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Commercial Real Estate Trends And The Call For Creativity

The ripple effect of the pandemic’s impact on the commercial real estate (CRE) market is going to have a lasting effect on several market sectors. The remote workforce genie isn’t going back in the bottle, and the reliance on e-commerce and advances in technology for home delivery will continue to disrupt retail. However, there is reason for optimism, but not across all sectors, and there’s still a lot of emperors without clothes out there talking about how everything is going to be just fine. There are thriving CRE sectors, some that need only pivot to adjust to the new normal, and others that will have to completely reinvent themselves.

Multifamily Real Estate: On The Rebound

As a leader in providing property management technology to the apartment industry, my company has seen firsthand how the multifamily real estate market has made a faster recovery than expected compared with other real estate sectors. It’s arguable that some markets felt almost no impact at all, and some sectors are actually stronger coming out of the lockdown. Yes, government aid has helped, but the overall market has gotten back on its feet quickly and will continue to do so in 2022. The multifamily market is seeing strong growth with low vacancies, steady rental rates and robust development for next year.

Investors agree: Recent data puts sales volume of market-rate apartments at $46.6 billion in the first half of 2021, which was up by 35% from a year ago. This is on pace with the average growth rate for the past five years. Apartments in secondary markets or further from major cities may benefit from this remote work trend since employees no longer need to be near their physical office location.

Industrial Real Estate: Thriving During Distress

The industrial market saw a huge boost during the pandemic due to the growth in e-commerce, and it looks like this will keep rolling through 2022. Year-over-year e-commerce growth surged to 44.5% in Q2 from 14.8% in Q1, which put pressure on retailers, wholesalers and third-party logistics companies (3PLs) to lower transportation costs. There is still healthy demand for industrial real estate, with 367.8 million square feet of industrial property under construction. Completions for 2021 are forecasted to top 250 million square feet, slightly above 2019’s total.

Rent increases were most significant in or adjacent to port areas where there was increased demand due to shipping problems exacerbating supply chain challenges. Vacancies remained steady at 6.1% compared to March 2020. Strong vacancy and rent growth figures show new space has easily been absorbed.

Office Real Estate: In Dire Trouble

Since approximately 50% of U.S. workers worked remotely during the pandemic, flexible work location is no longer a nice-to-have but often a requirement. Businesses have shifted from “always in-person” to a remote workforce, and a vast majority of that workforce likes it. In my opinion, this trend isn’t going anywhere; about 74% of the workforce is planning to permanently be working remotely. This spells a significant reduction in demand for office space. Companies are not re-upping leases and are significantly reducing their square footage, all signals of troubling trends for the CRE market. Not surprisingly, I’ve noticed that CRE owners aren’t talking about this exodus and are telling all who will listen that everyone’s coming back. They may even talk about the need for flex space but not about how flex space will require less space overall.

An overwhelming 72% of companies anticipate modest office space reductions, and 9% of large companies plan to make their office space “significantly smaller” in the next three years. Perhaps some CRE owners are working behind the curtain to stem the tide of companies leaving their buildings or designing new uses, but they have a cash crunch ahead to meet loan payments. Loans to keep CRE businesses afloat can be difficult or impossible to service because a reduction in 20% of topline revenue due to loss of tenants severely impacts a commercial loan, which is typically levered at 75-80%. Cash is only going to get tighter.

Adaptive Re-Use Will Be Key

One of the saving graces for the struggling office and retail real estate markets is the shift to a mixed-use property because apartments in a mixed-use environment command 13.9% higher rents than apartments that are not. I believe that this is the most significant opportunity in CRE and where one strong sector can bolster the struggling one.

There are a number of creative ways that CRE real estate executives can reuse a vacant structure to give a neighborhood a boost. Converting unused office space or retail buildings into apartments or nursing care facilities, for example, can make the best use of space and tap into needs in the market. You can add apartments on top of malls or earmark warehouse storage on the back of office spaces. Key factors that determine optimal reuse in a property include location, building structure, cultural significance, sustainability and ROI.

