Overseas Money Pours Into Miami Real Estate

Arian Campo-Flores and Conor Dougherty

 

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ranes are again rising over this city, as the poster child for the real-estate collapse enjoys a new condominium boom fueled by foreign investors looking to park their money in U.S. real estate.

For several years after the housing bubble burst, a glut of towering condo buildings sat largely empty. Condo values plunged nearly 60% from peak to trough, according to the Miami Association of Realtors. Financing for buyers and developers dried up.

Now nearly all the once-vacant units are filled up, and demand is outstripping supply. There are 118 condo towers proposed in the Miami area, including 35 under construction, according to Condo Vultures LLC, a real-estate consultancy.

The 41 towers proposed for downtown will add 12,100 new units—well shy of the 22,200 units that were built during the 2003 to 2008 boom, but still a remarkable turnabout given that downtown construction was essentially dormant until 2011. 

 

"This boom is very reminiscent of where we were a decade ago," said Peter Zalewski, principal at Condo Vultures.

While the growth feels similar to the bubble-fueled oversupply that remains a painful memory in Miami, developers note that robust international demand has created a new cash-financing model they believe is safer than the easy bank loans that fueled the last boom. They typically require buyers to put down at least 50% before closing, which means the owners would lose their money if they walked away.

Under the new payment arrangement, developers are relying more on buyers' deposits, and less on debt, to fund construction, which they say puts projects on more solid footing. And because banks have become stricter about what projects they finance, less-experienced developers are weeded out, they say.

Developer Carlos Melo relied on that financing model to build 23 Biscayne Bay, a 17-story project that last year became the first completed tower of the new cycle. He said the building is fully sold, and roughly 90% of the owners bought their units as investments and are renting them out. "They are looking to sit their money in a safe place," Mr. Melo said.

Miami is just a bigger example of a recent national tilt toward multifamily buildings—both apartments and condominiums—instead of the single-family homes that dominated during the bubble years leading up to the recession. While the majority of national construction is still of single-family homes, the recent rebound in construction activity—whether measured by new starts or permits—has been centred on multifamily buildings.

Commerce Department data released last week showed nationwide residential building permits rose to their strongest pace since June 2008, a rise that was driven by a 15% surge in multifamily permits. About one in three building permits issued this year has been for the largest multifamily category—buildings that have five or more units—according to Jed Kolko, chief economist for real-estate website Trulia. From the 1990s until the housing bubble ramped up in 2004, the share hovered around one in five.

Nationally, builders are responding to rental demand that remained strong through the recession and today's still-tepid recovery. They are also correcting the source of overbuilding during the bubble years.

"Multifamily has been a critical part of the construction recovery. During the bubble a lot of the overbuilding was in single-family homes, and as the construction market rebounds and as more people are looking for rentals, builders have responded with more multifamily construction," Mr. Kolko said.

The numbers are even more dramatic in and around Miami. In the South Florida region composed of Miami-Dade, Broward and Palm Beach counties, roughly 70% of residential construction permits issued through October have been for multifamily units.

About 7,000 rental apartment units have been proposed for Miami's greater downtown area, Condo Vultures' Mr. Zalewski said. Among the factors driving growth are high rental rates and financing that is more readily available because banks consider the rental market strong. While the median rental rate in 2009 was $1.48 a square foot, it is now $2.23 a square foot, Mr. Zalewski said.

The city's condo boom has been even stronger, fueled by foreign investors who typically pay cash and are looking to hold rentals, instead of flipping for profit as investors did in the last cycle. About 85% to 90% of new-construction buyers are foreign, mostly Latin American, estimates Alicia Cervera Lamadrid, managing partner at Cervera Real Estate, which is handling sales for 16 condo projects.

"The payment structure really separated the speculators from the well-funded," Ms. Cervera Lamadrid said.

Buyers say they are drawn to Miami's increasingly cosmopolitan vibe and cultural offerings such as the Pérez Art Museum Miami, which is set to open Dec. 4 [Today]. They also consider such investments more secure than leaving their money in more economically volatile places like Argentina and Venezuela.

Miami's high-end condo market has proved especially vibrant, and has gone hand in hand with new luxury shopping destinations rising up in the Brickell financial district downtown and the Design District to the north. Some of the most lavish projects have drawn star architects like Zaha Hadid and Bjarke Ingels.

