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OBJ: Mergers and Diversification expected to be key focuses for CRE Firms in 2021

More mergers and acquisitions may increase in the commercial real estate industry next year as these types of deals in general may see a spike.

Rumors are swirling about these potential deals in the commercial real estate sector, which makes sense because the cost of capital is low and stress is high, said Paul Ellis CEO of Orlando-based Foundry Commercial LLC. Those are the ingredients that typically are present before more mergers and acquisitions.

Meanwhile, commercial real estate firms will face other changes too. For example, more commercial real estate firms will likely realize how important it is to have diversity in their platforms — especially as the pandemic has hurt the office, retail and hospitality sectors, said Kurt Keaton, managing line president at Tampa-based Franklin Street. Diversification helps keep brokers and other workers occupied when one sector slows.

“That’s worked well [at Franklin Street] and helps build a collaborative culture,” Keaton said.

Read the full story from the Orlando Business Journal.

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Featured Deal Featured News

Franklin Street Brokers $25.4M Sale of 200-Unit Apartment Community in Naples, FL

GMF Capital acquired the asset from Axonic Properties for $126,750 per unit

NAPLES, FL (November 9, 2020)Franklin Street has brokered the sale of Wild Pines of Naples Apartments in the affluent Naples market on Florida’s southwest coast. The 200-unit, garden-style apartment community sold for $25.35 million, or $126,750 per unit.

Franklin Street’s Tampa-based multifamily investment sales team of Darron Kattan, Zach Ames, Kevin Kelleher, Avery Jordan, and Mark Savarese arranged the sale on behalf of the seller, Axonic Properties, and the buyer, GMF Capital. Both firms are based in New York.

“This is a well-located asset with 52% affordable restrictions,” said Kattan. “The buyer recognized that the dynamic location and the lack of workforce housing in the area will keep the property producing excellent returns for years to come. GMF Capital secured new financing and provided hard money on contract, while closing at the contract price. The seller was able to realize a quick turnaround after purchasing two years ago by transforming operations and significantly increasing the asset’s cash flows.”

“Despite the unusual marketing circumstances due to Covid-19, Darron and Franklin Street successfully procured a buyer and achieved our exit price expectation for this asset,” said Jonathan Shechtman, managing principal at Axonic Properties.

Wild Pines is comprised of 19 buildings on 10.57 acres. The property consists of 96 market-rate units and 104 rent/income-restricted units. All units are one-bedroom, one-bathroom apartments averaging 600 square feet.

At 2580 Wild Pines Lane, the property is 1.6 miles from downtown Naples, near several major national retailers and points of interest. The property was built in phases with the original units built in the 1960s, a second portion built in the 1980s and the remaining units built in the 1990s. Onsite amenities include two sparkling pools, laundry facilities, a business center, a full-service gym and multiple picnic areas.

About Franklin Street:

Founded in 2006 during one of the toughest real estate climates, Franklin Street focused on delivering value-added solutions to meet the evolving needs of clients. Through a collaborative philosophy of leveraging the resources, expertise and experience of each of its lines of business, Franklin Street has grown to include seven business divisions – Investment Sales, Tenant and Landlord Representation, Capital Advisory, Insurance, Property Management and Project Management. With more than $5 billion in transaction value across all major product types, Franklin Street offers unmatched value and optimal solutions for clients nationwide.  Headquartered in Tampa, Fla., the company has offices in Fort Lauderdale, Jacksonville, Miami, Orlando and Atlanta. Learn more about Franklin Street at FranklinSt.com.

For press inquiries, contact Public.Relations@Franklinst.com.

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Ask The Expert: Are Insurance Premiums Expected To Continue Increasing For Commercial Real Estate In 2021 & What Options Are Available To Mitigate The Impact?

Unfortunately insurance premiums for the real estate sector are expected to continue increasing in 2021.  There are 4 primary reasons for the continued “Hard Market”, which is the upturn in an insurance market cycle when premiums are increasing and capacity for coverage is decreasing.  Although all sectors of commercial real estate will feel the impact of the continued hard market in 2021, it’s expected to have the greatest impact on multifamily and hospitability.

First, we were at a very low point for insurance rates as we had previously been in an extremely soft market cycle where we experienced compounded rate decreases from 2006 to 2016.  Despite the recent rate increases over the past few years, we are still at a low point compared to where rates were in 2006.  Second, we have seen much higher loss activity in recent years with record breaking hurricane seasons, wildfires, convective storms, social inflation, and now the impact of Covid-19.  To put this in perspective, 2017, 2018, and 2019 were three of the four worst years for CAT losses on record.  Third, is that interest rates are at a record low point now and will continue to be for the foreseeable future.  Since carriers rely on the “float” of investment income, the low interest rates further diminish their profitability.  In other words, much of the rate increases charged have been offset by the lowering of interest rates.  Last is the uncertainty of the impact of Covid-19 related claims.  Although these claims won’t materialize for some time, industry experts are projecting these claims could reach as much as $100 billion.

