1328 Lake Worth Lane & Jeong H. Kim (Credit: Google Maps)
A technology titan purchased a waterfront home in North Palm Beach for $8.5 million.
Jeong H. Kim, a Korean-born businessman and entrepreneur, and his wife, Cynthia, bought the house at 1328 Lake Worth Lane, according to records.
The seller is Donald B. Stott, who paid $995,000 for the home in 1988.
The one-story house, built in 1967, has four bedrooms and three-and-a-half bathrooms. It sits on a little over half an acre of land, according to the listing.
Kim started Yurie Systems, a maker of communications equipment, in 1992, and eventually sold the company to Lucent Technologies for $1.1 billion. He served as president of Bell Labs, a division of Lucent Technologies, from 2005 to 2013, before he left to start Kiswe Mobile, as chairman and co-founder. The company partners with sports leagues, entertainment brands, and broadcasters to expand the reach and engage mobile-first viewers, according to its website.
Kim is also a minority owner of Monumental Sports & Entertainment, which owns four professional teams in Washington, D.C.
The North Palm Beach market has been extremely active during the pandemic.
In August, a former ambassador to Austria under President George W. Bush bought a North Palm Beach house for $6 million, the CEO of cable giant Comcast pulled the plug on his condo for $5.5 million, and a financial executive bought a home in North Palm Beach for $5 million.
Christopher Sinclair and 309 Dunbar Road, Palm Beach (Wikipedia, Realtor)
The former CEO and executive chairman at Mattel — the toymaker known for such brands as Barbie, Hot Wheels and American Girl — traded one Palm Beach “dream house” for another.
Christopher A. Sinclair and his wife, Margaret, bought the 7,169-square-foot house at 309 Dunbar Road for $9.9 million, according to records.
In June, the Sinclairs sold an 8,423-square-foot mansion at 516 South Ocean Boulevard in Palm Beach — less than three miles away from the new house — for $24.2 million.
The two-story Dunbar Road house has five bedrooms and five bathrooms and was built in 2016. It features a heated pool and spa and wine room.
Pamela Miller with Bradford P. Miller Real Estate represented the buyer, according to an online listing. James McCann with Premier Estate Properties had the listing. The house listed in February for $11.15 million.
The sellers, Steven K. Hudson and his wife, Melanie, bought the house in 2018 for $9.8 million.
Hudson, the CEO of a Toronto-based financial services company, paid $6.5 million in August for a condo at The Bristol in West Palm Beach.
Christopher Sinclair took over as Mattel CEO from 2015 to 2017. He had served on Mattel’s board since 1996, remaining chairman until his retirement in 2018. His resume also includes executive roles with PepsiCo, CEO of Quality Food Centers, CEO of Caribiner International and leadership roles at venture capital and private equity firms.
Margaret Sinclair and their son, William, serve on the advisory council for the Breast Cancer Alliance. William Sinclair is a managing director and head of the financial institutions group at JP Morgan Private Bank, overseeing more than $50 billion in assets, according to the company’s website.
Other recent Palm Beach sales include the family behind America’s oldest branded chicken company, Bell & Evans, selling their house for $5.1 million, and an heiress to a late Massachusetts lumber and real estate magnate selling a house for $9.5 million.
Google is restricting ads based on age. Some mortgage lenders are crying foul. (iStock)
In a blow to reverse-mortgage lenders and perhaps other real estate players, Google is introducing new restrictions for targeted ads next month.
Starting Oct. 19, Google will restrict ads targeting customers on the basis of “gender, age, parental status, marital status, or ZIP code,” the tech giant told advertisers, as reported by Reverse Mortgage Daily. The new policy will have an impact on housing, employment and credit companies.
Some lenders say the anti-bias policy will hurt reverse-mortgage companies, which use Google ads (and other search and social-media platforms) to target users of a certain age. Reverse mortgages allow homeowners to borrow against a property and are geared toward owners 60 and older, who sometimes find themselves foreclosed upon by lenders.
Cliff Auerswald, president of All Reverse Mortgage in Orange, Calif., called Google’s decision “shortsighted” and said the rule doesn’t take into account some age restrictions that are not discriminatory. “Hiding reverse mortgage ads from prospects in their 20s isn’t age discrimination,” he told Reverse Mortgage Daily. “It is common sense.”
The new policy, based on the Equal Credit Opportunity Act of 1974, is a major step to combatting discrimination in online advertising. Facebook rolled out a similar policy last year as part of a fair housing settlement and now prohibits ads from targeting users by ZIP code and has a 15-mile minimum radius for geographic ad targeting. [Reverse Mortgage Daily] — E.B. Solomont
Overall, the American economy continued its recovery, adding back 1.4 million jobs. The unemployment rate fell to 8.4 percent from 10.2 percent in July, leaving 13.6 million Americans unemployed, according to Labor Department figures released Friday.
“The 1.4 million increase in employment in August, while strong by historical standards, still shows the economy has a long way to go,” said chief economist of the Mortgage Bankers Association Mike Fratantoni.
“3.1 million workers reported being called back from temporary furlough [is] a significant improvement, but another 500,000 individuals now report being on a permanent layoff,” he said.
Only the federal government hired more people than the retail sector last month, mainly in temporary positions for the 2020 census.
(Source: Bureau of Labor Statistics)
August also saw 174,000 leisure and hospitality jobs added back to the economy, with 134,000 of those at food-and-beverage establishments.
Still, the restaurant industry employs 2.5 million fewer people than in February, despite a recovery of 3.6 million workers over the last four months.
In New York City, nearly two-thirds of restaurants expect to be out of business before the end of the year, according to a recent survey by the New York State Restaurant Association. The Hilton Hotel in Times Square, which began struggling before the pandemic, disclosed on Wednesday that it will close permanently.
(Source: Bureau of Labor Statistics)
Gains in warehousing and transportation employment, which rose by 78,000 in August, boosted industrial real estate. Storage and warehousing accounted for 34,000 of those jobs, while truck transportation saw an increase of 10,000. Still, the industry counts 381,000 fewer jobs than it had in February.
Real estate rental and leasing positions grew slightly last month, adding 23,000 jobs, making up a majority of the 36,000 jobs added to the financial activities sector. The construction industry saw a modest increase of 16,000 jobs.
Contact Orion Jones at orion.jones@therealdeal.com
Jeff Bezos and Bellevue Washington (Getty; Unsplash)
The demand for office space may have hit its lowest point since the dot-com crash, but that’s no deterrent for Jeff Bezos.
Amazon is planning a major expansion in Bellevue, Washington, according to the Seattle Times. The company signed leases for 2 million square feet of office space that is currently under construction, and plans to build a new skyscraper in downtown Bellevue. The move marks a major expansion into the Seattle suburb — which sits across Lake Washington from the city — where Jeff Bezos first founded the company about 25 years ago.
The e-commerce powerhouse will be leasing the office space from Vulcan Real Estate. Last July, it announced plans to build a 43-story tower, its first office in Bellevue. Amazon is planning to get a permit for a second skyscraper in the city, but has no immediate timeline, according to the Seattle Times.
Bellevue could have the same number of Amazon employees as Arlington, Virginia, which is the future home of the company’s second headquarters. In 2018, Virginia agreed to give the company about $573 million in cash grants and tax incentives to open its second headquarters in the city. (Amazon backed out of a deal to bring half of its new headquarters to New York City after backlash from residents and local politicians.)