In August, Umberto Mascagni, a 24-year-old Italian who moved to Miami three years ago to study international business, put down a deposit on a $700,000 two-bedroom condo in a proposed tower overlooking Biscayne Bay that has yet to break ground. He and his father began investing in Miami real estate in 2008 and now have six additional condos they rent out. "In the past two years, the market has been crazy," Mr. Mascagni said. He is prowling for other investment opportunities, he said, but "always with open eyes, always careful."

Still, some are sounding cautionary notes. Developers are sometimes starting construction with just buyers' deposits, without lining up financing to ensure they can finish it off, said John Sumberg, managing partner of the law firm Bilzin Sumberg, who advises developers. "They figure, 'I'll get it when I need it,' " he said. But "at some point in the cycle, the lenders may say there's too much product and this isn't a good bet."

In addition, some developers are backing away from buying land because prices have risen so much, Mr. Sumberg said. That could "curb the dramatic velocity we've seen" in new construction, he said.

Carlos Rosso, who heads the condo division for the Related Group, a developer burned badly in the last cycle, said a similar bust is unlikely this time around. "As long as there's cash from buyers and banks are disciplined enough not to overextend themselves, I think this is a long market because there's so little supply," he said. His company now has 10 condo projects under way, compared with more than 30 it built in the last upcycle.

Also, the sales pace isn't as frenzied as in the last decade. "Back then, I saw lines at sales offices starting at 12:00 the night before" they opened, said Alan Ojeda, chief executive of the Rilea Group, a developer. "I don't see lines now."

Source: Wall Street Journal

TIDBIT

Private equity investments in Africa have seen phenomenal increase from $151 million in 2002 to $3 billion in 2011 with South Africa accounting for the largest portion of these investments.

Ease Of Property Registration: SA Dwarfs Nigeria In Private Equity Investment Interests

Chuka Uroko

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s against 80 inter-regional private equity firms looking to invest in South Africa’s real estate market, 30 in Egypt and 40 in Kenya, only 16 of such companies are interested in Nigeria’s real estate market due, in part, to difficulty in registering property and doing business generally.

The Central Bank of Nigeria (CBN), which disclosed this in the 2012 report on Nigerian economy by the Nigerian Economic Summit Group (NESG), adds that there are also 10 domestic and private equity firms looking to invest in the country.

Private equity investments in Africa have seen phenomenal increase from $151 million in 2002 to $3 billion in 2011 and, according to Emerging Markets Private Equity Association, South Africa accounted for the largest portion of these investments, leaving Nigeria with just 10 percent of the continent’s total.

On account of demographics and strong buying power, Nigeria is seen as a green field and an investment haven, yet investors are slow in moving into the market due to unfavourable business environment.

In its 2011 report on ‘Doing Business’, the World Bank ranked Nigeria 180 out of 183 countries in terms of ease of registering property. Currently, there are 13 steps in the registration process which can take up to 82 days. Four of the steps carry their own associated costs which on average total 20.8 percent of a property’s value, according to the NESG report.

In an earlier report, BusinessDay had quoted Olusola Olubode, former managing director of Refuge Homes Savings and Loans Limited (mortgage bankers), as saying that Nigeria lagged behind countries like Ghana, Thailand and New Zealand in ease of registering property, pointing out that in Ghana it required just five procedures, 34 days and 1.3 percent of a property value.

Olubode also hinted that in New Zealand, property could be registered online in two days at a cost of 0.1 percent of the property value, stressing that Nigeria was one of the world’s most difficult places to register property, especially when, in Thailand, registering property required just one step, less than a day and 1 percent of property value.

Similarly, Abdulrahman Kadiri, CEO of Lagos-based Oak Properties, told BusinessDay that in Dubai, United Arab Emirate (UAE), in less than 72 hours a buyer should have perfected his land titles, adding that “you don’t even have to pay through your nose to get building approval”.

Dapo Ojo of Estate Links Limited also said that in the UK, it took 1-2 months, six procedures and 4 percent of the value of the property to register a property, while it took the same 1-2 months, six procedures and between $1,000 and $8,000 to do the same thing in the USA.

Actis, easily the most bullish private equity investment firm with special focus on emerging markets in sub-Saharan Africa, laments that “land and capital are major challenges to investors, especially in Nigeria”.

The company’s director, real estate, Chu’di Ejekam, explains that to find a well-priced land at the right place is a big issue, adding that land price which is not supposed to be more than 10 percent of the construction cost is so high, especially in Lagos, that oftentimes it makes projects unworkable.

