Miami’s development wave could take another step into Allapattah with a new apartment project.
On Feb. 19, the city’s Urban Development Review Board considered plans by 2323 Pointe Group LLC, an affiliate of Bay Harbor Islands-based Pointe Cos., for the 0.81-acre site at 2323 N.W. 36th St., plus 3614, 3620, 3624 and 3638 N.W. 23rd Ave. It acquired the property for $1.95 million in March 2019.
The building would total 167,689 square feet in eight stories. Designed by Modis Architects, it would have 116 apartments, 7,708 square feet of retail, 3,220 square feet of offices, and 129 parking spaces.
A recently completed office-apartment project in Miami’s booming Wynwood Arts District just secured $136 million in refinancing to pay off construction loans.
The Wynwood 25apartment building and adjacent Wynwood Annex office building opened last year.
Development team East End Capital, based in New York with a Miami office, and the Miami-based Related Group, founded and led by Jorge Perez, secured the loan from The Blackstone Group Inc.’s Blackstone Real Estate Debt Strategies.
The nine-story, 289-unit Wynwood 25 and the 60,000-square-foot Wynwood Annex sit on the northwest corner of Northwest Second Avenue and 24th Street.
Wynwood 25, which was completed last June, is 90% leased. The market-rate building at 240 NW 25th St. offers units from 400-square-foot studios to three-bedroom apartments. Amenities include an electric car charging station, heated pool with sundeck, rooftop lounge and kitchen, library with coworking areas, gym, pet grooming area and 24/7 concierge.
Wynwood Annex was built with an eye toward tenants in the technology, advertising and marketing fields. Its first tenant is the California-based Live Nation entertainment company, which took a full floor. The building has loft-style offices with 18-foot ceilings and a rooftop terrace.
The office building has 4,429 square feet of ground-floor retail and the apartment building has 28,518 square feet of retail, including the Salt & Straw ice cream shop and the Uchi restaurant, which will open soon.
The financing is another project milestone officially marking its completion, Jonathon Yormak, founder and managing principal at East End, said in a news release.
About $110 million of the proceeds was used for Wynwood 25 and the balance for Wynwood Annex.
Tens of thousands of people passed through the turnstiles into Hard Rock Stadium for Super Bowl LIV, taking part in the spectacle and competition. And when it ended, nearly all of them bypassed the neighborhood entirely on their way out.
While the stadium’s privately-funded, $500 million renovation boasts an open-air canopy along with other impressive additions, the surrounding city of Miami Gardens stands in sharp contrast.
The city has so far failed to attract the wide-scale investment that some sports stadiums in other cities have brought, and has not seen a blossoming of new residential properties outside the stadium.
Hard Rock Stadium owner — and Related Companies’ founder and chairman — Stephen Ross began the massive renovations of the venue in 2015, which brought the Super Bowl back to South Florida after a decade of absence. In addition, the money that Ross invested in the stadium — he also owns the Miami Dolphins — led to the Miami Open tennis tournament there in April and potentially, a Formula 1 race.
Some real estate developers who have built or proposed projects in Miami Gardens believe the renovations may bring about new interest in the city as a whole. The city, incorporated in 2003, is a historic African-American community with a population of about 110,000. It largely consists of older residential properties and commercial and industrial properties. In 2017, the household median income was $41,000 — below the county’s average of $46,388.
“The stadium is starting to be an asset. It was just a football stadium, but now… you are seeing an active asset, you are drawing people,” said Barron Channer, the CEO of Woodwater Investments, a Miami-based real estate investment firm. He previously proposed building a mixed-use project near the stadium.
Some developments are already in the works.
Los Angeles-based Latigo Group recently broke ground on a 259-unit apartment project at 19279 Northwest 27th Avenue in Miami Gardens. Rents will range from $1,700 to $2,300 per month, and the project is one of the first new market rate apartment developments in the city. It’s part of a bigger mixed-use project that will include a 37,000-square-foot building on a 4.63-acre parcel that will be leased to 24 Hour Fitness.
Jonathan Roth of Miami-based 3650 REIT, which provided a $50 million construction loan for the project, said Miami Gardens could become an attractive place to build housing at reasonably priced rents, since land prices are cheaper.