Amazon started leasing in Bellevue in 2016 and announced that an entire corporate division would relocate to the growing city. The city of Bellevue did not provide tax breaks or financial incentives to Amazon for the latest deal. The company projects it will bring 25,000 employees to the city by 2025.
Amazon recently announced plans to expand its tech workforce at the 660,000-square-foot Lord & Taylor building it recently bought in New York, and in five other cities across the country. It also just opened its largest office in the world, spanning 1.8 million square feet, in Hyderabad, India.
End of summer getting you down? Check out these tools to help you hit your #FallGoals. (Images via Amazon)
Though it’s been no ordinary summer, Labor Day weekend is finally here. That means fall — and its myriad pumpkin spice items — is upon us, and cooler weather may put an end to some socially distant activities. Since there are only so many types of bread to bake and closets in your home to reorganize, The Real Deal’s staff has compiled a list of items to help real estate pros with all their non-deal related, personal goals:
1. For the aspiring international business person…
There are so many reasons to speak more languages: improved memory, global business opportunities, impressing your in-laws, digging into Netflix’s foreign film options… the list goes on. And for those who are scared of commitment, Amazon is offering a three-month subscription. You’ll improve your eavesdropping abilities in no time.
2. For the time when you can’t take your client to Per Se…
One silver lining of the pandemic may turn out to be a home cooking renaissance. And “Salt, Fat, Acid, Heat” provides a foray into chefdom. Samin Nosrat’s work is an engaging mix of story, chemistry, and, of course, recipes. Multiple TRD staffers attested that the book goes far beyond what you can learn in the accompanying Netflix show.
3. For anyone who wants to add literary critic to their resume…
Fall means back to school (in some way or another) for kids, and this anthology will help you dive back into the most popular works of the most celebrated authors of the last century. Not every businessperson is a bookworm, but these cultural touchstone stories are a great way to ease into classic literature without committing to a thousand-page tome.
4. For the fitness lover who can’t stand another YouTube workout…
Nothing can replace the change of scenery your favorite pilates studio offers, but the Echelon mirror can offer a pretty similar workout. Fitness mirrors have gained popularity lately as an easy way to substitute in-person workout experiences. Plus, it takes up less room than a Peloton and lets you admire your progress post-workout.
5. For the up-all-night businessperson who needs to get some rest…
Good sleep is the foundation of a good work day. After years of staying late at the office and heading early to meetings or showings, many industry pros are still running on an old schedule. Take advantage of your lack of commute and grab one of these weighted blankets — which help calm even the most restless sleepers — so you can start off your work week feeling rested.
Willow Smith and her Malibu home (Getty, Google Maps, Realtor)
Willow Smith is officially a homeowner.
The soon-to-be 20-year-old musician and talk show host paid $3.1 million for a home in Malibu. The contemporary house is just less than 3,000 square feet in size, according to Variety. It sits on 0.37 acres on a hillside on a private street overlooking the Pacific Ocean.
The four-bedroom, four-bathroom home was built in 2011 and meets LEED energy efficiency standards with the help of a greywater recycling system, solar power, and energy efficient appliances. The garage also has a Tesla charging station. The small lot doesn’t have a pool, but does have a patio and a raised deck.
The house has an open floor plan, and the interiors are in line with the modern-style theme — grey hardwood floors, muted furnishings, and floor-to-ceiling glass windows. The master suite has a fireplace, dual vanities, and a spa-style bathroom.
Smith won’t be too far from her parents and her brother. Will and Jada Pinkett Smith have long lived in a huge 150-acre estate in the hills of Calabasas and brother Jaden Smith lives in Hidden Hills.
As far as Malibu properties go, Smith’s new digs are relatively modest. Properties regularly trade in the eight figures in the beachside city and the pandemic hasn’t stopped deals from closing.
In July, Gateway computer co-founder Ted Waitt paid $43.2 million for a 1.3-acre estate in the city. A month later, Compass agent Chris Cortazzo sold his 55,000-square-foot beachfront property for $39 million. [Variety] — Dennis Lynch
As returns fade and uncertainty reigns in traditional commercial real estate sectors, investors are moving money into mobile home parks.
More than $800 million worth of mobile home parks traded during the second quarter, according to Bloomberg. That’s 23 percent more than the volume sold in the second quarter of 2019.
Meanwhile, total commercial trades declined 68 percent year-over-year in the second quarter to $45 billion. During April — so far the worst month economically of the coronavirus pandemic — deal volume fell 71 percent year-over-year, or by $11 billion. Not a single commercial property type saw an increase in sales volume.
Investors are willing to pay more for property leased to mobile home owners than they were last year. Valuations of those properties were up 26 percent, year-over-year, in the second quarter.
Institutional investors accounted for 28 percent of the deals, according to JLL. That’s the largest share since the firm started tracking mobile home park deals a decade ago.
JLL’s Scott Belsky said that mobile home parks generate stable returns for investors because residents usually own their own homes and rent the ground they’re on.
Single-family rentals and the companies that invest in them are also attracting a ton of capital.
JPMorgan Chase more than doubled its investment in American Homes 4 Rent to $625 million in May.
Koch Industries made a $200 million preferred-equity investment in Amherst Holdings’ single-family rental business. And Invitation Homes plans to double its portfolio of single-family rentals. [Bloomberg] — Dennis Lynch
CPP Investments CEO Mark Machin and Greystar CEO Bob Faith (Getty; Ian Curcio via Wikipedia)
Greystar is moving into the Brazilian multifamily sector through a joint venture with local developer Cyrela Brazil Realty and Canada’s national pension fund.
South Carolina-based Greystar is joining an existing partnership between Cyrela and the Canadian Pension Plan Investment Board formed in November 2019. The three partners will continue with the joint venture’s targeted $185 million equivalent investment in São Paulo, Brazil’s most populous city.
CCP Investments will retain its majority stake in the joint venture. Greystar joins through an expansion of the ownership.
The partnership has three development projects in the works and is eyeing a fourth. Those account for 40 percent of the joint venture’s target equity investment.
A press release described the partnership as “one of the first institutionally owned and operated multifamily real estate platforms in Brazil.”
Greystar is one of the largest multifamily investors in the United States and recently added 130,000 units to its management portfolio through a $200 million cash deal with Alliance Residential.
The firm had an opportunity to back out of the deal, given the coronavirus pandemic, but went through with it at a previously agreed-upon price. The deal brings its management inventory up to around 660,000 units. Greystar owns about 140,000 itself.
CEO Bob Faith said the firm was in a “pretty good spot.” The Wall Street Journal reported that Greystar had collected 95 percent of its rent in the previous two months, during which some multifamily landlords collected far less.
The firm is also dealing with a lawsuit from prospective tenants in Los Angeles for allegedly collecting information on them without consent.
Last year, Cyrela made headlines when it completed a property sale via blockchain technology — a first in Brazil — in 20 minutes. Usually it takes a month to close such deals.
Doris Day and her Monterey home (Getty, Wayne Capili/Sotheby’s)
Doris Day’s longtime estate in Monterey is on the market for $7.4 million, and all the proceeds from a sale will go to the late actress’s charity.
Day spent about four decades at the roughly 9-acre property before she died last year at the age of 97, according to the Wall Street Journal.