Capital, he explains further, also poses a major obstacle because to build a world-class retail mall like The Palms or Ikeja City Mall in Lagos, for instance, requires huge capital outlay of about $100-$150 million.

“To build a mall of an appreciable standard requires 50 percent equity and 50 percent debt such that building a mall like Abuja Jabi Lake Mall, for instance, which is estimated to cost $130 million, requires an investor to bring as much as $65 million equity to the table, and not many banks are ready and able to provide the $65 million debt,” he adds.

Source: BusinessDay

 

German Real Estate Attracts Investors - Buyers Search For Higher Yields In Stable Economy

Anita Likus

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ommercial-property sales in Germany are expected to climb to a post-financial-crisis high this year as the country lures investors seeking higher yields than are available in Europe's most desirable cities, like Paris and London.

The value of deals this year is expected to hit €30 billion ($40.6 billion), an 18.6% increase from 2012, according to property advisory Savills PLC. Transaction levels are still below the €52.2 billion recorded in 2007 but above the €10.8 billion in 2009, the weakest post-crisis year.

The increase this year comes as Germany also is seeing mergers and acquisitions among listed companies and consolidations of investment-management funds. Meanwhile, there is greater availability of debt and equity financing, according to Marcus Lemli, head of Germany at Savills.

Commercial-property buyers include pension funds, insurers and hedge funds that are attracted to Germany's stable economy. Germany's economy is expected to expand by 0.5% this year and 1.4% next year, according to the International Monetary Fund, while the country's 5.2% unemployment rate is the lowest since 1991.

Investors also are looking for higher yields than they can find in the most popular European markets. For example, average office-building yields in Germany are at 6.9%, compared with 5.8% in the U.K. and 6.4% in France.

"Hedge funds we haven't seen before have showed up," said Keith Breslauer, managing director at private-equity firm Patron Capital Partners, which plans to spend €1 billion on German real estate in the next couple of years. "Two years ago there were five bidders on an income-producing asset; there are now 25 bidders."

During most of the downturn investors preferred fully leased buildings with solid cash flows. But investors are now also looking at empty buildings or those needing refurbishing.

Patron Capital is close to purchasing two buildings, both 40% empty. Mr. Breslauer said he can find good opportunities outside of the main city centers and financial districts.

Foreign buyers have come to Germany from the U.S., the U.K. and Asia. The market is still dominated by domestic buyers, but international investors from 21 different countries have purchased commercial properties with a value above €1 million in Germany in 2013, property adviser CBRE said, adding that 39% of total investment in Frankfurt came from non-Europeans.

Earlier this year, a group of six Korean investors, most of which never before invested in Germany, purchased the Gallileo Tower in Frankfurt for €250 million. A joint venture of Axa Real Estate Investment Managers and Norges Bank Investment Management earlier this month said it is buying the headquarters of German newspaper Süddeutscher Verlag for €164.1 million.

Germany can be tricky for foreign investors because the country doesn't have one central hub. There are six large cities to choose from: Munich, Berlin, Frankfurt, Düsseldorf, Hamburg and Cologne.

German-listed real-estate companies also are getting more attention as companies grow through mergers and acquisitions and others go public.

The largest residential player, Deutsche Annington Immobilien SE, listed in Germany in July. Rival residential company LEG Immobilien AG listed in February.

"If you want to be on the radar of big investors, you have to be big," said Jan Linsin, head of research at CBRE.

Listed real-estate giant Deutsche Wohnen AG, with a €5.3 billion portfolio of residential, commercial and nursing-care assets, has made an all-share bid for Berlin-focused residential-property company GSW Immobilien AG, with €3.3 billion of assets. More than 91% of GSW's shareholders accepted the offer.

The takeover will create one of Germany's largest property groups, with 150,000 residential units and an €8.5 billion portfolio, and finally put a German real-estate company on a par with much larger European peers such as Paris-based Unibail-Rodamco SE or the U.K.'s Land Securities Group PLC.

"We started the consolidation in Germany's listed property market because we want to grow and become more attractive to foreign investors," said a spokeswoman for Deutsche Wohnen.

On the real-estate fund side, Internos Global Investors, which currently manages €2 billion of assets, announced earlier in November that it purchased the €1.6 billion real-estate Spezialfonds business CRS, comprising nine funds, from Commerz Real. Internos didn't disclose the price.

Source: Wall Street Journal