South Florida commercial real estate closings face delays and cancellations due to coronavirus economic meltdown

Commercial brokers and real estate attorneys say buyers are demanding concessions, getting price discounts and killing deals, as lenders back out

Jay Sakalo and Jaime Sturgis
Jay Sakalo and Jaime Sturgis

A month before the closing date, commercial broker Jaime Sturgis just had to kiss goodbye a nearly $1 million multifamily deal.

Sturgis, founder and CEO of Fort Lauderdale-based Native Realty, said he represented the seller of an eight-unit apartment building in Miramar who canceled the sale after the buyer requested “unreasonable concessions” tied to the economic fallout from the coronavirus pandemic.

“The buyer was asking for security deposits from all the tenants to make sure they would continue to pay their rent,” Sturgis said. “He was also asking for other carte blanche contingencies that were out of line. The deal was supposed to close in 30 to 40 days.”

Across South Florida, brokers like Sturgis and real estate attorneys are starting to see buyers flinch as closings loom on the near horizon. In some cases, deals are being reworked to provide buyers with price discounts; or lenders are backing out of financing commitments, putting deals in limbo.

Jay Sakalo, a partner with Bilzin Sumberg’s business finance and restructuring group, said he represents a group buying a mixed-use project that lost its bank financing on Tuesday. “The deal was in the early stages and had signed a term sheet with a bank,” Sakalo said. “We expected closing on the loan in 45 days. The bank advised us yesterday they are not going forward with its commitment, at least in the short term.”

Sakalo would not name the developers or the project due to a confidentiality agreement, but said that his clients still plan to move ahead with the purchase.

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He also said he represents another client that recently completed the purchase of a small hotel in the Midwest. “The lender imposed a higher interest rate based on changes in the market,” Sakalo said. “The value of the property had changed and the risk was higher. Our client accepted the higher interest rate because he needed to close the deal.”

Christian Bruno, a real estate attorney with Cozen O’Connor, said he has a client who was able to renegotiate a lower purchase price for an apartment building prior to closing because the rent rolls are going to be considerably less for the upcoming month and foreseeable future.

“When you are analyzing pending deals, everything stems from what is going on at the rental income level,” Bruno said. “That is the major factor affecting purchase transactions because of the extent of the virus’ effect on retail and hospitality.”

Some commercial deals are actually being moved up, Bruno added. “Deals that were closing soon, in like the next three weeks, have been moved up to minimize the uncertainty in the market,” he said. “There’s pressure to get those deals done because they have already been underwritten.”

Tony Arellano, co-founder and managing partner of Dwntwn Realty Advisors, said his firm has paused more than $60 million in commercial real estate deals. “We anticipate most of these will come back,” Arellano said. “We are working with professional investors, who, if anything, were already active in Miami and will become more aggressive once the markets recover.”

Arellano said he is not worried about transaction volume or liquidity drying up even as deals don’t close. “I am just trying to get a handle on how long this pause will be, how fast rent rolls and businesses can recover, and what will happen from a lending perspective.”

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