Cities and counties have also put into place adaptive re-use ordinances making permitting easier and construction easier and cheaper. In Los Angeles, for example, where my company is headquartered, CIM Group took advantage of the new adaptive re-use ordinance to renovate a downtown high-rise building.

One component to assist with the success of adaptive repurposing commercial real estate property is technology, which has grown by leaps and bounds over the course of the pandemic. Once considered a “tech-hesitant” industry, it is now embracing everything from automation software for remote property operations to AI that scans for changes in state and local code and compliance regulations. A recent survey showed that 80% of real estate owners and operators claimed new technology was already having a positive impact on their operations.

While some office building owners are awaiting a mass re-entry of people back into offices, others are thinking creatively to re-envision a future that combines the best of both worlds, solving a housing shortage and enlivening office and retail space.

 

Source:  Forbes

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A Skatepark Is The Centerpiece To This Miami Developer’s New Mixed-Use Concept

Miami is slated to get a new mixed-use hangout, with a skate park serving as the centerpiece.

The concept, dubbed SkateBird, will serve as a skating arena, shopping hub, event center and food hall.

The 32K SF facility — located at 533 Northeast 83rd St. in the mostly residential village of El Portal, just north of Little Haiti — is said to be a first for the state.

The open-air venue, set to have a soft opening this month, has a concrete plaza for street skateboarding and a pump track with a roof to protect from sun and rain.

The facility will also have a full-service kitchen and bar, its own skate shop, and pop-up micro-retail spaces — made from shipping containers — where artists, fashion designers or other vendors can sell their wares. It will also serve as a community hub, hosting events and musicians.

Customers can buy memberships for $75 per person, or a VIP membership that covers five people for a year for $3K. Those include access to skateboarding sessions, happy hours and events, plus discounts on food and merchandise.

The project is led by Miami-based Jonathan “Joner” Strauss, also the founder of Skateboard Supercross, or SBSX, a company that helped design 5,000 parks worldwide. With that concept, he aimed to build facilities all around the world, described on the company’s website as “mini stadiums that provide a strong sense of community” based on “one of the most marketable and memorable sports in the action sports industry.” He’s also envisioned skatepark resorts, according to his LinkedIn profile.

Strauss considers SkateBird to be “the newest concept in sports and entertainment,” according to the Miami New Times.

“We’re giving the answer as to what is lacking in public skateparks, which is there’s never amenities for families to take advantage of, like shade structures, water fountains, or bathrooms,” Strauss said to the outlet. 

The facility aims to be inclusive with lessons for all ages. It will also sell its own brand of beer.

A grand opening is scheduled for Dec. 3-5, during Miami Art Week.

 

Source:  Bisnow

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Renter Churn: Which Cities Are Seeing The Most?

Over the last 20 months, unprecedented shifts have led to new migration patterns. And while some aspects of the COVID-19 pandemic that led to it are waning, many other societal shifts — remote work chief among them — are still at play.

Of renters looking to move, an average of 40 percent were looking to move out of the metro where they resided in the third quarter of 2021, according to a report from Apartment List, based on searches on their platform.

While San Francisco far exceeds that level, with over 50 percent of renters on the move looking to exit, both Los Angeles and New York fell below the national average. Miami was far below it, with only 22 percent of searchers looking to leave.

But none of those cities experienced the greatest amount of potential renter turnover. The three cities with the most people looking to move both in and out of the metro area were Austin, San Jose and Raleigh, N.C. Not coincidentally, those three cities also have a very high share of remote-friendly jobs. In fact, all three are in the top 10 metros for remote-friendly occupations, according to a separate analysis by Apartment List.

Another migration pattern that doesn’t appear to have changed is the New York-to-Florida pipeline. This time last year, as the first COVID winter was settling in, Florida beckoned many New Yorkers and other northeasterners to its sunnier shores. And they’re still at it.

