Tag Archive for: south florida opportunity zones

the road to 2020

So 2019 is drawing to a close, having given the world of commercial real estate things we expected ā€” like a booming industrial market ā€” and things we didn’t (WeWork and opportunity zones were among the greatest flops of the decade).

Bisnow asked some South Florida real estate pros what 2020 may bring. Here are their thoughts:

Jeff Gordon, Vice President, JLL

ā€œWe have a number of interesting new office developments delivering or in the pipeline across Miamiā€™s office market over the next few years. This will create variety and optionality not previously seen in Miami as it pertains to emerging submarkets, deepening options in changing submarkets and the way in which the office use is amenitized with other product types across the market as a whole. This variability will provide opportunities for tenants that approach their future leasing with a proactive strategy. In line with this, it will also be interesting to see the impact that the continued expansion of the Virgin Trains stations will have on the connectivity of Aventura and Boca with our Central Business Districts and the continued goal of connecting Floridaā€™s growing talent and workforce.ā€

Tere Blanca, Founder and CEO, Blanca Commercial Real Estate

“Miamiā€™s vibrant and diverse economy, its business-friendly environment (and tax advantages) and its convenient lifestyle and connectivity to the world via Miami International Airport will continue to spur the relocation to Miami of talented professionals and companies across various industries both domestically and internationally. Key factors driving this movement include this increase in people relocating here due to tax incentives including the lack of a state income tax. The strong population growth in the past five years, with continued projected growth, will continue to motivate companies to establish a presence in Miami. Also, the uncertain political climate in key Latin American countries may attract investment into Miami from these markets that include Mexico and other nations. With limited new office supply delivering in 2020 and robust demand from companies touring the market, we expect the market to remain stable and steady with positive absorption and modest increase in rents. Also, new office deliveries in 2020 will be well-received given Miamiā€™s persistent flight-to-quality trend and this in turn will drive owners of older, existing buildings to undertake strategic renovations to remain competitive. With flight-to-quality prominent among tenants today, we expect new supply to attract tenants across various submarkets, while also attracting new-to-market entrants.ā€

Cory Yeffet, Director of Acquisitions, Integra Investments

“We expect multifamily development and sales to remain active in 2020. Although rent growth has slowed due in part to significant new supply, demand remaining strong and multifamily cap rates remaining at record lows will continue to support a healthy development and sales environment. This is why Integra continues to be active in the sector, with four multifamily projects under development in South Florida, including the 315-unit Bella Vista project in Lauderdale Lakes, which we intend to deliver and stabilize in 2020. The biggest commercial real estate concern we see for 2020 is the uncertain impacts of the election year, and how global economic and sociopolitical dynamics may slow down private sector expansions.”

Doug Jones, Co-founder and Managing Partner, JAG Insurance Group

ā€œFor about the last 10 years, rates have consistently gone down. But with the influx of natural disasters, reinsurance went up in 2019 and that will continue in 2020. That trickles down to the consumer. Also, while risk of sea level rise continues to be a concern, thanks to the recent expansion of the private flood market, consumers will actually have more options in 2020 than ever before to make sure their assets have the proper coverage.ā€

David Druey, Florida Regional President, Centennial Bank

ā€œI predict minimal, if any, slowing down in deal flow of construction financing in any of the major sectors. Smart developers are seizing the opportunities of low interest rates through use of bank financing for construction financing and securing forward commitments with institution investors for stabilized projects. The ongoing major risk is if the developer can actually complete the project on time and budget. Most of the more substantial projects, outside of apartments, typically have the stabilization piece solved prior to construction commencement.ā€

Ronald Fieldstone, Partner, Saul Ewing Arnstein & Lehr

ā€œThe new EB-5 regulations went into effect at the end of 2019 and we are still seeing increasing interest from investors, especially from Latin America, in the EB-5 program despite the higher threshold. Over the past 10 years, developers have grown dependent on raising EB-5 capital to finance their projects due to the low cost of EB-5 borrowing. We expect it to continue to remain a viable source of financing for development projects in downtown Miami west of Biscayne Boulevard, Little River, areas around Miami International Airport and certain sections of Coconut Grove.”

