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Super Bowl Descends on Miami and Its Changing Skyline

The last time the Super Bowl came to Miami, the football stadium on the edge of the Everglades and just off the turnpike was surrounded by asphalt and dirt parking lots.

Miami-Dade County had 20% fewer apartments and 23% fewer available hotel rooms during the championship game in 2010, when Airbnb and ride-hailing companies such as Uber were in their infancy. Brightline, the commuter train service renamed Virgin Trains USA that connects Miami with West Palm Beach and Fort Lauderdale, didn’t exist. All those factors are expected to play major roles this weekend as Miami hosts the Super Bowl for a record 11th time, attracting more than 200,000 people to a region with a skyline that has changed dramatically.

“If you were here 10 years ago and came back, you’ll find that this city is completely different,” Miami-Dade County Mayor Carlos Gimenez said.

North of downtown, once-distressed neighborhoods such as Allapattah and Little Haiti are attracting new development that appeals to millennials who want to live close to where they work. One of the trendiest areas of Miami is Wynwood, a former industrial and garment district now drawing offices, retail and residential. Tour buses regularly pass through Wynwood, allowing visitors to snap selfies among the spray-painted graffiti that adorns many of the buildings in the rollicking arts district.

“Miami has become more of an urban place where people live and play now,” said Rodney Barreto, chairman of the Miami Super Bowl Host Committee. “It wasn’t that 10 years ago. Heck, at 6 or 7 o’clock at night you couldn’t find anybody downtown. Now at 11 o’clock at night, people are walking their dogs.”

In the past 10 years, close to 30,000 new apartments have been built across Miami-Dade County, helping make it the U.S. capital for rentals as a percentage of inventory, according to CoStar data. The market has added 11,000 more hotel rooms, not including thousands of new beds now available through home-sharing giant Airbnb. Scores of luxury condominium towers are sprouting up in downtown Miami, including one that has an amenity deck that can be transformed into a skyport for flying cars and another with a robot concierge service.

The 65,000-seat Hard Rock Stadium is now the new home of the Miami Open tennis tournament and has attracted soccer, concerts and other events. Last year, ground was broken on a $135 million Dolphins training facility next to the stadium. And gondolas were installed that will make their debut on Super Bowl Sunday, giving fans an aerial view of the pregame festivities.

“It’s definitely a different town, and we’re going to be really proud to show it off, for sure,” Barreto said.

The Feb. 2 game at Hard Rock Stadium between the Kansas City Chiefs and San Francisco 49ers is expected to generate an estimated economic impact in excess of $400 million. Hotels in the Miami area are projected to break all-time highs for average daily rate and revenue per available room, two industry standard measurements, according to figures from STR, a travel industry data and analytics firm owned by CoStar Group, the parent company of CoStar News.

Making the Pitch

NFL owners voted in 2016 to award South Florida this year’s Super Bowl, a game that marks the league’s 100th season. They were sold after listening to a pitch from Miami Dolphins owner and Hudson Yards developer Stephen Ross about hundreds of millions of dollars he spent to renovate the aging Hard Rock Stadium in Miami Gardens, on the edge of the Everglades northwest of downtown Miami.

At the time, the Dolphins and Barreto said the region’s bid, which topped 550 pages, included a budget of cash and incentives valued at more than $40 million. Barreto now declines to discuss specifics of the bid, saying parts of it eventually will be made public.

Miami, the nation’s seventh-largest metropolitan area, is a preferred destination for the Super Bowl because of its size and the consistently warm weather, notwithstanding the Super Bowl in 2007, but even then fans found it strangely appropriate that halftime performer Prince sang his hit song “Purple Rain” in the rain.

Meanwhile, the matchups in Miami have been among the most memorable in league history.

In the second of five Super Bowls played at the Orange Bowl in Miami, New York Jets quarterback Joe Namath famously guaranteed victory over the Baltimore Colts in 1969, a huge upset that led to the merger of the NFL and the American Football League.

Twenty years later, in a new stadium privately funded by Dolphins founding owner Joe Robbie, San Francisco 49ers quarterback Joe Montana jokingly pointed out actor John Candy in the crowd to his teammates before leading them on a last-second drive to beat the Cincinnati Bengals.

A decade ago, the New Orleans Saints outlasted the now Indianapolis Colts with the help of a risky onside kick to open the second half, delivering the Big Easy’s first title, 4 1/2 years after the city was devastated by Hurricane Katrina.

But not long after the Saints beat the Colts in February 2010, NFL Commissioner Roger Goodell delivered a stark message to Ross and other officials hoping to schedule another Super Bowl at Hard Rock.

“The commissioner was very adamant and very loud about we would not get another Super Bowl until we made renovations,” Barreto told CoStar News.

Stadium Improvement Process

Ross first sought public money to renovate the stadium that opened in 1987, though that effort hit a political wall. In 2014, he struck a deal with Miami-Dade to pay for the upgrades himself in exchange for bonus payments to the Dolphins for hosting the Super Bowl and other events.

The phased stadium improvements brought new seats, two new concourses, new suites, four high-definition video boards and a canopy that shades 92% of the fans. The cost: more than $550 million.

Gondolas will make their debut at Hard Rock Stadium at the Super Bowl Feb. 2 in Miami. (Paul Owers/CoStar News)

Ross’ total investment at Hard Rock Stadium now tops $700 million, noted Tom Garfinkel, president and CEO of the Dolphins and member of the Miami Super Bowl Host Committee.

