The long-time and historic site of Miami Beach’s New World Symphony was originally built in 1935.  The New World Symphony is in the process of constructing its new home designed by architect Frank Gehry in a modern structure just North of the current site. The current theatre site is a 38,000 SF building on the Lincoln Road Pedestrian Mall, located at the cross section of Lincoln Road Mall and Pennsylvania Avenue.  The New World Symphony is scheduled to continue operating out of the current Lincoln Theatre until January, 2011.

Plans call for the four story building to be converted to three floors, most probably with retail space on the ground floor and office facilities above.  Plans call for preserving the architectural features of the historic building, with the renovations and construction changes requiring eventual approval by Miami Beach’s Design Review Board. The renovated theatre may be home to as many as four retail shops and restaurants, with potential opening in 2012 or 2013.

This deal means that commercial retail in hot tourist destinations such as Miami Beach continue to command a premium, as some of the top tenants on Lincoln Road have reported retail sales as high as $1,000 a square foot.  Given Design Review Architectural, Density, Height, and Construction Restrictions- a lack of space has made it difficult for larger national chain tenants to find a suitable locations with spaces larger than 5,000-square-feet in Miami Beach’s prime real estate market.

It has been reported in the Miami Herald that the goal of the buyers of the Lincoln Road Theatre site is to create a new Miami Becah city center with a campus-like feel, including a new parking garage and an eco-friendly park.

The consensus is that these are signals that the multi-year economic, and associated real estate, decline is slowing down. This train has to stop sometime, somewhere, and it seems that now it is coasting to a more manageable speed. There’s guarded confidence that, as more jobs become available, people will start spending, creating demand and oiling the economic gears that would stimulate a recovery.

In Miami Beach, particularly, it’s hard to warm up to these predictions because, even as layoffs are slowing in the country as a whole, our tourist driven city still has an unemployment rate of over 11% at the latest count, according to Florida’s Agency for Workforce Innovation. Loans for businesses and commercial real estate are also difficult to obtain, keeping our economic growth at a virtually zero.

Miami Beach hotels, whose income shrank by 23 percent in 2009 and is expected to fall another six percent next year, dropped in value as a result of the lower returns. Operators, unable to meet their debt obligations, have been forced to sell at distressed prices, some have gone into bankruptcy, and deals abound for the visionary investor. The most notable case is that of the Fontainebleau Miami Beach, South Florida’s biggest resort, which after $650 million in renovations and a $5 million reopening party, is now battling creditors.

In addition to tourism, Miami Beach’s economy also depends on small businesses, financial and other professional services, health care, and construction. Only an active credit engine will produce real signs of life in these areas and then we will see housing sales speed up enough to absorb the available inventory and housing prices stabilize. The availability of credit is also the motor that will invigorate demand for commercial properties over time, as the cash on cash returns needed to spur demand depends on the availability of long-term financing.

A few of the latest key commercial real estate market debt statistics to keep in mind as we approach 2010:

• Commercial- mortgage delinquencies rose 0.43% from October to 4.29%
• Hotel delinquency rates jumped to 8.07% from 6.81%
• Multifamily delinquencies rose to 7.02% from 6%
• Industrial segment rose to 3.2% from 3.09%

The key to future commercial market stabilization, and eventual growth, will be the ability to refinance in the coming year.

Statistical Source: Fitch Ratings

If you’re a Miami resident facing foreclosure and want to “modify” your mortgage to keep your single family home or condo, you must meet the following criteria:

• Have secured your mortgage before Jan. 1, 2009
• Have a primary mortgage of less than $729,500 (1st Lien holder only)
• You must live in the property (primary residence only)
• Must fully document income with tax returns and pay stubs
• Sign a financial hardship statement
• Go for counseling if your total household debt totals more than 55 percent of income.
• 31% debt to income ratio for monthly home payments is the overall goal of this plan
• No loan to value ratios apply (this is especially good for underwater homeowners)
• Only one modification will be allowed per homeowner
• Loan Services must take into account the advantages of modifying versus the financial cost of foreclosing on the homeowner
• Borrower receives $1,000/year in principal reduction for on-time payments (five years maximum)

If you meet all the above listed qualifications, your lender will then determine how much to lower your monthly payment so it’s about 31% of your gross monthly income. The interest rate could be as low as 2%.

Homeowners will pay no fees for the modification. However, homeowners could face a balloon payment at the end if your lender reduced your monthly principal payment during the modification. So if your lender reduced your total payments $20,000, you could owe that amount when paid off your loan, refinanced or sold your house.  The new loan rate can go up after 5 years. It’s only low in the beginning to help the homeowner dig themselves out.

This plan will be in effect until the end of 2012 and can only be used once.

