Experts Bullish On Miami Commercial Realty Values
By Marilyn Bowden
Commercial real estate values continue to fluctuate depending on asset type and quality, but market experts are bullish about fundamentals that should help raise valuations.
During the past year, said Ross Manella, a shareholder with law firm Hinshaw & Culbertson who represents institutional and other large investor groups, there’s been a noticeable flight to quality among tenants that has increased the value of trophy properties nationwide.
Added to low cap rates, that produced a buying frenzy in high-profile markets such as New York and Washington, DC.
Now, he said, "I see people moving into areas such as North Carolina, Seattle and Minnesota that don’t have the celebrity flair. I think it bodes well for Miami.
"Investors are looking for stability and 24-hour gateway cities. As the economy picks up and we get more foreign investors in the Miami area, will see more demand for those types of properties."
"The value of a property is highly correlated to the cash flow that it produces," said Steven Cohen, senior vice president of commercial real estate at Sabadell United Bank.
In the local office market, he said, a property such as 1450 Brickell, which is well-located, highly functional and has good leasing activity generating cash flow, would appraise well. Appraisals for others that have been slower to lease up would be a little less.
According to the Regional Report for Miami-Dade County in the first-quarter Survey of Emerging Market Conditions from the Warrington College of Business Administration at the University of Florida, the investment outlook for the office market is very positive, and occupancy is expected to increase somewhat — but rents are still expected to decrease in the near future, especially in class A buildings.
The study surveys real estate executives at major brokerages in the area.
Expectations in the survey for the local industrial market, particularly for warehouse space, is more optimistic, with strong increases forecast in investor interest, occupancy and rent.
"Industrial space in the county has remained relatively strong," Mr. Cohen said, "especially if it is well-located and functional. We expect to see rental rates move up as the economy gets stronger."
However, multifamily remains the hottest property type in Miami-Dade, said Brian McCarthy, vice president of Atlanta-based Off-Market RADAR, which tracks foreclosures, loan sales, mortgages, deeds, CMBS loans and other transactions in major Florida markets.
The University of Florida’s survey records high expectation for occupancy gains in the near future for multifamily, an indicator of rising value.
Retail is starting to become more attractive, Mr. McCarthy said, "largely because the asset class is so robust and well-understood in general, and because the tenants offer both recognizable names and stability at the corporate level, with strong balance sheets and access to deep capital markets."
Angel Medina, an executive vice president at Gibraltar Private Bank and Trust, said individual investors have entertained a wide range of interests in smaller commercial properties, from anchored shopping centers to apartment buildings.
"Pricing has remained low and stable," he said, "with intense competition amongst lenders. Given the recent real estate crisis, clients are entering the market more knowledgeable, and with the understanding that property values will not rise as quickly. They have more of a long-term orientation."
Concerns that a rash of commercial mortgage-backed securities, or CMBS loans, coming due would flood the market with foreclosures, keeping commercial values depressed, have so far not been realized.
"We’re not seeing it," Sabadell’s Mr. Cohen said. "In some cases the lender has either restructured or renewed it in hopes that the property value will come back.
"Some borrowers have actually reduced the loan amount to get to an amount that fits today’s collateral, and we have been able to bring some of those loans back to the commercial market."
Mr. McCarthy reported that in February, none of the commercial foreclosures over $2 million in Miami-Dade were CMBS loans.
"CMBS loans are much more likely to be sold in the current environment than bank loans," he said. "Opportunistic investors buy CMBS loans either in off-market transactions or some type of bidding scenario, and with less pressure from bondholders or other interested parties, they are able to find ways to work with defaulted borrowers in ways that allow those owners to retain some interest in an asset, even if that interest is minimal and far into the future."
Except for a spike in January, Mr. McCarthy said, the number of commercial foreclosures countywide has been on a downward trend since November.
However, he said, April’s share of $2 million and up deals made up almost half of all commercial foreclosures over $250,000.