She was an avid animal welfare activist and personally rescued scores of dogs over the years, pampering them at the estate with dog beds draped in Ralph Lauren sheets and homemade food she cooked in a dedicated dog kitchen.
Appropriately, proceeds from the sale go to the Doris Day Animal Foundation, which is currently supporting animal rescue efforts related to the California wildfires.
Day bought the home with her fourth husband, Barry Comden, in about 1980. They lived in Beverly Hills at the time, but Day wanted more land for her dogs, according to the Journal.
The house sits on a knoll. Day and Comden expanded it to three bedrooms and 7,000 square feet. It’s painted in a warm yellow color that was Day’s favorite. The gate house and two apartments connected to the main house are painted red. The home also overlooks the Quail Lodge and Golf Club.
A friend of Day’s said that she kept at most a dozen dogs at the property, but listing agent Doug Steiny with Sotheby’s International Realty said she kept as many as 50 at one time. Steiny grew up next door and was a friend of Day’s son, Terry Melcher. [WSJ] — Dennis Lynch
The 50K-acre South Dakota ranch (Credit: Hall and Hall)
After Neal Wanless won the biggest Powerball jackpot in the history of South Dakota in 2009, he started assembling a massive ranch in his home state. Now he wants to sell.
Wanless, who works as a rancher, is asking $41.2 million for the 50,000-acre property dubbed Bismarck Ranch, according to the Wall Street Journal. If sold near the asking price, it would be among the largest single ranch sales ever recorded in South Dakota.
The 34-year-old said he and his wife are spending more time at her family’s ranch in Canada. They also just bought a home in Arizona to wait out the winters.
“I like the South Dakota winter, but I don’t like the wind,” he said.
The Vale property includes 42,000 deeded acres, another 4,000 acres leased from the federal Bureau of Land Management, and 1,600 acres leased from the state. Wanless also built four homes on the property — a 6,500-square-foot home for himself, another for his mother, and a pair of smaller homes for ranch hands and guests, according to the Journal.
He designed the main house himself. It includes a large open-floor kitchen; a game room with a pool table and bar, poker table; and a screening room.
The property is a working ranch. He leases most of the land out to ranchers and the Bureau of Land Management, so most of the animals aren’t his own. About 3,000 yearlings, 1,600 cow-calf pairs, and 1,000 wild horses live on the expansive property.
When he won the Powerball lottery, Wanless decided to take an $88.5 million lump sum instead of the full payout over 30 years. He started assembling the ranch with the purchase of a 7,000-acre property.
Media mogul Ted Turner was responsible for one of the biggest ranch deals in the state. In 2015, he paid $32.4 million for the 45,400-acre Triple U Ranch.
Robb Nelson with Hall and Hall has the listing. [WSJ] — Dennis Lynch
Jackie Chan and the building (Credit: Andrew Chin/Getty Images, and NICOLAS ASFOURI/AFP via Getty Images)
Jackie Chan has found himself in the middle of a dispute between two real estate companies, and it might cost him his Beijing condos.
Chan’s two units in Beijing’s Dongzhimen district have been seized via court order, and are up for auction to recoup money owed by developer Yujia Real Estate to Tenhong Real Estate, according to Variety.
Chan paid about $4.9 million for the two units in 2007, in a deal that included some promotional work for Yujia. They total about 13,100 square feet.
It appears there was some mistake made in the paperwork to transfer the ownership rights from Yujia to Chan. At the end of the day, the units are still legally owned by Yujia, or at least Tenhong claims they’re Yujia-owned assets.
The two companies went to court over a payment dispute, and in July a judge ordered the seizure and sale of Yujia’s assets to recoup that debt. Chan tried to appeal the seizure but failed, according to the Daily Mail.
The two condos are reportedly worth about $14.6 million, but bidding is set to start at $10.5 million on September 30, according to Variety.
Chan also owns property in Hong Kong, where he was born. He drew the ire of some protesters in his native territory after making comments considered to be in support of the Chinese Communist Party and against the protest movement’s main goals of retaining political independence for Hong Kong from the mainland government. [Variety] — Dennis Lynch
Jill Hertzberg, Dora Puig, Oren Alexander with Star Island properties
Miami Beach’s Star Island has long attracted such high-profile residents as Sean “Diddy” Combs, Gloria and Emilio Estefan, plastic surgeon Leonard Hochstein, and Philip and Patricia Frost.
Soon, more stars may be heading to the exclusive island — where all homes are waterfront. After years of zero to few sales, a few mansions have recently sold, one house recently rented for $250,000 a month, and a number of properties are under contract, spurred by the pandemic.
The rumored buyers: Superstar couple Alex Rodriguez and Jennifer Lopez, and New England Patriots owner Robert Kraft.
Rodriguez and Lopez have reportedly toured the guard-gated island, and are said to be the buyers of 13 Star Island, a 10-bedroom, 15,011-square-foot mansion. It’s under contract and expected to close soon, according to sources. E&A Estates, tied to Patrick Green, owns the house, which is on the market for $40 million. In early August, Rodriguez posted a photo on Instagram that appears to have been taken from the dock of 13 Star Island.
In late July, Lennar Corp. Executive Chairman Stuart Miller, who owns a number of properties on Star Island, sold 22 Star Island Drive for $49.5 million. The modern compound, which was designed by Domo Architecture + Design and built by Todd Michael Glaser, sold for $51.5 million including furnishings. That sale, brokers say, had a domino effect on other deals.
A trust managed by Donna Forlizzi of Family Offices Services & Support in the Boston area purchased the property. Sources said Kraft, the embattled billionaire owner of the Patriots and the Kraft Group, is the buyer, though people close to the deal denied that to be true.
Like other waterfront areas of South Florida, including Palm Beach, pockets of Miami Beach, Gables Estates and Cocoplum, and Fort Lauderdale, the market has been on fire on Star Island during the pandemic. Brokers attribute the action to a few things: sellers dropping their prices, and coronavirus accelerating the trend of wealthy buyers leaving high-tax markets to live in Florida, a no income tax state.
“This didn’t happen because of the pandemic,” said Jill Hertzberg, who is part of the Jills Zeder Group at Coldwell Banker. “Smart, wealthy people from the Northeast corridor and California recognized there were tremendous benefits by moving to Florida. They come here for Art Basel, and have seen the benefit of living here. Covid may have just pushed that timeline up a bit.”
Hertzberg declined to comment on 13 Star Island Drive, which she is listing, but confirmed it is under contract.
Next door, 14 Star Island Drive is also pending with an asking price of $30 million, according to the Multiple Listing Service. So is 29 Star Island, which is on the market for $22.9 million. Property records show Elisa Gosselin, wife of Mexican hotelier and architect Carlos Gosselin Maurel is selling 14 Star Island; and 29 Star Island is owned by former U.S. ambassador Paul Cejas. Hertzberg also has those listings. Cejas’ home hit the market in September for $29 million, and since then its asking price got a 21 percent haircut.
The properties at 11 and 12 Star Island Drive, owned by Miller, are also reportedly under contract in off-market deals.
Recent closed sales include 34 Star Island Drive, which sold for $12 million, and 44 Star Island Drive, which sold in June for $10 million. Shay Kostiner sold the latter for less than half the original asking price of $24 million.
