As the South Florida commercial real estate market continues to remain strong, a Summer 2021 event brought together leading commercial real estate investors and financial executives. Held in downtown Miami on July 21, 2021, the BisNow South Florida Deal Flow and Investment Strategies Summit focused on the positive effects of new investment on the market. Among the speakers included, CARROLL Founder M Patrick Carroll leveraged his unique understanding of the multifamily housing sector to provide insights about continued changes and trends.
For perspective, BisNow is the global leader in commercial real estate B2B services. Operating in 50 metropolitan markets across North America, the UK, and Ireland, BisNow regularly hosts strategic regional market events. Bringing real estate industry executives together around a single theme enables the exchange of information and facilitates strategic business opportunities.
Deal Flow and Investment Strategies Summit Overview
The BisNow South Florida Deal Flow and Investment Strategies Summit convened leading South Florida real estate investment professionals and developers. Real estate brokers, economists, and other market experts also attended the one-day event.
Speakers emphasized that South Florida has seen unparalleled levels of real estate investment interest during the past year. They presented a thorough overview of the South Florida capital markets along with the current market conditions. Finally, they explained the major factors underlying the high market confidence and issued their predictions for future market trends.
Further, these knowledgeable real estate investment professionals discussed how this new investment flow is contributing to the market’s continued expansion. Specifically, they explained which asset classes are predicted to realize the best performance during the near future.
To illustrate the vibrant nature of the South Florida market, speakers detailed recent transactions and mentioned the names of specific buyers and sellers. In addition, each speaker noted the property locations covered in these transactions.
Finally, several speakers acknowledged that a number of new South Florida real estate investors have recently entered the market. The real estate professionals also explained the factors that have spurred an increased interest in this rapidly growing marketplace.
Expert Analyses of the South Florida Market
In several panel discussions, the real estate professionals agreed that the South Florida commercial real estate market is experiencing rapid overall expansion. Florida’s steadily increasing population, low taxes, and favorable business policies are conducive to continued market growth.
Ben Jacobson, Trez Capital Managing Director for Florida, emphasized that Florida’s less-restrictive COVID-19 pandemic lockdowns also helped to facilitate the South Florida real estate market expansion. Jacobson also noted that institutional investors were also re-evaluating areas that may not have represented good real estate investments in previous years.
Specifically, the multifamily housing and industrial markets have seen the most activity. At the other end of the spectrum, the office and retail markets each face their own specific challenges. Hospitality-related investments continue to be negatively impacted by COVID-19 pandemic concerns.
M Patrick Carroll on Multifamily Housing Growth
Summit speaker M Patrick Carroll, Founder of the real estate investment and management firm CARROLL, has demonstrated expertise in the multifamily housing arena. CARROLL currently manages more than 30,000 multi-family units located in seven states. The Company has also managed the acquisition of other multi-family property owners/operators nationwide.
What’s Behind Multifamily Housing Sector Expansion
After performing detailed research on multifamily housing sector trends, real estate mogul M Patrick Carroll came to some timely conclusions.
First, Carroll noted that as the United States economy recovered from 2008’s Great Recession, many people returned to urban living environments. They wanted to enjoy the cities’ many amenities along with easily accessible employment options. Convenient shopping, dining, entertainment, and cultural offerings were also a factor in many residents’ decisions.
However, M Patrick Carroll predicts a reversal of that trend in 2021. In fact, he projects an even larger-scale migration back to the suburbs. He also expects this trend to be a multi-year phenomenon.
Factors Behind New Suburban Growth Trends
Several factors will drive this ongoing suburban growth trend. First, suburban areas have historically featured lower-priced housing options compared to urban living environments. When these new suburban residents arrive, they want the same low-maintenance lifestyle afforded by their urban condos and apartments.
In addition, these residents want numerous quality-of-life perks such as walkable amenities and inviting outdoor areas near their homes. They also desire easily accessible workplaces along with nearby shopping and dining venues.
Finally, the growth of the remote work culture shows no signs of slowing down. This trend only accelerated during the pandemic. Many employees found themselves working at home when their non-essential workplaces were ordered to close the doors. Although a substantial percentage of workers have returned to the office, other employers have switched to a virtual workplace model to reduce operating expenses.
To attract this remote workforce, multifamily property owners should ensure that their units contain the necessary technology for workers’ needs. The presence of this increasingly sought-after amenity should more than balance the upfront cost of the technology upgrades.
Further Evidence of Multifamily Housing Sector Strength
Cassie Resnick, Miami-based Mast Capital’s senior vice president of acquisitions, also spoke about South Florida’s multifamily housing sector growth. She agreed that this metropolitan market continues to be strong and noted that there is considerable demand for rentals.
To illustrate, her firm recently finished the development of Waterline Miami, a multifamily project in the Miami Health District. “It’s about 350 units,” Resnick stated. “We’re about 50% leased up, and we’ve raised rents three times in lease-up.”
Looking at the overall multifamily housing market, Resnick noted that it is easy to find capital for generic garden-style apartment projects. In addition, capitalizing on condo complexes is much easier than in previous years.
Aztec Group Managing Director Jason Shapiro, speaking for his investment financing firm, echoed her view that capitalizing on South Florida property investments is an easy proposition. “There’s an abundance of capital, throughout the capital stack, pursuing every kind of deal imaginable.”
South Florida Market Has Three Potential Downsides
The South Florida commercial real estate market continues to see impressive growth. However, three factors could slow the market’s further expansion.
Potential Downward Market Shift
M Patrick Carroll, the CARROLL organization’s Founder and CEO, cautioned that markets that experience an upward trajectory can just as easily turn downward. “Things don’t go up forever,” he warned.
M Patrick Carroll further advised that hikes in interest rates could put a damper on the real estate market’s continued growth. Significant South Florida hurricane damage could also produce negative market effects.
High Property Insurance Rates
High South Florida property insurance rates could also discourage potential real estate buyers, advised Jeff Nelson, Property Tax Alliance Group’s Managing Partner. “The people who come down here are used to paying pennies for insurance. They come down and find out its three times what they’re budgeting.”
Capitalization Rate Restrictions
The increased South Florida real estate investment activity is a positive development. However, stiffer competition for available land has driven those prices higher. At the same time, the applicable capitalization rate has been trending downward.
For reference, a specific project’s capitalization rate (or cap rate) is a term specific to the commercial real estate industry. In essence, the cap rate is the rate of return that is projected to be realized on a specific property. This figure is derived from the property’s expected net income.
There are no clearly defined “favorable” or “unfavorable” cap rate ranges. Industry experts develop these ranges based on the context of the market and the specific property.
Finally, note that a cap rate is a useful tool for comparing two similar property investments’ relative values. However, the cap rate does not take other relevant variables into account. Therefore, this measure should not be the only indicator of a specific investment’s viability.
By keeping a close eye on changing market variables, and viewing each opportunity’s alignment with preset goals, astute real estate investment professionals can obtain a more accurate picture of each project’s feasibility. Then, they are equipped to make an optimal decision.