Excuses are plentiful as to why investment sales velocity
has fallen by more than half over the past year in Florida’s largest commercial property markets, everything
from unreasonable pricing expectations by sellers to buyers
awaiting the outcome of the presidential election. But the one
mentioned most often is tightened credit. It’s as though the
banks have put a freeze on all loans tied to real estate, but the
fact of the matter is that debt is still available for deals making
financial sense. In the meantime, investors that do have available credit lines or cash on hand are sitting on the sidelines.
Some are waiting for the market to hit bottom, while others
are hoping to snap up assets at reduced or bargain prices.
“The market is not as loose. There’s not as much speculation and it’s really being left to professionals,” says Gene Berman, senior vice president and managing director of Marcus
& Millichap in Fort Lauderdale. “We’re going back to basics,
and deals have to stand on their own.”
get financing, Berman says, but the properties themselves
should be fundamentally sound.
“There are no more margins of error. We’re not selling future value to the degree that we did over the last 10 years,”
Berman says. He adds that well-located real estate is still very
desirable and trading at a premium, though secondary and
tertiary locations will have difficulty trading.
Whether a lender is willing to underwrite a commercial
deal at all depends largely on how well it can stand on its own
merits. John Tomlinson, senior vice president of Wells Fargo
Bank in Orlando, offers the old Ivory soap analogy that transactions should be pure enough to float, but even those will
have to work to get leverage: “A 70% LTV is going to be considered a sweet deal,” he says.
Commercial paper in the coming year is likely to be judged
more on who stands behind it than on the property itself,
observes Howard Taft, managing director of Cohen Financial
With financing available at more stringent terms, buyers
are waiting for a price bounce to make their move
A recent survey by international law firm DLA Piper shows
that 60% of US real estate executives identify the current
credit crisis as having the most impact on commercial properties than any other factor over the past 20 years. A majority of
the survey’s 400 respondents also indicate that they don’t expect real estate markets to stabilize until 2010, with another
22% saying it will be 2011 before conditions improve.
While commercial real estate remains the safest of safe-har-bor investments, Berman says lenders are making up for their
recent liberal pasts by contracting to the point of being overly
cautious. Lending institutions, previously perceived as throwing money at every land or building deal coming through the
door, are being far more selective about what they will approve. The days of 95% financing are over—60% LTV is the
new norm—and transactions are coming under greater scrutiny.
Investors with solid track records and good credit can still
in Miami. “It used to be location, location, location; now it’s
sponsorship, sponsorship, sponsorship,” he says. “A lot of foreign banks are coming in to fill the void.”
That sponsorship is coming primarily from Europe and
Canada, attracted by the weakened US dollar as well as the
continued desirability of property markets such as South Florida, says Jack McCabe, CEO and managing partner of Deerfield Beach-based McCabe Research & Consulting LLC.
“Miami and the US as a whole are for sale, and the world is
buying,” he says.
US real estate investment trusts—particularly those that aren’t
facing challenges of their own—are scouting the market for domestic deals but are being patient, seeking the best basis after
watching prices fall for most of this year. “We have all stockpiled
money, and there is a lot of it,” says Michael Beale, senior vice
president of Highwoods Properties Inc. in Orlando.
Opportunity funds appear to be the most active players in