“Ultimately, these properties have been on the market for quite some time and you had a lot of sideline buyers constantly monitoring these properties,” said Oren Alexander of Douglas Elliman.
Alexander said that the sale of 22 Star Island instilled market confidence in Star Island.
“As soon as they saw one of the properties go into contract, they all jumped in the game,” he said. “And before you know it they’re gone.”
Dora Puig, who is listing 46 Star Island Drive for nearly $40 million, recently signed a one-year rental at 27 Star Island for a whopping $250,000 a month, according to the Multiple Listing Service. Puig represented the tenant, and Alyssa Morgan of the Jills Zeder Team represented the owner, John Jansheski.
Puig declined to comment on the lease, but said there is a “try before you buy” sentiment among some recent transplants to Miami Beach who are uncertain about staying in New York for the fall and winter months. Renters and buyers are traveling to Miami Beach on private jets, just as they are in Palm Beach. Even if Art Basel is canceled in December, her clients are looking to either buy or rent for a year, she said.
Brokers in South Florida, as well as Aspen, Beverly Hills and Connecticut are now selling the properties they couldn’t sell for two years, Hertzberg said.
“Everyone’s hopeful that life will return to normal,” she said. “But everyone’s realistic enough to know this won’t happen so fast.”
Write to Katherine Kallergis at kk@therealdeal.com
From left: The Fontainebleau Miami Beach, Shore Club and Clevelander South Beach
UPDATED, July 21, 9:55 a.m.: Jeffrey Soffer’s iconic Fontainebleau Miami Beach was among the first of the city’s hotels to reopen on June 1, after the majority were shut down for the entire month of May.
The sponsors of the 1,500-room oceanfront resort — whose hallways have been graced by Elvis Presley, Lucille Ball, and more recently, Jennifer Lopez and Kim Kardashian West — spent hundreds of thousands of dollars on the reopening.
Jeffrey Soffer, CEO of Fontainebleau Development
Preparations included the purchase of electrostatic sprayers, thermometers and hand sanitizer dispensers throughout the property, as well as training employees in the latest health and safety protocols. And as it prepared to reopen its doors, the luxury hotel planned to hire 500 employees back in the first couple weeks, adding more as occupancy returned.
“We’re cautiously optimistic that people are making reservations,” Philip Goldfarb, president and CEO of the hospitality division of Soffer’s Fontainebleau Development, said at the time.
But of the more than 2,000 employees who were temporarily laid off due to the pandemic, the Fontainebleau ended up bringing back just 774 by July. About 1,300 workers were recently provided with a separation notice, according to a Worker Adjustment and Retraining Notification that cited the effects of ongoing restrictions on travel and large gatherings, as well as the hotel’s low occupancy.
At the same time, a $975 million CMBS loan backing the resort is stuck in special servicing, a situation the hotel’s owners say occured because they are seeking modifications to the loan.
The Fontainebleau is not alone.
“No hotel can operate on less than 20 percent occupancy. The numbers don’t work.”
After Florida began to lift its stay-at-home orders, positive cases of Covid-19 skyrocketed. As of July 13, following a daily record for the U.S. with 15,300 cases reported in 24 hours, there have been more than 282,000 cases and 4,277 deaths documented in the state.
That, coupled with closures of the beaches and countywide curfews, led to already low occupancy rates taking another hit. Many hotels — banking on being sold out for the 4th of July weekend — ended up with significant cancellations.
The start-and-stop of the market spells trouble for South Florida’s hotels, with distressed sales expected to occur later this year. That’s reflective of an even bigger problem for the state’s business activity and real estate markets. Since the pandemic began, close to 3 million people in Florida have reportedly filed for unemployment, with the accommodation and food services industry seeing the highest number of jobless claims.
Suzanne Amaducci-Adams, Bilzin Sumberg
“Until we have a steady stream of income from travelers, the hotels are not going to be able to function properly and not be able to meet their obligations,” said Suzanne Amaducci-Adams, a partner and head of real estate at Bilzin Sumberg, a major commercial law firm based in Miami.
“No hotel can operate on less than 20 percent occupancy,” she added. “The numbers don’t work.”
Survival tactics
Dozens of hotels are in a similar situation as the Fontainebleau and tens of thousands of hospitality workers have lost their jobs in South Florida alone.
The Trump Organization, for example, laid off nearly 800 employees in March, including many at the president’s Mar-a-Lago resort and club in Palm Beach. Alan Lieberman’s South Beach Hotel Group and the Loews Hotel each laid off more than 700 employees.
And with air travel, occupancy and room rates still low, the layoffs will likely last longer than originally anticipated.
Occupancy among South Florida’s hotels that haven’t shut down completely exceeded 30 percent during the week of July 4, according to data from the hotel research firm STR. But while that’s an increase from earlier in the pandemic, it marks a 54 percent annual decline.
The average daily rate was $124, a 24 percent drop from the same week last year, and revenue per available room was $42, down 65 percent year over year, per STR.
A majority of hotels secured loan deferments or concessions that were set to expire by July, and a good chunk of the high season was lost to coronavirus. Like most commercial real estate, any hotel sales that were in the pipeline were either canceled or indefinitely placed on hold.
Before the pandemic, 2020 was supposed to be a banner year for South Florida’s hotels — after the market faced setbacks from the Zika outbreak in 2016 and Hurricane Irma in 2017.
Super Bowl LIV (Getty)
Super Bowl LIV, which Miami hosted in early February, was a boon for local hotels. That weekend, the average daily rate increased almost 150 percent year-over-year, with occupancy rising above 90 percent. Following that, hotels had other events to look forward to: 2020’s Ultra Music Festival in March, the Miami Open in April, and weeks of Spring Break.
“Most hotels were having sort of the best year in five or six years,” said Max Comess, managing director of Hodges Ward Elliott’s Miami office. But all of the big events lined up for the spring were eventually canceled.
Hotel owners and operators typically budget a loss for the slow season, Comess noted, but with the high season cut short, it’s almost impossible to say which hotels will make it through the rest of the year.
“No one knows when the market will really start to bounce back without a vaccine for Covid-19 and a return of consumer confidence in travel,” he added. “Business travel is non-existent, and most Americans are now vacationing in areas they can drive to.”
After being shut down on March 23, Florida’s hotels were allowed to reopen beginning June 1.
But many owners are waiting until August or September to start welcoming guests, while others continue to delay their opening dates due to increased restrictions and low demand.
Among those that are still closed are the Standard Spa Miami Beach, the JW Marriott Marquis Miami, Four Seasons Hotel Miami, the Shore Club, the Gale South Beach, and Novotel Miami Brickell, according to their websites.
The Clevelander South Beach (Getty)
The Clevelander South Beach, a popular party hotel on Ocean Drive, voluntarily closed its doors in July. A notice posted on its website said it was closed until further notice “due to public health concerns” caused by Covid-19.
“Some hotel owners are opting to stay closed,” Amaducci-Adams said. “Hotel owners have never really been faced with that horrible decision before.”
A deal drought
Some big deals that were in the works prior to the pandemic are also on ice.
Richard Branson’s Virgin Hotels — an offshoot of the billionaire entrepreneur’s Virgin Group — had prepared a 46-page offering package for the Shore Club in South Beach, a self-described “Art Deco labyrinth of gardens and alcoves” on Collins Avenue.
