Remarks by Matthew Shore

Director of Acqusitions
DRA Advisors

              
Commercial Sector Issues

What our company is seeing is a shifting in the commercial markets. I haven’t seen $750 per square foot for any of our properties recently, but I think it’s important to understand why we are where we are today. One of the biggest reasons was that a lot of people were lumping together their investments as one. They were saying the difference between an investment in Miami and an investment in Tampa is the same, it was the same yield, and that didn’t make sense. There should have been a disparity between those because they are totally different markets. Same thing between office and retail; you were starting to see that gap spread between those two investments, it was narrowing down to the point where it was negligible.

Grocery anchored shopping centers should be more stable and therefore warrant a lower cap rate, but they didn’t and those spreads really narrowed. You had a lot of local players who came into money because they sold their assets because of the cap rate compression. They had extreme access to capital that didn’t exist in prior years, being able to get 85 percent mortgages and putting 10 percent as new financing, where they really didn’t put any money into this project, so they didn’t take any risk. You lump all of those things together and you had a crisis.

Residential Sector Issues

In the residential side, when you have people who are driving a taxi cab and talking about the condo that they just bought and aren’t living in, you know that you are in a frothy environment. For a long time, we saw this happening as I’m sure other groups here have, for the last two to three years. What my firm has done to distinguish itself is tried to diversify as much as possible. We don’t just go into South Florida; we have assets all across the country. We have offices, we have retail, and we have multi-family properties. The crisis from our perspective, if you want to call it that, is really three-fold, you have fundamentals which are shifting, you have the weak dollar, you have the vacancies that are potentially going up, and you have liquidity which has pulled back significantly to say the least.

The Bright Spots

The last point that I would like to focus on is the psychology. Real estate is lumped under one category. And there is a perception that when real estate is bad, that all of the markets are bad, but on the commercial side as Rafael mentioned, there are aspects of real estate that are doing well. That is the key point and why we are still investing, and we are doing a project right now, and we’ve been doing projects and we are expecting a strong year. Especially considering a lot of our competitors who were these local players are no longer there in the playing field. So on the commercial side, we are bullish but that doesn’t mean that you don’t pick your spot. So I’d like to talk a little bit about why we like South Florida.

Aside from the fact that the population growth has been significant and it’s been the top five in the country in the sense of population growth, you have baby boomers who are retiring, you have weather that is still great, and you have natural barriers – the Everglades and the ocean. There is only so much land that you have to build.

We still are very optimistic of real estate in general. It’s a cyclical business and people in the last two to three years thought that they could buy a piece of real estate and flip it in two years, and the reality is, that historically, that is not the case. For us, we have a certain amount of liquidity as do other competitors of ours, who have a lot of access to capital still. And that is why we believe long-term that the commercial markets will still perform.