Tag Archive for: foreign investment

The South Florida Answer To West Coast Logistic Bottlenecks

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South Florida’s industrial market fundamentals, particularly for bulk warehouse space, blew through the third quarter of 2021 on strong leasing demand and new construction

The region’s healthy consumer market and growing population helped push investor and occupier confidence in the industrial market, which is likely to continue through 2022.

The backlog at West Coast ports is causing weeks of delays for goods that need  to travel to East Coast markets, making warehouse/distribution space in South Florida an attractive and faster alternative from a distribution standpoint. Bottlenecks in the supply chain are realigning how many firms view real estate needs locally with a shift in philosophy for inventory management.

Previously, companies focused on lean supply chains where materials and goods arrive “just in time.” In a market like South Florida, that meant limited amounts of warehouse space were needed.  Now, companies are turning to an inventory strategy that follows a “just in case” model, where more goods are stored closer to customers to minimize fluctuations in demand. South Florida, with three deep-water ports, has the capacity to address the immediate logistics needs for companies with changing inventory strategies.

In the last year, 18,200 new industrial and warehouse-related jobs were created in Miami-Dade, Broward and Palm Beach counties. They were added because of big-box expansion by e-commerce firms, together with a push into last-mile facilities. Hiring also occurred with traditional retailers, plus new-to-market entrants, which increasingly viewed the tri-county as a strategic location to serve the immediate needs of customers.

New inventory and aggressive development captured some of the new employment. In the first nine months of 2021, 5.4 million square feet of new industrial space was delivered in the region. As the industrial inventory and deliveries grew, so did the occupiers’ space requirements for square footage, but new construction could not keep up.

As of the end of the third quarter, 6.6 million square feet of industrial space was under construction, with three projects representing 1.8 million square feet of new inventory. Still, overall industrial vacancy in South Florida fell to 4.4 percent in the third quarter. Both Miami-Dade and Palm Beach County were even tighter at 3.3 percent, with Broward County coming in at 5.9 percent as available space throughout the region decreased year-over-year.

While not a record-setting year yet, new leasing activity year-to-date of 11.6 million square feet was only 18 percent less than the full amount for all deals done in 2019. Net absorption, or the amount of space absorbed by tenants, was 7.8 million square feet in 2021. That represents a 250 percent increase in the amount of space absorbed when compared to 2020.

yc37i south florida industrial absorption The South Florida Answer to West Coast Logistic Bottlenecks

In Miami-Dade, leasing reached more than 6.8 million square feet year-to-date, an increase of 15.5 percent compared to the same period one year ago. For that same period, Broward County recorded more than 3.6 million square feet, a 36.1 percent rise from 2020. Palm Beach County had 1.0 million square feet in new leasing activity so far in 2021.

Limited availability on heightened demand allowed landlords to push asking rates to all-time highs. Overall average asking rents for all South Florida were at $9.87 per square feet, triple net, the highest amount recorded. Rents in Miami-Dade were at $9.17 per square foot, a 7.1 percent jump from last year. And Broward County also reached an all-time high of $10.27 per square foot in the third quarter. Palm Beach County topped out at $11.07 per square foot with the asking rate rising steadily over the last three quarters as construction picked up.

AfGHE south florida industrial rents e1637699131823 The South Florida Answer to West Coast Logistic Bottlenecks

Confidence in South Florida’s economy and potential for growth will only be enhanced by the lifting of U.S. restrictions on foreign travel. The influx of travelers and investors from overseas, starting over the holidays, will contribute to additional optimism in industrial market fundamentals in the region. The longer that challenges remain at West Coast ports to efficiently move goods into the United States means that South Florida becomes the better, more reliable strategic alternative for companies. The region’s positive fundamentals post pandemic,including solid population growth and rising incomes, make South Florida an attractive market for investment.

 

Source: Commercial Observer

 

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The US Commercial Real Estate Market Goes On Sale For Foreign Investors

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The US commercial real estate market is looking very cheap to foreign investors, who find their currency hedging costs aligning nicely with the direction of interest rates.

Currency hedging costs are driven by interest rate differentials between two currencies. Low US rates translate to lower costs for foreign investors looking to hedge the currency risk of their US investments. Here is why this dynamic is expected to continue.

