aircraft carrier around."
Perhaps even longer than Mr. Morris expects, banker Mr. Heffernan said.
We've started to see the residential avalanche of foreclosures, and it could be another 18 to 24 months more, he said.
The number of option adjustable-rate mortgages that are going to come up for reset in 2010 is going to dwarf that of years past, he said, driving interest rates up and increasing the likelihood of foreclosure.
In forecasting recovery, he said he'd move Mr. Morris' chart one year down.
"I'd love to be more optimistic, but I'm not," Mr. Heffernan said.
Still, though it's off in the distance, he said he does see a light at the end of the tunnel.
Gayle Bainbridge, executive vice president of Global Risk Insurance Solutions and past president of Commercial Real Estate Women - Miami, called panelists' analysis a "realistic assessment of what's going on."
But if businesspeople continue best practices, she said, "we're going to be fine."