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Yes, things can get worse, but there are still sources and opportunities, depending on the deal.
TAMPA, FLORIDA (February 10, 2023) – When experiencing pain, the natural human response is to ask when it might stop. That is what commercial real estate, among other industries, have been doing. When will inflation end and the Federal Reserve stop hiking rates?
The answer to the first is that inflation is slowing. But to the second, when the Fed thinks it’s time. Even though the increase to the benchmark federal funds rate was only a quarter point on Wednesday, the central bank was clear that it wasn’t done.
“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time,” a Fed statement noted. “In determining the extent of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in its previously announced plans.”
So, the question currently is one of how much to raise rates, not whether increases should continue — at least for now.
The impact on CRE is significant for short-term funding in particular. “It will affect the cost of short-term floating-rate debt; however, longer-term permanent financing has already priced it in. I don’t see much movement in the treasury/index,” says Robert Hernandez, senior vice president and managing director of NorthMarq’s Tampa regional office.
In one sense, as Hernandez notes, the extra quarter point may not represent a large incremental impact because “it’s already difficult to secure financing.” However, the bigger issue is the total impact of all the rate increases.
“The challenges for commercial real estate lie less in today’s uptick than in how long we’ve been in a high interest rate environment; financing costs are roughly double what they were six months ago,” says Dennis Malloy, who is in commercial loan originations at Alliant Credit Union. “The longevity of this high-rate environment means that borrowers are facing the proposition of selling at higher cap rates or refinancing at significantly higher interest rates than their current debt.”
But not all is gloomy. “The lenders on the sidelines will likely stay there for now,” adds Malloy. “On the other side of that coin, deals with strong cashflow today can still secure financing, and this minor rate increase won’t affect that. Fannie and Freddie are still lending, and there are banks and credit unions in the market for deals with good fundamentals.”
TAMPA, FLORIDA (February 6, 2023) – Robert Hernandez, senior vice president/managing director of Northmarq’s Tampa debt/equity team, was recently interviewed by ConnectCRE for a story titled, “Ongoing Fed Rate Hikes Cause Little CRE Funding Change.” The article notes that, to one’s surprise, the Federal Reserve has continued its attempts to slow down inflation via an increase of the Effective Federal Funds Rate (EFFR) by a quarter point to a 4.50 – 4.75 percent range. The increase was less than five previous consecutive rate increases, and Hernandez noted that it will likely have little impact on securing financing for commercial real estate transactions.
“It’s already difficult to secure financing,” observed Hernandez. “I don’t think this increase will have much more of an impact. Platforms providing debt and equity have already pulled back.” He added that short-term floating-rate debt will be more impacted. “The long-term bond markets have already priced it in, so I don’t see the cost of longer-term, fixed-rate debt increasing,” he said.
Hernandez noted that the office sector will be the most challenged by the ongoing EFFR increases. “Office deals coming up for refinancing will most likely not be as well-occupied, and there may be issues with their current loan amounts. This could require more equity to resolve.”
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TAMPA, FLORIDA (July 28, 2022) – Luis Elorza, managing director of Northmarq’s Tampa investment sales team, shared his insights on the increased demand for build-to-rent (BTR) communities around Central Florida in an article recently published by the Orlando Sentinel. With BTR communities rising from 3 percent of the inventory of major rental home providers in 2019 to 26 percent last year, Orlando and Central Florida represent prime targets for developers.
In the story, Elorza states, “If you look at Tampa and Orlando, that’s the vast majority of the [built-to-rent] that’s being built in the state right now.”
The article also notes Northmarq’s count of 335 BTR units (most built within the last 10 years) in the Orlando MSA. Another 1,174 units are under construction and 824 units are planned, bringing the total of new communities in the upcoming years to eleven.
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MINNEAPOLIS, MINNESOTA (July 18, 2022) – REBusiness Online recently featured the insights of Bob Hernandez, senior vice president/managing director of Northmarq’s Tampa debt/equity team, in its article titled “Borrowers, Lenders Reach an ‘Inflection Point’ in the Wake of Rising Inflation and Interest Rates.”
The story notes how this summer became a pivotal moment in the capital markets world as commercial real estate borrowers and lenders navigate rising inflation levels and interest rates. In regards to financing, borrowers are bringing more equity to deals, which has taken the form of preferred and joint venture equity.
“We’ll see a slowdown [in acquisitions] throughout the summer, but then pick back up once everybody adjusts to the new normal and the fact that rates are 200 basis points higher and that buyers need to bring more equity,” said Hernandez. “Buyers were quick to realize that debt was going to cost them more so they’re offering a little less. Sellers haven’t quite adjusted yet.”
On the refinancing side, lenders aren’t expecting any slowdowns because naturally borrowers have to refinance (or sell) once their loans mature. Hernandez stated that borrowers are eager to get ahead of any further interest rate spikes and prepaying their loans early, which he says is a major shift from recent years when interest rates were at historic lows.
