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September 2, 2010 |
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| July 08, 2008 |
By: Paola Iuspa-Abbott |
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n a very atypical real estate market, a very unusual deal found its way to the closing table.
A German investment group paid $31.1 million for a 59,155-square-foot retail condominium in Coral Gables’ Plaza San Remo that is leased to Whole Foods Market.
The size of the deal is almost unheard of in South Florida, where retail condos generally range from 3,500 square feet to 20,000 square feet, said Jeff Cohen, a commercial real estate broker with Esslinger Wooten Maxwell in Miami Beach. Cohen, who specializes in retail condos, was not involved in the transaction.
LIC Coral Gables Retail, whose principals are Heiner Franssen and Gunther Schleip of Berlin, paid $525 per square foot. Austin, Texas-based Whole Foods, which opened the Coral Gables store in November, has a 25-year lease with predetermined rent increases every five years, said Colliers Abood Wood-Fay broker John Crotty, who represented the seller with colleagues David Metalonis and Michael Fay. Colliers marketed the space together with Holliday Fenoglio Fowler. Both firms are based in Coral Gables.
Phoenix Property Co. advised the German group on the acquisition of most of the ground floor retail space in Plaza San Remo, a medical office condo of about 100,000 square feet at 6705 Red Road.
The office condos were all sold, accounting for nearly $42 million in sales, said Miami broker Kenneth Weston with Kenneth Weston & Associates.
“We didn’t lose any closing,” said Weston, who marketed the office condos.
LIC Coral Gables paid cash for the property, an emerging trend in many recent South Florida real estate investments.
Seller Coral Gables-based Venera Holdings, led by George Schull and O. Ford Gibson, was able to get the impressive $31.1 million because of its tenant: A well-established national retailer with deep pockets, brokers said. Whole Foods is one of the world’s largest retailers of natural and organic foods. The company reported sales of $6.6 billion in its most recent fiscal year and has more than 270 stores in the United States, Canada and the United Kingdom.
“The seller basically sold the income,” Cohen said. “The investor would have not paid that price if the space was vacant or if it had a spa there … spas go out of business all the time.”
Cohen said most long-term investors expect at least an 8 percent net annual return on their investment. For this deal to make sense, Cohen estimates Whole Foods is paying about $3 million in annual rent, property taxes and insurance.
“If the buyer paid about $500 per square foot, the tenant has to be paying one-tenth of that, between $50 and $60 per square foot,” Cohen said.
Holliday Fenoglio broker Luis Castillo declined to discuss the deal’s capitalization rate. The cap rate measures the ratio between the cash flow of a rental property and its market value. The cap rate is determined by dividing the annual cash flow by the price of the property.
Castillo, who began looking for a buyer late last year, said the German investor signed a contract soon after Whole Foods moved in.
“We had to educate them a little on buying retail condominium space,” Castillo said.
Retail condos tend to sell faster when they are part of a mixed-use project, where office condos or residential units rise above them, Weston said.
The turmoil in credit markets has significantly limited the pool of investors to such cash buyers as life insurance companies, pension funds and European investment funds that benefit from a strong euro.
Investors who need financing to make deals are finding it harder to get commercial loans. Banks are losing billions on bad home mortgages and have reacted by nearly shutting down credit markets. They have tightened underwriting and aren’t willing to finance more than 70 percent of any given deal. More than a year ago, banks financed close to 100 percent of commercial deals.
“This is a nice deal for the market,” Castillo said.
Several brokers said they don’t expect to see many deals of this size done this year because of the limited access to capital. And they don’t expect to see a lot of retail construction, either, they said. Proposed projects need to have a solid roster of committed tenants before a bank will consider financing, yet leases are becoming harder to land.
“You don’t see the velocity of leasing activity from national retailers, and many local retailers are pulling back,” Castillo said.
Some of the biggest retail-related deals in the first half of 2008 have been in the making for years.
For example, Lowe’s Home Center two weeks ago paid $21.75 million for a 132,000-square-foot warehouse at 9191 SW 137th Ave. Lowe’s bought the empty warehouse from Costco Wholesale Corp.
Both retailers began working on that sale three years ago, said NAI Miami broker Jeremy Larkin, who was familiar with the transaction. Costco had to wait for its new store in West Kendall to be completed before moving out and sealing the deal.
To real estate experts, neither deal is an indicator that the sluggish real estate market is turning. On the contrary, they said.
“There is no good news in the market,” Larkin said. “And it is going to be like this for a while.”
Paola Iuspa-Abbott can be reached at piuspa@alm.com or at (305) 347-6657.
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