Lucia A. Dougherty, Co-Chair, Miami Land Development & Zoning Practice, Greenberg Traurig. (J. Albert Diaz)
A clichéd adage of real estate maintains there are only three things that matter: location, location, location.
In Miami’s new real estate boom as far as dealmakers are concerned, only three things seem to matter: speed, speed, speed.
The ability to execute a deal quickly and without contingencies is being valued at a premium by Miami’s real estate closers, according to attorneys, bankers, brokers and investors in the sector who spoke to the Daily Business Review. In competitive deals, partners with offers to close transactions immediately are beating out others whose offers might include more attractive deal terms or higher dollar amounts—but longer timelines.
Time is not only money in Miami dealmaking, real estate players said. Time is being given a higher value than money.
Lucia Dougherty, co-chair of the land use practice at Greenberg Traurig in Miami, said developers are pushing a fast pace on deal terms, sometimes taking up comparatively less attractive agreements to close quickly.
“They’re trying to compete with other developers, and whoever gets to close first gets to sell first,” Dougherty said. “We have a client, who will rename nameless, who will not buy a piece of property he can’t have under construction in a year. In other words, he’s fearful of the boom busting. It’s almost like musical chairs, where whoever is standing loses out. If you’re left with a building that’s almost finished but not sold, you’re hurting, and [the developers] don’t want to be in that position.”
At competitor Bilzin Sumberg, James Shindell, who leads the real estate practic group, mostly agreed with that assesment.
“For well-located projects with strong sponsor groups, we’re seeing competition by lenders to close that business,” Shindell said. “Part of the competition includes getting to a quick closing.”
Less robust projects, with lesser-experienced developers or sub-prime locations, are also adding to the sense of urgency, Shindell said, as for those developments “a bird in the hand may very well be better than two in the bush.”
“For some of the infill land parcels, there’s a feeling that land values might be high, so holder of land that meet that description might be inclined to take a purchaser right now.”
Brokers involved in financing and assembling deals also highlighted the need for speed.
Ezra Katz, chief executive officer and founder of merchant banker Aztec Group Inc., told the Review he’s cobbling together equity financing for a yet-to-be-announced $120 million retail project. In late December, Katz said he’d initially been speaking with 20 bulge-bracket banks about the deal and narrowed the pool of possible finance partners to six. Asked how he’d decide which loan offer to take, Katz emphasized the early banker gets the closing.
“The deal dynamic is very simple: it’s whoever can deliver first,” he said. “We have a certain deal framework and, whoever fits it first, we will commit to them.”
It’s not only in the world of construction financing where speed is trading at a premium.
Jonathan Gerszberg, a senior associate at Marcus & Millichap, recently brokered a deal with colleague Ryan Shaw that saw a Brazilian investor buy an infill lot in Miami’s Edgewater neighborhood. The transaction went through at a record price per square foot, but Gerszberg said that record would have likely moved up even further as there were other deals on the table with higher dollar valuations. The players, however, preferred the quicker deal on hand from the Brazilian investor than the slower ones from other suitors.
“We had a tremendous amount of interest and a handful of offers that were higher than this one, but this particular deal was something that we knew would get done in 2013,” Gerszberg said.
A developer who recently snapped up a commercial property in Miami’s health district from a bank, Inigo Ardid, also agreed on the importance of being speedy. Ardid, vice president of developer Key International Inc., said speed and timing were much more important than price in that transaction.
Key International partnered with Miami-based 13th Floor Investments LLC. in a $7.85 million cash purchase of a 44,0000-square-foot medical office building from a BankUnited affiliate. The property was built in 2011 at a cost of more than $16 million.
“We just came in at the right time,” Ardid said “The bank wanted to do a transaction at the end of the year, and the bank didn’t want any contingencies. That was important. There’s a lot of people out there that say they’re going to close, but the bank can’t take a chance. When the banks want to sell, they want to sell.”
There are of course natural speed bumps as to how quickly deals can be turned over. In most large transactions, bankers, lawyers, property assessors and engineers are involved in the due diligence process. If construction is part of the deal, architects, planners, designers and municipal permitting authorities also might be involved. With a booming real estate market, those people might be too busy to deliver their work as quickly as dealmakers might prefer.
But closers are getting around even that hurdle.
“I’m shocked in cases when it can be as short as 15 days,” said Gavin Loughlin, another Greenberg Traurig attorney, who has been part of several “dirt”—or undeveloped land—transactions recently. “A few dollars difference in price might not matter, but the seller wants to know ‘I’m going to get this, at least this much, and it’s going to close quickly.’ We’ve seen an incredible decrease in the time for due diligence.”
Loughlin’s colleague Iris Escarra added timelines are being worked out so that financing and permitting, which would seem like the kind of factors worked out before shovels break ground, are finalized at a later stage of building.
“The projects I’m seeing, they don’t get the construction loan until after they start,” Escarra said, “It’s like rush, rush, rush, close, close, close, buy, get the site plan, get the building permit, go, go, go.”