“It’s a testament to Steve Ross’ commitment,” Garfinkel said in an interview. “The stadium has become a global entertainment destination.”

The NFL seems impressed.

Senior Director of Event Planning Eric Finkelstein, whose crew of 6,000 workers has been in South Florida since Jan. 2 preparing for the Super Bowl, said the new canopy allows the league to introduce surprises for fans during the championship game.

“To us, it feels like a brand new building because of how much has changed,” said Finkelstein, who is overseeing his 21st Super Bowl.

NFL owners typically vote to award the game to cities with warm weather or domed stadiums. Teams that agree to build stadiums, as the Los Angeles Rams are doing, have a good chance of eventually hosting the Super Bowl. Tampa, Florida, doesn’t have a new stadium, but NFL owners voted to move the Super Bowl there in February 2021 from Inglewood, California, because of construction delays at the Los Angeles Rams’ SoFi Stadium. It will be the fifth time Tampa has hosted the game. The big game heads to SoFi Stadium in the Los Angeles area in 2022.

Local civic and business leaders insist they aren’t taking for granted the impact of the game on South Florida, no matter how many times it has been played here.

“We have the attention and the focus of the world,” Miami Mayor Francis Suarez said.

Barreto has signed paperwork to allow South Florida to compete for the Super Bowl in any year from 2025 to 2030. He was watching on television Wednesday when Goodell, speaking at his state of the league press conference, praised local officials and indicated the game likely will return to Hard Rock Stadium.

“We’re ecstatic,” Barreto said. “I believe they like Miami. We’re experienced, and we know how to work with them.”

 

Source:  CoStar

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Multifamily Developers Find Less Space For Parking. Here’s What It Might Mean For Pricing.

Apartment developers on new projects are often building less parking at their projects than the old standard of two spaces per apartment.

Developers can often save millions of dollars if they build fewer parking spaces. But they also risk losing potential residents if they fail to build enough parking spaces to satisfy their residents. The stakes are high. Any lost income from losing tenants could into the eventual sale price. Meanwhile, a development with too much parking will have a lower yield than it could have, because the developers built empty parking spaces that don’t earn any money.

“We see the parking demand only further decreasing in the future,” says Michael Smith, design director for Humphreys & Partners Architects. “With things like Uber’s air taxis on the near horizon, the demand for cars will be even further reduced.”

A typical garden apartment property in a commuter suburb now tends to need  about one parking space per one-bedroom apartment and two for a two-or-more-bedroom unit, says Manny Gonzalez, principal for KTGY Architecture + Planning.

However, outdated building codes in many jurisdictions often require as many as two spaces for every unit, regardless of the number of bedrooms. “It is not only a waste of money, but of valuable space as well,” says Smith.

To comply, a suburban, garden apartment development with 250 units would have to include 500 parking spaces—even though it might only need 400 spaces. “The savings on not building those 100 extra surface parking spaces could be on the order of $250,000,” says Smith. This suburban property could also provide much more greenspace if its developer didn’t have to build those 100 surface parking spaces, says Smith.

Apartment properties can often get by with even fewer parking spaces if they are located in urban areas where residents can get to shopping, amenities or public transit without getting into a car. “There have been some successful urban projects that provide no parking at all,” says Gonzalez. Some cities like San Jose will cap your parking count at 1.5 per dwelling unit or less if you are in close proximity to transit.

“You will probably find enough Millennials to fill a community if it is in a cool, walk-able location or part of a transit oriented community,” says Gonzalez.

The cost of building parking spaces is also much higher in many urban areas, where land is often too valuable to use as a simple, surface parking lot. To stack multiple levels of parking and living spaces, developers typically have to use much more expensive concrete construction.

 

Source:  NREI

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CRE Finance Council Focuses On Commercial/Multifamily Debt Markets, Housing Affordability, ESG, CRE Technology, and LIBOR Transition At Recent Miami Conference

The CRE Finance Council (CREFC), the industry association that exclusively represents the $4.4 trillion commercial and multifamily real estate finance industry, completed its Annual January Conference last Wednesday in Miami. Over the course of the four-day conference, industry leaders and member organizations participated in thought provoking panels, roundtables, forum discussions and networking events at the Loews Miami Beach.

“We pride ourselves on a long history of substantive panels and forums that provide our conference attendees not just a glimpse into the issues at hand, but a deep dive into critical developments affecting the future of our industry,” noted Lisa Pendergast, CREFC Executive Director. “To the good, we are entering a new decade with strong market fundamentals and an economy fueled by both robust labor markets and historically low interest rates. We are watching as several issues come to the forefront this year including the systemically important transition from the longstanding LIBOR floating-rate benchmark to SOFR, housing affordability, fintech, climate change and the potential impact the results of the 2020 elections will have on commercial and multifamily assets.”

Key themes, many of which will take center stage during the 2020 election and beyond, dominated the discussions among industry leaders at CREFC’s January Conference:

Policy and Government Relations

Legislative and regulatory decisions made by policymakers in Washington, D.C. continue to have a significant impact on our industry. The conference delivered inside-the-Beltway analyses of what occurred in Washington, D.C. in 2019 and what lies ahead in 2020.

