Where to Invest in South Florida Commercial Real Estate: Forum
Commercial Observer assembled the experts last week in Miami, and they say affordable housing, mixed-use projects and even office are safe bets in the region
By Julia Echikson March 11, 2024 1:28 pm
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No one thinks conditions are as hot and sunny in South Florida commercial real estate as they were for much of the pandemic. But no one’s quite forecasting a cold spell, either. That was the takeaway from Commercial Observer’s South Florida Multifamily & Mixed-Use Forum event last week, which assembled top owners, lenders, brokers and attorneys in Miami.
Both Mitch Sinberg, senior managing director of mortgage banking at Berkadia, and Gregory Freeman, co-founder and co-CEO of BH3 Management, agreed: “There’s a lot of capital sitting on the sideline.”
“The banks here are out of business,” commiserated Stephen Bittel, founder and chairman of Terranova.
Not everyone agreed. It’s all “relative,” said moderator Tony Fineman, senior managing director and head of originations at Acore Capital. Despite his love for New York, Simon Ziff, president of Ackman-Ziff Real Estate Group, spends many months in South Florida in part because of its active market.
Some developers have Greg Newman, senior managing director at Bank OZK (OZK), to thank for that. Newman, who “remains in growth mode,” has closed three construction loans worth upward of $200 million each in recent months. Just last week, the lender closed a loan for a mixed-use project in Edgewater, spearheaded by Erik Rutter’s Oak Row Equities.
Buyers remain hungry, too. Alex Witkoff is under contract to sell a penthouse at his Shore Club development in Miami Beach for $120 million, which could become Miami-Dade County’s most expensive condo sale ever.
“COVID has supercharged our growth,” said Daniel Schwimmer, chief investment officer at the Allen Morris Company, in a panel moderated by Ryan Bailine, an attorney at Greenberg Traurig.
But Miami didn’t always have all this glitz. It’s easy to forget the transformation the city has gone through over the past three years, let alone the past three decades.
When Nitin Motwani, managing partner at Miami Worldcenter Associates and Merrimac Ventures, got started on Miami Worldcenter — now one of the largest private developments in the country and the location of CO’s event — the area was home to several vacant sites as well as industrial and low-rise buildings.
“It took us 10 years to do the first $1 billion — 10 months to do the next billion,” Motwani said.
Dan Kodsi, founder and CEO of Royal Palm Companies, was also a pioneer as one of the first to develop a luxury condo in Edgewater, when the neighborhood was known mostly for drug dealing and other crime in the 2000s. Now the area is seeing a rush of luxury development.
Similar transformations could be coming to other South Florida asset classes such as office.
“It’s all cyclical. Office will come out,” said Sondra Wenger, CBRE Investment Management’s head of commercial real estate in the Americas.
Some are already preparing for the recovery. Late last year, Constellation Group, led by principal Eduardo Ignacio Otaola, another CO panelist, secured a $33 million construction loan for a mixed-use project with a sizable office component in Coral Gables.
Now retail is recovering from the depth of the pandemic, especially in Miami, according to speakers of the next panel, “Hospitality & Retail: What Disruption and Innovation is Impacting the Market?” which included Nick Falcone, founder and CEO of Rentyl Resorts.
“If you buy at the right basis, you wake up in five years in the right location; Miami retail should trade right,” said Ben Mandell, managing partner and CEO of Tricera Capital.
Curation is key. “Finding those tenants that are really involved, that are going to be incredible advocates for the neighborhood, is something very important,” added Jessica Goldman Srebnick, co-chair of Goldman Properties.
But success brings on new sets of challenges. “Miami got a little greedy and priced itself a bit too high,” said Cassie Resnick, managing director at Mast Capital. “It’s expensive to build.”
Harvey Hernandez, chairman and CEO Newgard Development Group, and Alfonso Costa, COO of Falcone Group, agreed. They were panelists on “Challenges and Opportunities in Luxury Multifamily Development in South Florida,” which was moderated by Philip Rosen, a partner at Shutts & Bowen.
“The difference between the bid and the asking price [is wide],” said Jeffrey Ardizon, principal at The Estate Companies. “We’re being picky.”
The increased cost has forced some to change their business models. “We were a dominant rental high-rise developer just a few years ago in South Florida. Now we are categorically out of that business,” added Greg West, CEO of ZOM Living. “It’s pushed us into the suburbs, where we build garden-style communities and get more in rent.”
These days, perhaps the greatest opportunity of all right now is in affordable housing, thanks to Florida’s Live Local Act. The legislation, enacted last year, grants developers tax breaks and density incentives in return for adding workforce housing units.
“It gives you an arsenal” to get projects done, said Lissette Calderon, CEO of Neology Development.
And “affordable is one of the only products getting financed today,” said Buwa Binitie, founder and CEO of Dumas Collective.
However, it seems like many in the real estate industry don’t realize that. When the panel — titled “What’s Being Done to Help Miami’s Affordable and Workforce Housing Crisis?” moderated by Natalie Levkovitz, co-founder and CEO of Equally Crafted Management — started, the crowd turned over.
And, yet, the importance of affordable housing could not be overstated. “You don’t want your service worker living hours away,” said Alexis Bogomolni, founder and CEO of ABH Developer Group.
The Live Local Act “allows us to bring below market rents for a luxury product,” added Asi Cymbal, chairman of Cymbal DLT Companies.
“I think Live Local is the seminal piece of affordable housing legislation post the low-income tax credit,” said Donahue Peebles III, executive vice president at The Peebles Corporation. The bill “solves the most pernicious issue, which is the missing middle, when folks in the middle get squeezed.”
Then there was the big elephant in the room throughout last week’s forum: Will South Florida experience a crash? Apparently not, according to global power player Miki Naftali, chairman and CEO of Naftali Group: “We’re gonna have a slowdown, but it won’t be as severe as before because of the lack of quality product.”
Panelists also included Joe Berko, CEO of Astor Realty Capital; Carlos Melo, owner of Melo Group; Eugene Rutenberg, CEO and founder of Celestial Fund; Nick Gati, team lead at analytics firm Yardi; and Jess Johnson, global head of partnership at office experience platform HqO. Moderators included Sabina Covo, co-founder of Sabina Covo Communications; Manuel Crespo, a partner at Greenspoon Marder; and Mark Mindick, partner and national real estate practice leader at Citrin Cooperman.
Julia Echikson can be reached at jechikson@commercialobserver.com.
