CRE lending in South Florida is riding high, as other markets cool: TRD Forum

Alex Horn, managing partner of BridgeInvest, briefly flummoxed a roomful of real estate professionals when asked about the asset classes his Miami-based lending firm is targeting these days. 

“We are doing 100 percent office construction loans,” Horn said and paused. When the crowd in the panel room at Thursday’s The Real Deal South Florida Showcase and Forum didn’t react, Horn let them know he was just kidding. 

“That’s a joke,” Horn said. “We always talk about avoiding [office deals] as a lender. I understand that there are a few fantastic office opportunities, but it is more difficult for lenders.”

Horn joined Holly MacDonald-Korth, CEO of Coral Gables-based KDM Financial, and David Moret, president of Miami-based Highline Real Estate Capital, on the panel, called  “Bring in the bridge: The landscape for lending and rescue capital,” moderated by TRD Editor-in-Chief and CEO Stuart Elliott. 

The trio confirmed office has replaced retail as the step-child of commercial real estate lending. In fact, retail properties, particularly neighborhood shopping centers, and industrial buildings are the safest bets for commercial lenders, the panelists said. 

KDM has traditionally provided loans to office landlords, but the firm is analyzing such deals with more scrutiny, MacDonald-Korth said. “We are focused on office clients such as doctors’ offices that need [patients and employees] to come in, or [that have] new tenants that signed leases post-Covid.”

KDM recently closed a loan for an office building with all its leases signed in 2021 and last year, MacDonald-Korth said. “That shows [the tenants] want the space,” she said. “And we expect that office [building] to remain stabilized.” 

Her firm is shifting its focus to light industrial and retail properties, MacDonald-Korth added. “I am very bullish on retail, such as strip centers and neighborhood shopping centers,” she said. “I really like those. We are also launching a multifamily bridge program to provide more lease-up capital for new and [recently] recapped properties.” 

The rising cost of insurance and soaring interest rates are also creating opportunities to recapitalize commercial buildings, said Moret, whose firm recently raised $175 million for a  distressed fund. 

“We are trying to create flexible capital,” Moret said. “So far, we are seeing lots of deals where borrowers that come in have a loan that [they] need to pay down. We believe there is an opportunity to provide capital to right-size a loan.” 

Overall, firms like KDM, BridgeInvest and Highline are in a prime position to offer alternative lending options to commercial property owners, since traditional banks won’t — given current market conditions, MacDonald-Korth said.

“Generally, a lot [of banks] are over-allocated in commercial real estate,” she said. “We have seen our pipeline full of people looking for financing. We have people who were at the closing table and the bank called saying, ‘We have canceled all our commercial loans.’ It’s good for us. We are seeing more deals.” 

Commercial real estate in Florida is particularly strong compared to the rest of the country, Horn said. BridgeInvest has reviewed $40 billion in commercial real estate loans this year, with 40 percent originating in the state, Horn said. 

“Where we have seen a pause in transactions nationwide, Florida has maintained its activity,” he said. “We are seeing an increase for refinancings, but very few acquisitions.”