Real Estate Attorneys See Upturn in Practices
From downtown Miami to northern Palm Beach County, South Florida’s real estate attorneys are seeing a clear shift in the market. “We’ve seen a huge uptick in business this year,” says Lucia A. Dougherty, co-chair, Land Development & Zoning, Greenberg Traurig’s Miami office. “From 2009, when there was almost no work at all, our practice has slowly gotten better and better. Now, some developers are getting building permits and others are acquiring new properties.”
|Lucia A. Dougherty|
Other leading real estate attorneys point to a similar movement toward new development and investment, and a higher volume of leasing and zoning work, although many clients still need help finding solutions for their distressed commercial and residential assets. “My workload has shifted,” says Suzanne Amaducci-Adams, partner at Bilzin Sumberg Baena Price & Axelrod LLP in Miami. “I’m doing about 75 percent non-distressed deals these days, and life is a lot more positive.”
|James L. Berger|
James Berger, managing partner, Berger Singerman in Ft. Lauderdale, says he’s seen a migration of the firm’s real estate practice. “Now, we’re seeing a growing opportunity to represent individuals, companies and large funds that are acquiring assets,” he says. Those real estate assets include projects in mid construction, and completed buildings with active sales programs, as well as acquisitions connected with the resolution of litigation or bankruptcy proceedings.
Greater Market Stability
One of the keys to South Florida’s real estate comeback has been a sense that market values are finally stabilizing. “Anyone who has practiced in South Florida over the past decade has seen the great boom and bust cycle,” says John T. Metzger, managing member of McDonald Hopkins’ West Palm Beach office. “For years now, my practice on the commercial side has focused on distressed properties and assisting lenders, developers and owners in connection with the defaulted loans and trying to work out the situation and dispose of the distressed assets.”
But now, owners, developers and tenants are dusting off their growth plans and looking at ways to take advantage of the current market. “On the leasing side, I’ve been dealing with retail, office and industrial tenants who are trying to renegotiate their leases or terminate their lease obligations,” says Metzger. “Some tenants have needed to downsize, while others want to make their moves to upgraded properties or to larger spaces.”
Metzger says he’s also starting to see the reemergence of the residential construction sector – primarily on high-end properties. “I go cycling on S.R. A1A on weekends, and probably half of the vacant lots between Palm Beach and Delray Beach are now under construction with mega-mansions and condos,” he says. “That’s an encouraging sign for our real estate market.”
Metzger adds that affluent homeowners have more confidence that the market has stabilized and are using their credit and equity resources to capitalize on today’s low interest rates. On the commercial side, he is seeing end users weigh the pros and cons of buying a building for their own purposes. “I am not seeing much speculative commercial development now,” he says. “It’s more about users who have a need and want to take advantage of today’s conditions.”
New Development and Leasing Activity
|Harold L. Lewis|
New development and leasing activity is on the rise, according to Harold L. “Hal” Lewis, head of real estate and banking, corporate, and transactional departments at Pathman Lewis, LLP in Miami. “We are seeing a definite upturn in zoning work, with several large projects in the works,” he says. “That’s an area that’s been slow over the past few years.” Lewis has assisted clients in a low-rise condominium development on Miami Beach as well as a proposal to expand the Miami Beach Convention Center. Lewis says there’s also more activity in the downtown Miami office leasing market, as well as a higher volume of transactions.
Amaducci-Adams agrees. “We’re working on a construction loan for a new hotel in Miami that is not on the water,” she says. “That’s a very positive sign that the market is picking up again.”
Dougherty has advised several clients with new hotel and residential projects, which in some cases involve converting planned condominiums to rentals. “There are a lot of apartment companies coming to town to do projects in the urban core,” she says. “The trend along the East Coast is to sell off garden-style apartments in the suburbs in order to buy assets near the water in cities like Baltimore and Miami.
