By Steve Cohen“What is old is new again”...or is it “What is new is old again”? In any event, we in South Florida are living through one of the most dramatic turnarounds an economy has ever seen. Not since the flood of insurance money hit our town in 1992 after Hurricane Andrew have we seen the infusion of money into our community. Banks are healthy, institutional investors are flush with cash and investors, both domestic and international, are eager to invest in our vibrant international city.
Yes, we’ve hit the big time...but the whispers are getting louder — are we headed for another crash? As a banker who has experienced several cycles, I can see there may be some signs that could be troubling: inexperienced investors, rapid real estate value appreciation and financial projections that work only in the currently low interest rate environment. On the positive side, there are clearly some differences this time around, most notably the level of owner equity versus the level of borrowings.
Given the lessons of the last downturn, personal guarantees of large commercial real estate loans offered little relief to offset huge losses in property values and the proceeds received by the lenders via a distressed sale. While there is still great reliance placed on an individual’s personal guarantee, lenders are willing to exchange recourse for more “cash in the deal.” Ultimately, a lower level of debt provides more of a cushion when the property’s cash flow falls below expectations.
Currently, our community is attracting investment capital from all parts of the globe. While we have always had interest from foreign investors, it is intriguing to witness the wide diversity of investors coming from both the northern and southern hemispheres, Europe, Asia and the Americas. Also of interest is their ability and desire to purchase real estate on a “cash” basis.
An unexpected benefit could be more ownership stability of real estate and a tremendous source of wealth, thus bringing in disposable income for our service and construction industries and durable purchases.
Foreign investment brings several challenges for both the legal and banking communities. Government regulations require that we know our customers, their business and the source of their wealth. Protocols are in place so that we understand the nature of transactions within attorney IOTA accounts. As a commercial banker, I have now become accustomed to helping our bankers in our branch locations explain the nature of escrow accounts related to commercial real estate loans. While it may not be the most rewarding part of our business, it is an essential component of our anti-money laundering responsibility.
Sabadell is approaching this business cycle with enthusiasm and prudence. Some of the basics of lending still hold true; there is no substitute for experience and careful analysis. Our best clients are those who examine downside scenarios and have the wherewithal to manage through the inevitable unforeseen bumps in the road. This year, our Commercial Real Estate lending activity will be three times the level from two years ago. Whether it is financing the construction of new shops in the retail-deprived area of the Civic Center or a new hotel in Miami Beach, we work very hard to know our clients and to use a relationship-based model. Our clients enjoy our consultative approach, which helps them achieve their business objectives.
Our team at Sabadell employs a long-term approach. Our management team lives and works in South Florida. We can handle the most sophisticated as well as the most basic of transactions. We pay attention to the lessons of the past so that we can be a productive and long-term contributor of the South Florida community.
Steve Cohen is the Executive Vice President of Sabadell United Bank, a full-service $3.6 billion commercial bank based in Miami. He can be reached at 1111 Brickell Ave., 30th Floor, Miami, FL 33131 305-808-2216 steve.cohen@sabadellbank.com www.sabadellbank.com.
South Florida Legal Guide Midyear 2014 Edition