Following The Money: Investing In South Florida’s Booming Real Estate With Daniel Matz From Newmark (Video) – Real Estate

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With investment dollars pouring into South Florida real estate
from all over the country, new entrants and prospective investors
are often wondering what trends are emerging from this exciting
boom. In this interview, David Resnick, a Partner in Bilzin
Sumberg’s Corporate & Finance Group, and Daniel Matz,
Senior Managing Director at Newmark, discuss the growing
opportunities for capital deployment in the region. Together, they
use their respective business and financial insights to shed light
on the rise of new asset classes, the transformation of specific
neighborhoods, and the diversification of financiers entering the
market. For more thought-provoking interviews on Florida’s
rapid growth, please visit
Florida Is The Future.

Transcript:

RESNICK: I’m David Resnick, partner in
Bilzin Sumberg’s corporate and finance group. I’m excited
to welcome you to a timely discussion on investing in South
Florida’s booming real estate market. Over the past several
years there’s been a surge of out-of-state investors, looking
for different ways to deploy their funds in South Florida. This has
resulted in an increase in ground up developments, as well as an
increase in the acquisition of value-add properties. But as many
out-of-state investors are learning, sometimes the hard way, South
Florida is unique. It has its own challenges and opportunities.
Today I’m joined by Danny Matz, senior managing director at
Newmark, a global commercial real estate services and advisory firm
with approximately 2.5 billion market cap.

Danny Matz is well-positioned to provide to us his insights on
the ever-changing market in South Florida. Danny, thank you for
joining me. Let’s dive right in. It’s no secret that There
has been a boom in Florida’s real estate industry, and it’s
touching multiple different types of asset classes. Have you
noticed any trends in certain asset classes dominating different
neighborhoods?

MATZ: Great question. First, thanks for having
me here David, I’d like to touch on kind of two things. One,
the new asset classes or the hot asset classes, and you know,
it’s pretty obvious that multi-family is kind of dominating
South Florida and that can kind of be broken up into kind of a
couple of different ways.

One like for rent multi-family apartments and for sale condos. I
mean, Miami is a developer’s town. There are cranes everywhere,
you know, not just in Miami, but all of South Florida, the
particular neighborhoods that are really booming – if you talk
about Wynwood, Downtown, Brickell, you know, those are three
adjacent neighborhoods. In addition, Edgewater is also booming when
it comes to multi-family and for-sale condos just in Edgewater
alone, at one intersection on the corner of 26th and Biscayne, are
3,000 units under construction. And that’s already after, you
know, several thousand units have been delivered over the past few
years.

On the luxury condo side, developers keep building as if
nothing’s happening and the market’s not ever going to slow
down. You’ve got the Baccarat residences, you know, Related is
converting Reservations soon. Aston Martin is going to be
delivering soon. LSA and Edgewater just TCO’d and residents are
moving in. It’s unbelievable the pace at which developers are
building luxury condos. In regards to different neighborhoods, as
Miami has been more built out, looking at what’s happening in
Broward County is really interesting. Take Pompano, for example,
there are several multi-family and condo projects under
construction with blue chip developers like Related. Five years
ago, seven years ago, that would have been unheard of. The rents
that they’re getting, the condo prices they’re getting
there are really remarkable. I think, you know, as investors are
looking for opportunity for sites, for waterfront sites, also
looking at the affordability gap, Fort Lauderdale, Pompano, other
markets that aren’t Miami are a very compelling story.

RESNICK: Other than multi-family, what’s
interesting in the market?

MATZ: That’s a good question. You know,
there’s an incredible amount of investment activity across all
property types in South Florida. I think it’s really
interesting what’s happening in some of these emerging asset
classes, like truck parking, industrial outdoor storage, cold
storage, marinas, car washes. You know, five, seven, ten years ago
they weren’t really recognized as a legitimate asset class, but
not only are they attracting a significant amount of investment
activity, it’s coming from institutional equity. Opportunity
funds, high net worth family offices, sovereign wealth funds and
especially in the truck parking, marinas, car washes, it’s kind
of being viewed as the next, like private equity roll up
opportunity. So it’s really incredible how much capital is
chasing these deals in South Florida right now.

RESNICK: So do you see this as more of a
covered land play?

MATZ: That’s a good question also. The
truck parking, I look at it as kind of case-by-case, but that’s
how you kind of underwrite the downside. The rents they’re
getting from truck parking operators, you know, sometimes right now
is exceeding that of industrial rents, which is crazy because
industrial in South Florida is white hot, but the land is so
expensive, but in the long run an investor or a lender, it’s
good to have optionality.

RESNICK: So you mentioned that multi-family
industrial, commercial, all these different asset classes are
finding ways into South Florida. Is there a particular order in
which they come online? For instance, does multi-family come first
followed by commercial followed by industrial?

MATZ: Yes, so it’s a very good question. I
think it’s dependent on which neighborhood we’re talking
about. In Wynwood, the residential has come first and there’s a
ton of residential under construction, and now there’s plenty
of office that’s right behind it, and that office market is
very well leased, which is a new kind of burgeoning office market.
Everyone knows Brickell and Downtown and the little sub markets
within Miami Beach, but Wynwood as an office market is really
starting, I’d say, to mature.

PricewaterhouseCoopers recently just signed a lease there, which
isn’t a tenant you would think would necessarily want to be in
Wynwood, which we kind of identify with more startups, tech firms,
entrepreneur firms, but, PWC realizing they need to be where a lot
of their client base is.