CREFC’s Policy and Government Relations Team highlighted several positive developments for the industry in 2019, including the seven-year reauthorization of The Terrorism Risk Insurance Program (TRIA) and the shorter-term extension of the National Flood Insurance Program (with long-term reauthorization still in negotiation). The final High Volatility Commercial Real Estate (HVCRE) rules were also published and substantially conformed to CREFC’s recommendations. The industry is currently implementing the final HVCRE rules. Also notable, the Current Expected Credit Losses (CECL) rules were finalized and became effective for most CREFC members on January 1; importantly, the deadline for some medium and smaller financial institution compliance was extended for one year to January 2023 to allow for further preparation to comply.

In 2020, CREFC members will continue work with policymakers to revise Dodd-Frank rulemakings such as the Volcker rule, finalize capital rules such as the Net Stable Funding Ratio and implement legislative reforms to ‘know your customer’ rules such as beneficial ownership requirements and cannabis banking.

Housing Affordability + Rent Control

CREFC continues to be an important voice for the industry on the issues of GSE multifamily reform and Housing Affordability. Its members have provided federal policymakers such as Treasury and the FHFA with first-hand insights into these issues and cemented CREFC as an integral component in this dialogue. In 2020, CREFC’s membership will focus on a host of housing affordability and multifamily reform issues, including revisions to the Home Mortgage Disclosure Act (HMDA), the Community Reinvestment Act (CRA), GSE capital rules and FHLB eligibility. CREFC will continue to support the development of a vibrant multifamily finance marketplace in both the public and private sectors through its work with regulators, legislators and member stakeholders with the long-term goals of releasing the GSEs from conservatorship and meeting the nation’s housing affordability demands.

LIBOR to SOFR Transition

Expert background and updates of the transition from LIBOR to the Secured Overnight Financing Rate (SOFR) were shared through a dynamic conversation about its industry implications. A number of 2020 developments should ease the way for the development of a robust SOFR term structure, including ISDA’s finalizing its amended definitions to include SOFR as the replacement rate for USD LIBOR in the coming months as well as a change in discounting methodology to include SOFR by the major central counterparty clearinghouses (CCPs). CREFC expects these events to drive increased liquidity in both SOFR futures and debt issuance – both critical components to derive a term structure for SOFR, which does not exist today. In addition, the New York Fed announced plans to publish 30-, 90-, and 180-day compounded averages for SOFR in the first half of 2020. In December, Freddie Mac successfully priced a CMBS transaction with a bond class indexed to SOFR and CREFC anticipates more securitizations to follow. CREFC plays an important role in bringing awareness of these critical events and will work with its members to help facilitate a smooth transition. Note that in 2020 CREFC enters its second year as a full member of the Federal Reserve’s Alternative Reference Rates Committee (ARRC).

Technology + ESG

2020 will be the year to fully embrace CRE technology and focus on ESG issues more than ever before. Many of the conference’s panels and keynote speakers focused on how to capture and organize data to streamline industry functions and improve overall reporting. Panelists and conferees debated the current state of climate change, the status of implementing ESG objectives and the future implications to the CRE finance industry. The overarching theme is that what we do now matters. It was noted that Millennials are driving much of the momentum, and that those who choose not to embrace ESG may see reduced liquidity in the finance and debt markets.

“We are very proud of the robust and energetic participation of our members at Miami 2020 as they are the true lifeblood of our organization,” noted Chuck Lee, Head of CRE Securitization and Warehouse Finance at Credit Suisse Securities and Chair of CREFC’s Executive Committee. “I want to specifically thank the amazing panelists and forum leaders, participants and CREFC staff, as well as our keynote speakers, industry greats Barry S. Sternlicht, Chairman and CEO of Starwood Capital Group, and Thomas Flexner, Vice Chairman of Citigroup Global Markets, as well as David Gergen, Professor at the Harvard Kennedy School and former advisor to several presidents who added tremendous insight into yesterday’s, today’s and tomorrow’s politics and public policy. We are proud of the health of our industry and look forward to a successful 2020.”

 

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Berkadia Forecast: Rents Rising Amid Twofold Increase In Deliveries

Berkadia has released its 2020 Forecast report for South Florida, and there are some interesting points about last year’s figures and where the market is headed for 2020.

One of those points is developer attitudes focusing on major employment hubs intended to attract young and affluent professionals, a relatively new market with plenty of potential.

In addition, deliveries are expected to be 16,000, twice the number of last year. It’s expected to lower the occupancy rate to 95.5 percent, but constant demand will continue to provide upward pressure on leasing costs – 2.1 percent – over the next four quarters.

See the report below for reference.

Berkadia-2020-Forecast-South-Florida

You can also download the report by clicking here.

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South Florida Hospital Chains And Insurers Are Getting Bigger. Is That Good For Patients?

South Florida insurance companies and large hospital chains recorded healthy profits and acquired rival companies in an attempt to grow bigger in 2018, a new analysis found, accelerating a race to gain leverage in healthcare pricing negotiations.

But consumer advocates warn that whatever savings the healthcare monoliths find are unlikely to be passed down to patients.

Allan Baumgarten, who authored the recently released 2019 Florida Health Market Review, said the insurance companies and hospital chains are each seeking to achieve dominance.

“You have both health plans and hospital systems in a sense each trying to gain market strength and match the market strength of the other one,” he said. “It’s kind of a cyclical process. One makes that decision and then the other says, ‘Well, we have to get bigger as well.’”

Research has shown that prices are higher where hospital markets are more concentrated, according to Phillip Longman, policy director at the left-leaning Open Markets Institute, which advocates against monopolization in various industries.

