The Year in Real Estate: Market Short on Trophy Sales, Yet Stronger Than Before
Sabadell Financial Center, 1111 Brickell Avenue. Photo: J. Albert Diaz
At first glance, it appears the real estate market this year slowed compared with 2017 and late 2016 when trophies were trading with ease. But don't jump to conclusions.
Ken Krasnow.
"The total volume might have gone down, but that's not indicative of a lack of demand or a market that's correcting or anything like that," said Ken Krasnow, executive managing director at Colliers International South Florida.
The average price per square foot for the 10 biggest sales through September, a more telling metric than total dollars, in each asset class has increased compared with the first three quarters of 2017.
In office transactions, the average price per square foot reached $309, or 7 percent higher than last year's top deals. In retail, the price hit $393 per square foot, up 8 percent. In industrial, the price reached $140 per square foot, up 30 percent in a booming market, according to Colliers.
The hospitality industry also is healthier if the average price per room for the top 10 deals is an indicator. It reached $280,702 this year — a 34 percent increase from last.
The older trades like the $516 million Southeast Financial Center and the $283 million sale of 1111 Lincoln Road are anomalies, Krasnow added. Because there's a limited number of these asset types, they trade infrequently.
MARKET OVERVIEW
Still, a year-over-year comparison of South Florida's top deals shows some asset classes netted bigger deals in the year ended Sept. 14 compared with the previous period, but others were void of trophy transactions.
Dollar values for office and retail deals weren't as high. But industrial and hotel scored significant trophy trades in the past year unlike the year before. Multifamily and land deals were on track with apartment building sales staying strong in light of a residential market that's largely turning to apartments rather than condominiums on both the tenant and investment sides.
Hotels might end up being the sector with the biggest deal this year — with talks reported for a $500 million trade of the 426-room 1 Hotel South Beach at 2341 Collins Ave.
MSD Capital LP, a New York-based investor that exclusively manages the capital of Dell Technologies founder and CEO Michael Dell, has been negotiating to buy the hotel for nearly $1.2 million per room from Greenwich, Connecticut-based Starwood Capital Group, according to media reports.
MSD Capital declined comment. Starwood and listing broker Hodges Ward Elliott didn't return requests for comment by deadline.
If true, this sale would be triple the price of the top hotel deal for 2017 and late 2016, the $163 million trade of Fort Lauderdale's Pier Sixty-Six Hotel & Marina in December 2016.
From the confirmed deals, the office market this year, just like last, scored the top trade.
New York-based global investor KKR & Co. Inc., in partnership with Orlando-based office real estate owner and operator Parkway Properties Inc., paid $248 million for the 522,892-square-foot, 30-story Sabadell Financial Center on 1.78 acres in Miami's Brickell district. The building is also called 1111 Brickell.
The top retail deal was made by Illinois-based InvenTrust Properties Corp., which focuses its real estate assets on supermarket-anchored properties, buying the Trader Joe's-anchored PGA Plaza at 2658 PGA Blvd. in Palm Beach Gardens for $88 million from Delray Beach-based Menin Development Inc.
The Sabadell and PGA Plaza deals amounted to less than half the prices of the top deals in their sectors in the past two years, namely the $516 million Southeast Financial Center and $283 million 1111 Lincoln trades.
The category that pulled ahead for the year on major transactions is industrial. In the biggest industrial deal of the year, Flagler Global Logistics, a supply chain manager, and Florida East Coast Industries LLC subsidiary sold more than 1 million square feet of Hialeah industrial space for $180 million to Indianapolis, Indiana-based Duke Realty Corp. in July. The buildings that traded are part of the bigger Countyline Corporate Park that Flagler's been developing on the northwest corner of Northwest 154th Street and 97th Avenue.
"This is just a unique phenomenon seen in industrial space that you don't have in some of the other asset classes — new development," Krasnow said. "Newly built, meeting all the new bells and whistles for whatever product you are delivering and then newly leased with long-term credit tenants. That is the true definition of a core investment."
Also notable was the $92.2 million trade of a portfolio in Medley and Hialeah Gardens. Boston-based real estate investor TA Realty LLC through an affiliate bought the 10-lot portfolio from a limited liability company registered to Coral Gables-based real estate investor COFE Properties, according to the county property appraiser's office and the state Division of Corporations.
PLAYERS IN, PLAYERS OUT
This year Boca Raton-based investor Crocker Partners LLC unloaded two of its major downtown Miami holdings while retaining the 34-story Citigroup Center east of Biscayne Boulevard.
At the same time, Sabadell Financial buyer KKR is a new South Florida investor as it had no real estate in the region before the purchase.
Roger Morales.
It was attracted in part by population growth and the live-work-play urban core, said Roger Morales, KKR member and head of commercial real estate acquisitions for the Americas.
The population in downtown Miami and Brickell is getting younger with the biggest group being people between 24 and 44 and the second biggest group being children up to 14, Morales said KKR research shows.