2.  Refinancing Option

If your current on your mortgage but your bank won’t let you refinance because your mortgage is “under water,” here’s how you qualify for the government refinancing program:

• Your home must be the primary residence
• Your loan must be owned by Fannie Mae or Freddie Mac
• You must have sufficient income to support the new mortgage debt
• You can’t take cash out of the new loan to pay other debt

There’s another big restriction, however, that will make many South Florida homeowners ineligible for the program: the value of your house can’t have fallen much below the amount of the mortgage.

It is my belief that the loan modification portion of this plan will indeed be helpful to those homeowners that are having trouble keeping up with monthly housing expenses.  Especially those who are committed to keeping their primary residence for AT LEAST five years.  For eligible homeowners, who have have the ability and discipline to stay current with reduced mortgage payments, this plan should provide much needed financial relief.

Barack Obama

One aspect of fiscal spending that has not been widely discussed, however, is whether the stimulus programs will have “domestic content” requirements (for example, would infrastructure programs mandate the use of US-produced machinery, tractors, and steel). Such requirements might significantly benefit US industrial companies over non-US companies, thus continuing potentially revitalizing the industrial real estate market in many parts of the United States.  Given South Florida’s limited availability of industrially zoned land, I believe that the commercial investor should keep a close eye on the incoming Obama administration’s industrial policy and the potential benefits to South Florida industrial/warehouse/heavy manufacturing properties.

Downtown Miami- The Latest Deals & Trends
Six Acres of Downtown Miami Land Sold to Swire Properties, the Hong Kong company that turned a ragged island off downtown Miami into tony Brickell Key, is placing its next South Florida bet.  The developer has snapped up nearly six acres of prime downtown land west of Brickell Avenue. The price tag for the two vacant parcels straddling S. Miami Avenue was $41.3 million.

As many builders and bankers struggle to survive amid the downturn, others are now laying the groundwork for the next upturn — at much reduced prices.  The sale price on the Swire property is a sizeable drop from a recent value near $60 million — and Owens said it was offered to him amid the boom for as much as $115 million.  The all-cash deal with Swire closed last month.  The two-block property is located just north of Mary Brickell Village, a retail and restaurant outpost that’s done much to revitalize the formerly sleepy financial district. Newly constructed condos, hotels and under construction office towers are nearby. A Metromover stop is on one side of the property and the Metrorail runs along the other; access to I-95 is close.

Swire’s purchase is one of a string of recent deals for raw land in the Brickell area. An Alabama developer recently paid $6.27 million for about half an acre across from the Brickell Metrorail stop with plans to build an Embassy Suites hotel. Separately, a Miami group spent $22 million for another roughly half-acre parcel next to the Four Seasons Tower on Brickell Avenue.  Swire has long been known as a prominent but conservative builder in Miami. In 1980 it purchased much of the island now called Brickell Key, commencing a long buildout that includes Courvoisier Centre offices, Mandarin Oriental hotel and condos with names from Tequesta to Asia.

In addition, other developers have assembled large swaths of land in the urban core for building when the grim market brightens again.  A group led by Boca Raton developer Art Falcone and partner Marc Roberts assembled more than 25 acres in Miami’s Park West neighborhood, with plans for a mixed-use project called Miami Worldcenter. Also, a Coconut Grove native Peter Gardner has assembed 13.5 acres in the Miami neighborhood for a project that’s to include apartments, shops and offices along Grand Avenue.

Amendment 5 is a long overdue tax cut for all property owners: families, businesses, second homeowners and investors. Property tax levies have doubled over the past six years – from $15 billion in 2000 to $30 billion in 2006. With higher fuel prices and food costs, and stagnant incomes, it’s no wonder Florida families are struggling to make ends meet. If you’re living the American Dream in Florida, you stand to save 25% to 40% on your property taxes in 2010.

Amendment 5 will jump start Florida’s economy. Economists estimate that Amendment 5 will save property owners more than $10 billion in taxes. This will increase the liquidity and net spendable income of millions of property owners.

Amendment 5 will shift the burden of funding education from property owners to all who access the public school system. Currently, property owners pay a disproportionate share, compared to renters, for our schools. And property owners whose children attend private school pay tuition and public school taxes. By funding schools through sales taxes and other measures, Amendment 5 creates a more equitable tax system.

Amendment 5 offers much-needed tax relief for millions of property owners and continues the momentum created by Amendment 1 – approved by voters in January 2008 – toward reforming Florida’s archaic property tax system. Amendment 5 also pressures legislators to get serious about tapping stable and lucrative revenue sources for schools such as Internet sales (a $3 billion cash cow and an increase in state sales tax — much of it paid by non residents!).

Amendment 5 will provide much-needed tax relief to Florida’s seniors, many of whom fear losing their homes because of an inability to pay higher property taxes on a fixed income. On November 4, you have an unprecedented opportunity to vote YES for the biggest property tax cut in Florida history. Vote YES on Amendment 5.