“Sometimes, through consolidation, you get real economies of scale: better coordination, integration of care,” Longman said. “But experience has shown that whatever cost savings result are generally not shared with consumers.”

In Florida, consolidation among health insurance companies drove a 12% rise in profits for health maintenance organization insurance plans, or HMOs, and South Florida hospitals reported 8% average profit margins, their highest in recent years, according to the Florida Health Market Review.

Hospital systems grew through new construction and acquisitions. The Tennessee-based Hospital Corporation of America, or HCA, one of the nation’s largest for-profit systems., and AdventHealth, a nonprofit healthcare system, led the charge in Florida, acquiring hospitals from Community Health Systems, which was once the seventh-largest system in the state, the report found.

HCA owns several hospitals in South Florida, including Aventura Hospital and Medical Center and Kendall Regional Medical Center, while AdventHealth doesn’t have a presence in the southern part of the state.

Meanwhile, the health insurance market grew significantly more concentrated in the last three years, with companies like Anthem and Blue Cross Blue Shield acquiring a number of HMOs.

On the hospital side of that equation, Baumgarten said, providers are looking to expand their geographic footprint — Jackson Health System’s expansion into Doral or Baptist Health’s acquiring facilities across Palm Beach and Broward counties — in an attempt to capture more patients and additional market share. The hospital construction boom has been aided by the Florida Legislature, which removed regulations last year requiring hospitals to demonstrate an economic demand for new facilities before construction.

South Florida hospitals recorded combined profits of nearly $1.3 billion in 2018 and have posted combined profits above $1 billion for four of the past five years, the report found. HCA hospitals were the most profitable, with a net income of $363.6 million, according to the report. Baptist Health, a nonprofit and the largest system in the Miami area, had a net income of $142.8 million and Memorial Healthcare System in Broward County, a nonprofit hospital network, had a net income of $158.6 million.

Insurance companies are also trying to expand their reach as a way of increasing their leverage in price negotiations with hospital systems. HMO plans from Blue Cross Blue Shield, Humana, UnitedHealthcare and WellCare, the four largest HMO companies, made up 64.2% of the market, compared to 51.5% two years earlier, the report found.

“And yet, at the end of the day, the trends on both sides, in terms of prices being charged by hospital systems and the premiums paid by consumers and employers, both of those remain on an upward trajectory,” Baumgarten said. “So it’s hard to see from a consumer point of view how they’re actually benefiting from these strategies.”

Jaime Caldwell, president of the South Florida Hospital and Healthcare Association, said that, despite a good year for hospitals in 2018, there is uncertainty on the horizon in how hospitals will get paid.

Caldwell described a “healthy schizophrenia” as segments of the industry move away from a “fee-for-service” model, where insurers reimburse healthcare providers for things like lab tests and procedures, to a “managed care” model, where insurers reimburse providers based on the health outcomes of patients.

That shift, Caldwell said, will complicate the race for more market share between hospitals and insurance companies.

“I don’t know where it leads to, to be honest with you,” Caldwell said. “We’re seeing more and more reimbursement is trending toward [the managed care model], so I’m not certain those market strategies will be the dominating force moving forward.”

Longman, the consumer advocate, said that South Florida .is typically a bellwether for the rest of the country, and in this case, he sees consolidation of the healthcare industry continuing until there are fewer and fewer players left on the field.

“When hospitals merge, they no longer have to compete with each other for patients. That means they are freer to raise prices,” Longman said. “Any insurance company … when they come into this particular market, there’s only one person to deal with, and so that person names their price.”

 

Source:  Miami Herald

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Developer Moishe Mana To Break Ground On First Wynwood Project

Come the fall, developer and entrepreneur Moishe Mana will break ground on his first project in Wynwood. And more will soon follow, he said.

Mana is ready to proceed with a three-story, 35,410-square-foot building at 2900 NW Fifth Ave. that will house the Puerto Rican Chamber of Commerce and some additional offices for Miami-Dade County, according to Berenblum Busch Architects.

The architectural firm will submit the final design and construction documents by late January for the building and expects to have permits in hand by August, said Gustavo Berenblum, the firm’s founding principal.

Construction is slated to begin in September. The chamber, currently at 3550 Biscayne Blvd., is expected to relocate to the new digs by November 2021.

The three-story building will include a ground floor café, retail and meeting spaces, and 6,800 square feet of ground-floor parking, according to Gustavo Berenblum, the firm’s founding principal. The second floor will host offices for the chamber and county. The third floor will have additional offices as well as a 6,800-square-foot terrace facing south toward 29th Street.

Originally designed as a four-story building, the project was downsized at the request of the developer and county to meet the construction budget of $8.4 million. The four-story design would have cost $11 million, Berenblum said.

As part of an agreement between Mana and Miami-Dade County, the county will pay about $2 million from a bond; Mana will pay the rest.

The development comes as the neighborhood’s office market expands. The prior year saw the largest amount of Class A and Class B office space development since 2009, and Wynwood is receiving much of that new square footage.

Mana owns 40 mostly contiguous acres in Wynwood. His plan for the neighborhood includes a trade center occupying 8.5 acres from west of Northwest Fifth Avenue to Interstate 95.

The Israeli-born developer is also focused on planning and designing the front lot of a 4.5-acre development with buildings scaling two-to-three stories between Northwest 23rd St. up to Northwest 22nd St. and Northwest 2nd Ave.

