real estate in Florida,” he concedes. “In
their underwriting of deals, lenders and investors are less willing to trend upward in
projections and pro formas going forward.”
In terms of new construction, Martorella
finds, “it really has to be a very unique or
niche product with very strong backers to
get out of the ground.”
Securitized, non-recourse lending on real
estate with an interest-only function has
mostly ground to a standstill in recent
months as various financial giants book
huge losses or rewrite paper to discount for
defaults. More than likely, Gene Berman,
senior VP and managing director for Marcus & Millichap Real Estate Investment
Services Inc. in Ft. Lauderdale, expects this
to continue for a time.
“Buyers and sellers alike became spoiled
during the days of easy money and must
now adjust to the new realities of the financing marketplace,” Berman advises.
“There is still a tremendous amount of capital in the market but it’s not non-recourse,
interest-only for the first few years or even
for the life of the loan. And no longer are
there up to 85% loan-to-value borrowing
opportunities from a single source.”
Paul Whalen, a partner at Whalen Realty
Capital in Hollywood, blames the unsettled
CMBS market for what he calls a “crisis of
confidence” among those who rate and sell
these instruments.
“However, what are still
out there for borrowers are
traditional balance-sheet
lenders such as life insurance
companies,” Whalen points
out. “But not the Wall Street
types who thought they knew
the real estate business better
than anyone. As mortgage
underwriting becomes increasingly strict, there’s going
to be very little deviation
from stringent standards as
these relate to such factors as
appraisals, leases and reserves to cover rollovers—a
lot of which was essentially
ignored during the most
heated period of the recent
boom cycle.”
what Robert Kaplan, a principal of Miami-based Olympian Capital Group, characterizes as “the bread-and-butter,
institutional-quality deal.” In the real estate
market’s go-go days, he recalls, “there was
very little distinction between levels of risk.
Today, there is. The highest-quality deals
and the highest-quality borrowers are being rewarded.”
Yet there is a shortage of
such deals out there, Kaplan
finds, which explains why a
super-high-quality asset that
becomes available tends to
attract tremendous interest
from the institutions.
Sensing a promising business opportunity in Florida’s
current commercial property
landscape, Cypress Creek
Capital in Ft. Lauderdale recently linked up with Con-trarian Capital Management
of Greenwich, CT to co-sponsor a $200-million
bridge loan program targeting all areas of Florida except
the Panhandle.
As Cypress Creek EVP Jan Reese describes it, “We thought it would be a great
play if we could find good land and in-come-producing properties with solvent
ownerships—giving them time to breathe,
say two to three years, to a
point where the market could
begin to stabilize.”
What will also help capital
availability for Florida’s investment property market
this year, Reese believes, is
greater abundance of offshore
money. “Even though the
pricing of certain of our product types has gotten somewhat inflated compared to the
rest of the world,” he contends, “Florida is still a very
reasonable purchase for foreigners, and the weaker dollar makes it even more so.”
Indeed, Olympian Capital’s
Kaplan reports that his firm is
now focusing on high-net-worth individuals to bring
over European money for Florida real estate.
“The Spanish, the Brits and the Scots really seem to love Orlando deals,” he says.
“The Italians, Germans, Scandinavians,
Russians and also the Spanish love Miami.
There’s a terrific influx of capital coming
into these two markets, and we expect our
firm’s foreign sourcing, including South
Americans and Canadians, to grow to almost 50% of our capital flow this year, and
then return to a more normalized 25% by the middle
of 2009.”
For the most part, the office, industrial, retail and
rental apartment sectors are
healthy statewide, though
there are pockets of weakness,
confirms Cohen Financial’s
Taft. “Wherever there is an
oversupply of condominiums,” he explains, “it negatively affects apartment rents
as owners of individual condos try to rent out their units
for whatever they can get just
to cover their carrying costs.
That said, for anyone with a
well-conceived office, retail
and industrial project, as well
as a hotel or skilled nursing home, there is
debt and mezzanine funding or equity
available—whether for construction or to
rehab and reposition an existing property.”
Even in today’s demanding financial
markets, Taft finds it possible in specific
cases to attract up to 90% of the necessary
capital, although not from the same entity.
As he outlines such a scenario, “You may
get senior debt of 65% to 75%, and then
layer the leverage with mezzanine or preferred equity in return for giving up some of
the profit by way of high-interest-rate mezzanine—probably in the high teens for two
to three years on a development deal, or
through deal participation. Nor is securitized financing totally dead.”
Schecher of Johnson Capital does not expect the CMBS market to recover to any
extent in the coming year despite the fact
that commercial defaults had hardly happened by the end of 2007.
“Yes, there is anticipation of trouble
ahead based on the subprime home mortgage meltdown,” reasons Schecher. “This
has fueled a wide disconnect between
buyers and sellers of all property types.
As a result, there’s likely to be far less
than usual market movement this year, or
at least for the first six months. But there
“Buyers and
sellers alike
became spoiled
during the days
of easy money.”
GENE BERMAN
Marcus & Millichap
“Beyond mid-
2008, hopefully
we’ll see some
improving trends
in funding
availability.”
TIM KOLETIC
Wrightwood Capital
SHORTAGE OF QUALITY DEALS
As for what types of Florida commercial
properties now appeal to most lenders, it’s