"Which basically proves the Brickell-downtown area of Miami is finally really a kind of a 24-hour live-work-play city, not just a place where people work, which historically for some time was the case," said Morales, based in New York. "You've got really young people living there. There's a lot of restaurants and a lot of commercial activity coming online. From a demographic perspective, just the idea that today so many people are within those age demographics, 24 to 44 and zero to 14, means they are working there and/or starting families there, which was part of the investment thesis for us."
The retail, dining, office and residential Brickell City Centre added to the "urban feel" of Brickell, Morales added.
Warren Weiser.
Warren Weiser, co-founder and chairman at CREC in Coral Gables, confirmed interest is coming from new investors. The office market, like the retail segment, has been strengthened by limited new development, he said.
"Most of the other people that have come to South Florida to invest have been here in the past," Weiser said. "But I can tell you that we get calls all the time from new capital coming to look at properties whether they'd be office or retail that are always interested in finding new properties in South Florida."
As for Crocker Partners, it sold the 770,195-square-foot, 31-story SunTrust International Center in May for $127 million to real estate finance and investment management company PCCP LLC and was part of the joint venture selling the 291,554-square-foot, 33-story Brickell City Tower this month at 80 SW Eighth St. to a New York Life Insurance Co. subsidiary.
With these sales, Crocker closed on its value-add business strategy.
"Our general investment strategy is to acquire underperforming assets, enhance them by correcting the issues that contributed to their condition and then selling them to the market. This is the reason we sold Brickell City Tower and SunTrust International," said managing partner Angelo Bianco. "Both assets are positioned for continued growth in the dynamic Miami market, but our business plan was to sell once we added the value."
The SunTrust deal was the second biggest in the office market and Brickell Tower in No. 3. They are trailed by the $108.5 million sale of the 351,705-square-foot, 19-story 1 East Broward by Ivy Realty to a joint venture of affiliates of West Palm Beach-based NAI/Merin Hunter Codman and PCCP, which has offices in New York and California.
"What you see is a big trend of having a local operating partner teaming up with institutional equity that have funds in the billion dollars or more," Weiser said. "They are eager to get out a significant amount of capital and are eager to look at deals that are very large in size."
BIG HOTEL SALES
Kobi Karp.
If the reported $500 million sale of 1 Hotel South Beach closes, architect Kobi Karp will take some credit. Karp's Kobi Karp Architecture & Interior Design was hired by Starwood to improve the former Gansevoort Hotel.
"That's where the value was created in my opinion. Not only did we create a retail and food and beverage along Collins Avenue, it opened up the building to the street and also opened it up to the ocean. There was no connectivity to the ocean," said Karp, principal in charge. "This hotel now has a beach club, a full city block beach club with volleyball, with food and beverage on the ocean along the newly created Miami Beach boardwalk connected to the W South Beach to the south and the Bass Museum District and The Setai."
Even without this deal, the hotel sector has scored top trades.
The Margaritaville Hollywood Beach Resort in April traded for $190 million, the biggest confirmed hotel deal this year, trailed by the $170 million trade of the Hilton Fort Lauderdale Marina in May. Both are bigger than the $163 million Pier Sixty-Six trade last year.
Some say there's pent-up demand following a slowdown following the 2016 Zika outbreak and the September 2017 Hurricane Irma.
Alexandra Lehson.
"Those issues have become a non-issue for South Florida. They did slow things down a little bit, particularly the Zika, but that has resolved itself," said Alexandra Lehson, a Bilzin Sumberg partner in Miami.
Also, the South Florida hospitality industry no longer is divided into the slow summer season and the busy winter season. It's busy year-round, Karp said.
"The summer today is filled by South Americans who have cold weather" at home, Karp said. "Brazil and Argentina and Ecuador and Venezuela and Peru, they want to come here. We here in Miami used to have a winter but no longer."
His firm is getting calls to refurbish hotels about every five years, more often than the usual eight to 10 years between hotel overhauls, he said.
LAND
The land market remains akin to last year's in terms of transaction values, with one exception.
Coral Gables-based Landstar Development Group through an affiliate bought part of the more than 4,000-acre vacant Avenir site at 12200 Northlake Blvd. in Palm Beach Gardens for $95 million from Avenir Development LLC.
Landstar is planning a mammoth project to be developed over two to three decades. It would include 3,900 homes, including some senior housing; 1.8 million square feet of office space; a 300-room hotel, park and a city annex, according to an Aug. 22 report in the Palm Beach Post.
Jason Shapiro.
"The sellers of this site many years ago bought this ranch that was agricultural and didn't have the zoning for commercial use. And they thought, 'We are going to pay for it whatever they paid for it back then and go through the process with the county and the city of having it entitled for different commercial and residential uses,' " said Jason Shapiro, Aztec Group Inc. managing director.
This $95 million sale is not only the top deal so far this year but also is the biggest land sale in more than a year.
"It also represents a validation of what the owners of the larger (Avenir) site who bought it several years ago anticipated as the future value once they could get it entitled for higher and better use," Shapiro said.
It also shows land value is growing along with population growth and western sprawl.
"It's significant because it shows you that as western Palm Beach County becomes more infill, you'll see larger pieces of land become more valuable as population grows and there's migration west to undeveloped areas."
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