“It will add another dimension to Wynwood,” Mana said.

He expects to complete the design in about two months.

The Wynwood neighborhood was one of the first areas settled by Puerto Rican immigrants who moved to Miami in the 1950s.

“It’s important to have the chamber in Wynwood because we don’t want to lose this part of the community,” Mana said. “We want to keep the culture.”

Said Berenblum Busch Architects Principle Claudia Busch, “It’s an opportunity for the Puerto Rican community to have a place of its own. You already have many Puerto Rican institutions that are there contributing to the health of the local economy there.”

Mana’s company also plans to provide financial support for chamber events, he said. To date, it has given $60,000, according to the chamber.

“We plan to initiate an arts program to attract artists from Puerto Rico and local artists for cultural events,” said Luis De Rosa, the president of the Puerto Rican Chamber of Commerce. “We also plan to provide aid to small businesses.”

Mana started searching for a Wynwood location for the chamber in 2011, he said, and signed an agreement with the county in 2015. Previously, the group planned to build at Northwest Second Ave. and 21st Street but abandoned that location due to environmental issues with the property, Busch said.

 

Source:  Miami Herald

 

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Miami Board Votes To Repeal Special Area Plans

Special Area Plans have enabled developers to build massive projects in the city of Miami like Brickell City Centre, River Landing Shops and Residences, Mana Wynwood, the Miami Produce Center (pictured above), and Magic City Innovation District.

SAPs have also antagonized neighborhood activists who fear that such massive developments destroy the character of low-rise neighborhoods and speed up the displacement of individuals and families who can’t afford the skyrocketing rents or property taxes.

Now, the Miami Planning, Zoning and Appeals Board is recommending that no other SAPs be approved.

By a vote of 6 to 3 on Wednesday, the board approved a resolution to repeal the Special Area Plan provision that enables property owners who assemble more than 9 acres of land to seek extensive zoning changes.

Such a repeal still needs to be approved, twice, by the Miami City Commission, which is embarking on its own review of the entire Miami 21 zoning code, including SAPs.

Planning board member Adam Gersten cast one of the dissenting votes, saying he feared that commissioners may simply ignore a recommendation to repeal, and advocated for a moratorium on SAPs instead. As part of that moratorium, the board could recommend reforms, including that the SAP causes no net loss of affordable housing in the surrounding area, Gersten suggested.

Chris Collins, another dissenting voter, agreed. “I think it would be more proactive and go a longer way if we specify what we want to change and how to change it,” Collins said.

But board member Alex Dominguez said that while the city tries to “workshop this thing to death,” more people are being displaced by legislation that encourages land speculation.

“If you do a moratorium… it’s like putting lipstick on a pig, and at the end of the day, it’s still a pig,” Dominguez said.

He also argued that many real estate developers “don’t even want to touch SAPs” because of the community opposition they tend to attract.

“It’s not a big deal to repeal SAPs from Miami 21,” Dominguez said, adding that “keeping it alive and tweaking it is affecting a hell of a lot more people negatively rather than positively.”

Neisen Kasdin, a land use attorney affiliated with Akerman, rose in defense of SAPS, arguing that the legislation has enabled “good” projects like the expansion of Ransom Everglades private school in Coconut Grove and the ongoing construction of an EmpathiCare Village for Alzheimer’s patients at Miami Jewish Health Systems in Buena Vista. SAP developers must also offer “community benefit agreements” in exchange for approval, Kasdin added.

“If you pass this legislation, you are not just throwing the baby out with the bath water, you are throwing out the baby,” Kasdin said.

But Marleine Bastien, executive director of Family Action Network Movement (FANM), said one of Kasdin’s clients, Magic City Innovation District, is an example of a “bad SAP” that has already indirectly led to the displacement of several residents and small businesses. That project, which was approved by the city commission last June, is being challenged in court by Warren Perry, a Little Haiti resident affiliated with FANM. One of the project’s initial investors, Robert Zangrillo, is also fighting charges from the U.S. Attorney’s Office related to the college admission fraud scandal, as well as charges from the Federal Trade Commission that he co-owned fraudulent websites.

Leonie Hermantin, a board member of Concerned Leaders of Little Haiti, said that although her organization supported the Magic City Innovation District, the group is also in favor of repealing the SAP provision.

“We know that the impact of multiple SAPs in our community will be detrimental,” Hermantin told the board. “I agree with Mr. Kasdin. There are good SAPs and there are bad SAPs. The problem is, unfortunately, that bad SAPs have been allowed to go through.”

The board has kept one controversial SAP in limbo: Eastside Ridge, a proposed 5.4 million-square-foot project that will be built less than a mile from the 8.2-million-square foot Magic City Innovation District and across the street from Miami Jewish Health. The planning board has continued the project five times, with members demanding improvements. In response, SPV Realty, Eastside Ridge’s developers, filed a lawsuit demanding that the board make a decision on the project — either recommending for or against it — so that it can be heard by the Miami City Commission.

Board member Anthony Parrish said Eastside Ridge helped make up his mind on whether or not to support repealing SAPs.

“One attorney of a major project said, ‘Just deny us. We just want to get to the commission,’” Parrish said. “That is what provided, at least for this member of the board, a need to repeal this.”

 

Source:  The Real Deal

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Small-Scale Urban Developments Starting To Sprout. Thank A Change In The Parking Code

Five years ago, the city eliminated a parking requirement for small-scale buildings. Now, dense multifamily buildings are cropping up on small lots across the city.

