DIGITAL DEBRIEF / COMMERCIAL REAL ESTATE

Q&A: Miami’s industrial real estate makes a comeback

 

Michael K. Silver

Job: First vice president at CBRE in Miami.

Professional activities: 2013 president of the Realtors Commercial Alliance of Miami.

2013 board member of the Florida Realtors Commercial Alliance.

2013 regional director at SIOR, the Society of Industrial and Office Realtors, for USA South.

Two-term past president and a director emeritus of CIASF, formerly the Industrial Association of Dade County.

Experience: 32 years in industrial real estate at CBRE in Miami. About five years at an industrial brokerage in New Jersey.

Family: Married to Lauren and has one son, Jason.

Hometown: Weston


mbrannigan@MiamiHerald.com

When Michael K. Silver moved to Miami in 1980, the commercial real-estate business seemed laid back compared to the fierce competition in New Jersey where he started out.

“As the years have gone by, Miami has gotten much more sophisticated,’’ said Silver, a first vice president at CBRE in Miami who over a long career has established himself as one of South Florida’s key experts in industrial real estate.

At CBRE, he is consistently among the top sellers and dealmakers. He also devotes a lot of attention to professional associations like SIOR (the Society of Industrial and Office Realtors) and the Realtors Commercial Alliance, where he is the local president for 2013.

South Florida’s industrial real estate may lack the sex appeal of the residential sector, which boasts spectacular waterfront mansions and the cutting-edge design of condominium projects. But as the meat and potatoes of real estate, the industrial sector provides the stage for much of the region’s economic activity. And with upgrades underway at Port Miami aimed at luring larger ships when the Panama Canal expansion is completed, industrial real estate is hot.

“This is an exciting time for industrial real estate in Miami,’’ said Silver, who sat down in an interview with the Miami Herald and then responded to emailed questions.

Q: What are the key drivers for industrial real estate in South Florida now?

Miami-Dade, Broward and Palm Beach counties have a population of about 5.6 million, and that is expected to exceed 6 million by 2020. The region needs existing warehouse space and additional warehouses in the future to serve the local population and to import and export products worldwide.

International trade is one of the driving forces in the region’s economy. Miami-Dade is supported by world-class connectivity through a growing airport, seaport, and telecommunications infrastructure. Recently, the Port of Miami established Foreign Trade Zone 281, encompassing most of the county. Businesses operating in the zone can defer, reduce or eliminate U.S. Customs duties on products.

A healthcare hub is taking shape in Miami. The University of Miami’s new Life Science & Technology Park opened its doors and has already attracted several tenants.

Foreigners are fueling the Miami housing market, which has generated strong interest to start businesses or purchase commercial properties in South Florida.

Q: You are president of RCA Miami this year. What does the group do?

The Realtor Commercial Alliance is part of the Miami Association of Realtors, the largest local Realtors group in the nation with 29,000 members. Of those, RCA Miami has 1,500 members.

Our 2013 priorities are education, commercial real-estate services, media, government affairs, international real estate and commercial real-estate partnerships.

RCA was one of the founding organizations in creating a commercial real-estate coalition that includes about 15 organizations that offer joint meetings and informs all our members about commercial real-estate issues that affect our industry.

Q: Commercial brokers have been advocating for a reduction or elimination of the Florida sales tax on commercial rents. What is on the horizon for that issue?

Florida is the only state that taxes commercial rents. Legislation that would have phased out the long standing sales tax charged on commercial leases died in committee during the latest session.

Florida state sales tax on commercial leases is 6 percent, plus a local surcharge option of 1 percent. In Miami-Dade, it’s 7 percent.

The Florida sales tax on commercial leases represents approximately $1.2 billion a year or more in revenue statewide. This issue has been a priority to the Florida Association of Realtors. The group had drafted legislation to cut the tax rate in one percentage point increments each year until it was eliminated.

The Florida Association of Realtors continues to talk to legislators and the governor about making it a priority next year.

Q: What happened to industrial real estate in South Florida in the downturn and how is the sector doing today?

The industrial real-estate market in Miami-Dade started going south in mid-2007. Companies occupying industrial space started to consolidate or totally vacate their space, or they were purchased and absorbed into their competitors’ space, or went out of business.

As the months and years went by, rental rates and sale prices for industrial buildings declined — in some instances by 25 percent or more. Vacancy rates doubled in some submarkets. In the Liberty City and East Hialeah industrial submarkets, vacancy rates climbed to 15 to 17 percent, which is three times a normal vacancy rate.

During 2012, the industrial market bottomed out. The overhang of available space started to be absorbed, and rental rates and sale prices started to rebound.

During the first half of 2013, rental rates and sale prices have increased about 10 percent from the year-earlier period. Rental rates for new speculative industrial product in the Airport West market, traditionally the most expensive, are quoting $9.25 to $9.50 [per square foot of gross industrial space per year.] That is just about where the rental rates there peaked in 2007.

The industrial market in Miami–Dade is one of the most active in the country. Several million square feet of speculative industrial buildings are under construction and are being pre–leased before completion.

As MIA and the Port of Miami complete their improvements, all indications are that the demand for millions of square feet of industrial space shall continue.

Q: How is the scarcity of land in South Florida shaping industrial real-estate development?

A majority of industrial developers look first at the Airport West and Medley areas for new industrial development and find out that most industrial-zoned properties within those submarkets are already built out, leaving a scarcity of vacant industrial dirt for development.

At the market peak in mid-2007, industrial-zoned land in the Airport West market was fetching $20 to 23 per square foot. These figures were some of the highest in the nation for land to build warehouse and distribution-type buildings.

As the market cratered in 2007, the demand to purchase land to build industrial buildings ceased for several years. When the industrial market bottomed out in 2012, several of the major industrial developers purchased some of the few remaining industrial-zoned parcels in the 20-acre to 30-acre size in the $9 to 12 per-square-foot range. That was half the price at the market’s peak in 2007.

Now, the remaining vacant industrial land in the Airport West market is asking in the $17-per-square-foot range. That is almost back to the peak of 2007.

Q: Is financing becoming more available for industrial real-estate developers? What are banks looking for in industrial projects?

Financing for industrial development is still difficult in today’s market. Lenders are looking for strong developers. Developers also have to come in with substantial equity. Lenders like to see pre-leasing and/or a strong anchor tenant, depending on the size of a project.

The larger industrial developers in some instances will do all equity to acquire the land and build the project.

Once the project is half or fully leased, the developer will put debt on the project and remove their equity — or they may sell the project. Most of the larger industrial REITs will use their own funds and/or raise equity through stock.

Many industrial developers have long-standing relationships with equity partners to do developments, or they will use their assets around the United States to fund a development. Industrial developers can also utilize their revolving lines of credit to do a project.

In today’s market, these industrial developers most likely will be interested in vacant land for immediate construction with all entitlements in place.

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