Real Estate Forum

NEWS FRONT
Hotel Ownership More Often Going to Mezz Lenders

ATLANTA—A lot of lenders today are becoming, sometimes reluctantly, owners of troubled commercial real estate assets. And this trend is not limited to lenders on the first mortgage; mezzanine lenders today are also taking control of loan collateral with more frequency than in the past as they try to salvage their investments.

While this is happening in all sectors of commercial real estate, it is a more frequent occurrence in the hotel sector than perhaps any other, says Michael Seton, a New York City-based executive vice president at Carter, based here. As an asset class, hotels have seen values fall more than 50%, on average, from the height of the boom, whereas office properties have fallen about 25% during this cycle, he says.

“A hotel is an operating building, so it is capital intensive,” says Seton. The leases are overnight, he adds, so the hotel sector is adjusting much sooner in the cycle than other kinds of properties.

“With hotels not performing as
expected when they were approved for
financing, a lender has a choice to either
let the property go into foreclosure or
auction it off for pennies on the dollar,”
says David Schwartz, managing principal
of the Management Consortium in
Hollywood, FL.

Executive Moves

JACKSON, MS—Parkway Properties Inc. had a few changes to its executive roster this month. Former SVP, senior asset manager and fund manager Richard G. Hickson now serves as EVP and chief financial officer, operating out of the firm’s Atlanta office. Mandy M. Pope, who’s been Parkway’s EVP, interim CFO and chief accounting officer since February, will continue in the latter two roles while taking on additional responsibilities with investor relations and corporate governance.

For more executive moves, please visit www.globest.com/executivewatch.

Downtown Miami Market Defies Conventional Wisdom

Conventional wisdom has held that the condo supply produced in Miami’s Downtown/Brickell area during the recent building boom would take years—perhaps more than a decade—to be absorbed. For many, the idea that the 23,000 condos built between 2003 and 2008 would ever be filled in a city that lacked a vibrant urban core was outlandish.

But analysts failed to predict that affordable condominiums, the result of oversupply, coupled with the convenience of residing in Florida’s largest employment center, would result in new demand for downtown living in Miami.

Today, nearly 75% of the residences built during the boom are occupied by full-time residents and condo inventory is diminish-

ing at a rate of more than 350 closings per month, according to a recent study by the Miami Downtown Development Authority.

Population growth is impacting the commercial real estate market in Miami’s Downtown/Brickell corridor: the area’s retail vacancy rate of 5% is among the nation’s lowest, thanks primarily to business owners flooding the area to serve new residents.

The visionaries who set out to bring a newfound sense of community to urban Miami through public and private investment are now seeing their vision materialize. The larger question facing

By Tere Blanca

Miami’s Downtown/Brickell real estate economy is what impact residential occupancy will have on its office market, where nearly two million square feet of new class A space is projected to come on line over the next two years, beginning with 1450 Brickell, a 582,817-square-foot tower that was delivered in February 2010.

Just as skeptics doubted the residential market’s ability to absorb oversupply, there is reason to believe that Miami’s office market will beat forecasts as well. For years, South Florida has been viewed as a strategic locale for corporations’ regional or Latin American headquarters. Going forward, factors including the vibrancy of Miami’s urban core, the absence of state income tax, multicultural diversity and a strong transportation infrastructure that includes Miami International Airport and the Port of Miami will help ensure the region is part of the conversation when US and multinational companies consider relocating their offices.

With more residential units filling up each day and 800,000 square feet of office leasing activity underway in Miami’s Central Business and Brickell Financial Districts, there is reason to be optimistic about the city.