The City of Miami removed a zoning provision in 2015 that previously required new apartment, office and retail buildings covering less than 10,000 square feet to include 1.5 parking spaces per apartment. The change has spurred developed of at least 10 rental apartment buildings, say experts, by making them more affordable to build.

“We wouldn’t have been able to build what we want to build on these small lots if we had to include parking,” Mikhail Gurevich, a developer with Miami-based Propolis, said. “It would have become uneconomical for us.”

In small-scale projects, each parking space costs an average of $40,000, say experts, and is difficult-to-impossible to fit on a 5,000-square-foot infill lot. Large developments with the advantage of scale can build a parking garage for about $20,000 per space.

Propolis has eight projects in the pipeline in Allapattah, Little Havana and Overtown. The lot sizes are all about 5,000 square feet.

“None of them have parking. If a site forced us to have parking, then we wouldn’t build,” Gurevich said.

Gurevich expects his first rental building in Little Havana to be completed in February. The 3-story building will offer 12 units at 125 NW Seventh Ave. The two-to-three bedroom and two-to-three bathroom units will be rented per room as a co-living facility. The rooms start at $875 per month.

The code change prompted Maytee Valenzuela, president of family-owned Tommy’s Tuxedos, to develop a Little Havana property owned by the family for 40 years as a way to keep up with rising property taxes. She is planning a three-story, nine-unit rental apartment building at 700 NW Second St. , though she expects it will be about three years before she breaks ground.

“The parking exemption gives us that option,” Valenzuela said. “We would have not been able to do this otherwise because the lot is 5,000 square feet.”

The elimination of the parking requirement helps offset rising land costs, said Tecela founder Andrew Frey, who initiated the zoning code change in 2015 and got it passed with the support of the then-commissioner Francis Suarez. Frey then built three neighboring townhouse-style, 3-story buildings at 771, 769 and 761 NW First St. starting in 2016.

The change also allows developers to build smaller-scale projects in neighborhoods where most buildings have two-to-three floors, including Little Havana.

“Keeping the integrity of Little Havana is important. The policy change will make it easier to maintain the environment of Little Havana,” Gurevich said.

 

Source:  Miami Herald

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Riding The Wave Of Surging MOB Demand

In a country where over 10,000 people turn 65 daily, it’s safe to say that an aging population will drive the demand for healthcare resources for years to come.

Healthcare Trust of America (NYSE:HTA) is a real estate investment trust that seeks to not only ride the irresistible wave of current demographic trends, but also aims to carve out strong footholds in markets where high tenant quality can be secured and leveraged to more profitable relationships. As the largest dedicated owner/operator of medical office buildings (MOB’s) in the U.S.,

HTA is also well-positioned to benefit from the broad shift away from expensive inpatient facilities, and instead toward more cost-effective outpatient resources, as healthcare spending already projects to account for fully 20% of GDP by 2026.

HTA currently has lots of competition in the medical property space (not just from other REIT’s either) as the sector is one of the few areas where growth is almost guaranteed to exceed nominal GDP growth for years to come. This has pushed the price of related real estate assets sky high, and has been something of a double-edged sword, because profitability on leases takes a bit of a hit as profit margins are eaten away by the rising cost of asset purchases. Fortunately, HTA‘s focus on specific markets with strong demographic dynamics, its fully-integrated property development capabilities, and prudent cost management have all combined to insulate profits somewhat more than peers. Past is not necessarily prologue, however, and challenges from interest rate volatility to changing investor sentiment and MOB demand can affect spreads, margins, and FFO numbers. With respect to HTA, I’ll look at the company’s structure, competitive position, real estate portfolio, financial strength, and underlying fundamentals of the stock to help current and prospective investors assess whether HTA is a buy at current prices, and what the long-term outlook is for the company and the stock.

HTA company snapshot(Image source: HTA 2018 annual report)

Finding its Niche

As the single largest owner of MOB’s in the U.S., HTA‘s real estate portfolio comprises 23 million sq. feet of GLA (gross leasable area), having invested roughly $6.8 billion in those properties over the last 10 years. While the firm has considerable market breadth across the country, it does try to focus on 20-25 “gateway markets” where it seeks to “build critical mass,” especially in communities with universities and large extant medical institutions. The thinking is that this strategy presents not only favorable demographic trends for local demand, but also supply in the form of skilled-labor and job growth. Consequently, the company has already started to see some of the benefits via robust long-term demand for medical office management and leasing services. Overall, the firm has an integrated asset management model consisting of on-site leasing, property management, engineering and building services, and targeted real estate development. With a focus on operational efficiency and tenant quality, HTA has sought to build lasting relationships with dependable clients, and achieve real rental growth. Management hopes this combination will lead to peer-beating value-creation in the long-run.

HTA portfolio map(Image source: HTA investor presentation)

Founded in 2006 as a private REIT, HTA went public on the NYSE in 2012. Headquartered in Scottsdale, AZ, the firm has quickly expanded as it has not only emerged from the depths of the real estate and financial crash of 2007-8, but benefited from the growth of healthcare in general, and its own target markets in particular. This concentration in a few key markets has allowed the company to build strong competitive positions within those communities, and has actually led to relatively strong operating margins. Further, management’s focus on the firm’s financial strength and liquidity has allowed for continued investment and development, leading to accretive acquisitions and leasing relationships. Those strong tenant relationships foster increased margins, higher tenant retention, better leasing spreads, and more and better growth opportunities.