“What is happening nationally, you have a lot of development, but it is all Class A going up. By going into Miami Gardens you are going to pay slightly less for the land,” Roth said.
Sitting right off the Florida Turnpike and I-95 and in between downtown Miami and Fort Lauderdale, Miami Gardens has become a hub for logistics and warehouses, the less sexy part of real estate.
In recent years, institutional industrial investors have been snapping up properties in the area. In October, private equity giant Blackstone acquired two industrial properties in Miami Gardens for $13.6 million at 5120 Northwest 165th Street. And in July, Longpoint Realty Partners bought an industrial park in Miami Gardens from Prologis for $25 million.
In the northeast Miami-Dade County submarket, which includes Miami Gardens, more than 197,000 square feet of industrial space was under construction at the end of 2019, according to a report from Avison Young. The net absorption was 1.1 million square feet, the most of any submarket in the county.
Yet, the question remains whether the city will pivot from attracting industrial development to more residential projects.
Some real estate experts are betting on it, in part due to the rising cost of land in other parts of South Florida, and a lack of developable land to build new projects. The city could also become an alternative for renters on a budget, who would otherwise move further south or west in Miami-Dade County.
Colliers International South Florida’s Gerard Yetming and Mitash Kripalani are listing two parcels of land in Miami Gardens at 1255 Northwest 210th Street, totaling 82.5 acres, which allow for a maximum of 50 residential units per acre. Yetming said he is getting inquiries from developers who are looking to build workforce residential development, and that developer interest is growing in Miami Gardens.
“The level has increased over the past couple of years,” Yetming said. “A few years ago, developers were more interested in downtown and an urban type of environment.”
With new investment also comes the risk of gentrification and displacement of existing residents, something communities in places like Miami’s Little Haiti are trying to combat amid projects like the Magic City Innovation District.
“Miami Gardens is and has been heavily defined by the presence of black residents,” said Channer of Woodwater Investments. “If this is not reflected in who is courted to, and actually investing at all levels, then economic development efforts would have failed their ultimate test.”
Nicklaus Children’s Hospital plans to sell the failed Miami Medical Center, a specialty hospital that Nicklaus Children’s bought just over two years ago for $88 million, after deciding to focus its growth strategies on more outpatient clinics and its own Coral Terrace campus.
The decision to sell the building follows a year of financial instability, layoffs and administrative changes. At the time of the purchase, in December 2017, questions surrounded the financial underpinnings of the deal. That included questions about the nonprofit Nicklaus Children’s financial interests in the for-profit ventures associated with the Miami Medical Center. Miami Medical Center, located near Miami International Airport, closed in October 2017.
Matthew Love, who took over as chief executive officer on an interim basis in June last year, also announced this week that he will begin serving as the hospital’s permanent CEO. Love said he couldn’t answer questions about the relationship between the nonprofit hospital and the for-profit ventures because much of the arrangement predated his time with the hospital.
Before the bankruptcy filing, one of Miami Medical Center’s biggest investors was Nicklaus Children’s, which served as shareholder, lender and manager of the hospital through a venture called Miami Hospital Holdings. In March 2018, the company that operated Miami Medical Center filed for Chapter 11 reorganization, listing $21.4 million in assets and $67.3 million in liabilities.
Love said the hospital has retained an outside consulting firm to help with the sale, and that Nicklaus Children’s board signed off on the decision to sell. The CEO declined to list a specific price for the facility but said Nicklaus Children’s would sell the building for the “best price we can get.”
“The sale makes sense with Nicklaus Children’s growth strategy,” Love said. “When you talk about expansion and growth, it doesn’t always have to be brick and mortar. Miami Medical Center was right down the street. What I’m not really interested in is replicating high-end services — those are expensive.”
Sal Barbera, a former healthcare executive who now teaches healthcare administration at Florida Atlantic University, said he thinks the decision to sell the building goes beyond growth strategies and has more to do with the hospital’s current financial condition.
“They need to unload that asset, they need the cash,” Barbera said. “They didn’t buy it that long ago.”