Although the reasons for this continued hard market are outside of our control, there are options available for owners to help mitigate the impact.  Focusing on improved underwriting data of the assets, sharing of operational and risk management best practices, creative program structures, and increasing retentions when beneficial are all examples of strategies to improve results in this market.

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Yield Pro: Franklin Street brokers $25.4 million sale of 200-unit apartment community in Naples, Florida

Franklin Street has brokered the sale of Wild Pines of Naples Apartments in the affluent Naples market on Florida’s southwest coast. The 200-unit, garden-style apartment community sold for $25.35 million, or $126,750 per unit.

Franklin Street’s Tampa-based multifamily investment sales team of Darron KattanZach AmesKevin KelleherAvery Jordan, and Mark Savarese arranged the sale on behalf of the seller, Axonic Properties, and the buyer, GMF Capital. Both firms are based in New York.

“This is a well-located asset with 52 percent affordable restrictions,” said Kattan. “The buyer recognized that the dynamic location and the lack of workforce housing in the area will keep the property producing excellent returns for years to come. GMF Capital secured new financing and provided hard money on contract, while closing at the contract price. The seller was able to realize a quick turnaround after purchasing two years ago by transforming operations and significantly increasing the asset’s cash flows.”

“Despite the unusual marketing circumstances due to COVID-19, Darron and Franklin Street successfully procured a buyer and achieved our exit price expectation for this asset,” said Jonathan Shechtman, managing principal at Axonic Properties.

Read the full story from Yield Pro.

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Ask the Expert: How Did COVID-19 Re-enforce Our Decision to Use Technology to Better Serve Our Residents and Teammates?

Franklin Street began using Yardi Rent Café in 2017 to enable future residents to apply online but also let current residents pay their rent and submit workorders 24hrs a day and not be reliant on the office needing to be open. So when we needed to close our leasing offices to outside traffic due to COVID-19, operationally we were still able to run applications for potential new tenants as well as provide services to our current residents while maintaining a touch-free environment and protecting them and our teammates.

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Featured News In the News Trends

Shopping Center Business: Atlanta Retail Is Bouncing Back In A Big Way

Shopping and dining in Atlanta looks vastly different than this time last year due to the COVID-19 outbreak, but owners, developers, investors and retailers alike remain optimistic about the metro area’s prospects.

Many local retail professionals say barring another outbreak or a second black swan event, the worst of the recession is in the rearview mirror and the Atlanta market is currently on a positive trajectory, though the market is experiencing negative absorption from over-leveraged national retailers shuttering stores, as well as local and regional operators that are struggling to regain their footing.

As far as active categories that are attempting to expand in Atlanta, Monetha Cobb, senior vice president of Franklin Street, says that some service-based retail categories and restaurants are seizing opportunities left and right.

“In the past six months, one area where we’ve seen substantial activity is health- care retail, including in urgent care and physical therapy facilities, and even veterinary clinics,” says Cobb. “In addition, we are seeing a lot of activity in single-tenant outparcel types of uses, such as oil change businesses and fast food concepts, as well as food concepts that have traditionally been deemed more ‘to-go.’ We’re also still seeing a lot of the more traditional junior box retailers taking advantage of the influx of larger box availability due to bankruptcies.

Read the full article from Shopping Center Business.

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Business Observer: CRE industry still sees headwinds ahead

A bi-annual survey of commercial real estate industry participants nationwide by a leading trade group last month found that most remain pessimistic about prospects for a full recovery by this time in 2021.

The NAIOP CRE Sentiment Index, a survey based on a scale of 1 to 100 in which a score of 100 represents the most optimistic outlook for the next 12 months, remained at 45 in September — the same score as in March, when the COVID-19 pandemic first began disrupting the U.S. economy and society.

The sentiment index’s score then, however, represented a five-year low and the first time it had fallen below 50, highlighting what many believe are “unfavorable conditions” ahead.

In the Tampa Bay area, by contrast, commercial real estate developers, brokers, landlords and others believe that the Gulf Coast will fare better over the coming year thanks to a steady influx of new residents and subsequent business prospects.

“There’s not a clear path at the moment, and most people I talk to believe we’ll remain in a fluid situation for the next 24 months at least,” says Pat Kelly, regional managing partner for Franklin Street, a Tampa-based brokerage and management firm.

“Because our firm does a lot of tenant representation, we’re at the forefront of behavioral thought, and what we’re realizing is that not all companies are approaching the economic environment here the same,” Kelly says.

For his part, Kelly believes ultimately that more Northeastern companies will adopt a “hub and spoke” approach to office utilization going forward, in which they maintain a headquarters in New York, Boston or Chicago but occupying considerable space in cities such as Tampa.