HTA d/a and d/e(Source: Author, Benjamin Black)

The operating platform consists of four main segments, including property management, maintenance services, leasing services, and construction & development. This multifaceted approach has allowed HTA to not only capitalize on leasing and property management fees, but also build its footprint through development and property investment. While 93% of the company’s overall GLA consists of in-house property, the top 20 markets comprise 75% of GLA as well, which is actually a 12% increase since 2013 (when it was 63%). What this shows, given HTA‘s ballooning real estate portfolio during this time period, is a strengthening position in the markets it chooses to focus on. The portfolio is increasingly concentrated in large and growing markets with high MOB demand, and top markets now include Dallas, Houston, and Boston, among other expanding metro areas with favorable demographics. Specifically, HTA targets strong same property cash NOI growth.

HTA portfolio(Image source: HTA investor presentation)

Growing the Portfolio

Since the end of 2013, HTA has doubled its portfolio in terms of GLA and property value (from $2.6 billion to $5.4 billion). Over this same period, leverage (net debt/EBITDAre) has remained fairly steady at a rate between 5 and 6X, falling at a respectable 5.8X in 2018. Cash from operations and use of the firm’s ATM equity program have largely financed the acquisitions. Solid enterprise value growth and normalized FFO growth of 27% (through 2018) help underscore the merits of a strategic focus on core-community, on-campus, and academic medical center locations. The economics and demographics of university-heavy cities favors MOB demand and related pricing. What sets HTA apart from peers is its vertically-integrated operating platform allowing it somewhat of a unique offering to customers. This has translated to success for investors in the underlying stock, as the REIT has outperformed not only broader REIT indices, but also the healthcare REIT index as well. Of course, this underlying performance does include some years as a private REIT, where returns are calculated mainly by factoring in total distributions over the period, but regardless, the 156% total return since ’06 compares favorably (bear in mind the period begins right around the height of the real estate bubble).

HTA real estate assets(Source: Author, Benjamin Black)

Healthcare delivery is expected to shift to more outpatient facilities over time due to it being more cost-effective than inpatient care. Additionally, limitations to existing hospital resources have further enhanced outpatient visit growth. In fact, inpatient visits have begun to decline in recent years, despite the growing demand for healthcare overall, which is especially beneficial to MOB operators. While demographic and industry dynamics favor the MOB REIT sector generally, HTA‘s laser-like focus on key “gateway” markets further drives growth and profitability. In addition to this, the consolidation of healthcare providers will likely lead to increased opportunities for MOB operators with scale (such as HTA).

HTA P/FFO(Source: Author, Benjamin Black)

MOB’s are desirable to providers because they help augment provider growth by helping to limit capital outlay/commitments by providing leasable properties, and also limit the volatility of cash-flows. The ability to develop synergistic and profitable relationships with strong providers depends greatly on location, barriers to entry, and operational efficiency of both the leaseholder and the property manager. That said, the MOB sector is especially fragmented, as less than 20% of the market is institutionally owned. Further, REIT’s only have an 11% share of the MOB market, which is less than private equity, developers, and providers themselves. Of that relatively small slice of the pie, however, HTA is fast becoming a dominant player.

Competitive Position

From 2012-2018, annualized FFO growth of 4.6% matches that of Welltower (NYSE:WELL), and is above peers H&R REIT (OTCPK:HRUFF) (3.3%), Ventas Inc., (NYSE:VTR) (1.2%), and Healthpeak Properties (NYSE:PEAK) (-1.7%). Same-property cash NOI growth, which I’ll refer to as SS (similar to same-store growth in retail), averaged 3% from 2013-2018, bested only by HRUFF (3.2%), and ahead of Physicians Realty Trust (NYSE:DOC) (2.6%), WELL (2.3%), VTR (1.4%), and PEAK (1.3%). Total shareholder returns meanwhile, have outpaced them all, coming in at 68% over the period (vs. a range of -6% to 54% for the previously mentioned companies).

MOB REIT returns(Image source: SEEKING ALPHA HTA STOCK PAGE)

PEAK (formerly HCP) in particular, has struggled over the last 5-6 years, and HTA may stand to benefit as a result. Note that in 2 of the last 4 quarters, SS growth fell below the REIT MOB average of 2.6%. Prior to that, from 2014-17, HTA grew cash NOI at a range between 2.8-3.3%. It has hit a low of 2.3% in 1Q18, but has since recovered to 2.7% as of 4Q18. The good news, however, is that since 2014, SS expenses for the company have actually declined, averaging -0.8% vs. an average of +0.9 to 3.4% for peers (including WELL, VTR, HCP, DOC, and HRUFF), which collectively averaged 1.75%. This disparity shows HTA‘s greater efficiency and cost management than peers. So, over the last 5-6 years overall, same-property figures look healthy, but keep an eye on the trend, and take special note of any further deterioration in NOI growth rates, or rising same-property expenses.

HTA SS-NOI growth(Image source: HTA investor presentation)

It’s important to note that the MOB sector (and healthcare real estate investment generally), is currently experiencing a period of record low cap rates. Cap (capitalization) rates are the ratio of net operating income (NOI) to property asset value, and such rates have fallen in recent years due to high investor demand and fast-rising property values. One major reason for this trend is that health-related real estate is seen as a sector of fairly reliable growth; in fact, total number of outpatient visits has grown by almost 2% annually between 1994-2014. By comparison, over the same period, inpatient admissions actually declined by 0.67% annually.