“Before, I had a hard time convincing anyone to refinance early, even a year. They always waited,” said Hernandez. “Borrowers now want to refinance out of their construction or existing loan and get into a non-recourse, long-term, fixed-rate deal with one of our life companies or Freddie Mac and Fannie Mae as soon as possible.”
He added that a few borrowers are electing to go with floating-rate debt because of the flexibility it provides, plus some borrowers suspect that interest rates will come back down in the years ahead.
Hernandez went on to point out that a historical lens can assuage overly negative interpretations of current market conditions. “Borrowers who have been around for a while realize that historically low rates are gone,” says Hernandez. “They are not in the mid 2s to low 3s anymore, they’re in the high 4s to low 5s, but those are still good rates. Most of my career those rates have been higher.”
TAMPA, FLORIDA (July 15, 2022) — Northmarq’s Tampa investment sales office has brought aboard yet another seasoned CRE veteran, with the addition of Jeannette Jason in the role of senior vice president. Jason will work with Luis Elorza and Bob Hernandez, both managing directors. With Jason’s 35+ years history in the Tampa Bay CRE brokerage and investment market, the investment sales team now offers clients more than 100 years of experience and industry knowledge.
“Our Central Florida team continues to grow. We are active on debt, equity and investment sales assignments and look forward to adding land advisory to the services we provide. We could not be more excited to bolster the strength of our local, regional and national investment sales platform with the addition of someone as respected and experienced in the industry as Jeannette,” said Elorza.
During her career, Jason has specialized in a broad spectrum of asset types including residential, commercial, hospitality and industrial land with particular emphasis on urban infill multifamily land transactions, adaptive reuse, historic renovations and the assemblage and disposition of complex development sites. She has coordinated all aspects of development initiatives from either an ownership or brokerage perspective, including acquisitions, entitlement pursuits, rezoning, investment packaging, joint venture partnership negotiations, leasing, property management, construction management as well as asset dispositions.
Prior to Northmarq, Jason worked for seven years as a Director on the Land Advisory Group with Cushman & Wakefield. Before this, she spent 25 years as Owner/Broker of DjG Tampa, Inc., a real estate investment and brokerage firm specialized in downtown Tampa. In the early years of her commercial real estate career she worked as a sales associate with a boutique real estate firm.
“I am very excited to get started collaborating with the Northmarq team and leveraging my experience to the benefit of our clients. With Northmarq’s investment sales, debt/equity and servicing platforms, I am excited to be part of an organization that can offer value through every aspect of a transaction,” said Jason.
Jason has a bachelor’s degree in Economics from Florida State University and holds the Certified Commercial Investment Member designation. She is an active member of CCIM, FGCAR and ULI.
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TAMPA, FLORIDA (June 30, 2022) — Northmarq’s Tampa office celebrated the addition of Tommy Ware to its debt/equity team. Involved in the CRE industry since 2006 and a producer for more than a decade, Ware has originated loans for various capital sources totaling more than $500 million. In his current role, Ware will facilitate financing solutions for Northmarq’s local, regional and nationally-based clients through the company’s relationships with agencies, life company lenders, banks, credit unions and other capital sources.
“I am very excited to hit the ground running with the entire Tampa Northmarq team,” said Ware. “I have known Bob Hernandez, managing director of debt + equity in the Tampa office for many years, and he is very well respected and admired by clients, brokers, and financial institutions. I am honored to join him and the Tampa debt and equity team, and I look forward to building on the successes of the team. Being in the mortgage banking industry for the last 15+ years, I am eager to continue serving my clients’ equity and financing needs with Northmarq’s innovative and collaborative platform, in addition to working alongside our strong investment sales team.”
Prior to joining Northmarq, Ware most recently worked for Grandbridge Real Estate Capital in their Tampa office as vice president of production from 2012-2022. During his successful tenure with the company, Ware received a “Large Producer Award” in 2016 and 2018. Tommy graduated from the University of South Florida with a BS in Finance and a minor in Economics, and he was a member of the National Honor Society. He also achieved his CCIM designation in 2009.
“Tommy is a great fit and will work well with the Tampa team,” said Hernandez. “We look forward to leveraging his previous experience and success in the industry to drive financial solutions for lenders and borrowers.”
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Highly favorable demographic trends, Influx of new investors targeting lower yields, and added competition among buyers are driving up pricing.
After a pause due to the uncertainty around the COVID-19 pandemic in the middle of 2020, transaction activity is ramping up significantly for multifamily investments in Tampa, Orlando and across Central Florida. There is phenomenal interest from well-known, national investment groups and local investors entering the market.
Investment activity in the Tampa area spiked during the fourth quarter of 2020, jumping 80 percent from the third quarter. Record transaction volume is projected for the year to come, with activity expected to be largely focused on newer apartment properties.