Of renters looking to move out of New York, 6.1 percent were interested in Miami in the third quarter of 2021, very much in line with the 5.9 percent doing the same last year, per the report.

Philadelphia tied with Miami for top outbound searches from New York, with Boston coming in third at 5.2 percent. In addition to Miami, another 7 percent of New York searchers were looking to move somewhere in Florida.

Miami has wide appeal, particularly to others in the state. While New Yorkers made up 16.9 percent of inbound searches to Miami in the third quarter of 2020, they made up 9.6 percent this past quarter. Instead, Orlando took the top spot for inbound searches to Miami, with a full 30 percent coming from the central Florida city, with Tampa taking third place, after New York.

It is important to note that this report is based on searches, not on actual moves, so while it does reflect renter interest, it may not reflect the patterns that eventually play out in reality.

 

Source: Commercial Observer

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‘Lowest Vacancies In Years’ Drive Up Prices For Multifamily Investors

For “the first time ever” the average price for a Class C apartment building averaged $150,000 a unit, according to a recent report on the South Florida multifamily market from Franklin Street, a Tampa-headquartered commercial and insurance brokerage.

But it isn’t just Class C apartment buildings — classified as multifamily structures more than 30 years old and in fair-to-poor condition — that are rising in value. Prices, rents, and vacancies for Class A apartments and Class B apartments are also becoming more expensive for investors in Miami-Dade, Broward, and Palm Beach counties.

According to the Franklin Street report, rents per square foot increased 23% year-over-year in the third quarter in Palm Beach County, 16.7% in Broward County, and 11.6% in Miami-Dade County. Miami-Dade still had the highest rents for Class A and Class C buildings, however, with Class As running an average of $2.42 a square foot and Class Cs at $1.57 a square foot. Palm Beach County had the highest rents for Class B buildings, which averaged $1.85 a square foot.

As for vacancies, the rates were 4% in Palm Beach County, 3.3% in Broward County, and 3.3% in Miami-Dade in the third quarter, “marking the lowest vacancies in years.”

As a result of its popularity, South Florida is luring more multifamily building investors, too. Sales volume was highest for Class As in all three South Florida counties, which totaled $1.6 billion in the third quarter. However, the largest segment in Class A sales volume came from Palm Beach County, which amounted to about $675.2 million. Class C multifamily buildings had the second-highest volume, totaling $586.5 million in all three counties. The sales volume for Class Bs in South Florida was $508.8 million.

The report noted that Class A properties in Palm Beach and Miami-Dade counties exceeded the average sales price per unit of $300,000. But Dratch found it particularly interesting that average units for Class Cs are at $150,000 each.

“Close to five or six years ago, in this same market, Class C units were selling for less than $100,000. It speaks to what has been happening across the board,” he said.

 

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Wynwood Just Got A Little More Vibrant

the gateway at wynwood_mural 3As the The Gateway at Wynwood building nears completion, the long-awaited exterior garage cladding, which depicts a vibrant mural, has been fully installed just in time for Art Basel next month. Additionally, the rooftop deck has been completed and signage is going up around the building.

The Class A office building, developed by R&B Realty Group and designed by renowned Miami architect Kobi Karp, has helped turn Wynwood into a mini-city.

The office building, which found inspiration in Wynwood’s innovative spirit and modern vibe, will allow Wynwood’s new residents to walk to their offices and shops without having to get in their cars. Wynwood, which used to be home to neglected warehouses, is seeing a construction boom of condos and apartments and, now, office buildings as well.

The Gateway at Wynwood offers about 195,000 square feet of leasable Class A office space and nearly 25,900 square feet of prime street-level retail space at the intersection of Wynwood and Midtown. This summer, R&B Realty Group announced the building’s first office lease signed with biotech company Veru Inc. The eight-year, 12,155-square-foot lease will serve as the company’s global headquarters and triple Veru’s current office space.

