A CRE Sector That is Performing Extremely Well: Investment Sales
The South Florida CRE market is changing again, with one sector of the market performing extremely well. Here is my recent Q&A that describes the condition of the South Florida CRE market.
Q: How busy are you selling/closing deals these days?
A: I focus on deals ranging from $1 million to $20 million and I can tell you that deals priced below $5 million are happening at an increasing speed. Deals closed with cash or small acquisition loans are easier than deals priced north of $5 million. Case in point: I am about to close on a single-tenant property in Hialeah that was initially priced in the mid $2 millions. After receiving more than 15 offers, the property is set to close for about $3 million. I believe that money is out there chasing good assets in the lower price range. Personally, the first half of 2017 has been much busier than the first half of 2016. So far this year, I have closed nine properties in the $1 million to $4 million range, totalling $24.2 million. During the same period last year, I closed three deals.
Q: Is the expectation of more interest rate increases affecting deal volumes?
A: So far, the rate increase has only affected short-term, not long-term rates. From a historical perspective, we are still in a very low interest-rate environment and the short-term impact has been nominal. However, the expectation of new rate increases is creating uncertainty in the marketplace as the real estate cycle levels off. There is no doubt that the Fed’s plan to hit the brakes to prevent the real estate market from overheating is working.
Q: What properties are better positioned to sell?
A: In general, buyers want well-located properties with good fundamentals, such as convenient parking, strong tenancy and good functionality. You are not going to have a difficult time finding office tenants if you’re in an attractive location such as Coral Gables, Aventura or Kendall. Despite all the noise around retail, we’re also seeing investors gravitate toward well-located retail properties.
Q: Is the rate increase deterring foreign and domestic buyers?
A: The level of foreign investment in commercial real estate is still down from two years ago, but foreigners are still seeking a safe place to park their money. Instead of investing in condos or putting all their money into one asset, they are increasingly diversifying by assessing property type and location. I have a client from Argentina, for instance, that started buying assets in Orlando. However, as sellers begin to adjust their asking prices to more realistic levels, we are seeing foreign buyers return to the South Florida CRE market. Overall, foreign investors are attracted to higher yields. There is plenty of smart money looking for deals in Miami but asking prices need to make economic sense at a time when the market is slowing down and lenders are becoming more cautious.