Lack Of Land Has Industrial Developers Looking To Take Over Florida's Golf Courses, Lakes And The Everglades
As senior vice president for Duke Realty, Stephanie Rodriguez oversees a portfolio of industrial properties in South and Central Florida, a geography with limited space and shrinking new development options.
“We're all fighting over the same pieces of dirt,” Rodriguez said during a May 12 Bisnow South Florida Industrial Update event. "... Industrial is the darling of the real estate market right now."
New players are moving in to compete with the five or so firms that have controlled the market for decades.
“So instead of maybe five to 10 competitors, it's up to 20 vying for the same little spots peppered all over the tri-county area.”
In Miami-Dade County, constrained between the Atlantic Ocean and the Everglades, land inventory is evaporating rapidly, and parcels that can accommodate new projects often have costly environmental problems. Industrial developers have taken over former golf courses and lumber yards and even filled in lakes. On top of that, industrial developers are competing for land against developers of retail and residential projects, who can command higher rates per square foot for completed projects. Big funds with lots of capital to deploy are making it harder for independent players.
“It's not just Class-A," Mitchell Property Realty President Ed Mitchell said. "… It gets down to the Class-C property, and that's made it so much more difficult to find these properties, because [institutional investors] are willing to put their money in anything at this point.”
“The other challenge is the municipalities," Rodriguez said. "A lot of them don't want to repurpose a shopping center for a distribution center. They just don't. And the neighbors don't want the truck traffic or the Sprinter vans.”
Miller Construction Co. Senior Vice President Traci Miller predicted it wouldn’t be long before developers start building multi-story industrial spaces.
“Down here, no one's pulled the trigger yet, but we're getting there,” she said.
Butters Construction & Development Director of Acquisitions Adam Vaisman said that finding sites is so challenging that his firm and some partners are working on a deal in Miami-Dade County where they are in the process of moving the urban development boundary line, where development is supposed to stop and not encroach into farmland or the Everglades. Vaisman said that moving the boundary is "needed for the county, given the amount of growth.”
At least two proposals to move the UDB are pending in the county. The issue is controversial, as some groups want to protect undeveloped land and control sprawl. According to the Miami Herald, "county staff has concluded there’s enough industrial land within urban boundaries to fit our needs through 2040 and through 2030 in South-Central Miami-Dade."
Easton Group founder Ed Easton, whose firm owns and operates nearly 6M SF of industrial real estate in South Florida, predicted that proposed policy changes in Washington would tighten development opportunities.
“I think the challenge with these new tax laws is going to be severe, because if capital gains go to 44% and they eliminate the step-up in basis, it's more economic for the sellers to turn to refinancing than it is to be a seller. I think that's going to continue. Every time you go to your accountant and say, ‘Should I sell this building for $10M?’ he shows you the numbers and says, ‘You can refinance it for $6M and come out with more money.’"
People will not have an incentive to sell and will instead pass down properties through generations, Easton said.
“Tax lawyers, planning people are going to have a field day with all this crap. And it's going to get worse because the bureaucracy today is basically in a confiscation mode.”
The panelists said that industrial players who own projects will enjoy the upside of all these challenges: growing rents for the foreseeable future.
“JLL's research team thinks that we're probably going to have 22% growth over the next five years,” JLL Capital Markets Managing Director Melissa Rose said.
“Normally what busts these industrial markets or any real estate markets is oversupply,” Easton said. “I don't see how you can oversupply in this market, with the lack of land and the cost of construction.”
The event was held at a newly constructed, 56,494 SF flex building at Miramar Park of Commerce and featured Sunbeam Properties and Development Vice President of Acquisitions Ryan Goggins, Seagis Property Group Vice President Ronald Marrero, McCraney Property Co. President and CEO Steven McCraney, and NAI Miami partner Timothy Merriman.