HTA EV/EBITDA(Source: Author, Benjamin Black)

Investor demand remains at an all-time high for healthcare real estate assets, and especially MOB’s, consequently pushing down cap rates and therefore profit margins and ROI expectations. Because healthcare is seen as one of the strongest drivers of economic growth in the U.S. going forward, investors continue to position their portfolios to reflect that trend. Total healthcare real estate volumes, though, stayed roughly the same for 2019 as 2018, mostly due to the lack of available properties, presenting an opportunity for profitable MOB development in key markets where demand is particularly robust.

And the Survey Says…

In a survey of medical real estate investors, CBRE showed that 94% of respondents favored MOB’s for acquisition, by far the highest of any building type (ambulatory surgery centers (ASC’s) were 2nd at 69%, for some perspective). These results further underscore the high continued demand for MOB’s, and the resultant tight supply-demand and pricing environment. Expected cap rates for MOB’s in 2019 are between 5-6%, which represents the lowest cap rates for all medical building/real estate investment categories, including ASC’s, wellness centers, LTC hospitals, rehab hospitals, etc. Only 2% of survey respondents felt that 2019 would see lower investor demand for MOB’s than 2018, and only 1% of respondents said that occupancy rates of their MOB portfolio had fallen from the prior year (99% said it was the same or higher). Generally, survey results show that the bulk of those asked see annual growth for medical office lease rents falling between 2-3%, largely reflective of inflation expectations and GDP growth.

Cap rates

MOB cap rates(Source for the above two images: HTA investor presentation and Hammond Hanlon Camp LLC 2018 MOB report, attached at the end of the article)

In 2018, the “tightening of the spread between sales and development capitalization rates (had) many developers on edge given the rising interest rate environment.” Fortunately, interest rates have actually fallen over the last year, as the Fed has lowered the Fed Funds Rate by 0.25% on three separate occasions in the TTM period. In the 24 months between the beginning of 2017 and the end of 2018, construction costs generally increased between 15-30% (depending on the market). Despite this surge, rental increases generally kept pace with rising construction costs, as the growing economy allowed developers to pass on rising costs. Additionally, cheap credit continues to augment market growth as loan-to-value ratios remain elevated at between 65-90%, and are increasingly occurring at the higher end of that range.

The Fundamental Picture

While the healthcare industry is clearly growing (average healthcare spending per person rose 11% in 2017 alone, for example), not all MOB operators are created equal, and not all markets are especially geared towards that sector’s growth. HTA with its university-centric market approach (it targets a portfolio composition of 68% of GLA from on-campus properties, and 32% off-campus), seems to have found a profitable niche. Growing its real estate assets from $1.7 billion to $5.7 billion from 2009-2019 (12.86% CAGR), HTA has greatly expanded its portfolio and simultaneously managed to grow its FFO from $28.8 million to $317.7 million, producing a CAGR of roughly 27%. Meanwhile, management has grown overall EBITDA from $61.3 million to $416.2 million (21.1% CAGR) over the same period.

HTA FFO(Source: Author, Benjamin Black)

While the annual dividend was higher in 2010 at $1.46 per share (vs. $1.24 in the TTM period), the FFO payout % was also much higher, at over 85% (vs. roughly 80% today). Dividends have increased annually since 2013, but at a compound annual growth rate of only 1.26%. The P/FFO ratio is just under 20 (at 19.8), and is reasonable, if not a screaming bargain. Reflecting on these numbers, HTA‘s focus is expanding its competitive position, showing very impressive top-line growth, but due to historically low cap rates and exploding real estate costs, that is not necessarily translating to stellar profit and dividend growth.

HTA dividends

HTA FFO payout %(Source for the above two graphs: author)

The Bottom Line

While HTA is well-positioned as a leader in the healthcare REIT sector, shareholder returns will likely remain muted while asset prices and earnings multiples remain high (relative to historic norms). That said, this is a company to consider adding to your watchlist, as it is a best-of-breed operator in a growing sector of the economy in the long run. It’s a great company, but a so-so stock at the moment. If HTA were to fall 20-30% over the next few months, however, (or basically flat-line over the next 2-3 years),  a reasonable and profitable entry-point would present itself, but wait for the underlying fundamentals to catch up to the price first.

*Most market and company-specific data drawn from HTA’s 2018 annual report or most recent investor presentation, found on the company’s investor website. Data used to construct graphs drawn from Seeking Alpha’s HTA stock page.

 

Source: Seeking Alpha

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Pop-up Stores Are Gaining Popularity And Are Here To Stay, Experts Say. Here’s Why.

For those who thought the pop-up trend was coming to a close, guess again. Pop-up stores are proliferating in cities across the country, including Miami.

The most popular local pop-up hubs: the Design District, Lincoln Road and Wynwood.

That news comes from a December report Pop-up-a-Palooza! published by Cushman & Wakefield in December. The report studied digital brands that opened for the first time in a bricks-and-mortar space during Halloween, the busiest time of year for pop-ups. In 2019, about 2,500 temporary Halloween stores opened across the country — an 80% increase from 10 years ago, when 1,400 stores opened.

Miami was one of 37 cities listed as a stronghold of activities. New York, Las Vegas and Los Angeles were also on the list.

 

Source:  Miami Herald

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