South Florida Retail Dodged Bullets This Year, But More Shakeout Is Expected In 2021
In spite of the coronavirus, Miami-based real estate investment firm Tricera Capital completed 45 new office and retail leases in 2020.
“Buy the best-located properties at the right basis, in the core of emerging growth markets, with a heavy focus on service and convenience,” said co-founder and Managing Principal Ben Mandell about the firm’s guiding strategy.
For some retailers, nabbing the best location means being in Florida. The state has strong demographic trends with nearly 1,000 people per day moving in, plus a lack of state income tax and a governor, Ron DeSantis, who is refusing to shut down businesses over COVID-19. There’s been a boom in Florida’s residential real estate since the pandemic began, and even before it hit, numerous high-profile business leaders were replanting themselves between Miami and Palm Beach.
Boca Raton-based PEBB Enterprises, a family-owned firm that operates retail developments in populous Palm Beach County cities like Boynton Beach and Delray Beach, was able to maintain leasing velocity and pricing consistent with pre-COVID levels, according to Senior Vice President of Leasing Chris Stewart.
“That has us feeling cautiously optimistic and underscores the importance of good real estate in the right locations,” Stewart said. “The right real estate will always generate interest from retailers.”
Jaime Sturgis, founder and CEO of Fort Lauderdale-based commercial real estate brokerage Native Realty, told Bisnow that it has seen something similar. “Our firm is about to complete a lease with a New Jersey-based restaurant group for ground-floor retail space at PMG’s Society Las Olas in downtown Fort Lauderdale,” he said.
Sturgis is also in talks with another operator who’s leaving the Northeast after three decades. He said this activity highlights how difficult it is to stay open in the Northeast amid virus-related lockdowns, and how business owners see South Florida as a refuge.
Attorney Aleida Martinez Molina is partner and chair of the Insolvency and Creditors’ Rights Practice Group at Weiss Serota Helfman Cole & Bierman, and she deals with retail bankruptcies and related issues. She noted that South Florida may be insulated more than other states because of the population influx since the pandemic began and that new vaccines may also soften the economic blow.
However, she said, Chapter 11 reorganization filings in South Florida were up 70% this October compared to the year prior.
“Bankruptcy is a lagging economic indicator,” Martinez Molina said. “The spring closures and downturn will likely not appear as actual new bankruptcy or reorganization filings until the end of 2020 or, more likely, the first quarter of 2021.”
Tony Arellano, co-founder and managing partner of Miami-based DWNTWN Realty Advisors, likewise predicted more business failings.
“We will certainly see more retail evictions in 2021,” he said. “This is not over by any stretch. Some of the tenants that barely held on during the pandemic will unfortunately reach a breaking point, leaving landlords without any other option.”
“I would keep an eye on big-box gyms and other fitness concepts, as evidenced by Youfit Health Clubs’ bankruptcy filing,” Sturgis said. “If these tenants were not doing well before COVID, this unfortunately could be the death knell for them.”
Of course, investors have for months been anticipating a wave of distressed acquisition opportunities. Potential sellers and buyers have so far been too far apart on pricing expectations, PEBB Enterprises President and CEO Ian Weiner said. “But I do see opportunities coming in early 2021," he said. "The hands of some sellers will be forced, and the pricing gap will start to narrow.”
Scott Sherman, Mandell’s co-founder of Tricera Capital, suggested that it's the perfect time for experts in the retail sector to make moves. He paraphrased a famous Warren Buffett quote about being "fearful when others are greedy, and greedy when others are fearful."
“The capital markets tend to be six to 12 months behind on opportunities and follow the herd. Right now, capital is chasing multifamily, industrial and life sciences, and prices are getting bid up and yields getting squeezed," Sherman said. "By the time the institutions and banks come back around to retail and office, a lot of the good opportunities will have passed them by.”