How New Capital Is Shaping South Florida Real Estate With Melissa Rose From JLL Capital Markets (Video) – Real Estate

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As South Florida’s real estate market experiences robust
growth across a wide range of asset classes, Bilzin Sumberg’s
Anthony De Yurre, Partner in the Land Development & Government
Relations Group, sits down with Melissa Rose, Managing Director at
JLL Capital Markets, Americas, to dissect the capital flows
powering the local market. They combine their decades-long
experience facilitating deals in South Florida real estate to offer
insightful observations on new capital entering the market and
where these investment dollars are headed.

Transcript:

DE YURRE: Hello everybody. My name is Anthony
De Yurre. I’m a partner in Bilzin Sumberg’s Land
Development and Government Relations Practice Group and thank you
for joining us for another episode.

Today, I’m joined by Melissa Rose. She’s an incredible
capital markets expert and Managing Director at JLL’s Miami
office. Herself, a New York transplant, and Exhibit A for the Miami
movement that’s going on now.

ROSE: Thank you for having me,
Anthony. 

DE YURRE: Fantastic. So, tell us a little bit
about yourself beyond the fact that you’re fantastic at finding
debt and equity for projects. 

ROSE: Well, I’ve been in Miami now for
about seven years, gratefully, so I was ahead of the whole
wave.  And I’ve been doing debt equity placement between
New York and Miami since then, and I love the beach and the ocean
and love living in Miami. 

DE YURRE: Fantastic. Melissa, everybody knows
South Florida is ground zero for the hottest real estate market in
the United States right now. What does the mix of capital look like
right now? Is it different than it used to be? Give us your insight
on that. 

ROSE: So, the exciting part about being in a
market that’s just growing so quickly and has so much
excitement is that we’re seeing capital come from all over the
world. So, I mean, there’s certainly been a huge influx of
capital from the Northeast and domestic capital that’s
transacting here, but we’ve also seen, you know, new limited
partners and groups that are foreign coming into our market as
well. 

So, it’s a pretty large mix. I’d say as a specific group
that family offices have probably taken a large focus in the Miami
market, and we’ve seen a lot of family office, private capital
flood to Miami.

DE YURRE: You mentioned domestic versus
international capital. Traditionally Miami has relied on the ebbs
and flows of international investment. Can you speak a little more
on that, the domestic component versus the international one?

ROSE: We have seen a bunch of European family
offices transacting here and we’ve also seen some Asian capital
come to this market, and of course there’s the influx of
domestic capital that’s come here as well. So I think there was
a time where there was a lot of money from Latin America that was
really bolstering our market, but it’s a much more diversified
pool of capital today. 

DE YURRE: How would you compare the strength of
the capital today? How well healed are they today versus the
capital when you first came down from New York here in Miami?

ROSE: Well, I think that there’s a ton of
liquidity in the market today. There’s obviously been some
volatility in the overall market and a huge change in the cost of
borrowing that’s happened of late, but I think that well
capitalized institutional investors, family offices and capital
from all over the globe has looked at Miami as a major growth
destination that’s attractive to place and pursue
acquisitions.

DE YURRE: Here we are on the other side of
COVID, and things are very different than they used to be. In
particular, interest rates are rising. How is the market responding
to that? 

ROSE: I think one of the things that’s
great about being here in a time where there’s volatility in
the market is that, you know, we’re still seeing a tremendous
amount of growth – and between the population growth that we’re
experiencing, which has bolstered very low vacancies and industrial
properties – and rent growth, and we’ve seen that in the
multi-family sector as well. So there’s some insulation, I
think, in that investors are still viewing this market as immature
and having an opportunity to have growing rising rates on
rents. 

DE YURRE: Follow up on that question. How is
demand for certain types of financing? What is that capital stack
looking like right now?

ROSE: I think that as we see the cost of
borrowing increase that lenders are, you know, changing their
underwriting criteria and leverage for senior financing is
dropping. So one thing that I think we’re going to see a
greater necessity for going forward, is probably subordinate
capital in the capital stack, where a borrower is seeking, you
know, senior financing, but we’ll also need to sort of utilize
either preferred equity or mezzanine financing to fulfill an
acquisition or refinance their property. 