Richard Branson
The hotel group had been searching for a flagship property in Miami Beach for years, and seemed to have found it in the 309-room Shore Club owned by Ziel Feldman’s HFZ Capital Group.
Then the pandemic hit.
“Once institutional lenders start saying no, they’re all going to start saying no.”
Virgin was seeking to acquire and redevelop the Shore Club for roughly $335 million. The proposal, obtained by The Real Deal, included a purchase price of $235 million and upgrades that would cost an additional $100 million.
HFZ acquired the hotel in late 2013, with plans to redevelop the historic property into luxury condominiums, but canceled plans three years ago and returned buyers’ deposits due to the slow condo market.
Virgin was aiming to close on the property in the first quarter of 2020, break ground a year later, and open as early as August 2022. But the deal has been tabled indefinitely, as the market overall remains on hold.
Barry Sternlicht, Starwood Capital Group
What happened with the Shore Club is telling for other significant hotel deals in the works prior to the pandemic, in major cities across the country. Some investors, including Barry Sternlicht’s Starwood Capital Group, are on the hunt for deeply discounted hotels.
“We have a pretty deep background in hotels, and I’m willing to buy cheap real estate in the hotel space because I believe in the asset class,” Sternlihct told TRD in a May interview. “I think I know what we can do with them.”
But Miguel Pinto, president and broker of Apex Capital Realty, said for investors who need access to bank financing, even buying distressed hotel assets could be a challenge.
“Banks, for the most part, don’t want to touch hotels today,” he said. “It’s a big risk for them to have hotels in their portfolio — especially at high loan-to-value ratios.
“Without the lending from banks, hotel transactions tend to be very difficult,” he added.
“Completely frozen”
Lenders are unsure of when the market will return and how to value properties.
International and business travel are non-existent, domestic travel is limited, and the cruise line industry, which feeds hotels, is still shut down.
As a result, hotels are “not exactly the most attractive lending asset class right now,” said J.C. de Ona, president of Centennial Bank’s Southeast Florida division. “How do you underwrite a hotel not knowing when they’re going to get profitable right now?”
And the timeline for a recovery is to be determined. The weekend of July 4th was expected to be a “turning point,” Ona said, but once the beaches were closed, hotel owners saw cancellations left and right.
“Are they going to get back to normal? Yes, but it could take a couple of years,” he noted. “At what point do banks get comfortable that the environment is getting better? That’s the unknown.”
Centennial isn’t actively looking to lend on any hotel deals in South Florida, though de Ona said the bank wouldn’t rule it out entirely — depending on the borrower.
Boaz Ashbel, Aztec Group
Boaz Ashbel, managing director of the Miami-based debt brokerage Aztec Group, said the lending market is “completely frozen.”
“Most lenders right now are evaluating every single hotel loan they have, trying to determine what kind of risk they have and how to eliminate it,” he said.
Just a small handful of non-traditional lenders will offer “very high-priced loans” that are designed to be more like bridge and short-term loans “to buy enough time to allow a borrower to get over the pandemic,” Ashbel added.
Most loan agreements include a measuring point to ensure hotels are producing enough income to cover the debt service, said attorney Luis Flores of the law firm Saul Ewing Arnstein & Lehr.
If properties are barely covering their mortgage payments, it could trigger a higher interest rate. Lenders could start to foreclose if the hotel isn’t generating enough money.
“At some point, that breathing room is going to expire and the water is going to boil over,” Flores added. “Once institutional lenders start saying no, they’re all going to start saying no. It will be like a brush fire, it will start to spread very quickly.”
Desperate times
Borrowers with securitized commercial mortgages will likely be the first to default, according to several industry sources.
CMBS loans are typically hardest to renegotiate and hotels dependent on large groups and conventions could take the largest time to recover, Ashbel said.
That could be especially true for Soffer’s Fontainebleau, the largest hotel in Miami-Dade, known for hosting conventions and star-studded concerts.
Typically, about 50 percent of the Fontainebleau’s business comes from group bookings and conventions; leisure travelers take up the other half.
And the hotel’s nearly $1 billion CMBS loan is the largest to go into special servicing in South Florida. Though special servicing is usually triggered by two missed payments, the hotel is on up to speed on its debt service, according to Trepp.
“We’re still working through [loan] modifications,” Brett Mufson, president of Fontainebleau Development, told TRD in July. “We remain in compliance and are not in default.”
The Fontainebleau Miami Beach
There’s a big gap between Fontainebleau’s loan and the next CMBS loan on a South Florida hotel to go into special servicing: the nearly $114 million mortgage backing the Grand Beach Hotel.
The top five CMBS hotel loans in special servicing, per Trepp, are for a variety of properties throughout Miami-Dade, Broward and Palm Beach counties, and no hotel owner is immune, industry sources say.
Real estate investment banking firm Lotus Capital Partners, led by founder and CEO Faisal Ashraf, is working on behalf of hotel borrowers on debt restructurings with lenders. That includes reallocating furniture, fixtures, and equipment reserves to make their debt payments and arranging forbearance agreements, Ashraf said.
“Large hotels will be very slow to come out of the gate or be fundamentally changed forever,” Ashraf said. “I think the second round of forbearances is when the claws come out and it could coincide with the lifting of all of these moratoriums.”
Once lender concessions run out, many hotel owners will be forced to spend more of their own capital, sell their debt, or sell their properties.
Most owners aren’t yet desperate, but some “will be forced to make decisions based on their liquidity situation,” said Scott Berman, a principal at PricewaterhouseCoopers, who leads the hospitality and leisure practice for the firm.
“Cash is king and liquidity is essential,” Berman added.
Publicly, many owners have been holding firm, expressing confidence that the market will bounce back in a matter of time. But, behind closed doors, some are also sizing up their options should that take longer than they hope.
“We have knowledge of many hotels [where] the owners want out,” said Pinto of Apex Capital. “You won’t see them hit the market for now, but we are getting calls from the owners to bring them offers. They want out.”
Correction: An earlier version of this story misrepresented Lotus Capital Partners’ role in debt restructurings.
The supply of unsold condos is growing in downtown Miami, as the pandemic continues to pummel South Florida’s economy.
Greater Downtown Miami has more than 30 months — or two-and-a-half years — of supply of condos, and 100 months — or more than eight years — of supply of luxury units, according to an analysis of Multiple Listing Service data by Condo Vultures Realty. Both figures are based on sales during the first six months of the year in the area between Edgewater and Brickell, east of I-95. The MLS does not typically include preconstruction sales.
The roughly 30 months of supply of all condos in the area is based on 711 sales that closed between January and June, for an average of about 119 sales per month. As of Tuesday, there were 3,579 condo listings in Greater Downtown Miami, asking an average price of about $758,000. Meanwhile, the average closing price for the first half of the year was $511,000.
The luxury market is faring much worse. Only 36 units sold between January and June, for an average of just six units sold a month. (Units asking at least $1 million are considered luxury.)
“This is giving me flashbacks to 12 years ago in 2007, when the Miami condo market started to go bad,” said Peter Zalewski, principal at Condo Vultures Realty. “Early indications are that this pandemic combined with the oversupply that already existed is going to turn this into a serious buyer’s market.”
Currently, about 600 luxury condos are on the market asking an average price of $2.05 million. Twenty-six luxury condo sales are pending, Condo Vultures’ data shows.