Stephen Rutchik, Executive Managing Director, Colliers International

ā€œAlthough one of the original iterations of coworking, WeWork has collapsed on a corporate level, I expect that the concept and most of the existing locations will continue to perform well over the next year. On a larger scale, office landlords in South Florida are increasingly incorporating the coworking concept into existing office buildings. This is attracting new tenants who previously would have either been priced out of traditional office space or who require flexibility that a traditional lease cannot provide. The coworking concept is much larger than WeWork. It has quickly become a part of the American office culture and I expect this trend to grow in the coming years.ā€

Adam Lustig, Partner and Incoming Real Estate Practice Group Leader, Bilzin Sumberg

“With continued low interest rates, increased employment and significant population growth, I expect the South Florida real estate market to remain strong in 2020. In particular, I see health-related real estate and senior housing as areas of opportunity with the aging of the population and the need for urgent care centers, hospitals, medical office space and senior housing facilities. As shopping center owners try to adapt to dramatic changes in the retail market, medical, health and wellness uses will continue to expand. The major threats to continued growth in South Florida remain traffic, lack of public transportation and affordable housing. One other threat that is not being talked about enough, but that we are very focused on, is the phase-out of Libor at the end of 2021 which affects trillions of dollars of commercial real estate loans.”

Chris Chakford, Managing Director of Origination, Kawa

ā€œKawa sees ground leases as an ongoing trend in 2020 as banks pull back on commercial fee simple financing in non-core markets, most notably in hospitality and office sectors. With sponsors needing creative solutions to fill out capital stacks and lessen their equity requirement, Kawa has created a ground lease program that offers a complete financing solution to meet these needs. This type of financing vehicle offers a highly adaptable bifurcation structure that accommodates ownersā€™ needs while typically enhancing returns, providing tax benefits, being nonrecourse, and mitigating interest rate risk by offering perpetual financing. In the last three years, Kawa has executed 12 ground lease transactions with a total value in excess of $652M and anticipates ground leases to be a prominent alternative for providing creative financing solutions with flexible capital that can be deployed quickly as we look ahead into 2020.ā€

Peter Mekras, President of Aztec Group

ā€œ2020 is likely to be a year filled with volatility. Interest rates and the political environment both locally and nationally will be the main drivers of market volatility in 2020. Irrespective of the trend of volatility in 2020, we expect capital markets to remain liquid. Equity capital will continue to flow into Florida real estate in 2020. Florida will maintain its label as one of the few states positioned for strong long-term fundamentals and a uniquely favorable business environment for real estate investors. Florida is projected to experience better than national trend employment growth and will continue to benefit from strong population growth. Rental apartments, senior housing and well-located office and shopping centers will be the beneficiaries.ā€

Lissette Calderon, President and CEO of Neology Life Development Group

ā€œAllapattah is seeing significant residential and commercial real estate investment underway that will enhance the neighborhoodā€™s appeal and quality-of-life offerings. With Miamiā€™s growing population seeking lifestyle living alternatives within the urban core at attainable price points, our mission is to provide a solution to this need by developing attainable luxury rental units that are modern, functional and offer upscale amenities.ā€

Michael C. Brown, Executive Vice President and General Manager, Skanska USA Florida

ā€œCome the new year, I anticipate the two sectors poised to fuel Miamiā€™s economic growth will be healthcare and higher education, which continue to be the largest sectors for us across the state and in South Florida. I believe we will also continue to see a more pronounced shift into environmentally friendly building, specifically with companies looking to minimize their carbon footprints.ā€

Martin Melo, Principal, The Melo Group

ā€œ2020 will prove to be a year full of challenges, mostly driven by the political landscape throughout Latin America, the upcoming elections and the increasingly low interest rates and low income tax in Florida. We can expect to see an influx of new residents who come to South Florida searching for a more attractive and stable socioeconomic climate as opposed to the current situation in their own countries. The demand for multifamily and market-rate apartments will continue to rise and interest rates will remain low, which will ultimately spark a bigger interest from developers and investors in the area.ā€

