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Q&A: The Future of Miami Real Estate

Miami’s most world-famous residents may be a few of the Kardashians (and even then, only temporarily), but there’s more to the city than keeping up with socialites. We investigate the past, present and future of Miami commercial real estate with Walker & Dunlop’s Kevin O’Grady, Dan Sheehan and Eric McGlynn (below).


Bisnow: What general trends are you seeing in the Miami market? Which asset classes have you witnessed the biggest changes in this past year?

Eric: Capital providers on the equity side believe the condo market is in pre-distress, so they’re starting to charge more for the capital. It’s not necessarily stopping lending, but there’s not as much competition for some of the providers. which in some cases is true...but it’s a self-fulfilling prophecy.

We’re seeing a lot of continued multifamily development in inner cities as Miami differentiates into submarkets. The same is happening in retail. Trends continue to be strong with regard to growth and absorption of product.

Dan: Just to add to that, we have a lot of projects in Miami that are larger in size where the dollar amounts are in excess of $100M, well outside the realm of traditional construction lenders. Banks in general are limiting their construction lending, but are being replaced by more nontraditional lenders. This is a big trend nationally, and we’re seeing it in a lot of larger projects in Miami.

Bisnow: Foreign CRE investments are hitting nearly decade-long highs this year. We know the US has historically been a safer bet for international investors looking to keep investments stable, but what specifically is contributing to this trend in Miami, and why is this city in particular such a hotspot for foreign investors?

Dan: I don’t know if it’s going to be more stable, in my opinion. Miami will continue to be a volatile market, but if you look at the growth prospects in any major markets over time—DC, Boston, NY, Chicago, LA—Miami is still in its infancy in comparison, particularly over a long-term investment horizon. The population growth supports that.

Kevin: Dan brings up a very good point. Miami is still 15 years behind in terms of services. When I first moved here, I couldn’t find a deli to deliver sandwiches to the office. There’s a bad rate of return—negative interest rates—in the UK, Switzerland, Japan; but here, there’s so much money coming in. It’s going to contribute to a bubble. You can put money out at relatively low rates in the US compared to their own currency in their own markets. Florida is a tax-free state, which makes it a very attractive haven to people.

Eric: It’s also a homesteaded state. You can buy a $10M house protected from creditors. Many wealthy people put money into their homes and homestead it, separate from their business interests. There’s two things that attract people to Miami. First, there’s the lifestyle, and the fact that they can buy something and live here several times a year and enjoy the lifestyle. A lot of people have a boat, friends who live here, and they can come vacation while keeping an eye on the real estate at the same time. And if their domicile is here, they’re not paying state income tax.

Secondly, I’ve heard from people coming in from LA and NYC that property is still relatively cheap here. The more sophisticated our market gets, the more services developers are adding to buildings. We don’t currently have a lot of high-tech office buildings here, so we’re now starting this dialogue about doing these triple-Class-A offices.

Kevin: We’re also expecting a stunning increase over the next 10 years in industrial growth and strength due to an increase in shipping in Miami and up the East Coast. This translates into jobs and overall expansion. When we were financing high-rise condos in 2006 and 2007, we were labeled the best city in South America and the worst city in North America. Miami has the reputation of being a very user-friendly, cosmopolitan place.

Bisnow: How are Miami commercial trends different from Orlando, Tallahassee, other major Florida cities?

Kevin: These are markets with different drivers. Orlando has a completely different character. Miami is really a gateway city from South America, is a haven for all foreign nationals; it’s a foreigner-friendly city with a lot of different growth drivers. I wouldn’t even put Tallahassee in the same mix; in our Florida-based operations, we operate primarily in the South Florida markets.

Dan: Those other markets are less sensitive to geopolitical events and foreign currency. Miami is the most volatile market in Florida. People really only care about downside volatility, though not upside—where during the 2010 [post-recession] rebound, Miami rebounded more quickly than most other markets.

Eric: South Florida is more of a service-based economy. In the Panhandle, North Florida, Jacksonville, etc., you have more military and manufacturing, so it’s a very different economy up there.

Bisnow: We’ve seen a lot of Middle Eastern investors arriving in Miami condos specifically; what about Miami is drawing them there?

Kevin: All in all, there’s a lot of capital flight out of the Middle East. It’s one foot in and one foot out of the Middle East. We’re seeing an increase in both tourism and investors from Asia and the Middle East, largely due to the threat of terrorism. That’s the obvious answer. We can also tell you that there’s an increased number of flights from Miami into Turkey and Saudi Arabia, and there’s been a lot of interest out of Amman, as well as Kuwait.

To learn more about Bisnow partner Walker & Dunlop, click here.