“The world has not stopped in any respect,” he says. “But we are just going to have to keep on figuring this out.”

Read the full article from Business Observer.

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GlobeSt.com: CRE Projects Will Find It Hard to Get Insurance Until Election is Settled

As the election approached, some insurers started backing away.

Recently, several of the nation’s largest commercial property insurers have put moratoriums on new insurance policies and renewals due to concerns about potential election-related “civil unrest,” according to Garet Marr, director of Insurance Services for Franklin Street, which has an insurance portfolio of 400,000 multifamily units and 30 million square feet of commercial space.

“The insurance marketplace for commercial real estate has been going through a substantial correction, obviously,” Marr says.

While multifamily has been the hardest hit, all sectors are suffering. Marr says insurance has been incredibly difficult to secure in urban areas, like Chicago, New York and Los Angeles. “Then places that have seen a high amount of civil unrest, like Portland, have also had difficulty,” Marr says. “This is something that has been ongoing with renewals in general.”

Renewals have been a particular sticking point for some property owners. “If they have assets located in these larger urban areas, they are not able to cover that location, or they have some type of moratorium for these areas due to the civil unrest,” Marr says.

While some carriers haven’t backed away from the market, even a few lenders pulling out is bad news for larger projects.

“In a market like today, if you have a ground-up single commercial building, that’s a $60 million-plus project, you need multiple carriers to cover that just because people are pulling back financial capacity,” Marr says. “Before, you might have had a Travelers or a Zurich do the builder’s risk coverage for the entire building, but nowadays, you need three or four carriers to cover that structure. Now, when you do that, the pricing goes up.”

Read the full article on GlobeSt.com.

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TBBJ: Coronavirus may have paused Tampa Bay’s apartment market, but it’s ‘ramping back up quite rapidly’

In the spring, the novel coronavirus pandemic looked like a potential correction for Tampa Bay’s apartment market — a correction some thought was long overdue. But deals are starting to ramp up again, and Covid-19 may have been more of a pause than a correction.

Some of the deals, like Radco Investors of Atlanta’s sale of two Clearwater properties for a combined $92 million, are spurred by a mindset of preparing for a coming crash. 

But on the other side, there are investors — like the firms that purchased Radco’s two properties — making bets that there is plenty of runway left in the region’s apartment market, which has seen record-setting sales in recent years. 

“There’s people betting every day one way or another,” said Darron Kattan, managing director at Franklin Street in Tampa. “Generally speaking, there are people at very smart and large companies making bets that we have a long runway before any crash, and there are very smart people making bets that it’s going to crash at some point soon.”

The Covid-induced turmoil in other sectors of commercial real estate — particularly hospitality and retail — has investors flocking to multifamily, which has remained mostly stable throughout the pandemic.

“Investor demand is up, actually, in terms of equity and capital looking for the safest places to invest,” Kattan said. 

Read more from the Tampa Bay Business Journal.

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Business Observer: A Heritage Play

Ally Capital Group’s gamble on aging Westshore City Center buildings pays off with one of the largest new office deals in Tampa in the past several years.

Heritage Insurance Holdings Inc. will relocate its corporate headquarters and as many as 400 employees to Tampa’s Westshore City Center from Clearwater next April, after signing one of the largest new office leases in the Tampa Bay area in more than three years.

The move from corporate-owned space to 88,643 square feet in 1401 N. Westshore Blvd. will nearly double Heritage’s space, reflecting the sustained growth the homeowners’ insurance company has experienced since its founding in 2012.

Heritage CEO Bruce Lucas says the decision to move to the five-building Westshore Business District project stemmed in large part from its central location and its ability to accommodate future growth.

“I think we’ll be at 700, or perhaps even 800, employees in the next five years,” says Lucas. “I don’t see anything at this juncture getting in the way of our continued double-digit growth.”

Lucas says the Westshore City Center building, which Heritage will fully lease through at least 2031, together with its surrounding amenities, will also assist the company in recruiting new talent.

For owner Ally Capital Group, which acquired the former Austin Center for $28.96 million, the long-term lease with the publicly traded Heritage validates its decision to buy the roughly 50-year-old complex in February 2019.

“We felt we were in a good position because there aren’t a lot of options for tenants of a large size, unless they gravitate to new development, where there are issues of price,” says Andrew Wright, Ally Capital’s managing partner.

“With Heritage, we couldn’t have dreamed of a tenant like them,” Wright adds.

“Securing a tenant of this caliber demonstrates the Westshore market’s continued strength and durability, as well as the excitement building around Westshore City Center,” Matt Alexander, a director with commercial real estate brokerage Franklin Street who together with firm Managing Director Chad Rupp negotiated the Heritage lease, says in a statement.

Read the full article from the Business Observer.