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Real Estate Market Returning to ‘Normal’

After many years of heavy litigation, South Florida’s real estate market is returning to “normal,” according to several leading attorneys. From zoning and entitlement work to structuring new ventures, completing contracts and closing sales, transactional legal work is on the upswing.

“It’s starting to get exciting again,” says real estate attorney Lynda J. Harris, shareholder, Carlton Fields, West Palm Beach. “About a year ago, developers started coming back looking for zoning approvals for various condominium and rental apartment projects.”

Noting that real estate transactional work fell dramatically during the recession, Neisen Kasdin, office managing shareholder and head of Akerman’s land use practice in Miami, says, “It was our distressed property group that was keeping our attorneys busy. Now, the distressed properties are working their way through the system, and the transactional side has picked up.”

Summing up the situation as of midyear 2013, Michael S. Greene, partner and real estate practice group leader, Boyd & Jenerette, P.A., Fort Lauderdale,” says, “Things are not back to normal yet, but they are definitely getting there.”

A Changing Construction Scene

 Stephen H. Reisman

Nowhere has the shift from litigation to transactions been more apparent than in the construction sector. “The recession hit many of our clients hard and fast,” says Stephen Reisman, vice chairman, Peckar & Abramson, one of the nation’s largest construction law firms. “They were caught with huge receivables and enormous downstream liability. After all, if the owner doesn’t pay the contractor, what happens to the subcontractors and suppliers. I’ve been in Miami most of my career and seen a number of cycles, but nothing as dramatic as the past one.”

But now, the volume of those disputes is winding down and several new trends are impacting the transactional sector, says Reisman, who is board certified in construction law. Reisman’s firm offers full-service support for the construction community, including structuring new ventures, licensing, procurement and bidding, and project administration services. Major projects include the I-595 renovations, Fort Lauderdale-Hollywood International’s terminal 4 project, as well as high-rise residential and other commercial developments.

First, a growing number of foreign contractors are entering the U.S. market by acquiring domestic companies or partnering with them. “The Europeans see a viable market in South Florida, while things at home are slow,” Reisman says. “Latin American contractors have always been active in this market, and see opportunities in the economic recovery. Overall, the globalization of the construction industry is quite striking.”

Another trend affecting contractors is the push toward public private partnerships (P3) to design, develop, build operate, maintain and finance infrastructure projects like I-595 in Broward or the tunnel from PortMiami to I-395. In these cases, one concessionaire will put up the money to construct the project with repayment coming from ongoing revenue or some other source. Gov. Rick Scott is expected to sign a bill passed by the state Legislature this year that would expand the P3 model from Florida Department of Transportation (FDOT) to county and municipal projects.

“Our public officials will be able to use this model to address our nation’s aging infrastructure, while stimulating the construction sector,” Reisman says. “In the future, the P3 approach could also be applied to hospitals, airports and civic buildings, as is now being done in many parts of Europe.”

Palm Beach County Heats Up

Throughout Palm Beach County, the pace of real estate activity is on the rise, according to Harris, who concentrates her practice in the areas of real estate, finance, and land use and governmental approvals. “About a year ago, developers started coming back looking for zoning approvals for various condominium and rental apartment projects,” adds Harris, whose client base includes The Related Group in Miami, led by chairman Jorge Perez, as well as the Related Companies, based in New York, and Crocker Partners LLC in Boca Raton.

 Lynda J. Harris

“Jorge Perez has always wanted to be at the forefront of a market turn,” Harris says. “He saw the inventory of distressed condos going down, and recognized a need for new luxury rental projects here.” Now, The Related Group’s plans include a hotel-condominium project in Miami, two condo projects in Fort Lauderdale and a 400-unit condo on the water in West Palm Beach.

Crocker is also looking at developing luxury rental apartments in West Palm Beach, including one with a hotel component. “People whose kids are out of school and now live in big houses in suburbia are wanting to move to a more urban lifestyle where they don’t have to get in a car every day,” says Harris.

On the commercial side, Related Companies is looking at a new office building in West Palm Beach, and finishing the architectural plans and drawings for a 400-room Hilton hotel near the Palm Beach County Convention Center. “The hotel market here is very interesting, as studies show there is a shortage of 1,200 rooms in West Palm Beach,” she adds.

However, the challenge for new condominium, rental, hotel and office projects continues to be financing. “The Related Group started changing its contract structure to get up to 80 percent of the purchase price in stages from the buyer,” she says. “That’s a solution we’ve seen frequently in the past year or two and it’s been working for them. It also cuts out the speculative buyer.”

Developers are also interested in the area around All Aboard Florida’s planned train station in downtown West Palm Beach. “Transit-oriented development sites are hot right now,” Harris adds. “We’re also seeing renewed interest in waterfront projects, since there are so few sites available along the Atlantic and the Intracoastal Waterway.”

