Real Estate Forum - January 2012

NEWS FRONT
South Florida Brokers Get Creative With Financing Deals

MIAMI—Many closings come down to the wire, and some even have twists and turns as they do. Lately, creative deal-making strategies are taking center stage in South Florida.

Bilzin Sumberg’s Adam Lustig represented Isram Residential Monterey Lakes LLC in connection with the acquisition of the Monterey Lakes Apartments, a 324- unit complex in Largo. The asset traded for $23.4 million. As part of the closing, the Bilzin Sumberg team helped secure a $15.8-million loan from Grandbridge Real Estate Capital through its Freddie Mac program. Seems straightforward on the surface—but it wasn’t.

“The seller’s documents provided that
the loan could be paid off only on the first
day of the month, period,” says Lustig, a
partner in the firm’s real estate group.
“There was no flexibility of closing on the
second or the third. We had to have all
funds from the buyer and the lender
funded into escrow with the title company
by no later than 10 a.m. on the first.”
As a result of this restriction, the team
had to work swiftly to have all documents
finalized and executed, as well as the bor-
rower and lender’s funds disbursed to the
title company to ensure the payoff dead-
line was met. Lustig says it was literally a
race against time.

Miami Office Market Eyes Stabilization

The Great Recession was not kind to Miami’s class A office market. As was the case in cities across the country, vacancy rates doubled, tenants gave back space as they scaled back operations, and landlords—eager to preserve rent rolls amidst rising unemployment and corporate collapses—were compelled to offer significant tenant concessions.

The delivery of more than one million square feet of new class A space between 2010 and 2011 worsened the situation and put increased pressure on existing properties. Today, following three years of volatility that saw market dynamics swing in favor of tenants, there are initial indicators that the playing field is level-ing-off in the upper tier of the Downtown Miami/Brickell Financial District.

Three factors are driving the early stages of this recovery. First, Miami has experienced a flight to quality that is prompting tenants to vacate class B and C space in favor of higher-quality assets. At the same time, Miami and South Florida on the whole continue to benefit from a surge of new-to-market interest from international companies looking to invest and expand here.

Also, office users have shifted their focus to occupying space in urban areas following a period of high demand for suburban space. Downtown Miami and the Brickell Financial District in particular are benefiting from this trend given the area’s recent emergence as a vibrant urban community, comprised of in-demand residential, retail and commercial office space.

These shifting market dynamics are materializing at the negoti-

By Christian Driussi

ating table, where the balance of power between landlords and tenants is beginning to equalize at premium properties.

For starters, rising demand for class A assets means landlords are giving up less in the form of tenant concessions. Average free rent for full-floor class A tenants fell by three months from the third quarter of 2010 to the third quarter of 2011, according to Jones Lang LaSalle research. Likewise, tenant improvement allowances have remained flat after three years of increases.

We are also beginning to see occupancy rates stabilize at well-managed, well-capitalized buildings. As supply diminishes at top-flight properties, tenants are likely to focus on taking space in the next tier of the class A market.

And in what may be the clearest sign that a rebound is upon us, the Miami market has regained positive absorption over the past two years following three years of negative absorption (inclusive of 2009’s historic drop-off of net-negative one million square feet). I attribute this turnaround to Miami’s growing appeal among new-to-market tenants. Roughly 30% of the space we have leased this year has been taken by international users and reports from some buildings in the market estimate that the ratio is as high as 50%.

While the balance of power at the negotiating table varies by asset, one thing is clear in Miami’s class A market: well-located buildings boasting strong owners, stable tenant bases and desirable locations are gaining leverage.

Christian Driussi is vice president for Brickell Bay Office Tower, a 280,500- square-foot office tower in Miami’s Brickell Financial District. He may be contacted at chrisd@1001brickellbay.com. The views expressed here are the author’s own.