South Florida

Real estate heats up in the tri-county area, with REITs showing interest.

What South Florida real estate experts seem to agree on is that real estate here is doing very well.

"It's extraordinary," says Ezra Katz, of The Aztec Group. "In 27 years, I don't remember conditions coming together in this way - with low interest, tremendous liquidity and everybody wanting to buy real estate."

"The market is still thriving in all three counties," says Pryse Elam of Dallas-based Trammell Crow Co. "There seems to be growth in all sectors of the economy."

"It's going to be a very exciting year," says Jack Lowell of Codina Bush Klein.

And for the first time in years, REITs are making a strong comeback in southeast Florida, purchasing major hotels, downtown high-rise office towers and massive industrial/business parks.

"With REITs very active in the market as a result of low vacancy rates and increasing rents, industrial, office, hospitality and retail development are keeping virtually everyone in our industry busy," says Harley Miller, president of Miller Construction Co. of Fort Lauderdale.

"We see a trend of companies setting up Latin American operations here," says Ed Alegre, of CB Commercial of Miami. "When companies start peeking into South America, they figure this is the place to be."

Multifamily South Florida's rental apartment market is strong, says Brad Scherer, president of Atlantic Western Asset Management of Palm Springs. "As a result of high liquidity supplied by the public institutions, the multifamily market has experienced large sale activity in 1997. Most competing pension and REIT investors have driven going-in cap rate yields on Class-A projects to below 8%, with per-unit sale prices, in some cases, exceeding $100,000 per unit," he adds.

"Southeast Florida's multifamily investment sales market remains in favor, as evidenced by a number of major transactions in the tri-county area during the past year," adds Richard Donnellan Jr., managing director of Atlantic Realty Partners of Boca Raton. "Dade County as a whole saw a dramatic increase in sales volume of investment-grade apartments from 1996 to 1997, with volume increasing by 77%."

On Miami Beach's western Biscayne Bay-front, Gumenick Properties is developing The Floridian, a $60 million, 33-story rental tower with 334 units and rents of $1,150 to $2,000.

Office "Offices are just starting at the low end of the development cycle," says Lowell. "Rents are up to levels to support new construction."

In Miami-Dade County, total office inventory was 33.6 million sq. ft. at the end of the third quarter of 1997, with 527,000 sq. ft. under construction, according to a report by CB Commercial of Miami. The downtown vacancy rate was 18.68%, and the suburban rate was 11.13%.

"Strong demand in the Miami Lakes submarket resulted in vacancies decreasing from 14.9% to 12.62%," the report says. "While downtown's overall vacancy rate is 18.68%, Class-A buildings exhibit vacancies averaging only 9.5%."

Rental rates were $23.54 per sq. ft. in Coconut Grove, $21.09 in Coral Gables, $20.81 in Brickell, $19.29 in Kendall, $18.34 in Miami Beach, $17.46 downtown and $12.22 on Biscayne Boulevard.

Some experts express worry, however, about the effect on office vacancy rates of NationsBank Corp.'s acquisition of Barnett Banks, wondering how long it will take to absorb the 100,000 sq. ft. of office space expected to be dumped on the market, says Terranova's Edgar Jones. "When Southeast Bank closed its doors, more than 500,000 sq. ft. of space was vacated in Miami's central business district," he adds. "It took the market years to absorb the space."

In Broward County, total office inventory was 19.4 million sq. ft. at the end of the third quarter of 1997, with 357,400 sq. ft. under construction, the CB Commercial report says. The countywide vacancy rate was 8.74%, down from 9.23% at the end of 1996. The downtown vacancy rate was 5.33%, and the suburban rate was 9.64%.

Rental rates were $22 per sq. ft. downtown, $19 in Cypress Creek, $17 in Plantation, $16 in Deerfield Beach, Hollywood and Northwest Broward, and $14 in Pompano Beach.

In Fort Lauderdale, Stiles Corp. announced plans for 350 Las Olas Centre, an 18-story, 240,000 sq. ft. office tower with 11 floors of offices and 16,000 sq. ft. of ground-floor retail. Stiles CEO Terry Stiles says 30% of the office space is committed. "Corporate tenants want to be where all the amenities are," he adds. "Las Olas puts them near restaurant, retail shops, the Riverwalk area and the government and courthouse districts."

