By Robyn A. Friedman
Fort Lauderdale, Fla., a city once popular with spring-break
revelers, is in the midst of a comeback. This time it is attracting
investors willing to pay hefty sums to acquire or develop
commercial real estate or land for new residential development.
The city has long been viewed as a stepsister to its flashier
neighbor 30 miles to the south, Miami. But as Miami's construction
boom has shifted into overdrive, investment dollars are spilling
over into nearby cities, including Fort Lauderdale.
Last week, a joint venture of Stiles Corp. and Prudential Real
Estate Investors paid $108 million to acquire New River Center, a
20-story office tower in downtown Fort Lauderdale, from Invesco
Ltd.
For Stiles, a real-estate developer and manager in Fort
Lauderdale, the transaction reunites the company with a property it
originally developed in 1990 with Tribune Co., which bought out
Stiles's stake in the property in 1991. Tribune sold the building
to Invesco for $42.6 million in 1997.
"New River Center was an underperforming asset in a core
location that we could never reproduce for the purchase price,"
said Doug Eagon, Stiles's president. "We feel that with our
expertise and local market knowledge, we can improve the occupancy
and the building's income stream, and that will result in an
increase in value." New River Center is 86% leased, according to
Stiles.
The sale was the latest in a string of trophy office properties
that have changed hands since March, making 2014 the best year for
commercial real-estate sales in downtown Fort Lauderdale since
2007. In the first three quarters of this year, office-property
deals totaled $302.9 million, compared with $299.6 million for all
of 2007, according to CBRE Research and Real Capital Analytics.
Other property types are also hot. Demand for retail space is
outpacing available inventory, luxury condominiums are popping up
and multiple hotels have been sold or renovated. Meanwhile, the
city's airport and port are being upgraded, and a new rail line is
coming.
Why all the attention to Fort Lauderdale? Real-estate brokers
argue that the city has strong economic fundamentals, including
robust job growth and an influx of new residents. The unemployment
rate in Broward County, which includes Fort Lauderdale, was 4.8% in
November, according to the Bureau of Labor Statistics, compared
with the national rate of 5.8%.
Moreover, investors are seeking alternatives to high prices in
primary real-estate markets such as New York, Chicago, San
Francisco and, now, Miami.
"A lot of attention has been paid to what's going on in Miami,"
said Ken Krasnow, South Florida managing director for brokerage
CBRE Group Inc. "But Fort Lauderdale is going though a tremendous
renaissance."
CBRE said that since 2011, 27 tenants occupying 446,000 square
feet of space have relocated to downtown Fort Lauderdale from the
suburbs. That has helped reduce the vacancy rate in the city from
21.7% in the third quarter of 2012 to 13.2% in the same period of
2014. The average asking rent also climbed, to $20.05 a square foot
from $19.89 in the same period of 2013.
Office investors are attracted to existing properties in
downtown due in part to the limited availability of buildable land.
"There is a fairly constrained supply and barriers to entry," said
Mr. Eagon. "We are not a market where you're going to see several
office buildings going up at once."
At the same time, demand for development opportunities is
pitting residential and commercial investors against each other.
"Right now, residential can pay more and, as a result, they
ultimately are the driver," said Harry Newstreet, director of the
Broward office of consultant Integra Realty Resources.
In October, Related Group announced plans to build Auberge Beach
Residences and Spa, a 171-unit beachfront condominium complex. "We
believe that condominiums in Broward County are undervalued in
price when compared to Miami-Dade [County]," said Matthew J. Allen,
Related's chief operating officer. "The average price per square
foot on Miami Beach is over $2,000 compared to Fort Lauderdale,
which is around $850, thus making Fort Lauderdale truly an
incredible value to buyers."
Another residential investor, Index Investment LLC--the Jupiter,
Fla.-based subsidiary of Index International AB of Stockholm--has
committed $10 million to Riva, a 100-unit condominium complex, its
first investment in Fort Lauderdale. "We initially investigated
development options in Miami; however, from our perspective, that
market has become overheated and too competitive," said Bjarne
Borg, Index Investment's chief executive officer.
Investment in hotels and restaurants is booming as well. Fort
Lauderdale hit a record 14 million annual visitors in 2014, with an
economic impact of more than $11 billion, according to the Greater
Fort Lauderdale Convention & Visitors Bureau. Eight hotel
properties opened this year and another six are under construction
in Broward County, according to Nicki Grossman, the bureau's
president and chief executive officer.
Fort Lauderdale "may not get the same level of attention as
Miami," said Mr. Krasnow, "but the fundamentals and long-term
demographics are equally as strong."
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