 

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The Pandemic Has Made Healthcare Real Estate More Desirable

“The pandemic increased demand and made healthcare a more desirable asset class,” Rahul Chhajed, VP and senior director of healthcare at Matthews Real Estate Investment Services, tells GlobeSt.com about how the asset class fared during the pandemic.

For one, medical properties moved onto the list of darling asset classes, and it isn’t hard to understand why.

“It is no longer just a recession that investors are worried about. If there is another pandemic, healthcare services are something that people are always going to need. At the end of the day, everyone needs medical care,” says Chhajed.

With the exception of a temporary pause in the market at the beginning of the pandemic, when elective surgeries and other healthcare services were paused to allow healthcare providers to focus on COVID-19, healthcare properties outperformed other asset classes. Chhajed notes that many tenants didn’t need rent relief and continued to pay rent.

This year, investors have been trading out of more challenged asset classes, like retail and office, in favor of medial facilities.

“COVID really provided a proof of concept for the industry to show that this product type is here to stay. It is not only institutional, but it is an asset class that private capital should look at as well,” says Michael Moreno, VP and senior director of healthcare at Matthews Real Estate Investment Services.

Institutional capital has been the dominant player in the healthcare sector, and that is because it can be a more complicated asset class. Now, both institutional capital and private investors are competing for deals.

“More institutions have definitely entered the ring, but we are also seeing the private markets have started to buy these deals,” says Moreno.

And, there is a third player: owner-occupiers. Existing owners are looking at the demand—which has driven cap rates down significantly—and deciding to sell.

“The sale-leaseback market is really picking up, and a lot of that has to do with pricing,” says Moreno.

Over the last few years there has been significant cap rate compression, and owners would rather take the proceeds and put it back into the business and grow.

“Private buyers love those deals because they typically contain long-term leases and they are triple net,”  Moreno says.

On the lease side, retail owners are finding new users in healthcare. Many clinics and ambulatory centers are signing leases in retail facilities as part of the trend from in-patient care to out-patient care.

“Retail-centric healthcare is great for providers because the care is coming to the consumer,” says Chhajed. “A lot of these healthcare systems are looking for ways to provide ease of access, and retail centers meet those needs to make healthcare more accessible. The confluence of these trends is creating a heyday for medical assets after the pandemic. Now healthcare is looking stronger than ever.”

 

Source: GlobeSt.

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Large Mixed-Use Project Makes Big Changes To Win OK In Wynwood

The development team behind one of the largest mixed-use residential and office projects to rise in Wynwood continues to work with the City of Miami Planning Department staff and is confident of final approval.

Owner-developers L&L Holding Co. and Carpe Real Estate Partners are behind The Wynwood Plaza, formerly 29N, which is to rise at 95 NW 29th St.

At its October meeting, the city’s Urban Development Review Board voted to recommend denial of the project to the planning director, citing continued concerns mainly over the massing of the project.

Undaunted by the vote, the development team says it is continuing to work closely with the city staff to address the remaining concerns.

Attorney Steve Wernick, representing the owner-developers, noted that the team already changed the plan to address concerns the board raised in August: worries about the massing along 30th Street and a cross-block passage vehicular access on Northwest 29th Street.

The curb cut for the one-way vehicle entry on 29th Street has been refined with a smaller footprint, said Mr. Wernick.

“We’ve moved some functions into the garage so cars are not queuing in that space,” he said.

The midblock access will be limited to visitor vehicles managed by a valet.

As for the massing on 30th Street, Mr. Wernick said, “We’re working with staff now to introduce an additional element into the façade; it will visually break up the building.”

Designed by architectural firm Gensler, The Wynwood Plaza would bring 12- and 8-story buildings with 509 apartments to the neighborhood, 266,000 square feet of offices, 32,000 square feet of commercial-retail uses, and parking for about 668 vehicles.

