The sky-high prices at which shopping centers are trading hands today are leading some private equity players to greener pastures in Florida. Apollo Real Estate Advisors, in partnership with the Adler Group of Miami, has raised $25 million to focus strictly on land acquisitions in Florida for potential future retail development. This practice of land banking speaks volumes about Apollo's confidence in the Florida retail market and its willingness to deploy capital.
Over the past two years, cap-rate compression has made it nearly impossible for investors to purchase income-producing properties at attractive yields, a common theme expressed at this year's International Council of Shopping Centers convention held last month in Las Vegas.
“The one place where we thought we could be a real trendsetter and where we could create a niche for ourselves is in the area of land banking,” explains Matthew Adler, executive vice president of the Adler Group, which has more than 40 years of development, construction and property management experience in the Southeast. Adler adds that the commercial land banking is strictly for future retail sites.
Florida holds much attraction for a land banker. In 2004, the state's population was nearly 17.4 million, according to the U.S. Census Bureau, which projects the number of Florida residents to reach 24.4 million by 2020 and 30.1 million by 2030.
The Apollo fund is targeting land near major housing projects already underway in South Florida, but outside the more mature areas of Dade, Broward and Palm Beach counties. The typical site is 20 acres but can be as large as 75 acres, and the hold period for the private equity investors is 36 to 60 months, depending on how long it takes to flip the land to a retail developer. The fund intends to place 50% debt on all its land acquisitions, so that the $25 million in capital that has been raised can generate $50 million of buying power.
While the Apollo fund is competing with retail developers for the same prime sites, Adler is quick to cite one key distinction. Retail developers looking at a potential site typically will want to conduct extensive due diligence before making a financial commitment. Adler, on the other hand, is willing to buy a site much earlier than the average retail developer.
Historically, “land banking has been carried out by mostly residential players,” Adler says, “and now we're doing it in retail.”
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