In 2014, Nicklaus Children’s — when it was still an investor — signed on to guarantee up to $70 million of financial obligations related to Miami Medical Center. When the private hospital defaulted on its debts, Nicklaus Children’s paid a total of $14 million in 2017 and 2018, according to an analysis by Fitch Ratings.
During 2018, Nicklaus Children’s also funded $7 million of Miami Medical Center’s operating costs as part of its obligations. Miami Medical Center’s bankruptcy was finalized in January 2019.
The company that invested in Miami Medical Center was partly owned by a for-profit corporation whose officers were made up of Nicklaus Children’s board members and executives, including former CEO Narendra Kini, former CFO Timothy Birkenstock and April Andrews-Singh, a senior vice president and general counsel.
Love, the current CEO, said he is hopeful that the Florida Legislature’s deregulation of hospital building guidelines will make the facility attractive to out-of-state healthcare providers or providers from elsewhere in the state.
“What I’m interested in us doing is focusing on the fundamentals,” Love said. “We’re the best pediatric healthcare provider in Florida, and we need to focus on that. That’s who we are.”
Another co-living project is in the pipeline for Wynwood.
The project between 33-51 NW 28th St. will include 200 fully-furnished units, according to a press release. The 8-story project will have 3,600 square feet of ground-floor retail space. Amenities include a gym and rooftop pool. The Related Group will develop the project with real estate investor W5 Group. Related and W5 hired the Grove-based architectural firm Arquitectonica to design the building.
It will be another co-living building in Wynwood, behind the Property Markets Group and Greybrook Realty Partners project.
“As a Miami resident myself, I have witnessed Wynwood’s ascent with some interest,” said Ralph Winter, principal of W5 Group in the release. “However, as neighborhoods become more desirable, young people are often priced out. Co-living is an exciting proposition that offers tremendous value, enabling them to experience modern living in highly attractive units — all while meeting like-minded individuals and forming rewarding new bonds in coveted metropolitan areas.”
Co-living, or apartments building with micro units and shared amenities, including communal kitchens, is one way developers aim to resolve Miami’s growing affordability issue.
The investment is part of the effort to expand the Berlin-based Quarters co-living and property management brand on behalf of the W5 Group and the Medici Living Group. The teams are investing $300 million of equity to expand the brand in select U.S. cities from Europe. There are 14 cities across the globe, including Miami, that are expected to receive a Quarters-branded project or already have one, including Washington, D.C., New York, Chicago, the Hague, Stuttgart, Munich, Rotterdam, Hamburg, Amsterdam, Frankfurt, Philadelphia and Düsseldorf.
The W5 Group has offices in Switzerland, New York and Miami. It established its foothold in Miami Beach in 2009.
The neighborhood continues to attract developers. A new hotel by the San Francisco-based Sonder team and an office building are also planned for Wynwood.
Related Group recently completed two projects in Wynwood and has more in the works, Vice President Jon Paul Perez told Bisnow this week. In Allapattah, it recently opened a gallery and is on the lookout for other opportunities.
“It’s gotten to that point where the buying and trading of land without developing … that ship has sailed,” Perez said. “If you’re buying land there now, you’re assuming you’re going to have to develop.”
Sterling Bay Director of Leasing Michael Lirtzman had a similar assessment. The Chicago development giant closed on a site for $18.9M in December 2018, at 545 Northwest 26th St., where it is building a 10-story, 300K SF office building called 525wyn.
“We got in at a pretty good number,” Lirtzman said. “The pricing was a little more restrained. Now it’s starting to push.”
Sophisticated national developers have “brought some discipline to the pricing,” he said, but he predicted values would stay high as the neighborhood hits maturity.
“Wynwood is in the mode of building now,” said Avison Young principal John Crotty, with the days of flipping mostly gone and big residential developers going vertical.
Allapattah, however, still has pockets of opportunity, he said. “Other than by the [Miami] River and by [Jackson Memorial] Hospital, there’s not much development.”
Related Group and partner East End Capital completed Wynwood 25 in July. Its 289 apartments are now 85% leased at $3.10 per SF, Perez said, and its 35K SF of retail is 45% leased. Another project, the Bradley, which Related developed as apartments, was instead leased entirely to Domio to be operated as short-term rentals.