The Five Most Common Myths about reducing Property Taxes Further:

Myth #1
Opponents say Amendment 5 will take valuable funding away from schools.

False! Amendment 5 requires the Legislature to provide required funding for schools. Instead of the funds coming from property owners in the form of taxes, it could come from sales taxes, reduced spending or any other source determined by lawmakers.

Myth #2
Opponents say Amendment 5 will raise the state sales tax and disproportionately affect the poor and needy.

False on two counts! First, Amendment 5 does not require the Legislature to increase the state sales tax. Second, necessary goods and services will remain exempt from a higher sales tax. These include unprepared food, rent, heating fuel, medicine, electricity and health care services.

Myth #3
Opponents say Amendment 5 equals a sales tax on services.

False! Amendment 5 does not dictate to lawmakers how to make up the revenue to fund our schools — including any new tax on services. It points out obvious options, such as a reduction in spending, and encourages lawmakers to come up with other revenue sources, such as collecting sales tax on items currently taxed in retail stores but not when purchased on the Internet.

Everyone is well aware of Miami’s downtown building oversupply, but just how bad is it? In the last six years, 22,737 units were built or are now under construction in Miami’s urban core — more than double the number built in the nearly 40 previous years, it’s a large figure, but still less than many predicted. Perhaps no section of Florida has seen more building in recent years than downtown Miami’s urban core.

However, with the housing market turning in 2006, the credit crunch of 2007, and inexperienced developers having to cope with rising construction costs & mismanagement, many proposed projects never went beyond the planning stages. With few new projects starting in the past two years, the real scope and size of Miami’s downtown condo craze is starting to come into focus. Although the downtown market still has a vast surplus of condos- it is not 50,000 or 80,000 new units, it’s estimated that 22,000 new units. The bad news is that it is still 22,000 new units.

Colorado-based Affordable Residential Communities was the seller of the property, which previously operated as a mobile home park. The site is across the street from a new Ikea furniture store and a few blocks from the Sawgrass Mills retail complex.

Trammell Crow plans to develop a 481-unit rental community called Alexan Plantation on the site that will consist of garden apartments and townhouses. The price paid for the parcel equates to $581,395 per acre or $51,975 per proposed unit. This is yet another indicator that the SE Florida multifamily rental housing market remains vibrant and strong (particularly in the high density tri-counties of Dade, Broward and Palm Beach).

In the fourth quarter of 2007, apartment vacancy rates diverged. The U.S. Census Bureau vacancy rate for all rental apartments (in buildings with 5 or more units) declined to 10.1 percent, down by 0.3 percent from the previous quarter. The M/PF YieldStar national vacancy rate for investment-grade apartments increased to 4.8 percent. More importantly, both series have changed little over the last 5 quarters and are at exactly the same level as a year ago. The M/PF YieldStar va-cancy rates rose in all four regions. Even so, the rates in the Northeast and Midwest are below the year-ago levels. The South still had the highest vacancy rate at 5.7 percent, while the Northeast had the lowest vacancy rate at 3.5. In the Mid-west the vacancy rate was 5.1 percent, while the West’s va-cancy rate was 3.9.

Multifamily permits and completions declined while multi-family starts increased in the fourth quarter. Permits (5+ units in structure) decreased slightly to a seasonally adjusted annual rate (SAAR) of 328,000, down by less than one percent from the previous quarter. For the year, permits totaled 350,000, the same as the average for the previous 10 years. Completions decreased to a SAAR of 251,000 this quarter, a decline of 2.0 percent from last quarter. For all of 2007, there were 253,000 multifamily units completed. This was a drop of 10.9 percent from 2006 and the lowest level since 1997. By contrast, starts rose to a SAAR of 294,700, a 7.0 percent in-crease from the third quarter. Even so, starts in 2007 totaled only 276,000, the lowest level since 1996. By all measures, new apartment supply clearly remains in check.

Multifamily net absorptions of investment-grade apartments tracked by Reis were 27,218 in the fourth quarter, a decline of 14,574 from the third quarter but the highest fourth quarter figure in seven years. For the year, absorptions reached 114,419, by far the highest level since 2000. In fact, absorp-tions last year were almost as high as the figure for the previ-ous four years combined. Multifamily completions in the in-vestment-grade market increased slightly to 26,107, a gain of 268 from the previous quarter. For the year, completions to-taled 86,200, a drop of 2.1 percent from 2006 and the lowest level of completions in this sector in 12 years.

