South Florida’s office investment sales have increased over the past year, signaling a recovery after a previous downturn. According to CBRE data, the tri-county region recorded nearly $2.2 billion in deal volume for the 12 months ending September 30, reflecting a 28 percent rise compared to the prior year and doubling the $1.1 billion seen during the lowest point in five years.
Despite this improvement, transaction volumes remain below their peak during the pandemic-era market boom. In the 12-month period ending September 2021, office deals totaled $3.9 billion as out-of-state firms drove up leasing activity and prices.
“It’s definitely gotten better than it was two years ago. It will come back like a Phoenix,” said C. Todd Everett of Lee & Associates. There’s “starting to be an appetite for office.”
Financing options that had been limited due to higher interest rates are gradually returning. Commercial mortgage-backed securities and debt funds are lending again, while life insurance companies and pension funds are re-entering cautiously. However, banks continue to be cautious about office loans.
“The big banks are willing to selectively do high-quality office properties, and the local and regional banks are now making some office loans, and it’s very borrower specific,” said Chris Lee of CBRE. “They might want to see deposits increased by the borrower, and some recourse worked in.”
Loan spreads have narrowed slightly but loan-to-value ratios have not changed much.
All-cash transactions were notable this year. Amancio Ortega purchased Miami’s Sabadell Financial Center for $274.4 million without financing, allowing him to negotiate more favorable terms.
Signs of distress persist in South Florida’s market. R&B Realty lost its Gateway at Wynwood building in foreclosure despite completing it just four years ago. Other owners managed to avoid foreclosure by selling assets; Columbus Center in Coral Gables was sold for $76 million after its owner faced foreclosure on a $71.6 million loan.
Some properties traded at significant discounts from their previous purchase prices or construction costs—Sawgrass Lake Center sold at a 36 percent discount from its 2018 price, while One Clearlake tower in West Palm Beach fetched almost 26 percent less than its cost four years earlier.
Broker Douglas K. Mandel of Marcus & Millichap commented on these trends: “The trades you are seeing in the market are largely due to debt maturities,” he said, explaining that owners with floating-rate debt issued recently may feel pressure to sell or add new equity as interest rates rise.
But Mandel also noted that discounted sales do not necessarily indicate widespread distress: “A discounted sale isn’t the end of the world.” He added that current conditions give investors greater buying power and access to higher quality buildings than before.
Private investors and family offices became prominent buyers during recent slowdowns as institutional investors pulled back from offices; however, large institutions are starting to return gradually.
Following twelve Federal Reserve rate hikes in 2022 and 2023, there were two modest cuts this year—but experts say these reductions have not eased refinancing challenges for landlords with variable-rate debt because benchmark Treasury yields remain elevated.
Chris Lee concluded: “I don’t think we are going to see ‘21 prices soon,” he said. “But we are absolutely above ‘23 pricing.”