Perez said that Related benefited by being the first mover, willing to take a risk.
“The bet that we were making was that people wanted to live in Wynwood, right?” he said. “I could never have told you, ‘Hey, I’m going to sign a lease for all the apartments to one operator,’ because I think at that time these types of companies did not exist.”
When Domio came around, “we were the only option for someone that wanted one of those companies to be able to be in the neighborhood,” he added. Domio reportedly fought off competition from rival short-term rental operators to sign the building.
The largest development deal in the area last year was a 1.6-acre site at the corner of Northwest 25th Street and Second Avenue, which buyer Property Markets Group and Greybrook Realty Partners paid $46M to acquire and redevelop from its existing use as a gallery into a six-story resident complex with 222 units, Crotty said.
Crotty said PMG spun out the bottom-floor retail to Tricera Capital, which should be able to garner rents around $80 per SF.
“That’s Main and Main,” said Crotty, a former NBA player who also serves as the Miami Heat’s TV analyst. “That’s top-of-the-market pricing.”
Blocks off the main drag, Wynwood rents are about $50 per SF, he said.
Office leasing at the Wynwood Annex has gone a little slowly, Perez said, but Live Nation leased a floor and he said he is in talks with potential tenants that are similar in size and credit to the events company.
“So definitely by the end of 2022, our buildings should be close, if not 100% occupied,” Perez said.
Lirtzman compared Wynwood to the Fulton Market area of Chicago, which was “where young people went to hang out. There was no office, but a vibrancy in the neighborhood.”
Sterling Bay decided to build office projects there with large floor plates and top-line amenities geared for creative tenants. It is now building its seventh Fulton Market building in a six- or seven-block radius.
Sterling Bay’s Wynwood project, which recently topped off, will include a fitness center, an indoor/outdoor bar and 440 parking spaces. Its first tenant is architecture giant Gensler, and Lirtzman said a letter of intent has been signed for a consulting firm to take 8K SF.
Goldman Properties opened the 30K SF Wynwood Garage in 2018, and a boutique office building, the eight-story, 86K SF Cube Wynwd, opened last year. Another big project, The Gateway at Wynwood, a 460K SF Class-A office building, broke ground last week.
The same forces that shaped Wynwood have affected the working-class neighborhood of Allapattah, just to the west. Whereas Wynwood had largely been made up of industrial warehouses, Allapattah now buzzes with working-class businesses. But real estate pros have been hyping it as the next hot neighborhood.
Developer Robert Wennett has proposed a mixed-use development by Danish “starchitect” Bjarke Ingels. Neology Life Development Group head Lissette Calderon in October broke ground on No. 17 Residences Allapattah, a 14-story, 192-unit apartment at 1569 Northwest 17th Ave.
“If you go have lunch on a Wednesday, it’s cops, it’s firemen, there’s people that are working nurses, doctors,” Perez said. “Allapattah probably started selling at $20 a foot, and now you have property trading at 130 bucks a foot.
“We’re not in that game of finding land and hoping for the value to rise and then flipping. So we say, ‘OK, at this price, does it make sense where I could build apartments, office, whatever it may be, at this land basis?'” he continued. “We’re looking for sites that are large enough that we can do substantial projects — 300 or so apartments there — and we haven’t found one yet that we are moving forward on.”
Calderon said in an email that construction on No. 17 Residences Allapattah has reached the fifth floor and is expected to be completed in spring 2021. She highlighted its amenities, including smart technology for package receiving, a digital concierge, a gym with virtual fitness and a “bark park” where dogs can play.
She said Neology Life is planning to break ground on another mixed-use project near No. 17, with 323 units, ground-floor retail and office space. It would begin construction after No. 17 opens in late spring 2021.
Crotty said that besides the aforementioned projects, plus a few others in the pipeline — the 555 River House proposed by Avra Jain and a yet-to-be-developed parcel he sold to billionaire developer Moishe Mana for $8.5M — Allapattah “has yet to fill in and grow,” he said.
Florida’s Department of Transportation is exploring the possibility of building a new highway exit off Interstate 95 at Northwest 29th Street.
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.”
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.
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.”
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.
You can also download the report by clicking here.