In Palm Beach County, total office inventory was 17.6 million sq. ft. at the end of the third quarter of 1997, with 352,816 sq. ft. under construction. The countywide vacancy rate was 11.86%, up marginally from 11.52% at the end of 1996.

Rental rates were $26 per sq. ft. in Palm Beach, $15 in Boca Raton and Boynton/Lantana, $14 in West Palm Beach and Jupiter, and $12 in Delray Beach.

In Palm Beach County's Boca Raton, Crocker Realty Trust has begun construction of Mizner Park Office Tower, the final private sector component of the original 30-acre Mizner Park plan to revitalize the area. The project is a seven-story, 170,000 sq. ft. Class-A speculative office tower.

"Expanding and relocating companies with large block space needs have a new option," says Drew Cunningham, Crocker senior vice president.

The Palm Beach office market is one of the healthiest in 10 years, says Scherer. "This is due to a combination of factors including low inflation rates and corresponding cap rates and virtually no new construction."

Hotels Throughout South Florida, tourism continued to boom and hotels continued to do well. "There's a lot going on in all three counties," says Scott Brush, of Brush & Co. in Miami. "We're not moving as quickly as other parts of the country because of coastal construction problems - hurricane requirements and concurrency problems."

REITs also entered South Florida's hotel market. In October, Dallas-based Patriot American bought hotel management operations and several properties from Carnival Hotels & Casinos. Included were the Grand Bay hotel in Coconut Grove and operation of the Registry Resort in Fort Lauderdale.

Greater Miami hotel occupancy was 73.2% for 1997 through September, 1.6% higher than for the same period in 1996, says a report by Landauer Hospitality Group and Smith Travel Research. Average rental rates increased by 5.4% to $78.09 per night.

In downtown Miami, the 486,948 sq. ft. Omni International Mall and the adjoining 528-room Crowne Plaza Hotel were sold by The Equitable Life Assurance Society to CP Miami Hospitality, a Delaware limited partnership, for $42 million.

In Miami Beach, the long-awaited convention center hotel is under construction. The 800-room, $135-million Loews, the first major new hotel in Miami Beach in 30 years, has already booked 150,000 group nights through the end of 1999.

Nearby, negotiations seem complete for another new hotel - a $60 million, 425-room oceanfront Crowne Plaza resort. And Brush says Embassy Suites is looking to build a 300-room hotel on Miami Beach's Atlantic Oceanfront.

Broward hotels occupancy for 1997 through September was 72.2%, up 3.7% from the same time in 1996. Average rates increased 7.9% to $79.90, the Landauer/Smith report says.

Donohue Peebles is negotiating to build Broward County's first black-owned hotel, a $63 million, 500-room Crowne Plaza at Port Everglades.

In Broward, "a Holiday Inn Express is about to open on 17th Street Causeway, near where an AmeriSuites hotel just opened," says Brush. "A Fairfield Inn is proposed on Stirling Road, and a La Quinta is under construction on Sheridan Street."

In Palm Beach County, "there's interest, but not a lot happening yet," Brush says. "People are talking about sites, but mostly it's a year or two behind Dade and Broward."

Palm Beach hotels occupancy for 1997 through September was 70%, up 3.6% from the same time in 1996. Average rates increased 7% to $107.05.

Retail Shopping center construction continues unabated, but its strength varies. "The consensus is that power centers are overdone," says Lowell. "Grocery- and drugstore-anchored centers are doing fine when they match population growth."

Josh Taylor of Miami's Terranova Corp. identifies a strong new trend toward retail/entertainment complexes in all three counties. Sunset Place in South Miami, Coconut Grove's Mayfair renovation and Divaris Real Estate's center in downtown Miami all include entertainment portions. Broward's Beachplace and Las Olas Riverfront as well as Palm Beach County's City Place in downtown West Palm Beach will all have entertainment components.

In Miami-Dade County, Taubman Centers bought the 824,000 sq. ft. The Falls shopping center from Heitman Capital Management for $156 million cash.

In Aventura, Bloomingdale's opened a 252,000 sq. ft. store in 1.2 million sq. ft. Aventura Mall. In Coconut Grove, a $10 million renovation to The Streets of Mayfair was unveiled in September.

In Kendall, Dadeland Mall owners, The Simon DeBartolo Group and ERE Yarmouth, announced formal plans to add an 800,000 sq. ft. second story to the existing 1.4 million sq. ft. mall. In Coral Gables, commissioners approved a new $275 million Rouse Co. mall.