An influx of new and very well-capitalized investment groups is fueling a dramatic upward shift in pricing. Cap rates in Central Florida are dropping 25 to 50 basis points for all product types: value-add, newer properties, and properties that are going through their initial lease-up. In recent years, many developers waited for properties to get near 90 percent occupancy before marketing them. Today, developers are starting the valuation and marketing process much earlier and often are getting unsolicited offers when they are 50 percent, 60 percent, or 70 percent leased. New properties that traded in the low 4s six months ago will trade for mid to high 3s this year.
There is very little pushback on where pricing is heading for well-designed assets in the best submarkets of Tampa, St. Petersburg and Orlando. We are also seeing a clear resurgence of investor interest in the submarkets in Orlando that are more dependent on the parks and tourism.
A big factor fueling the sales at the top end of the market has been new development. For newer, garden-style properties in Tampa, we recently experienced an 8 percent increase in less than one year. The average sale price was $214,000 in the first three quarters of 2020 compared to $231,000 in the last two quarters (Q4 2020 and Q1 2021).
Additionally, the development pipeline is robust. Developers are bringing new projects online to meet increasing renter demand, which should lead to ongoing, strong investment activity.
Many of the buyers that are making the best offers on top properties are well-known investment groups. Some have been active in Florida for years; however, a growing number are coming to Florida for the first time after building a large portfolio of multifamily properties in other markets across the United States. In addition, we also see growing interest in this market from investors in Europe, Latin America and Israel. There are often multiple offers on assets, and many properties are not even making it to the formal listing process before bids come in and a buyer is selected.
Why are apartments so hot and why Central Florida?
Since the multifamily sector has outperformed many other commercial real estate sectors during the pandemic, investors are chasing apartment deals. Central Florida is particularly sought after due to its healthy market fundamentals and influx of new residents. People are moving out of costly, densely populated urban areas, a trend triggered by COVID-19, and into more affordable cities like Tampa and Orlando.
According to a recent report by Redfin, Orlando had a net inflow of 61,000 residents in 2020, the third-highest city nationally, only behind Phoenix and Dallas. Tampa came in fourth with 47,000 new residents.
These migration trends and solid demographics are helping keep vacancies low while asking rents are ticking higher across Central Florida. While investors were active across several segments of the multifamily market in 2020, activity was more pronounced among newer projects, and that trend is expected to continue.
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MINNEAPOLIS, MINNESOTA (April 7, 2020) — NorthMarq announces the expansion of its investment sales capabilities in Florida with the addition of Justin Hofford, a commercial real estate veteran with experience in multifamily dispositions and CRE valuation. He joins Luis Elorza, managing director – Investment Sales to provide acquisition, disposition, and advisory services to owners of multifamily investment properties across Central and South Florida and across the southeast U.S.
NorthMarq has grown its investment sales capabilities into ten existing debt and equity offices in the last 18 months, with the Central/South Florida team the most recent addition. Elorza and Hofford will advise clients in collaboration with the company’s debt and equity professionals in Jacksonville, Miami, Orlando, and Tampa, and partner with Jason Nettles, managing director – Investment Sales, and Megan Thompson, senior vice president – investment sales, who joined the company’s Atlanta office; together, both teams offer expertise for the southeast U.S.
“We’ve seen great success when we partner the right investment sales people with our existing debt and equity colleagues. This team combined with our other Investment Sales colleages have created a powerful platform to serve clients across the country,” said Trevor Koskovich, president-Investment Sales.
Hofford, senior investment sales associate, will focus on multifamily dispositions and acquisitions in Tampa and Southwest Florida. With a twenty-year career in the commercial real estate industry, he was most recently engaged in multifamily dispositions, valuation and market analysis at JBM Multifamily Institutional Advisors. Previously, he was with Cushman & Wakefield’s Valuation and Advisory group, where he consistently ranked as a top producer in Florida.
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Teams join existing Debt and Equity offices in coast-to-coast
platform expansion
MINNEAPOLIS (JAN. 16, 2020) – NorthMarq continues its expansion of Investment Sales with new teams joining existing NorthMarq debt and equity offices in Los Angeles and central Florida. With these two additions, the company’s investment sales platform extends across the U.S., covering nine offices in eight states.
“Our goal when we started this business was to offer investment sales coast-to-coast; the additions in Southern California and Florida truly achieve that for us. We look to continue this business expansion as we move through 2020,” said Jeffrey Weidell, chief executive officer, NorthMarq. “We are pleased that our new business is bringing added value to new and existing clients.”
The company’s investment sales business started in April 2018 when Trevor Koskovich joined the company as president of Investment Sales, and integrated his team with the existing Phoenix office. He is responsible for recruiting additional investment sales professionals to the platform.
“Each new office brings a new level of success to clients and our company,” said Koskovich. “The synergy among the professionals has been remarkable and is a testament to our plan to ensure a cultural fit with our new recruits.”
The two new teams bring seasoned veterans in commercial real estate, capital markets, and advisory services.
NorthMarq’s nine investment sales offices stretch from Southern California to the East Coast.