 “Short-term and medium-term rates drive hedging costs,” Ciccy Yang, director of Global Markets for Hudson Advisors told listeners in CBRE’s weekly podcast. “And on that front, the Fed’s been giving very strong hints that more fiscal stimulus is needed to keep the economic recovery on track.”

If the stimulus is less than what the Fed prefers, Yang thinks it may have a more significant role in spurring the recovery. Its tools include more quantitative easing for an extended period and a further delay on the next Fed hike.

“The Fed currently forecasts that they’re going to be on hold until the end of their forecast horizon at year-end 2023 as per their dot plots,” Yang says. “In other words, they’re already forecasting short term rates will be bound to zero for quite a long time. Now, we already saw significant hedging cost declines from the beginning of this year when US rates fell significantly in the flight to quality and Fed easing on the back of the onset of COVID-19.”

The five-year annual hedging cost for Euro-based investors in the US has fallen 100 basis points this year to 1.2% today, according to Yang. In the same period, it has fallen 50 basis points to 2.6% for South Korean investors.

“There probably isn’t that much more room for these levels to fall further,” Yang says. “But given the likely expectation of accommodative Fed policy, it does feel like the lower currency hedging costs are generally here to stay in the near term.”

So far though, foreign investors are, for the most part, not biting.

In Q3, cross-border investment fell 71% year over year to $3.5 billion, according to Real Capital Analytics. This is still better than the low of $0.5 billion seen in the depths of the Global Financial Crisis.

The drop-off in cross-border investment might be partially the result of the types of properties being sold. Cross-border groups find it easier to purchase larger properties. Sales for assets priced greater than $50 million fell 61% year-over-year in the third quarter, while properties priced $5 million and below fell 39%, according to RCA.

Some foreign CRE investors, however, are stepping up their US  allocations. In the first nine months of the year, Korean investors accounted for 8.6% of all overseas investment in U.S. commercial real estate, up from 3.7% a year earlier, accordingto the Wall Street Journal,  citing Real Capital Analytics numbers.

South Koreans invested $1.56 billion, up from $1.24 billion a year earlier, trailing only Canadian and German investors, the WSJ said. A year ago, South Koreans ranked 10th among foreign investors in U.S. real estate.

 

Source: GlobeSt

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Here’s What Could Happen To The EB-5 Program In A New Administration

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The EB-5 immigrant investor program, which has been used to fund major development projects throughout the United States, has been limping along for the past few years, and some have even predicted its demise after rules were tightened last summer.

How might the program, which awards U.S. green cards and visas to foreigners who put a minimum of $900K into a U.S.-based project that creates or retains at least 10 U.S. jobs, fare under a Biden presidency vs. a second Trump administration? That’s a question on the minds of wealthy would-be immigrants, as well as U.S.-based developers happy to borrow money from them cheaply.

The answer, though, is fraught with politics.

“This program is an economic development program, but it’s painted with the brush of immigration,” said Aaron L. Grau, executive director of Invest in the USA, a trade group.

“Immigration is really not being touched, because it’s politically a time bomb,” said Ronald Fieldstone, a partner with the law firm Saul Ewing Arnstein & Lehr in Miami.

EB-5 has been pitched as a win-win-win-win program: the investor gets visas for him or herself and family members, plus his or her money back with a little interest; developers get access to cheap capital; and American workers are employed. An entire industry of EB-5 regional centers, which pool and loan out the investments and facilitate the visa process, sprang up as well.

While EB-5 was a lifeline of capital for developers when banks curtailed lending during and after the Great Recession, the program has been beset by ongoing allegations of fraud. It has been continually reauthorized by Congress, but only for short periods of time. It is currently reauthorized through Dec. 11, after which any new administration will likely re-examine it, potentially through a foreign investment lens.

Generally speaking, President Donald Trump has cut immigration to a trickle, though he’s spared people immigrating via EB-5. Former Vice President Joe Biden‘s platform is more open to immigration, but both politicians are wary of political backlash, Grau and Fieldstone said.

“The Obama administration was relatively neutral about EB-5,” Fieldstone said. “There are also other factors at play, such as who wins the Senate control of the Judiciary Committee, which oversees Homeland Security, which oversees USCIS,” the U.S. Citizenship and Immigration Services, which runs the EB-5 program.

