Capital to return to South Florida commercial market by year’s end

February 26th, 2010

The notion of costly deleveraging and growing numbers of distressed properties make for a grim outlook for access to capital for South Florida commercial deals in 2010.

Most analysts predict commercial real estate vacancies will continue to rise while rents decrease across South Florida. Many expect the market to hit bottom this year.

According to a 2010 emerging trends in real estate report by PricewaterhouseCoopers and the Urban Land Institute, 2010 and 2011 will present generational opportunities for investors to buy at near cyclical lows, nationally and in South Florida. Access to capital remains a critical factor.

Vanessa Grout is vice president for acquisitions at New Valley, a Miami-based subsidiary of Vector Group with $250 million ready to spend on South Florida distressed properties. She said she expects banks to loosen up in 2010.

“I see an opportunity to fill in some of the gaps in the capital structure that are created by stricter lending requirements when the debt matures or becomes troubled,” Grout said. “In situations where the borrowers are still in the project, the debt coverage is thin and very close to triggering lock box covenants.”

In that scenario, the lender would require that all property revenue be directed to [the lenders'] control. Grout said current property owners in this situation remain concerned about the near future.

“Investors will urge more deals to close if they are able to structure a deal with low interest rates and a purchase price just below book value while allowing the bank to have a limited equity position once the asset is sold,” Grout said. “Land will continue to decline in value but most banks with the ability will hold the prime pieces.”

Gavin Campbell, managing principal of Steelbridge Capital, a privately-held, real estate investment company in Miami, said most markets are at or near bottom from an operational perspective. Still, sales values are not fully at bottom. He expects prices to continue sliding in many submarkets and subsectors in the face of extremely limited debt.

Read the rest of my story on The Real Deal.

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