Fed analyst talks interest rates, SoFla real estate impact

Brian Bailey
Brian Bailey

South Florida’s commercial real estate sector has rebounded from the recession, but the recovery could be derailed by higher interest rates, changing market conditions and income inequality, a Federal Reserve analyst told a real estate trade group in Coral Gables.

“Going forward, we have to think about the interest rates and the significant impact on debt service and value,” said Brian Bailey, senior financial policy analyst for the Federal Reserve Bank of Atlanta’s Supervision and Regulation Division, during Friday’s Realtor Commercial Alliance’s Super Conference at the Biltmore Hotel.

The Fed’s Open Market Committee is meeting this week to discuss its monetary policy. Bailey declined to discuss policy specifics during Friday’s speech.

More than $7 billion in South Florida loans will come due between 2015 and 2017, according to New York-based real estate analyst Joseph McBride of Trepp. Should interest rates rise, struggling property owners may not be able to refinance their loans, McBride told The Real Deal.

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At the Realtor Commercial Alliance event, Bailey cautioned that Miami real estate agents should be aware of the changing trends in the commercial sector. For example, the retail market is moving away from brick-and-mortar stores and toward online operations. That means less demand for retail space in strip malls and more potential for industrial spaces, where products are stored and distributed.

The Fed’s data on South Florida’s residential market shows occupancy rates are strong despite increasing rent costs. Palm Beach County’s occupancy rate was at 95 percent during the second quarter of 2014, while Broward County’s occupancy rate was 96 percent. Miami-Dade County’s was above 96 percent. Rental rates rose by 6.3 percent in Miami-Dade, 6.1 percent in Palm Beach and 5.2 percent in Broward.

But even as rents increase in South Florida, incomes remain largely stagnant.

Miami-Dade and Palm Beach counties had as much as a 5 percent year-over-year decline in wages in 2013, according to the Fed. Broward County’s wages increased by 3 percent. The average monthly rent for Miami apartments was slightly under $1,700 a month, a rate that less than 39 percent of residents can afford.

“We are concerned about the number of people who can afford the” market’s rents, Bailey said.