Fieldstone said that legislators don’t always support EB-5 along party lines, but instead because of rural/urban concerns since most of the program dollars get invested in urban areas. Sen. Chuck Grassley of Iowa and Democratic Sen. Patrick Leahy from Vermont have led the charge calling for reform of the program to stem fraud and abuse.

“There’s a good chance one of them could come to chair the Senate Judiciary Committee and set the tone for EB-5’s future,” Fieldstone said.

Grau pointed out that significant changes were made to the program last year, most notably that the minimum investment went up from $500K to $900K.

But interest in the program has dropped precipitously since the coronavirus began, as stricter rules and additional factors have dampened enthusiasm. Sharing an analysis of USCIS data, Lee Y. Li, director of policy research and data analytics for IIUSA, noted that 4,285 EB-5 investors filed petitions for immigrating in the first half of fiscal year 2020, but most of those probably invested funds before the new regulations took place.

“And only 21 I-526 petitions were filed in Q2 FY 2020, when the new regulations fully went into effect,” Li said.

The USCIS website shows that more than 100 regional centers have closed this year. But developers would still love to have cheap EB-5 loans as part of their capital stack.

“Developers will still be interested in using EB-5 funds due to the extremely low rate of approximately 1%,” said J.C. de Ona, Southeast Florida Division president of Centennial Bank. “With banks lending more conservatively nowadays, EB-5 funds can be used to bridge the capital gap required by a senior lender. If done correctly, it can be a win-win for everyone.”

Going forward, Grau said that industry leaders would be happy to find common ground to assuage concerns about the program.

“Senior staff at USCIS, Sen. Grassley’s office, Sen. Leahy’s office, the Judiciary Committee staff on the House side all agree that any reauthorization of the program needs to include integrity measures,” Grau said. “There will be material changes regardless of who is president. Right now, the law does not require that annual reports be provided to investors. The devil is always in details, but the industry is behind integrity measures. There’s no requirement that there be third-party evaluations or audits. We support that.”

Families that pursued visas so that young people could attend college in the U.S. have been put off. In April, Trump issued a temporary ban on immigration that has since been extended through the end of 2020 (though it spared people using EB-5).

Rohit Kapuria, counsel in Saul’s Chicago office said. “There is a sentiment globally that the U.S. under this administration is not immigrant-friendly,” which has led to a drop in demand from would-be foreign investors.

The administration has fought legal battles over whether students stuck abroad during the pandemic would meet their visa requirements, and over wages for workers on H-1B visas. Furthermore, the State Department now recognizes Hong Kong as a part of mainland China, which will result in longer backlogs for applicants.

“It’s those types of restrictions under this administration that have had a very negative effect on EB-5, because the bottom line is: The U.S. is no longer an immigration-friendly jurisdiction,” Kapuria said. “So EB-5, by default, obviously, take the hits. Other countries are now capitalizing on investment-based immigration services, such as New Zealand, Portugal, Australia, Cyprus. These are all immigrant-friendly jurisdictions. In Canada, people are basically saying, ‘Why go to the U.S. if there’s a certainty of more anti-immigrant flavor?’ They’d rather go elsewhere. That’s been something that we are concerned about, at least in the immigration world. What would happen if we have four more years?”

“For now, the focus of the market will be on who wins the general election, as investors try to price in risk under each possible administration,” Fieldstone said. “No. 1, getting the election over is good. It doesn’t matter who wins. It’s good to get the election over so the uncertainties in positions taken by the politicians and the parties will become much more clear.”

 

Source: Bisnow

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CRE Investors React To Federal Rate Increases

As many expected, the Federal Reserve recently decided to raise interest rates to the range of 1.5 percent to 1.75 percent, and the increases are likely to continue in 2018.

In March, the Federal Open Market Committee meeting announced its expectation for “further gradual increases” this year. Interest rates are extremely important in the evaluation and performance of any commercial real estate investment due to their impact on the present value of future cash flows. Higher rates make borrowing more expensive for owners, and tend to raise cap rates and reduce property values. However, higher rates also mean a stronger economy, which tends to be associated with a stronger real estate market.