On the flip side, Zalewski pointed to the strengthening single-family home market amid the pandemic, though sales are concentrated in the high-end, in markets like Miami Beach and Palm Beach. The majority of condos east of I-95 in Miami-Dade are in Greater Downtown Miami, he said.
It doesn’t help that the shadow rental inventory is also growing, Zalewski said. There are two types of shadow rental inventory: units that individual landlords put on the market, which are typically condos, and those that institutional owners will lease out, oftentimes without using the MLS. Both individual condo landlords and institutional owners are dropping their prices and offering deals on units, Zalewski said. Each represents about half of the market.
There are nearly six months of supply of shadow rental units listed on the MLS, based on an average of 541 leases signed in the first six months of this year, he said. During that six-month period, a total of 3,245 leases were signed in Greater Downtown Miami. Slightly less, 3,167 units, are currently on the market for rent as of this week.
“There’s too much product, and people do not want to live in a 500-unit building with 700 people,” Zalewski said.
Individual condo owners who typically rent their units out are faced with a dilemma, he said. “Do they continue to pay their mortgage, or do they begin the process of trying to unload early?” he asked.
Zalewski predicts that investors will continue to sell their condos at deep discounts compared to their purchase price, or to the market’s high. It’s already happening throughout South Florida. In July, billionaire hedge fund manager Clifford Asness sold his South Beach penthouse for $22 million, 15 percent less than he paid for it two years ago.
“The day of the all cash buyer is coming, and coming quickly,” Zalewski said. “Those all cash buyers are not looking to pay market value. They’re not even looking for a discount. They’re looking for a haircut.”
Write to Katherine Kallergis at kk@therealdeal.com
Laura Kozelouzek, CEO of Quest Workspaces, and a Quest classroom
Office is out, but school is in session.
Quest Workspaces, a co-working operator with 12 locations in Florida and New York, is turning some of its enclosed office space into small pods where groups of students can gather for virtual learning.
The move comes as many school districts are opting to forgo in-person teaching for the start of the new school year, due to Covid-19. At the same time, it’s a means for co-working, which has been hit hard by the pandemic, to cope with declining demand for office space.
In New York, co-working leasing was down 84 percent in the first quarter, year-over-year, according to commercial brokerage JLL.
Co-working operators like Quest, Industrious and WeWork are looking for ways to fill that space.
For Quest, the pods will function essentially as small classrooms. Students will be dropped off in the morning to go to their pods, to be accompanied by a tutor, teacher, parent or supervisor.
“It’s no different than what we do in terms of managing our space. We can bring companies together of all different sizes,” said Laura Kozelouzek, CEO of Quest Workspaces. “There is a need for people to get out of their homes.”
The Quest Micro-Class Pods start at $200 per child per month, for children of Quest members. For nonmembers, the pods start at $400 per child per month. The pods can include up to six students per pod, and are primarily geared toward high school or middle school students, Kozelouzek said. In South Florida, Quest has two locations on Brickell Avenue and in Coral Gables, and one each in Doral, Fort Lauderdale, Plantation, Boca Raton and West Palm Beach. Quest also has two offices in New York City.
Suzanne West, a longtime user of Quest’s New York and Miami locations, is considering leasing a pod for her stepdaughter, who is an incoming freshman at Miami Beach Senior High. “I am very comfortable having my daughter there,” West said. “We can have supervision. They can even be on other schedules.”
New York-based Industrious is also considering the move. “This is something we are exploring internally to determine whether or not it can be done safely and responsibly,” said a spokesperson for the company.
WeWork’s CEO Sandeep Mathrani has also said previously that the company is considering using its space for classrooms.
In Chicago, Optima Signature, a 56-story, 490-unit apartment tower in the Streeterville neighborhood, is converting four of its 25 office suites into classrooms, the Chicago Tribune reported. Interest is expected to come from families whose children attend the Montessori school in the tower, according to the report.
The new business line could help an office sector that was ailing even prior to the pandemic.
Leasing activity for co-working, also known as flexible space, dropped 50 percent globally in the fourth quarter of 2019 compared to the previous year, according to JLL.
Lending to buildings in which co-working is a tenant is also difficult, according to David Eyzenberg of Eyzenberg & Company, who arranges financing for commercial real estate projects.
“It was hard to finance office properties where co-working took up a significant percentage of space,” Eyzenberg said. “If it was a multi-tenant property, it was possible, but if it was a single co-working tenant space it was very difficult and expensive. Throughout the pandemic, it’s been more difficult.”
Many of the lagging leasing figures in co-working stem from embattled WeWork. Last year, the New York-based company pulled out of its initial public offering and saw its valuation drop from $47 billion to about $5 billion. WeWork recently hired JLL and CBRE to help fill millions of square feet now vacant in New York City and Los Angeles. The company closed its location on Miami Beach’s Lincoln Road and pulled out of a planned 115,000-square-foot lease at 149 Madison Avenue in Manhattan.
Yet, co-working’s woes could eventually be alleviated, according to JLL. The firm projects that in the future, companies will gravitate to co-working, or flexible office space, as fewer firms will want to commit to long-term leases. JLL projects that 30 percent of all office space will be consumed flexibly by 2030.
Still, challenges remain in the near term. “People are afraid to go into those types of environments,” said Colliers International Florida’s Keith Edelman, referring to some crowded co-working spaces. “We are going to start seeing those spaces downsizing.”
Voters will decide if developer David Martin can redevelop the Miami Beach Marina into a high-rise, mixed-use tower.
The Miami Beach City Commission on Wednesday agreed to send the proposal to a referendum in November.
Martin’s Terra is proposing a tower of up to 385 feet in height, or about 38 stories tall. It would include about 60 residential units encompassing 275,000 square feet, as well as 45,000 square feet of retail, restaurant, office and marina space, and a 1-acre park on the Miami Beach Marina site at 300 to 400 Alton Road.
To make it onto the November 3 ballot, commissioners had to approve the agenda item, which had passed on first reading June 24. The resolution from the city’s June commission meeting included the development agreement, sale of the property and air rights, a new marina lease, and the vacation of a right-of-way. The existing building, which houses the restaurant Monty’s Sunset, would be demolished.
The city entered into a lease in 1983 to operate and maintain the Miami Beach Marina and property until 2022. Now, Martin is proposing a 99-year lease.
A majority of voters would have to sign off on the project for it to move forward.
In a statement, Martin said the marina is “in need of significant improvements to keep it competitive and address the challenges of sea level rise and climate change.” The marina project would include more than 2 acres of publicly accessible open space and a 1-acre Marina Park and baywalk.
Martin brought in Bjarke Ingels Group to design the development. Ingles designed Terra’s Grove at Grand Bay project, a two-tower luxury condo in Coconut Grove.
The Coconut Grove-based developer is active in Miami Beach. He’s partnering with Crescent Heights on the Canopy Club, a residential tower, and Canopy Park, previously known as the 500 Alton development and later Park on Fifth. Terra, Crescent Heights and their partner New Valley recently broke ground on the 3-acre park component.
Martin is also a co-developer of the Miami Beach Convention Center hotel, a planned 800-key Grand Hyatt.