So that’s what’s interesting with what’s going on
with Wynwood. It’s kind of the opposite in Downtown, in
Brickell, which historically have been big office districts, but as
of the last five, ten years, more multi-family, more condo
developments, have come out of the ground, delivered, leased up,
sold extremely well.

It’s obvious why people are attracted to Brickell and
Downtown, you have the amenities. In Downtown in particular,
it’s a huge pipeline of multi-family development, of office
development. In the next five years, it’s going to be
transformed similar to the way that Brickell has been transformed
over the last ten years.

And then what’s happening with Miami World center is
incredible. This huge area of land five years ago, was pretty
barren, is being developed by a variety of uses. Multi-family
rental, apartment, condo, office, retail – it’s pretty
incredible.

RESNICK: While talking about the industrial
asset class, you mentioned that money is coming from a lot of
different markets. How are you seeing investors change their
strategy on the multi-family side with increased rents?

MATZ: Multi-family has a wild ride the last few
years. From an asset appreciation standpoint we’re seeing fifty
to a hundred percent increases in value over a twelve, twenty-four
month period. Which is really unprecedented. And coupled with that,
or what’s happening at the same time, is rent growth, ten,
twenty, fifty percent in some markets in South Florida and drilling
down into each property, the lease trade-outs are remarkable.
We’re seeing that in properties that just delivered and are
leasing up at a very fast clip, in addition to older properties
where investors are going in and renovating units and increasing
rents. Value-add multi-family has changed a lot in the last ten
years. Ten years ago, a value-add investor could expect to see a
twenty plus IRR return. Where cap rates are today, that’s
probably closer in the low teens, so the landscape has definitely
changed.

There’s a variety of investors that are looking for
multi-family investment opportunities in South Florida. From
pension funds, pure play REITs, opportunity funds and just your
run-of-the-mill value-add investors. It’s been extremely
competitive to buy multifamily the last few years in South Florida,
especially the last 12 months. I have a very interesting seat
working at Newmark because the Newmark multi-family investment
sales team is the number one multi-family investment sales team in
Florida and I work very closely on a lot of the sales and the
financings. And what’s been an interesting trend over the last
month, is how investors are adapting to rising interest rates.

So we have a few things happening, Interest rates are going up,
cap rates don’t really seem to be moving. So how do investors
adapt?

I’d say the last twelve months on any deal, call it, garden
mid-rise, high rise, anywhere in South Florida, the broker markets
the deal, calls for best and final. They’ve got ten to fifteen
very strong offers from institutional groups to value-add groups,
good, good variety there. And over that twelve month period, the
broker’s been achieving a sales price anywhere from ten to
twenty percent above, like the guidance. Above the strike price
that they were guiding the borrower to or the seller to prior to
taking on the deal.

That’s just because there’s so much demand, so much
capital, just chasing opportunity. This was the same for seventies,
eighties value ideals, as it is for 2021, kind of core deals that
are just delivering. It was just crazy the yields that investors
were going to accept. That has changed very fast in the last three
to four weeks. What was ten to fifteen best and final offers is
more like three to four.

Tours are very light. Investors don’t quite know what to
make of the new debt markets, Whereas a borrower might be able to
borrow seventy-five percent at like 275 over. That’s more like
seventy-five percent at 350 over and the forward curve is very
steep and it just doesn’t make some of these deals palatable
anymore. So what does that actually mean? Like how do investors
actually get deals done?

What we’re seeing is kind of a thinning of the buyer pool.
It’s not such a interesting mix anymore. You’ve got like
the institutional guys that can buy all cash. Like
Blackstone’s, Brookfield’s where interest rates aren’t
really affecting them. You also have some core plus buyers like TPG
for example, who can use low leverage fifty to fifty-five percent
LTC. And that pricing is in the low to mid one hundreds. So it
still makes sense to buy a three cap in place if you really believe
in the rents. So the rents is the real story here because
they’ve been growing very fast and who’s to say that
they’re not going to still grow, you know, four and a half
dollar rents in Miami that’s three-thousand dollars for a six
hundred fifty square foot, one bedroom apartment.

That’s a lot of money for a one bedroom apartment. Does that
go to thirty-five hundred, I don’t know. It will be interesting
to see if rents can be sustained, if they’re going to grow with
the current demand from the tenant base.

RESNICK: So as a hedge to the increasing rents,
and I guess the unpredictability of the multifamily market with
these rents increasing, are you seeing any push towards workforce
and affordable housing?

MATZ: I think everybody knows that there’s
an affordability crisis in Miami. I think the question is, how do
you build affordable housing with government incentives and also
what is really affordable?

RESNICK: So you spoke a little bit about
increased rents. A lot of residents from out-of-state are moving
in. What impact is that having on the multifamily market?

MATZ: Yeah, there’s a lot of new tenants in
the market. Whether it’s COVID or lifestyle or a mix, people
moving in from New York, Chicago, LA all over the country for a
variety of reasons are really driving rents up both for
multifamily, for single family residences, for condos and we’re
seeing that all across Miami. And it feels like that’s here to
stay. People are wondering, oh, are people going to go back to New
York. I don’t particularly think so, that’s a huge factor
in what’s been driving rents the last twelve to eighteen
months, and it doesn’t seem like that trend is slowing
down.

RESNICK: Danny, thanks so much for joining us.
You’ve gone a long way in educating our viewers and providing
them with different tips or different things to think about before
investing in the South Florida market.

To our audience, thank you for tuning in. We look forward to
providing you with future podcasts on new and exciting areas in the
real estate market.

All of our podcasts can be found on our website, www.bilzin.com.

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