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Sky-High Prices Forcing South Florida’s Industrial Developers To Look Elsewhere

Sky-High Prices Forcing South Florida’s Industrial Developers To Look Elsewhere

South Florida’s industrial market has gotten so hot coming out of the pandemic that developers are eyeing a Plan B.

While developers say the region is still attractive with the influx of new residents and its business-friendly environment, developers are beginning to look elsewhere due to Miami’s soaring prices and the dwindling supply of land.

“For us, we’ve had to sort of geographically diversify and go into other markets as well to be able to support our business growth,” Mark Levy, president of Fort Lauderdale-based Altman Logistics Properties, said at Bisnow’s South Florida Industrial Summit on Tuesday.

Altman Logistics, which was called BBX Logistics Properties until last month, broke ground on a 600K SF warehouse in the Palm Beach County Agricultural Preserve in June. Levy said the time it takes to get sites entitled and the lack of appealing sites makes it hard to keep growing in the market.

“If we were focused just on Florida and we were trying to deploy that sort of capital in the development space, it’d be very, very, very challenging,” he said.

The region’s vacancy rate was 5.8% in the third quarter — nearly double the previous year — and is expected to continue rising due to an influx of new developments, according to Savills. However, demand for industrial space is still high, with a net absorption of 4.4M SF in the third quarter, a 24% increase year-over-year. Tenant takeup within the market is returning to prepandemic averages of about 5M SF following the peak of 15.2M SF in 2021 and 11.7M SF in 2022, per Savills.

Asking prices are still high in South Florida’s market, with the average price per SF hitting $233 per SF in the third quarter, the report by Savills showed.

“It’s a little pricey for us now, I think it’s going to continue to be that way for a while,” Anthony Scavo, president and managing partner at Basis Industrial, said on stage.

Since joining the Boca Raton-based company in 2021, the 30-year commercial real estate veteran has noticed significant changes in South Florida’s market that make it harder to adapt.

The company has been more active farther north in the state. In late August, Basis Industrial paid $27.2M for a 206K SF industrial and office park in St. Petersberg, Catalyst reported. The company holds 650K SF of industrial property in the Tampa Bay metro area and plans to expand that portfolio to 1M SF by the end of the year.

Part of the reason for that push, Scavo said at the event, is because institutional capital has entered South Florida’s market.

“We used to be able to compete on properties with a portfolio of $100M or more — we can’t now. There’s money coming in that will buy for cap rates that we couldn’t, that doesn’t make sense to us,” Scavo said. “That’s why a lot of us have gone to Central Florida and are moving away from South Florida, because there’s so much institutional dollars coming in.”

There was a surge of institutional investors in 2022 when they bought 50% of the properties sold in the region, but they have started to decrease their market share, accounting for 25% of sales volume in Q3, according to a report done by Transwestern.

Their presence drove prices through the roof. Industrial buildings traded for less than $125 per SF in 2020, according to Transwestern. By last year, average pricing hit over $250 per SF. Although the pace of sales has decreased, prices have stayed high.

“I think it’s slowing down a little bit now, because people have taken a breath and are just seeing because the prices have been elevating, basis matters when it starts getting higher than anywhere,” Scavo said.

Scavo anticipates that the market will follow its typical cyclical pattern characterized by periods of rapid growth, elevated pricing and eventual stabilization. As of now, the industrial market continues to face significant

challenges as it adjusts to the postpandemic e-commerce surge. The growing pains are particularly evident in the struggle to find land or motivated sellers.

Arnie Capute, associate vice president of investments at Realterm, believes that the most challenging aspect of South Florida’s market is not just finding land with existing zoning for heavy industrial, but also owners that are willing to sell it. Realterm works up and down the East Coast, and Capute recognizes the unique challenges in South Florida specifically.

“South Florida is easily the most difficult place to find sellers that have real motivation to offload their property,” Capute said.

Maryland-based Realterm has invested in Miami — it paid $15M for a site in Medley in 2022, four times above the land’s price from 2017 — but Capute has said it can be painful working within the market.

“The sellers basically aren’t bending on the price,” Ed Easton, founder of The Easton Group, said. “They say, ‘If you pay me the price, I’ll take it, otherwise don’t call me.’”

Easton said 88% of the industrial land in Miami-Dade County is already developed, leaving limited opportunities. Only about 30M SF of land remains available, most of which is located in remote areas, Easton said.

“We’ve been absorbing in Miami for the last 20 years or so, it doesn’t take rocket science for you to figure out you only have about five or six more years

of land inventory,” Easton said. “That’s going to make the prices go a lot higher.”

But Miami is growing, and developers say it has illustrated a unique resilience to the growing pressures nationally faced for industrial development. But Easton, who has seven children and grandchildren in the industry, said they frequently question the long-term viability of Miami’s market.

“They’re always saying, ‘Should we look at another market?’ ‘What if this thing sinks under the water?’ ‘We’re going to go broke,’” Easton said.

Although Miami-based, the company has ventured into northern markets like Jacksonville, Georgia and South Carolina. Yet Easton remains optimistic that he can keep investing in South Florida, even with how many local players are being priced out.

“I’m very comfortable in Miami because I kind of grew up here, and I understand the dynamics and I embrace internationalization and all the infrastructure and stuff that we have here,” Easton said.

Alex Redfearn, founder of Redfearn Capital who just acquired two multitenant industrial properties for a combined $10.8M in Boynton Beach and Jupiter, recognizes the low chance of costs coming down soon is low and says investors will have to adjust.

“You have to be comfortable with this kind of new higher rate environment,” Redfearn said. “There’s going to be movement. There’s going to be some

tenants that don’t make it. You’re going to have some bankruptcies that occur. But, the overall theme of South Florida is it’s not going away.”

From the original article posted on BizNow

About Redfearn Capital

Redfearn Capital (“RC”) founded in 2014 is a private equity commercial real estate company that targets value add, distressed and opportunistic investment opportunities. RC does property management, construction management and asset management for its portfolio in-house.

The Company partnered with an institutional capital partner for larger deals and works with a few high-net-worth family offices for smaller deals creating a compelling growth story. Quick decision making and proven investment principles allow Redfearn Capital to create value in the ever changing commercial real estate industry. Redfearn Capital has over $750 million of assets under management, over 4.7 million square feet and 250+ active tenants in three states. Redfearn Capital’s HQ is in Delray Beach, FL.

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