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South Florida a ‘Safe Haven for International Investments’

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Allison Herrera, loan production manager at Sabal Capital Partners, LLC.

Industry experts and research analysts have been telling for some time now about the high demand and strong fundamentals that now exist in the South Florida real estate market.

For example, Calum Weaver, executive managing director of Cushman & Wakefield’s capital markets division in South Florida and the leader of its multifamily investment properties team, recently said, “The South Florida multifamily fundamentals are and will continue to remain strong.  Population/household growth, lower homeownership rates, higher home prices, demographic preferences to rent versus buy, the low unemployment rate, wage growth starting to improve, all contribute towards an extremely healthy market that will continue throughout 2019.” wanted to get a perspective from someone else in the trenches who on a day-to-day basis deals with investors of all types in South Florida—Allison Herrera, loan production manager at Sabal Capital Partners, LLC. Sabal is a leader in small balance commercial real estate loans and investments having invested nearly $9 billion nationally, headquartered in Irvine, CA.

Herrera tells the specific market dynamics that are keeping South Florida in such high demand with local, domestic and international players and what investors can expect in 2019. Why is the South Florida CRE lending market so unique? How does it compare to other markets you’ve worked in?

Herrera: The South Florida CRE market is unique in many ways. From Palm Beach County to Broward County, and down to Miami-Dade County, there is no other place like South Florida in the world. Ideal weather and strong tourism, steady population growth, healthy economic and job growth and rising single-family home rates, which create rental demand, all contribute to what makes South Florida a one-of-a-kind market. Historically, robust and increasing investment from global players further characterize South Florida markets. As a result of many of these factors, CAP rates remain low relative to other parts of Florida and the country. How different is South Florida from the rest of the state vs. the rest of the U.S.?

Herrera: As it relates to finance, South Florida is like the rest of Florida and the country in that multifamily properties are typically financed through some form of either agency or bank debt. What makes this market different is how flexible and aggressive some of the local and regional banks will get to earn business. You may see national bank lenders getting aggressive in other markets like New York, Los Angeles or Chicago, but South Florida bank financing is driven by the smaller, more regional banks that can get comfortable with the strong international influence and other factors unique to this market. Whereas a national bank lender is characterized by lower amortizations and higher debt service coverage ratios, which ultimately limit proceeds, local banks in South Florida often compete directly with the longer amortizations and lower debt coverage ratios inherent in agency finance. What should people in the CRE industry know about South Florida?

Herrera: South Florida continues to be a safe haven for international investments, which is a big contributor to lower CAP rates. Investors interested in this market should expect to obtain financing at somewhat lower leverages than what they might be able to obtain in other top markets like Minneapolis, MN.

Affordability discounts offered by agency lenders combined with higher CAP rates and lower expense ratios in other markets can often result in higher leverages in financing. Despite lower leverages in financing, South Florida continues to be one of the hottest real estate markets in the country due to the sheer volume of attractive opportunities, strong infrastructure and connectivity, population growth, declining vacancy rates, international interest and diverse cultural influences..

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