Write to Katherine Kallergis at kk@therealdeal.com
From left: David Singelyn of Homes 4 Rent, Jacque Petroulakis of NextMetro, and Adam Adler of Global City (Photos via Nexmetro, Global City, Singelyn via Cal Poly Pomona)
Since moving from an apartment building in Allen, Texas to a two-bedroom house in nearby McKinney in April, Joy Fleming has been on the receiving end of developers stopping by and asking her whether she likes where she lives.
Fleming — a resident living in a community of 180 Avilla Homes built by NexMetro Communities — can now park in front of her house. She has a backyard for her dog to run around in, the trash gets picked up off of her front porch, and she has plenty of natural light. She’s also been working remotely over the past few months, making her second bedroom all the more useful.
Fleming, who’s in her 60s, is one of tens of thousands of residents flocking to newly built single-family rental communities around the country. A growing number of individuals and families who have struggled with social distancing in large apartment buildings are opting for more indoor and outdoor space in the suburbs once their leases are up.
But rather than buy a home, take on a 15- to 30-year mortgage and deal with the expenses of owning property and managing everything from utilities to maintenance, they’re looking to keep renting. Empty nesters like Fleming, who considers herself a renter by choice, also see an upside in leasing a new home.
Due to Covid-19, the owners and managers of a lot of other properties she looked at “wouldn’t show you the space you would be renting,” she said. “It just didn’t make a whole lot of sense.”
Phoenix-based NexMetro, meanwhile, is one of a growing number of firms doubling down on the build-for-rent sector with plans to develop and manage high-end rental home communities in close proximity to large cities. The market is getting a big boost from the pandemic and economic fallout, as many would-be first-time homebuyers rethink their plans due to a growing sense of unease about the future.
And it didn’t take long for Wall Street and other institutional investors to catch on. Major players like Brookfield Asset Management and Starwood Capital Group are betting on renters staying renters as many face record unemployment levels and mounting debts, and the build-for-rent space is attracting big money during the pandemic.
JPMorgan Chase and American Homes 4 Rent, for example, launched a $625 million joint venture in May to develop 2,500 single-family rentals in Western and Southeastern states. David Singelyn, co-founder and CEO of Homes 4 Rent, said that while his company, which began building new communities about five years ago, has teamed up with institutional investors before, this marks the first time a partner wanted to be named.
The California-based real estate investment trust owns more than 50,000 homes in 35 cities and is building new home rental communities in 15 of them. And, according to Singelyn, Homes 4 Rent’s portfolio is more than 90 percent occupied.
Mike Kelly, head of Real Estate Americas at JPMorgan Asset Management, told The Real Deal by email that the joint venture is confident there’s enough demand, despite the impact the pandemic has had on the U.S. economy.
“There is a gap in the market between apartments and homeownership, particularly for young families,” Kelly noted, “so the single-family build-to-rent model really works for them.”
The rental curve
The bulk of new single-family rental developments are in the “smile states” that run from California down through the south and up along the East Coast and upper Midwest — cities and towns with projected economic and population growth and affordable land.
“Every homebuilder in those markets, they’re on fire. They’re having banner years.”
Miami-based Global City Development, backed by the Brazilian investment management firm Leste, recently broke ground on more than 320 acres in Raleigh, North Carolina, and is aiming to build even larger homes than its competitors.
The companies are planning to develop 700 single-family homes and townhouses, ranging from 1,800 to 2,200 square feet with up to four bedrooms, before the end of 2021 as part of a $2.5 billion plan plan to build tens of thousands of houses in 30 communities over the next five to seven years.
Since purchasing the land in Raleigh in October, the developers closed on 120 acres in Nashville between October and February, and they plan to close on a site in Charlotte by the end of November. The jobs are there to back it up, said Adam Adler, president of Global City’s master-planned communities division. Raleigh is the second largest tech city in the U.S. behind Silicon Valley. And near the Nashville site, Amazon is planning a 3.6 million-square-foot distribution center.
“Every homebuilder in those markets, they’re on fire,” Adler said. “Organically there is a housing shortage.”
Global City and Leste announced their ambitious plan, which also includes parts of Florida, Texas and Arizona, in late 2019. And since the pandemic hit earlier this year, the development team has pushed forward with construction and land closings.
The new communities will include walking trails, fiber-optic internet, business centers and multiple pools and gyms, and the developers’ target household income ranges from $75,000 to $150,000 — similar to many first-time homebuyers. Adler maintained that there’s a growing pool of renters, including a large number of millennials, who can afford to buy but prefer to rent and are seeking the “amenities of the urban core in a suburban environment.”
Single-family rentals aren’t a new phenomenon, of course. The Blackstone Group spent billions of dollars buying distressed homes during the last recession and built up the largest portfolio of single-family rentals before selling its remaining stake in the properties last year.
But many investors are now looking to build luxury communities from scratch and new projects are “popping up everywhere,” said J.C. de Ona of Conway, Arkansas-based Centennial Bank. In some cases, for-sale homebuilders like Lennar, D.R. Horton and Toll Brothers are also getting into build-for-rent, according to industry sources.
Don Walker, chief financial officer of John Burns Real Estate Consulting, which covers the single-family rental market, said there are at least 240 active build-for-rent communities with about 29,000 homes across the U.S. As of now, there are primarily two kinds of developments in the burgeoning market: houses built on single-family lots and attached homes with fewer rooms and smaller yards.
While it’s hard to pinpoint exactly how much money has been invested in build-for-rent communities, Walker and others say that at an average cost of about $250,000 per home, the total would come out to more than $7.2 billion.
Michael Finch, principal owner of the Phoenix-based brokerage SVN | SFRhub Advisors, said he’s now working with investor groups looking to deploy $15 billion to $20 billion of capital into the build-for-rent space.
Finch, who’s also the general partner of a $1 billion single-family rental fund that launched earlier this year, said millennials who “already watched their parents struggle in the last recession” are hesitant to buy homes themselves — if they can afford to.
The shift toward remote work could also propel more people to move out of cities and into suburban communities, though it’s unclear how long that trend will last.
“You are going to see major changes in the way America lives,” said Chuck Brecker, a real estate attorney with Saul Ewing Arnstein & Lehr in Florida who has been studying the issue. Remote working “is not going to end when the pandemic ends,” he argued.
Playing the long game
A growing number of developers plan to hold onto their communities after they’re completed, while others may sell the houses individually or to institutional buyers in bulk.
“The only negative that has kept a lot of developers out is concern of an exit strategy,” said Brecker. “If it turns out that there are no buyers, then you’re left with selling them one by one. That will certainly be more difficult when they are used [rather than] brand new homes.”
Transcendent Investment Management, one of the build-for-rent sector’s newer entrants, plans to construct up to 4,000 new rental homes in the Carolinas, Georgia, Florida and Texas and hold onto the properties once they’re built.
“We look at these, in large part, not much differently than a garden-style multifamily, and will amenitize them similarly,” said Adam Wolfson, Transcendent’s chief investment officer. “As people tend to age out of multifamily, this is a great step for them.”
NexMetro, one of the sector’s largest and longest running developers, has sold six communities in Phoenix and the Dallas-Fort Worth area since the company was founded in 2012. But it’s now weighing the benefits of long-term holds, citing increased demand for the asset class, said Jacque Petroulakis, NexMetro’s executive vice president of marketing and investor relations.