DE YURRE: So you’re seeing some erosion in
the capital markets? 

ROSE: The cost of borrowing is higher now. So
that obviously has impacted the way people are underwriting exit
metrics on financing. So leverage has dropped slightly, but
there’s still a ton of liquidity in the market and we certainly
see that capital sources are still eagerly trying to get dollars
out of the door. 

DE YURRE: Pretty much all asset classes have
benefited from the post-COVID environment Miami finds itself in,
but which one in particular are you most bullish on?

ROSE: Well, I’m slightly biased since I
spend a lot of my time on it, but I certainly feel best about the
industrial sector. Miami still has an incredibly low vacancy rate,
And I think some of the geographic barriers to development here,
just between the Everglades and the ocean, and that massive amount
of population growth have really increased the amount of demand for
space.

We certainly haven’t seen any delay or, you know, any tenant
demand has not slowed down. There’s still a tremendous amount
of interest on the tenant side that I think can support the
construction that’s in the pipeline. And I think that the
growth in rents is supportable based on these businesses only
having a small portion of their P&L going towards rent, whereas
a multifamily tenant has a large part of their income going towards
their rent for where they live. 

DE YURRE: And continuing with that theme, do
you see opportunities, geographically, in terms of redevelopment?
Are there existing areas that have older industrial stock, for
example, or new areas that never had industrial stock that some of
your clients are exploring? 

ROSE: So, you know, I think Hialeah as a market
has a lot of historical stock and very high occupancy and very high
demand. We’re seeing the highest rents in new product. We
don’t have as much new product in the overall square footage of
the market. And I think that’s changing with some of the new
development, but I think some of the older product in our market
will always remain occupied and has great, you know, sticky
tendency and there’s a demand for the smaller mom and pop
tenant, which is most of our market. 

DE YURRE: So to that point, in which particular
portion of the industrial do you see the strongest rents?

ROSE: Well, I think the airport really supports
the strongest rents. So proximity to our airport is probably the
factor that supports the largest rents in our market. I mean, we
obviously have a strong port as well, but the airport surrounding
area of the airport is where we see the highest rents.

DE YURRE: Tell us about cold storage. I know
it’s something that is near and dear to your heart. 

ROSE: I love freezers. It’s a very small
portion percentage wise of the entire industrial market. It’s
incredibly interesting the way our consumer behavior has really
changed the industrial demand, and so with cold storage,
specifically, most of the stock of our entire market across the
country is older vintage products. So it’s very hard to build
cold storage. It’s expensive. It does command higher rent but
it’s complicated to build and needs skilled operators. So
it’s an interesting asset class where there’s just a large
percentage of the existing square footage is eighties vintage, for
example, and we’re now starting to see some newer product come
to market that’s, you know, 60 foot clear and has automated
racking systems and is really designing to appeal to a more modern
tenant.

DE YURRE: In terms of industrial, how has
inflation or inflationary pressures, impacted that
market? 

ROSE: I think the inflationary environment has
obviously impacted the overall economy in all of real estate, but I
think the one note that we’ve sort of taken as, you know,
industrial leases oftentimes can be 10-year terms with minimal
escalations. So we are finding that investors are more interested
in development opportunities or opportunities where there’s
shorter WAULTs so that they can benefit from the appreciation in
rents rather than being stuck in a lease where there’s minimal
escalations annually, like two or 3%. And I think new leases are
being negotiated with shorter terms and higher escalations to try
and fight some of that. 

DE YURRE: As a New York transplant yourself,
what do you really believe and, if you can pinpoint some of the
factors that are most attributable for your success, to come down
to this market, as many people are considering coming down here
from places such as New York.

ROSE: I think when you’re moving into any
market, the most important thing is to find the right diverse team
for you to be a part of so you can sort of play what your talents
are off of a bigger group. And I think I embraced that there were
things about this market I didn’t know, and that I had a lot to
learn and I came in with a humility, but also kind of brought my
New York edge and hustle. 

I think whenever you find the right groups of people to work
with, that’s when all the magic happens.

DE YURRE: Fantastic. And to our audience, thank
you very much for tuning in again, watching another episode. Of
course, this episode, and all our episodes, are available at our
website – bilzin.com.

And have a great day from sunny Miami, as you can tell.

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