“We look forward to continuing our constructive dialogue with the Miami Planning Department and hope to secure final approvals in the near future,” said Adam Metzger, principal and senior vice president of L&L Holding, in an email to Miami Today.

“Since agreeing to acquire the three-acre development site for The Wynwood Plaza just over a year ago, we have been working diligently to produce a design and program that will complement and significantly enhance the dynamic community that surrounds us.

“We greatly appreciate the feedback we have received from a number of important groups, including the Wynwood Design Review Committee, the Wynwood Community Enhancement Association and the city’s Urban Design Review Board.

“The design choices we have made as a result of our conversations have resulted in significant improvements to The Wynwood Plaza’s architecture, pedestrian realm and public outdoor spaces – all of which will benefit residents of the surrounding neighborhood for decades to come,” wrote Mr. Metzger.

He said they remain on target to start initial demolition work early next year.

Mr. Metzger added, “The project is already generating tremendous excitement. We are currently in active discussions for approximately one-third of The Wynwood Plaza’s proposed office space with a number of prospective tenants, which would bring hundreds of new jobs to Miami.”

The project would provide about 25,000 square feet for a ground floor public plaza connected by paseo to the north, south and west.

There would also be about 30,000 square feet of programmable rooftops.

In an Oct. 6 letter to the city, Mr. Wernick pointed out another change to enhance the pedestrian experience.

“The north façade has been modified in multiple ways that elevate and accentuate the paseo entrance. The ceiling height for the 30th Street paseo entrance has been increased from 12 feet to a new 22 feet datum, intentionally creating a more inviting and expansive entry point to the Project from the Wynwood Norte neighborhood into the central plaza and maintaining connectivity through to NW 29th Street.

“The portal width is being maintained at 60 [feet] in width, which is significantly wider than the 10 [feet] minimum dimension required for a cross-block paseo in the NRD-2 and wider than a standard city of Miami right of way, and is pedestrian-only, asserting the importance of the cross-block feature to the Project,” said Mr. Wernick.

“The 30th Street paseo entrance is now adorned with murals on the ceiling and exterior walls above the storefronts to create an immersive art experience … The portal entry is further strengthened by a canopy projection to orient the pedestrian towards the portal and provide additional articulation on the north façade,” he wrote.

The Wynwood Plaza is being described as a modern office tower and a highly-amenitized residential rental building, along with an array of indoor and outdoor dining and retail options.

 

Source:  Miami Today

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Retail Space Is Hard To Find In South Florida Thanks To Migrating Restaurants

The lack of Covid-19 restrictions in the Sunshine State is attracting an “unrelenting migration” of restaurants to South Florida, according to the latest retail market reports from Collier International (CIGI).

That migration, in turn, has jacked up retail rates in Miami-Dade, Broward, and Palm Beach counties. It’s also made it extremely difficult for new restaurants and stores to open in high-trafficked areas, said Jonathan Rosen, Colliers’ director of retail services in South Florida.

“I think the over-arching message is [South Florida] over the past 12 months has been a safe haven for a lot of these out-of-market retail and restaurant operators,” Rosen said. “…They don’t have to worry about being closed down by the government or Covid-19 restrictions.”

And when the retail and restaurant operators do move from, say, New York, that attracts other New York operators to move to South Florida.

“They feel comfortable seeing their peers…coming down to this market,” Rosen explained.

Restaurateurs and retailers aren’t just coming from New York. Vacant “second generation restaurant space” is being taken over by restaurateurs from the northeast United States and South America, according to Colliers’ latest restaurant and retail reports.

“True Class A retail space is in the highest demand, as well as stores at grocery-anchored and mixed-use centers,” Colliers noted.

