Mike Pappas is the president and CEO of the Keyes Company, one of the country’s largest real estate companies, which has been family-owned for 84 years. Keyes, which sold $2 billion in 2009, has 1,800 associates at 30 branches in five different counties across Florida, with residential and commercial brokerage, a mortgage affiliation with Wells Fargo, and a title company, along with a development arm and ownership of a number of properties. It is also exploring the possibility of a starting an insurance arm with an announcement forthcoming. Pappas is the director of the Miami Board of Realtors, SunTrust, and was the 2007 International Board Chairman of the Young Presidents’ Organization. Pappas acquired Keyes in the 1990s with his brother, Tim, from their father, Theodore Pappas, who had himself acquired the company from Kenneth Keyes in the 1960s. Pappas spoke with The Real Deal about why this is the best time in 40 years to buy Florida real estate and how his company has adapted to the downturn.
What is the state of the South Florida real estate market?
This is the actual bottom of the market. Interest rates are at an all-time low, which people don’t realize. When you put together the dramatic price drop and interest rates at an all-time low, it’s an all-time high of affordability. This is the best time anybody has ever been able to buy a house in South Florida in the last 40 years. Rental rates now are commensurate with this, where I can buy a condo for $70,000 and then rent the units and make some type of cash flow and income, which bodes well for the bottoming of pricing. We saw the prices start increasing in the lower-priced markets toward the end of last year.
How have online foreclosure auctions in the state changed things?
They’re speeding things up; banks are getting them earlier. For example, Dade County was putting through 2,000 a month; now it’s 4,000 a month. A year and a half ago, short sales were a new thing, now banks are understanding short sales. We’ve got mitigators, and we were probably the forerunners in this, to be able to handle the banks so our associates could be free to manage these things. What was a seven- to nine-month process is now getting down to three months or less.
What do you see in store for the next few quarters?
California brokers have told me, and I think we follow California, that their bottom was 2007. Their housing market was up about 10 percent in 2008, and 30 percent in 2009, volume-wise. I think so far we’ve been paddling a year later than their markets. The first quarter came out like gangbusters, giving a lot of confidence and excitement to the market. We’re thinking the second quarter is going to be very strong, in fact as strong as we’ve seen in three to four years… because you could have pushed some buyers into the market for the end of the year.
What do you thing is going to happen with Florida banks?
I think the banks probably are not a good indicator of the markets. So when you talk to the banks, my theory would be that they’re still seeing what consumers are seeing — the negativity of the market rather than what we’re seeing, which is an improving market. I think they’re getting beat up, but that helps us , because as they go through their pain, and start to come to a realization, things get sold. I think a year ago, they were paralyzed in understanding their book values and what their assets were supposed to be worth. I think banks may still go down, but that isn’t a bad thing, and it may be a good thing, because you bring in a new buyer that has a whole new structured deal — they know the risk, and they move through it to take the pain now, to clean the balance sheet and move on.
How has Keyes worked on its marketing strategy during this real estate downturn?
We’re currently spending probably seven figures on the internet for lead generations for our associates. Last year, we hired a number of associates, but close to 200 associates came from other firms. We think there’s a consolidation going on in the market, because there is less business than there was.
Where is commercial real estate compared to residential?
I think we are commercially where we were in residential three years ago — in a declining market, with people starting to get under water, trying to figure out new pricing models for a new market. In 2007, we were unclear where the bottom was. At Keyes, we own office buildings, and we’ve reduced our rates as much as 25 percent to get new tenants in. I think industrial and in other areas, we can absorb it once the economy picks up.
What do you think of recent forecasts predicting a Florida recovery in 20 years?
In South Florida, we have what I call the three s’s: the sea on one side, sawgrass plants on the other side, and sun above us. South Florida is about the size of Long Island, and it’s the 35th-biggest economy in the world. I’m more bullish long term because I’ve grown up here and seen consistent growth, heard people praise the weather and the lifestyle, and I think we have a northern-southern demographic shift that isn’t going to shift in my lifetime.
We’ve studied the cycles, and I may be wrong, but if I look at 1962, there was a crisis after the war, and a huge downturn. There were foreclosures on the fringe of South Florida. In 1974, we hit a down cycle, a huge crash in real estate, there was another crash in 1982, and another one in 1992 before now. When you look at the rebuilding of these booms to busts, there’s never a comeback and a fallback, always a slow consistency of building another cycle. If 2008 is the bottom, I think we’re going to get an improving market real estate-wise, slow and steady until 2013 to 2014. It won’t go up and down like the stock market, it’s more of nice, rolling hills of a market.