In Broward County, shopping center vacancy rates fell from 16% in 1996 to 14.6% by summer of 1997, according to a report by Terranova Corp.

Average asking net rental rates for local space were unchanged at $11.61 per sq. ft., anchor rates increased from $6.85 per sq. ft. to $7.07 in 1997, Taylor reports. Despite Broward's overbuilt condition, he says, seven new centers were under construction.

In suburban West Palm Beach, North American Properties/Southeastern Inc. is developing a 76,000 sq. ft. Shoppes at Ibis in Ibis Golf and Country Club. Completion is set for late this year, said Jimmy Atkins, marketing director for the developer.

"The retail market continued to improve in 1997 with an overall vacancy rate in Palm Beach County for anchored shopping centers of 6%," says Scherer.

A Terranova report said that in September Palm Beach County was experiencing its lowest shopping center vacancy rate in five years at 13.1%.

"In addition to improving vacancy rates, Palm Beach County is experiencing a burst of retail construction activity that could push absorption levels in 1998 beyond one million sq. ft.," says Terranova President Stephen Bittel.

Business/industrial parks Business and industrial parks continued as one of the strongest sectors in South Florida's real estate market.

Miami-Dade's industrial park vacancy rate was 4.44% at the end of the first half of 1997, down from 6.04% a year earlier, according to a report by Trammell Crow Co. Average gross rental rate was $6.23 per sq. ft., down from $6.52 a year earlier. The market had 641,000 sq. ft. under construction.

In December, Coral Gables developer Armando Codina announced the sale of Beacon Centre, his industrial/office park west of Miami International Airport, to Weeks Corp., an Atlanta-based REIT, for $180 million in stock. He also sold two-thirds of his development company, The Codina Group, to St. Joe Corp. and Weeks for cash. "Based on the continuing strong occupancy rates we are now experiencing in the multibay warehouse and suburban office markets, we will be adding these product types to our existing portfolio, both through acquisition and new development," says Michael Adler, chairman and CEO of Adler Group Inc.

In Broward, the bulk industrial vacancy rate was 5.02%, down from 12.83% a year earlier, the Trammell Crow report says. Average rental rate was $6.85 per sq. ft. Broward's service center vacancy rate was 7.47%, down from 10.11% a year earlier. Rates were $10.96 per sq. ft.

"Rental rates for distribution space at the Miramar Park of Commerce are $6.25 gross," says Andy Ansin, vice president of Sunbeam Properties, developer of Broward County's project. "Over the past six years, all of the construction in the Miramar Park of Commerce has been on spec."

In Broward County's Hollywood, Tambone Real Estate Development Corp. of Palm Beach Garden will develop a $6.5 million North American corporate headquarters for Wartsila NSD Corp. And in December, IDI Eastern Region began the first phase of its Weston Business Center development with two bulk distribution buildings in the Weston Park of Commerce.

"The City of Sunrise continues to be a hot Broward County submarket, with construction of the county's new arena nearing completion, and the nearby Sawgrass Mills outlet mall and Sawgrass International Corporate Center business park continuing to stimulate peripheral growth," says Michael Zucker, CEO of The Tri-Stone Cos., a Boca Raton-based firm.

In Southwest Broward, Trammell Crow is under way with I-75 Distribution Center at Monarch Lakes, a $25 million, multiphase bulk industrial project that will include 530,000 sq. ft.

Broward County absorbed 1.2 million sq. ft. of industrial construction in 1997 and has another 900,000 sq. ft. under construction.

Palm Beach County's industrial market is less strong. Its bulk industrial vacancy rate was 10.86%, down from 11.86% a year earlier, the Trammell Crow report says. Asking rent was $6.66. In its service center market, vacancies were 10.68%, down from 11.35% a year earlier. Asking rental rate was $8.03 per sq. ft.

"Palm Beach County is in danger of losing firms due to a shortage of space. While county incentives have been tremendously successful in drawing business to the area, available industrial space is virtually nonexistent in Boca Raton, Delray Beach and Boynton Beach," says a midyear report by Kenneth Silberling of Commercial Florida Realty Partners, Boca Raton. But, he adds, "with over 3 million sq. ft. of combined build-to-suit and spec space scheduled for 1997 completion [in Palm Beach and Broward counties], we may see vacancies increase slightly through the balance of the year."

Fred Tasker is a reporter for the Miami Herald.

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