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While Institutional Investors Are Scared Of Retail And Hospitality, Pros Should Unleash Their 'Special Sauce'

Moderating a Bisnow webinar about South Florida and capital deployment Tuesday, Simon Ziff, president of Ackman-Ziff Real Estate Group, pondered the long-term impact of the coronavirus.

“You think about these downturns, everyone says they’re once in a lifetime or four times in a lifetime," Ziff said. "This is where you're going to get rich.” 

Ziff (who said he is in the process of moving to Miami) turned to Nicole Shiman, vice president of investments for Edens, which owns a portfolio primarily made up of grocery-anchored retail assets around the country.

Rendering shows what the 27-acre Miami Worldcenter will look like.

Shiman said that institutional investors are currently nervous about retail because of headwinds like the rise of e-commerce. That’s where Edens comes in with what it says is “special sauce” — operating competency and an ability to lease and execute.

“In retail specifically, there's a lot of fear out there,” she said. “Where you have folks that are less engaged and scared, I think that presents potential long-term opportunity for operators, developers, investors who have expertise, have know-how, and have the ability to execute from a capital perspective.”

Shiman said that Edens’ rent collections have been about 90% throughout the coronavirus pandemic, and the company is in a position to make acquisitions if distress gets more pronounced. Though Edens isn’t yet seeing potential sellers come down enough on price, its team believes that soon, there will be buying opportunities from owners who are overleveraged and don't have an optimal capital structure.

Edens focuses on prime pieces of real estate and has a “hit list” of parcels to target, Shiman said. It’s open to working with special servicers or direct with private owners. “I think we're going to see a lot of those opportunities likely off-market. I think in the next 12 to 24 months, we expect to have a lot of activity in that space.”

Clockwise from top left: Edens Vice President of Investments Nicole Shiman, 13th Floor Investments Managing Principal Arnaud Karsenti, Miami Worldcenter Associates Managing Partner Nitin Motwani and Ackman-Ziff President Simon Ziff

Nitin Motwani, who is now developing the $3B Miami Worldcenter, grew up helping his parents run independent hotels on Fort Lauderdale Beach. He suggested that people with market expertise will be able to pick and choose lucrative deals.

“I think in this case, it'll be much more specific to the geography of the deal, and how it was capitalized, versus a broad-based opportunity like there was in the Great Financial Crisis,” Motwani said.

Motwani said he has partnered with Driftwood Hospitality to raise three private equity funds.

"To Nicole's point, there's a lot of great sponsors who may have just finished a project but ran out of cash, and no one wants to lend to hotels in uncertain times,” Motwani said. “We're comfortable in that underwriting, so that's given us a great opportunity to really look nationally at hospitality opportunities, which we certainly feel there'll be great opportunities in.”

13th Floor Investments Managing Principal Arnaud Karsenti said his firm has benefited from foresight in buying and holding properties, as the coronavirus spurred a homebuying frenzy in South Florida.

“Your hundred-percent growth in year-over-year absorption in our homes, in our homebuilding, is to the point where we actually have very little built inventory left to sell,” Karsenti said.

Karsenti said it might be possible to find deals that have stalled or have a hard time getting over the hump.

“Depending on your cost of capital, now would be a great time to be in that kind of preferred equity, mezzanine space, or even in the first lender space, frankly, for projects that are a little bit on the fringe from a core asset perspective,” he said, although capital is easily available and yield may not be high.

“You're not going to make five times your money by lending someone preferred equity to finish a building,” he said. “Another thing we're seeing is now's a great opportunity to kind of trade the BMW for the Honda, which is going more downmarket relative to affordability in general.”

Accordingly, his firm is looking to develop garden-style and mid-rise projects for the masses of middle-class buyers rather than luxury product, which has been in vogue in Miami for years.