The company has built about 4,800 Avilla-branded homes in 32 communities in several states, and has another 1,500 homes across eight communities in the works. NexMetro, which advertises that its residents are “renters by choice” seeking “a new American dream untethered by the responsibilities of home ownership,” closed on its first site in Florida this year.
Construction on the 152-unit project in Odessa began in July, with an opening set for early 2021, and NexMetro is planning to expand to Orlando and the Tampa area.
Petroulakis said the company’s rent collections have fallen by just 1 to 2 percent, as many of the firm’s tenants have high household incomes, while the company’s occupancy across its portfolio is hovering at around 96 percent. Showings are also easier to manage remotely, she added. Since March, NexMetro has held 1,300 tours without a leasing agent present by giving prospective tenants access to the homes using a secure code.
“The appeal of more square footage is unmistakable,” Petroulakis said, noting that a growing number of apartment dwellers are antsy, as they work in small spaces with kids or children, Petroulakis said. “That notion of sharing an elevator and sharing a hallway is becoming less and less appealing to consumers.”
The recession equation
Most investors in the space are targeting millennials and baby boomers looking for the flexibility that high-end rental communities provide.
“If you need flexibility to move, it’s much easier to break a lease than try to liquidate a house in a market that may be deteriorating,” said Global City’s Adler.
Though U.S. interest rates are at a historical low, would-be first-time homebuyers are finding it difficult to close on properties due to recent job losses and economic uncertainty.
“Banks are being careful about underwriting loans” to homebuyers, despite low rates, said Joe Hernandez, a partner at the Florida-based law firm Weiss Serota Helfman Cole & Bierman. “It’s just an unprecedented time where a lot of these factors are coming together to make [build-for-rent] attractive.”
“These communities are targeting the demographic that would like to buy a home and set up their life but they have been priced out.”
Lenders are generally comfortable with the build-for-rent sector’s absorption and occupancy rates — especially in the Sun Belt region where there’s job growth and a shortage of new housing. As with almost any other property type, however, it’s more challenging to secure financing for many developers as well now.
“Because it’s a hot new asset class, there are a lot of people that want to get into it and that’s great. But in a pandemic recession, lending is a lot harder to come by,” said Brett Forman, executive managing director of the eastern U.S. division at Trez Capital, a Canadian lender that has provided $250 million in loans for up to 20 single-family or townhome build-for-rent communities.
Centennial’s de Ona said the bank is looking for developers to pitch in more equity today than pre-pandemic, and won’t go above a loan-to-cost ratio of 65 percent.
Unlike with condo, co-op and single-family home closings, developers can’t rely on sales or presales to show demand to their lenders.
“That’s one of the big reasons not every developer has the funds to build apartment buildings,” said attorney Felix Rodriguez, who works with Lennar, Toll Brothers and other homebuilders. “The only way it works is if you have some kind of permanent financing lined up.”
Demand for rental homes will still likely increase, as the country’s largest homebuyer pool, millennials, look to move onto the next stage of their lives during one of the biggest downturns since the Great Depression.
But many, in a sense, are trapped into remaining renters for years to come, said Ana Bozovic, founder of the real estate data firm and brokerage Analytics Miami.
Median sale prices are hovering at all-time highs as student debt keeps climbing, she noted, pushing the median age of first-time home buyers to a record high of 33 in late 2019, before the pandemic hit.
“The economic hardships we’re under are being felt more strongly by millennials,” Bozovic said. “These communities are targeting the demographic that would like to buy a home and set up their life but they have been priced out.”
When Chicago’s Merchandise Mart opened in 1930, it was the largest building in the world. Though it no longer holds that title, the sprawling trophy property on the north bank of the Chicago River remains one of the city’s most iconic buildings.
It’s also one of two major office properties that New York City-based Vornado Realty Trust owns outside of the five boroughs. (The other one, 555 California Street in San Francisco, is now up for sale.)
Since acquiring the 3.6 million-square-foot property, now known as theMART, from the Kennedy family in 1998, Vornado has invested millions of dollars in repositioning the property, increasing the share of office and retail space while reducing showroom space. The company also committed $8 million to convert the building’s facade into a digital canvas in 2018.
The property’s most recent refinancing came in the form of a $550 million CMBS loan provided by Morgan Stanley, Barclays and Bank of China in 2016. As is usually the case with such loans, documents associated with the securitization provide an inside look at the building’s finances.
The property was about 95-percent leased in 2016, with office rent averaging $35.86 per square foot and showroom rent averaging $45.54 per square foot, according to a DBRS report from the time of the refinancing. Office tenants accounted for about 49 percent of total base rent, while showroom tenants accounted for about 42 percent.
Occupancy at the building has since declined somewhat to about 89 percent, while rents have increased substantially: Annual office rent is now $44.45 per square foot while showroom and trade show rent averages $54.49 per square foot, Vornado’s latest financial report shows.
Gross asking rents in Chicago’s River North submarket, where theMART is located, average $45.54 per square foot, according to CBRE’s latest Chicago office leasing report.
The largest tenant at the property is Motorola Mobility, the consumer electronics and telecommunications unit that spun off from the former Motorola Inc. in 2011. Although the company was sold by Google to China’s Lenovo Group in 2014, Google is still the guarantor for Motorola Mobility’s lease at theMART, which commenced in 2012 and extends through 2028. The Motorola lease accounts for about 17 percent of square footage and base rent at the property.
In 2018, Braintree — the mobile-payment unit of Paypal — expanded its lease to 148,000 square feet, making it the fourth largest tenant. A 93,000-square-foot lease for Medicus Group International — a subsidiary of French marketing conglomerate Publicis Groupe — expired that same year. Another Publicis subsidiary, Razorfish, remains as a tenant at the building.
According to Vornado’s latest financials, the company leased 273,000 square feet at theMART in the first half of 2020, at an initial rent of $48.64 per square foot. Meanwhile, the cancellation of trade shows due to Covid-19 led to a $8.2 million reduction in funds from operation in the second quarter. TheMART hosts the annual NeoCon trade show, dedicated to commercial office design, and more than 20 other shows per year, according to DBRS.
261 Alexander Palm Road, Boca Raton (Credit: Google Maps)
A mansion in the Royal Yacht & Country Club in Boca Raton sold for $9.4 million.
Catherine Stile of Brooklyn sold the 8,361-square-foot mansion at 261 West Alexander Palm Road to Tiffany Palagonia, according to records.
Stile had paid $3.3 million for the land in 2017, and built the house one year later, records show.
In September, Stile paid $2.9 million for the almost 3,000-square-foot waterfront house at 2909 Spanish River Road in Boca Raton, across the Gulf Stream from Royal Palm.
The two-story mansion she sold has six bedrooms and six bathrooms, according to an online listing. David W. Roberts with Royal Palm Properties represented the seller. Carlos Alleyne with RE/MAX Advantage Plus represented the buyer.
It was listed in June 2018 for $12.5 million. The price dropped to $12.3 million in September 2018, then $12 million in April 2019.
The Royal Palm Yacht & Country Club has seen some notable sales this year. A Boca Raton plastic surgeon bought a mansion for $5.5 million in August. A former Amazon executive who created its business-to-business sales program paid $5.15 million for a mansion at the club that same month. In May, the former CEO of the craft store Michaels and his wife sold their waterfront estate at the club for $10 million.
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