Interest rate hikes are causing pain, and borrowers' short-term outlook is a concern, experts say.
At Holland & Knight’s real estate conference last week, experts discussed the challenges developers, lenders, and brokers are facing.
Omar Morales, managing director at Berkadia, stated that the latest interest rate hike is creating pain. "In 2022, we saw rates start increasing in a tightening cycle in some ways. The proliferation of private credit debt funds allowed things to bend, but not break. What I’m seeing right now in real time, is I think things are going to start breaking. Not everything. It’s not going to be systemic," Morales said.
"This isn’t fearmongering. We saw interest rates just go up 90 basis points in three months, 75 basis points in six weeks. That doesn’t happen without pain, right? We had $130 million in deals under contract fall out, just me with my partner Jared Turkell because of what happened the last few weeks. It’s painful for some people, but an opportunity for others. Fortunately, a lot of our clients, they may be taking a haircut on one deal, but they’ve also raised capital to go and deploy new money in this market, and they’re very excited about that."
Patricia Lubian, BankUnited’s senior vice president and managing director of commercial real estate, agreed that opportunities will arise from distress. She emphasized that relationships between lenders and property owners will be crucial for closing deals and working through challenges.
"It’s exciting, but it’s also scary. I hate to say how much of what I’m feeling today is reminiscent of elements of what we felt in 2008. Not to be alarmist, what we do have is very good fundamentals in the economy versus back then. But where we’re at today, with not enough good deals around the hyper competition, something’s going to give, and this interest rate rise environment is one of them," Lubian said.
"We’re seeing a lot of our folks are keeping a very short perspective. So they’re not looking to the long term. They’re starting to readjust their financing needs to a three-year horizon, expecting that things will be better in another three years. That’s a little concerning because we’re just kicking a can down the road…. I’m not sounding the alarm. But what it does mean is that we are definitely all seeking the fundamentals of real estate. I can’t say that enough."
On another panel, Brad Meltzer, partner and president at Two Roads Development, noted that developers are still contending with high construction costs and labor shortages. "However, the subcontractor marketplace has become more sophisticated than it was when I first got here 30 years ago," he said.
"The larger subcontractors are smart enough to procure materials in advance, have a good labor force, and be able to respond to their contractors and developers. So I think it’s a good time to build, but it’s also a difficult time to build."
Kevin Venger, a developer with the One Thousand Group, acknowledged the difficulties but called it a "great time to build."
"It just takes us forever to get permits and get deals together, and it’s frustrating the process," he said.
"But Miami is taking a major turn, you read it every day, about all these companies that are coming here. It’s not just end users that are coming. Getting to the point where you can stick a shovel in the dirt is taking a lot of time. But it’s a great time to build based upon what we’re seeing here in Miami, and I just think it’s going to continue as we see all this change. You read about what’s happening in Wynwood and Carnegie Mellon University coming in a couple years, so the corporate world is moving here from New York, Chicago, California, and it’s changed the dynamic."
CLOSING TIME
Residential: British hedge fund manager and billionaire Chris Rokos sold his Manalapan mansion at 1370 South Ocean Boulevard for $83.2 million. A hidden company, BigOcean 3M LLC, on behalf of a land trust of the same name, purchased the property.
Commercial: Deeds totaling more than $741 million were recorded, part of Moishe Mana’s $1.1 billion sale of Mana Wynwood to billionaire Citadel founder Ken Griffin. At least 15 transactions have been recorded, including one for $289.4 million and another for $124.2 million.
— Research by Mary Diduch and Alissa Gary
NEW TO THE MARKET
A 2-acre oceanfront estate in Gulf Stream hit the market for $55 million. The “Hummingbird House” at 2999 North Ocean Boulevard is listed with Kim Raich of Sotheby’s International Realty. The property includes 200 feet of ocean frontage, six bedrooms, seven bathrooms, one half-bathroom and a full-house generator. Property records show a trust tied to the late George Jacobus and Catherine Jacobus own the house. The couple paid $6.7 million for the home in 2000, records show.
A thing we’ve learned
Fifty-five percent of homeowners surveyed by the South Florida Sun Sentinel, Orlando Sentinel and the University of North Florida’s Public Opinion see no signs that Florida’s insurance market is improving. A quarter of the Floridians polled say it’s getting worse, and most people said that the 2022-2023 insurance overhaul primarily benefited the insurance industry, not consumers.
Elsewhere in Florida
- Former art dealer Leslie Roberts, who pleaded guilty to wire fraud conspiracy, was sentenced to nearly four years in prison for selling fake Andy Warhol paintings. He was facing 20 years in prison, according to the Miami New Times. He previously had a gallery in Coconut Grove, on the same street as one of developer Rishi Kapoor’s former properties. (Kapoor was sentenced in August to more than 11 years in prison for his role in an $89 million real estate fraud scheme.)
- South Florida public schools are facing shrinking budgets due to plummeting enrollment, which has been driven by immigration policies. Florida’s Lt. Gov. Jay Collins stated the state will ensure "the funding is there" and expressed no regrets about the “Florida First” policy that has resulted in fewer immigrant students enrolling in public schools, WLRN reports.
- Hurricane Isaias made landfall in the Florida Panhandle on Friday evening, prompting mandatory evacuations and a state of emergency declaration. Isaias had 120 mile-per-hour sustained winds as of Friday and was expected to maintain its hurricane status throughout the weekend, according to the Miami Herald.