Mega Projects Coming to Miami

With new development — small, large and massive — planned for metropolitan Miami, Akerman’s real estate group has “never been busier,” says Kasdin, who represents domestic, international private equity and institutional investors. “Our land use practice picked up in 2011 and has been going strong ever since.”

 Neisen O. Kasdin

Kasdin expects the current wave of new development to be more sustainable than the region’s hyper boom of the mid 2000s. “South Florida has emerged as a true international community, and Miami is the business capital of the Americas,” he says. “Many people from around the world are buying here for investment purposes, as well as for lifestyle and safety reasons. As our region becomes a magnet for foreign investment like London or New York, the real estate cycle will moderate with fewer steep peaks and sharp valleys.”

In terms of new developments, Kasdin says the municipal review and approval processes are often smoother than was the case a decade ago. “Today’s developers are more sophisticated and their projects are better,” he adds. “In addition, cities are more receptive to the benefits of an increased tax base in the wake of the recession. However, real estate lending has not come back, and it’s hard to get construction loans, especially with condominium projects.”

But the biggest change from the last development boom is that South Florida is attracting substantial investors on a global scale. “The big money is here in a major way,” says Kasdin, referring to Genting Group (Malaysia), Swire Properties (Hong Kong) and Miami-based Dacra, which is partnering with a Paris-based luxury retail private equity fund that includes LVMH Group.
Genting Group’s Resorts World Miami is planning a large-scale mixed-use development with hotel, dining, entertainment, retail and commercial facilities on a 30-acre site overlooking Biscayne Bay that includes the former Omni Center and Miami Herald building. In the Miami Design District, Craig Robins’ Dacra is planning a master-planned residential, commercial and cultural development with a hotel and nearly two dozen luxury boutiques, as well as condominium and loft residences.

Meanwhile, construction is well underway on Brickell CityCentre, a $1.05 billion mixed-use development in the heart of Miami’s financial district. “Brickell CityCentre is a transformational project that’s akin to what Swire had done in Hong Kong and Beijing,” Kasdin says. “It’s a great project that supports public transit and raises the bar for other developers. It should spur additional real estate and business investment, and further cement Miami’s place in the world.”

Smaller Properties are Moving

In most real estate upturns, investors first seek out trophy properties like Class A office buildings and new luxury condominium developments, says Greene, who concentrates his practice in real estate development and finance, construction, land use and zoning law, represents developers, owners, purchasers, sellers, landlords, tenants, contractors and others. “There has already been a wave of sales for these buildings, as well as for ‘fractured’ condos that can generate rental income,” he says. “Since the South Florida market is already coming back, prices are rising, and even investors who didn’t get the best possible deals are doing well now.”

 Michael S. Greene

Today, smaller properties are now in play as the pace of buying and selling transactions accelerates, says Greene. Moderately sized office buildings, retail strip centers, and industrial properties are now being given careful consideration by buyers and investors interested in “non-mega” properties. For instance, Greene is representing an all-cash buyer for a retail store, and a foreign investment fund that is acquiring office buildings near Miami International Airport.

Transactions are also increasing in the healthcare residential market segment including adult living facilities (ALFs) and adult congregate living facilities (ACLFs). Greene says some real estate developers moved into this niche during the recession, but lacked the knowledge to manage the projects successfully over the long term. “This is a world for skilled operators rather than dabbling developers,” says Greene, who represented a client that recently purchased a residential facility from bankruptcy. 

Greene says real estate transactional activity in Broward is somewhat slower than in Miami-Dade, which is attracting far more international investors. “Broward attracts Canadians, and some Brazilian buyers, while Miami has investors from eastern and western Europe, Central America and Latin America,” he says. “Many Europeans view the U.S. as a stable place to own income-generating property or to start a business without the high tax rates in their native countries.”

However, financing remains a hurdle in many real estate transactions. Greene says most buyers understand they will have to “push harder” to the bottom line. In fact, buyers are now competing for many types of property, as the number of distress sales and overall inventory levels decline. “Prices are rising, especially on the residential side, and it’s not clear whether there are enough wealthy international buyers to sustain all the projects that have been announced,” Greene says.

Lack of suitable land for new development is also an issue throughout South Florida, especially for smaller homebuilders and developers. “The larger companies were able to buy land in the downturn because they had cash,” Greene says. “But the bread-and-butter homebuilders who would typically do a 50-60 lot project will have a tough time coming back.”

Looking ahead, Greene says South Florida’s real estate market will continue to do well as long as out-of-state and international investors value the region’s many assets. “The combination of sun, sand and low taxes makes South Florida attractive on both the residential and commercial sides,” he says. ‘That’s been our historic appeal, and it will continue to keep us moving forward.”

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