So how will these increases affect commercial real estate investors? Alex Zylberglait, Marcus & Millichap’s senior managing director of investment, delves into how the increase in interest rates is impacting both foreign and domestic investment in U.S. real estate.

How will the rise in interest rates influence the commercial real estate market?

Zylberglait: The Federal Reserve recently raised interest rates by a quarter of a percentage point and is expected to raise rates twice more this year. As a broker who handles investment sales targeting properties in the range of $1 million to $20 million, which is the most active segment of the CRE market in South Florida, I can say that I haven’t seen much of an impact in the commercial real estate market yet. But having said that, I do anticipate a delayed effect, with rates influencing the market in the next three to six months. What I am beginning to see are prospective buyers locking in rates for long-term financing.

On the other hand, I am seeing more properties hitting the market, as property owners seek to cash out before cap rates go up as a result of rising interest rates. For example, one of my clients who owns an office building in Miami has a mortgage that’s maturing and debt coming due. Due to rising interest rates coupled with a maturing mortgage, my client wants to unload the property now instead of selling in a higher interest rate environment. But rising interest rates is one of many factors positioned to impact the CRE market this year.

How will higher interest rates impact foreign vs. domestic investment?

Zylberglait: The impact of rising interest rates will most likely be less on foreign investment than on domestic investment. The foreigners who use financing pay a much lower interest rate in the U.S. than in their home country.

However, what we’re seeing is foreigners unloading their CRE assets. For the past seven years, foreign investors have steadily moved away from buying pre-construction condos and turned their attention to CRE properties in Miami. As the Fed raises interest rates coupled with the real estate cycle nearing an end, foreigners are now cashing out for different reasons. Based on where we are in the real estate cycle, foreign investors are selling to capitalize on the rapid appreciation that the South Florida market experienced in the last five years. They no longer expect a significant appreciation so many of them have no reason to hold on to their properties.

Can you give an example?

Zylberglait: One of my clients from Argentina, who has been buying commercial properties in South Florida for nearly a decade, is now selling a single-tenant building occupied by Starbucks in one of Miami’s hottest markets, Doral. He recently renegotiated a nice lease deal with Starbucks to maximize sales proceeds in order to invest in value-add opportunities in the region.

Another one of my clients, Metro Capital Partners, which invests capital from Colombia in Miami, is another example of this trend. Metro recently sold an office building in Miami-Dade County’s West Kendall submarket for $7.9 million, after acquiring it in a 2014 distress sale for $3.2 million. For the most part, these investors are selling to either buy more assets in South Florida or pay down debt on other properties. Foreign investors continue to see our region as a safe place to grow and protect their capital even as interest rates continue rise.

What impact will the rate increase have on the South Florida market?

Zylberglait: In this real estate cycle, a significant amount of assets in South Florida were priced aggressively, with 2015 being the peak. As the market stabilizes or levels off, a rise in interest rates will contribute to faster stabilization of prices, resulting in investors preparing for slower growth and appreciation.

However, some of my clients who are more yield driven are looking outside of South Florida to places like Orlando and Tampa. We are starting to see a migration of investors and developers northward. For example, Dezer, a well-known developer in South Florida, recently purchased a shopping mall in Orlando with plans to redevelop it into an entertainment complex.

Another example is Riviera Point Development Group, a South Florida developer that purchased 3.3 acres on 11551 International Drive, a few miles from Seaworld, where he plans to build a dual-branded hotel, La Quinta Inns and Suites, and Tryp by Wyndham. Riviera Point developed five office buildings in South Florida and a Radisson Red Hotel near Miami International Airport in this real estate cycle. When it came time to purchase more land, Riviera Point’s CEO Rodrigo Azpurua chose Orlando because of land values and appreciation, which can mitigate the impact of rising interest rates. But having said that, I may add that land values in Orlando today are not as advantageous as they were a year ago.

How will the CRE market respond as interest rates continue to rise?

Zylberglait: Everyone knew rising interest rates were coming and as a result, we haven’t seen much of a reaction in the market. There’s no panic. However, the value for Class B and C assets is softening and I expect to see a divergence between Class A, B and C assets.

 

Source: Commercial Property Executive