During the boom years of the early 2000s, South Florida’s real estate developers were limited only by their imagination and financial resources in planning new projects. During the ensuing downturn, their focus turned to staying afloat, refinancing some projects and selling others at bargain prices.
With the region’s economic recovery now in its eighth year, local, national and international developers are taking a cautious approach to the market, searching for opportunities for residential, office, industrial and hospitality projects.
Since 2010, the costs of land, labor and materials have steadily increased, making the development process more expensive. Many attractive urban sites involve tearing down older buildings, rezoning or both, extending the timeline for new projects. On the other hand, Miami is still considered one of the hottest cities in the U.S. for residential and commercial development, drawing buyers and tenants from around the world.
Another positive factor is the ready availability of private capital to finance new developments. While many banks are more willing to finance at least a portion of the construction and development costs, many wealthy individuals, families and institutional investors are still eager to provide financing in line with their short- or long-term goals.
As a result, there has been a dramatic increase in joint ventures in the past year, as local developers team up with national and international real estate companies or financial partners. For instance, our firm has represented Canadian clients who partnered with a South Florida company, as well as investors from Latin American and Europe seeking real estate assets in the region. Of course, many international clients still prefer to acquire existing properties here in order to move funds to the United States and diversify their investment portfolios.
If you are considering investing in a South Florida development, the first step is to be clear about your goals. For instance, if you are seeking a relatively quick return, you might consider the warehouse or self-storage market, which have shorter construction timelines than offices or multifamily residential projects. You should also consider your exit strategy right from the start. Do you plan to sell the project after completion, or keep it in your portfolio for a long-term hold?
Next, you should analyze the market to identify potential sites for new projects, as well as the anticipated demand from buyers or tenants. Ideally, you will be able to plan a well-designed building that meets a clear market need at the right price points.
You should also look at the capital structure for your development, determining sources of debt and equity funding, such as a private investor, commercial lender or joint venture partner.
In all these steps, an experienced real estate lawyer can provide developers with sound advice about South Florida’s unique marketplace, helping to identify opportunities and avoid mistakes.
Attorney Vivian de las Cuevas-Diaz is a partner and real estate deputy section leader at Holland & Knight LLP in Miami.