In Miami Beach, Dougherty is working with clients on several hotel projects, including artécity and 321 Ocean Drive. “On the mainland, prices have risen dramatically between S.R. 836 and Brickell,” she adds. Referring to the Gentling Group’s plans to turn the Miami Herald property on Biscayne Bay into a large-scale casino, Dougherty says, “We call the higher land values a sign of Gentling fever.”
|John T. Metzger|
South Florida attorneys say international investment has been vital for the region’s recovery. Amaducci-Adams says about 75 percent of her new clients in the past year have been foreign investors. “Miami is now the gateway to the world, not just Latin America,” she says. “Both Europeans and Asians are anxious to buy here. They view Miami as one of the top ten cities in the U.S. and they all want to be here.”
In addition to the size and strength of the U.S. economy, Miami is seen as having good investment values compared with other cities in the world. Having convenient air connections, fine restaurants, outdoor lifestyle, arts and cultural activities, warm weather and a sophisticated business infrastructure are other key reasons, according to Amaducci-Adams.
“A few years ago, we saw a lot of Mexican investment, as many wealthy families were coming here,” she says. “Now, those investors are bringing businesses with them.” For instance, Amaducci-Adams recently represented Agave Florida Investments, an affiliate of the multinational Jose Cuervo Group of Mexico City, in the new 396 Alhambra building in Coral Gables.
Berger says the wave of international investors buying units in downtown Miami condos has been the most important trend in the multifamily residential sector. “Multifamily will remain strong, and there have been some very successful bulk condo purchases by some of our clients,” he says, noting the importance of timing. “Investors who have purchased in the last 18 months or so have been able to get in with the right pricing and are having success in selling out their units.”
Because financing remains tight for residential buyers, Lewis says a substantial percentage of residential transactions are all-cash deals, particularly on the international side. “We are seeing many buyers from Brazil and the rest of Latin America, as well as Canada, and we’re also doing work for Italian and French investors,” he says.
Of course, there are plenty of distressed real estate assets in search of a legal or financial solution. Amaducci-Adams has handled loan-restructuring matters in South Florida and beyond, including a five-star resort property in Colorado. She notes that income-producing properties can face two kinds of financial distress: difficult economic conditions or loans coming due. “Usually, the second situation is better for the owner and potential investors because the property is performing,” she says.
In fact, Amaducci-Adams says there are many opportunities for venture capital firms, funds and investors with cash to make equity investments. “That can be a win-win for everyone because the original owner can hold on to a successful project,” she says. “A new equity participant has the benefit of working with an owner who has made it through the downturn. I think we’ll see more of those pairings, particularly since a lot of five-year maturities [loans] are coming due this year.”
Berger expects the real estate market in 2012 to be characterized by “fits and starts” as investors look for the best opportunities in a still-challenging marketplace. Pointing to an increase in real estate transactions in March, compared to January and February, Berger says, “The lenders wanted to get their troubled assets off the books by the end of the quarter. That means we might see a stronger sales pace before the end of the second, third and fourth quarters as well.”
Looking further ahead, Berger hopes developers and lenders have learned the right lessons from the downturn. “This last cycle exposed many difficulties in financial exposures of the parties and how all the nonfinancial structural elements of a complex were put together,” he says. “Now everyone has seen those pitfalls in deals and properties and is looking at how to avoid those problems. After all, it’s a lot harder to clean them up midway than to start from scratch. So many deals today are more complex.”
One of the key points, according to Berger is that location matters. “We had forgotten that lesson during the boom,” he says. “Developers were selling “oceanfront” condos five blocks from the ocean. In the speculative book, buyers wanted to get in and out in 90 days and location didn’t matter to them. But since then it’s made a huge difference.”
However, legal work associated with distressed assets is likely to be a significant portion of many practices for at least the next two years, according to several attorneys. As Berger says, “I think we’ve cleaned out a lot of junk, but there’s still a long way to go.”
South Florida Legal Guide Midyear 2012 edition
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