Apartment rents measured by both public and private data sources showed modest increases. Same store rents for pro-fessionally managed apartments tracked by M/PF YieldStar rose by 3.5 percent from a year ago, a pickup from the 2.9 percent rate of the previous two quarters. The West continued to show the strongest rent growth while the South had the weakest. The CPI rent index, which covers all rental housing, not just apartments, increased in the fourth quarter by 4.0 per-cent from last year, a slightly lower rate of increase than in the preceding four quarters. With overall inflation at 4.0 percent in the fourth quarter, however, real rent actually fell by 0.5 per-cent using the M/PF data (and was flat, using the CPI data).

In the apartment investment market, transaction volume surged in the fourth quarter as a result of the closing of the Archstone-Smith transaction. Fourth quarter volume totaled $36.2 billion, up by 59.9 percent from the third quarter and by 33.1 percent from a year earlier. For the year, transactions reached $98.6 billion, a new record. Apartment price appre-ciation remained positive. The market value of investment-grade apartments in the National Council of Real Estate In-vestment Fiduciaries’ (NCREIF) database rose in the fourth quarter by 0.8 percent from the previous quarter and by 6.4 percent from a year ago. Among apartment transactions moni-tored by Real Capital Analytics, the average price for proper-ties sold in the fourth quarter 2007 was $159,420 per apart-ment unit, up by 46.6 percent for the quarter and by 50.7 per-cent from a year ago. The average cap rate was 6.1 percent in the fourth quarter, unchanged from the prior quarter.

Apartment Investment Returns

Total returns (unlevered) to owners of apartments fell to 11.4 percent in 2007, the lowest level in four years. Even with the decline, however, they remained above the 10.4 percent aver-age for the last 20 years. Total returns for all privately held real estate were 15.9 percent according to National Council of Real Estate Investment Fiduciaries’ (NCREIF) data. For the first time ever, all other real estate types (offices, retail, industrial and hotel) outperformed apartments. Offices had their best year since 1980 and recorded the highest returns among the property sectors at 20.5 percent. Adjusted for inflation, total returns for apartments slipped to 7.2 percent in 2007, ending a three-year streak of double-digit real gains (see chart).

Even so, apartments significantly outperformed the stock mar-ket: Total returns on the S&P 500, likewise adjusted for infla-tion, were only 1.4 percent. By contrast, public apartment REITs had negative returns last year (-25.4 percent). As a re-sult, there is once again a disconnect between public and pri-vate pricing of real estate. Stock buybacks by public apartment REITs suggest they view public sentiment as overly negative.

]]> http://miamicommercialblog.wordpress.com/2008/03/14/35/feed/ 1 miamicommercialblog US Rental Apartment Vacancy Rate US Multi-Family Permit Issuance, Starts and Completions Net Apsorptions US Rent Inflation Apartment Transaction Volume real-return.jpg http://miamicommercialblog.wordpress.com/2008/02/05/uncertain-economic-times-an-investment-perspective/ http://miamicommercialblog.wordpress.com/2008/02/05/uncertain-economic-times-an-investment-perspective/#comments Tue, 05 Feb 2008 21:03:39 +0000 Commercial Real Estate Kleer Team http://miamicommercialblog.wordpress.com/?p=25 Continue reading →]]> We are in a transitioning market with a lot of uncertainty out there, so I would like to summarize in as succinct manner as possible:

• Stabilized assets will STILL command top dollar.
• Upside opportunities and value-add opportunities are becoming more frequent.

WHAT DOES THIS MEAN TO YOU?

As most sophisticated investors have been saying, the time to buy is NOW. With interest rates STILL at historic lows, strong buyers will find many opportunities. For those who are considering selling anytime in the next few years, give some thought to today’s economic conditions. Although the condo conversion days are virtually non-existent now, the STILL low interest rates yield low capitalization rates = higher prices. While the rental market has softened slightly, it is still very strong in the multi-family sector

For Buyers:
We have an extensive, exclusively-listed inventory of all different product types (land, industrial, office, multi-family, retail, etc.) in the Tri-County area (Miami-Dade, Palm Beach, & Broward). We specialize in VALUE-add opportunities, as well as stabilized assets. I invite anyone who is looking to purchase property to stop by our office, and I will get you access to our exclusive inventory.

For Potential Sellers:
We are always available to give you our Opinion of Value/Market Analysis.

1. where the VALUE is in your property?
2. based on your investment goals, whether or not the best strategy for TODAY is to sell, hold, or refinance?
3. what are the comparable sales and rentals in your market?
4. what is your current Return on Equity (ROE) and can your money be working harder for you in a better-performing asset?

My team and I have just SOLD and CLOSED over $3 Million in commercial real estate assets that had a strong value component for both buyer and seller. Our job, as real estate professionals, is to highlight the inherent value component. Experience continues to show us that properly priced properties, that are correctly positioned DO draw strong interest from buyers and in some cases multiple contracts and offers.