Shawn Gracey, Executive Vice President of Hospitality, Key International

ā€œAs the hospitality industry becomes increasingly diverse, there will be even more emphasis on presenting a unique value proposition to todayā€™s travelers. Weā€™ve found that our customer profile is seeking experience-based and design-driven accommodations in key coastline cities, which led us to develop the AC Hotel by Marriott in Fort Lauderdale Beach, which will be one of the newest, upscale select-service properties in the area when itā€™s delivered next year.ā€

Rishi Kapoor, CEO, Location Ventures

ā€œPointing to various indicators, the fortress submarkets of Miamiā€™s luxury condo inventory are the prominent choice in 2020, compared to areas of oversupply. Foreign buyers will remain a challenge, despite promising pockets from target countries in Latin America; the true stability is in the end user, who traditionally purchases a primary residence rather than investment product, and is more likely to focus on lifestyle moves in the market. This is why more protected submarkets, such as Coral Gables, will be a strategic play, as weā€™re seeing a wave of retirees or empty nesters, coupled with growing families, seeking to place roots in a neighborhood with a thriving business environment, limited top-tier condo product and a historic record for stability.ā€

Miguel DĆ­az de la Portilla, Attorney, Saul Ewing Arnstein & Lehr

“2020 will be an exciting year of American Dream Miami. We have our land use and zoning approvals in place and will be finalizing the design of the project, applying for administrative site plan approval, and moving forward with continuing to work on infrastructure. This will all be happening at a time when people from all over the world are beginning to experience the magnificence of American Dream Meadowlands in New Jersey. Triple Five just opened the entertainment center that serves as a sneak peek to how American Dream Miami will look and the tremendous benefit that it will have on our local economy.ā€

 

Source: Bisnow

opportunity zones

Months after the Treasury and the Internal Revenue Service released the latest round of regulations for Opportunity Zones, South Florida investors and developers are still wary enough about the rules to prevent them from investing.

A report by Bilzin Sumberg and the Urban Land Institute found that only 28 percent of respondents surveyed said that they intend to invest Opportunity Zones and only 7 percent have already done so.

The reason: investors still do not understand basic questions about the program. Nearly one third of the respondents cited uncertainty as their top reason for not investing in Opportunity Zones. The report surveyed 72 developers, investors and other professionals in June who specialize in real estate and finance in Florida.

One of the biggest questions that participants still have is around refinancings. Although the most recent regulations clarified how developers in an Opportunity Zone can refinance a property and qualify for the tax benefits, the report shows that the rules around refinancings are not understood by some members of the real estate industry.

ā€œA lot of people still hadnā€™t fully digested the second set of regulations,ā€ said Josh Kaplan, a corporate and tax attorney at Bilzin Sumberg, a Miami-based law firm.

Another reason that investors are avoiding Opportunity Zones is due to the rapid priceĀ appreciation of landĀ in designated zones in South Florida, according to Kaplan.

Kaplan said heā€™s seen reports that land prices in South Florida Opportunity Zones have increased by as much as 30 or 40 percent, making it much more difficult for deals to pencil out for investors.

The Opportunity Zones program allows developers and property owners to defer and possibly forgo paying some of their capital gains taxes, or taxes resulting from the sale of certain assets. To reap the full tax benefit, those who invest in the more than 8,700 Opportunity Zones around the nation must hold the asset for at least a decade.

In Miami-Dade County, Opportunity Zones span distressed areas such as Opa-locka, parts of Overtown, North Miami Beach and Carol City, along with areas where major development is already taking place, like parts of Aventura, Edgewater and the Design District.

From April through September 2018, property sales in those areas tallied $942 million, aĀ 25 percent increase from the same period a year earlier. Several of the Opportunity Zone tracts encompass some of the wealthiest enclaves and megaprojects in Miami, such as Turnberry Associatesā€™ Aventura Mall and the Magic City Innovation District, a planned $1 billion development in Little Haiti.

The report shows that multifamily, however, is the favorite asset class for Opportunity Zones investors. About 82 percent of respondents view mixed-use and multifamily as the asset class most ripe for redevelopment.

Kaplan said he also expects to see more Opportunity Zones deals to close by the end of the year, as investors look to take advantage of the biggest tax benefits, which expire at the end of 2019.

 

Source: The Real Deal