The scarcity of space has had an effect in Miami-Dade, where the asking leasing rates increased 12.5% to $38.98 per square foot this third quarter, from $35.54 a square foot year-over-year. Miami-Dade’s overall vacancy is 3.9% this third quarter, whereas in last year’s third quarter the vacancy rate was 4.5%.

In Broward, the asking rental rates increased 3.5% to $22.96 a square foot, from $22.18 a square foot year-over-year. The vacancy rate also fell to 5.1% compared to 5.4% in last year’s third quarter.

In Palm Beach County, third quarter rental rates climbed 9.8% to $24.98 per square foot, from $22.76 a square foot year-over-year. Overall vacancy also plummeted to 4.8%, compared to 5.2% at last year’s third quarter.

Rosen said the market is particularly strong in Miami’s Brickell, downtown, and the Wynwood Arts District, where retail and restaurants are in close proximity to offices. Not only are people starting to return to the office, Rosen said, but there are also new exciting tenants coming into the Greater Downtown Miami market such as Microsoft (Nasdaq: MSFT) opening an office at 830 Brickell and venture capitalists like OpenStore and Founders Fund moving into Wynwood. Retail is also doing well in other densely packed places such as Aventura, Fort Lauderdale’s Las Olas Boulevard, Miami’s Coconut Grove, and Miami Beach, Rosen added.

Although the Downtown Miami submarket does have an unusually high direct vacancy rate of 19.9%, according to Colliers’ Miami-Dade County Retail Market Report. Rosen explained that the retail in Miami’s Central Business District has been “left vacant strategically” due to an ongoing streetscape plan funded by the City of Miami and developer Moishe Mana, who owns 60-plus properties on or near the Flagler Street corridor.

“There are long-term plans to transform it into more of a retail and restaurant hub,” Rosen said.

There are also plans to construct even more retail. The Colliers reports note that 3.7 million square feet of new retail is under construction in Miami-Dade, 363,000 square feet in Broward, and 389,000 square feet in Palm Beach County.

Headquartered in Toronto, Colliers is a diversified investment management company and brokerage that specializes in commercial real estate. The company has offices in 67 nations. Its South Florida operations include Fort Lauderdale, Boca Raton, and West Palm Beach.

 

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Deco Capital Breaks Ground On Mixed-Use Project In Miami Beach

Deco Capital broke ground on the Eighteen Sunset mixed-use project in the Sunset Harbour neighborhood of Miami Beach.

Sunset Land Associates LLC and SH Owner LLC, affiliates of Miami Beach-based Deco Capital Group, are building 40,000 square feet of offices, 17,000 square feet of commercial space and a massive 15,000-square-foot penthouse in five stories. The penthouse will also have 15,000 square feet of outdoor space.

On 0.77 acres at 1733-1759 Purdy Ave. and 1724-1752 Bay Road, Eighteen Sunset will overlook Maurice Gibb Park, giving tenants an unobstructed view of Biscayne Bay. It will be within walking distance of the popular restaurants and shops and Sunset Harbour.

 

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Real Estate Experts Predict Rent To Keep Rising In South Florida

Real estate experts are predicting rent prices to keep rising in South Florida through the end of the year.

According to real estate information provider CoStar Group, by the end of October, rent had gone up here in Palm Beach County by 28 percent compared to this time last year. That’s compared to only a 17 percent rise in Broward County. And this month and next month, experts project rent to continue to rise by 8.9 percent.

CBS12 News spoke with a renter in Palm Beach Gardens, who started renting a place for $1,800 in 2020 to save up for a house until rent increased by 39 percent, leaving her and her husband wondering what to do next.

“We can pay the $700 increase, but now you’ve got gas going up, you’ve got electric going up, everyday items: food, everything going up. So now I’m going to have to short myself on those things in order to be able to cover for a place to live,” said Terisa Boyce.

Reasons rent is so high? Demand. There was a drastic increase of people who moved here during the pandemic, bringing the vacancy rate of places in Palm Beach County to only 3.7 percent.

 

Source:  CW34

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