Region's Property Investment Market Healthy for Low-End Deals

POMPANO BEACH, FL-Big-ticket commercial property sales have become tougher to close in the past year or two, more area brokers report. Yet transaction volume remains at a healthy level for as much as 90% of all South Florida investment deals, according to Bert Freehof, senior associate at locally based Brenner Real Estate Group. Typically, such transactions involve less than $3 million.

Sellers are demanding top dollar in today’s low-vacancy-rate environment, Freehof tells GlobeSt.com, but there are always buyers willing to go to the mat for quality product. He recently found such a buyer for Coconut Creek Center, a two-building office complex in Coconut Creek, FL. The 42,600-sf holding went for $2.5 million, or $58.69 per sf, which equates to at least a 10% cap rate once currently vacant space is re-rented.

Freehof also negotiated the sale of three industrial buildings in the range of $1 million each. Such properties are frequently purchased for buyer-occupancy, the broker reports. However, they can make sound investments for those lacking the large chunks of financial backing required to bid on high-profile mega-deals.

Contributing to the region’s investment market vitality is the 1031 tax-deferred exchange provision of the Federal tax code. Developer Sam Jazayri recently purchased 37 acres of land in Davie, FL with proceeds from selling two other Davie parcels.

Broker Patricia Montalbano of Montalbano Commercial Realty in Davie finds that more sellers now require 1031 exchange contingencies in sales contract. This means that owners won’t sell unless they can find a suitable property for a 1031 exchange.

A recent IRS ruling allowing reverse exchanges could make such transaction formats even more popular. Brenner’s Freehof notes that such entities as title insurance companies have begun offering third-party services where sellers can park proceeds from one sale until they find something they want to buy with it.

Michael Stein, senior associate in the Miami office of CB Richard Ellis, believes exchanges are increasing because prospective sellers often bought in a real estate market that was far less aggressively-priced than it is today. So they have a lot of locked-in profit and want to upgrade their portfolios while keeping their capital gains tax bite as low as possible.