Commercial real estate deals were down sharply in South Florida during the second quarter as high interest rates and other economic factors impacted the market, according to data from property data firm Vizzda.
There were $4.03 billion in commercial real estate sales of at least $1 million in the tri-county area, plunging 60% from the same quarter a year earlier. It was even down 17% from the relatively tepid first quarter, showing that the sales volume is not picking up momentum yet.
In terms of the number of transactions, there were 586 commercial real estate sales of at least $1 million in the second quarter, according to Vizzda. That’s down 45% from the same quarter a year ago, but up 13% from the first quarter. That means some of the smaller deals are starting to return.
“Challenges in obtaining financing are the biggest factors limiting real estate deals,” said Paul Tanner, president of Fort Lauderdale-based Las Olas Capital Advisors. “Not only have interest rates made loans more expensive, lenders have requested lower loan-to-value ratios, which means buyers must contribute more cash into deals. Often lenders want extra property insurance, a second line of insurance to cover damage beyond the first policy.
The average property insurance premium is up 50% to 100% over the last few years and you’re adding another 100% on top of that for custom insurance. More lenders are requiring borrowers use a cash sweep account to automatically pay down debt. This can make a deal unfeasible. He advises clients to try and buy in cash and expect to obtain a loan in a few years. The interest rates aren’t unsustainable. It’s the loan terms you can’t get around.
Source: SFBJ
