Three developers with high-profile South Florida projects said they have slowed their accumulation of property as land prices and construction costs rise.
“We focused during the downturn on buying distressed properties from banks. We’re starting to see some of them come to fruition,” said Dev Motwani, president of Fort Lauderdale-based Merrimac Ventures, speaking Tuesday night as part of a three-developer panel presentation at the SunTrust building in Fort Lauderdale.
But “right now, it’s harder to be a distressed-property buyer,” Motwani said. “We’re starting to go a little bit smaller in deals and finding opportunities in that space.”
“On a net basis, we’re basically sellers” of property, said Arnaud Karsenti, managing principal of 13th Floor Investments, a Miami-based real estate investment and development company. “If somebody makes you an offer you can’t refuse, you probably should take it,” Karsenti said, because the real estate market “is pretty frothy and the capital markets are flowing.”
“We’re net sellers” of property, said Scott Leventhal, co-founder of Atlanta-based Trillist Companies, who also spoke as a member of the developer panel at Tuesday’s meeting of professional members of the Jewish Federation of Broward County.
Leventhal cited higher land prices and increased construction costs due to scarcities of materials and labor. “We’re doing jobs where we can’t get truck drivers who are qualified to get concrete to the construction site,” he said.
Trillist is developing Yoo at Metropica, a 28-story condominium with 263 units. It is one of eight condo buildings that would be part of the Metropica mixed-use development in western Sunrise near the Sawgrass Mills shopping mall and the BB&T Center, home of the Florida Panthers hockey team. According to its website, Trillist also has five active developments in Atlanta and two others in Buenos Aires, Argentina, and Punta del Este, Uruguay.
Construction costs have increased “although we are starting to see them level off,” Motwani said. His family-owned business is working on the development of the Gale Boutique Hotel & Residences and redevelopment of the Las Olas Riverfront, among other projects.
Motwani said he easily could finance the construction of several apartment buildings on the site of the mostly vacant Las Olas Riverfront property in downtown Fort Lauderdale. But he is pursuing a bigger payoff by redeveloping the property, which he is “still working on,” Motwani said. “It’s a big beast to work on.”
Motwani and Karsenti said they have reshaped some long-term projects to offset higher-than-expected costs.
Motwani said his family business downsized an unnamed Pompano Beach project from a 15-story condominium to a six-story rental apartment building. “Maybe my gross profit isn’t same,” he said, but “construction costs are a lot more manageable.”
Increasing density is another way to offset increased costs, Karsenti said, citing a residential project that 13th Floor Investments designed with 330 units, then redesigned with 95 additional units. Building more sales revenue into a costly project “is a fix, if you will,” he said.
All three developers agreed that the real estate industry is attracting ample financing from lenders and investors.
“Equity is certainly chasing institutional-quality investments” in multifamily buildings, and for condo developments with large minimum deposits and a large volume of pre-construction sales, “construction financing is still out there,” Leventhal said.
“There’s not a shortage of equity, and there’s not a shortage of debt,” Motwani said. “There’s just a shortage of deals, reasonably priced.”