by Chad Massaker | Jun 19, 2023 | Commercial Real Estate, Commercial Real Estate Investment, Ft. Lauderdale, Industrial, Miami, Multifamily, Office, Palm Beach, Retail, Risks, South Florida
The commercial real estate industry plays a crucial role in the economic growth and development of South Florida. However, the sector is currently grappling with a significant challenge: high commercial insurance rates. Let’s examine how these elevated insurance rates are adversely affecting the commercial real estate industry in South Florida, hampering its growth and sustainability. By providing relevant statistics, we aim to shed light on the magnitude of this issue and emphasize the urgent need for effective solutions.
I. ESCALATING INSURANCE RATES:
The commercial real estate industry in South Florida has experienced a substantial rise in insurance premiums over recent years. This surge is driven by several factors, including:
- increased hurricane risks
- increased property damage
- rise in liability claims.
As a result, property owners and investors are facing unprecedented financial burdens, which are negatively impacting their ability to sustain profitable operations.
According to industry reports, commercial property insurance rates in South Florida have increased by an average of 25% since 2018. In 2022 alone, the region witnessed a staggering 40% surge in property insurance rates for commercial buildings, significantly outpacing the national average.
II. Financial Strain on Property Owners:
The exorbitant insurance rates are placing immense strain on commercial property owners and operators in South Florida. The soaring premiums directly impact the bottom line of businesses, hindering their ability to allocate resources for expansion, maintenance, and hiring.
A survey conducted by the South Florida Commercial Real Estate Development Association revealed that 75% of commercial property owners reported a decline in net operating income due to rising insurance costs. In 2021, nearly 40% of businesses in South Florida were forced to reduce their workforce or freeze hiring due to escalating insurance expenses.
III. Deterring New Investments:
The high insurance rates are also deterring potential investors from entering the commercial real estate market in South Florida. The increased costs and uncertain risk profile make it less attractive for new investors to commit substantial capital, leading to a stagnation in the growth of the industry.
A study by the University of Miami’s Real Estate Research Institute found that commercial real estate investment in South Florida decreased by 15% in the first quarter of 2023 compared to the previous year.
Industry analysts estimate that the high insurance rates are dissuading approximately 25% of potential investors from engaging in commercial real estate ventures in South Florida.
IV. Economic Consequences:
The adverse impact of high commercial insurance rates extends beyond the commercial real estate industry itself, reverberating throughout the South Florida economy. The repercussions include decreased job opportunities, reduced tax revenues, and limited economic growth.
A study by the South Florida Regional Planning Council estimated that the escalating insurance rates have resulted in the loss of approximately 12,000 jobs in the commercial real estate industry since 2021.
The South Florida business community predicts a $2 billion reduction in tax revenues over the next five years due to decreased commercial real estate investment caused by high insurance costs.
Conclusion:
The commercial real estate industry in South Florida is facing a daunting challenge as high insurance rates continue to burden property owners and deter potential investors. The statistics presented in this essay demonstrate the adverse impact of these escalating premiums on the industry’s growth and sustainability. Urgent action is required from policymakers, insurance providers, and industry stakeholders to find viable solutions that address this issue. By working collaboratively, it is possible to strike a balance between insurance affordability and risk mitigation, thereby fostering a thriving and resilient commercial real estate sector in South Florida.
by Chad Massaker | May 12, 2023 | Commercial Real Estate, Commercial Real Estate Investment, Ft. Lauderdale, Miami, Multifamily, Palm Beach, South Florida
The multifamily market in South Florida is currently in a state of growth and opportunity. Despite the challenges posed by the COVID-19 pandemic, the demand for multifamily housing in the region remains strong. South Florida is a popular destination for both domestic and international migrants, with a growing population that has been driving demand for housing.
One of the primary drivers of growth in the South Florida multifamily market is the development of luxury apartment buildings. South Florida has seen a significant increase in the number of high-end apartment buildings in recent years, catering to a wealthy clientele. These buildings often offer high-end amenities, such as rooftop pools, fitness centers, and concierge services.
Another area of growth in the South Florida multifamily market is the development of affordable housing. As the cost of living in the region continues to rise, there is a growing need for affordable housing options for low-income households. Developers are increasingly incorporating affordable housing into mixed-use projects, which include residential and commercial space.
The pandemic has also led to a shift in demand for multifamily housing in South Florida. With many businesses adopting a remote work model, there has been an increase in demand for suburban multifamily housing. These properties offer more space, a quieter environment, and often better value for money compared to downtown properties.
Despite the opportunities in the South Florida multifamily market, there are also challenges. One of the primary challenges is the high cost of land and construction. As the region’s population continues to grow, land prices have increased, making it more expensive for developers to build new properties. Additionally, the pandemic has led to supply chain disruptions, which have driven up the cost of building materials.
Another challenge facing the South Florida multifamily market is the increase in regulations and zoning restrictions. Many cities in the region have introduced new regulations and zoning restrictions to manage growth and maintain quality of life for residents. While these measures are necessary, they can also make it more difficult and expensive for developers to build new properties.
In conclusion, the state of the multifamily market in South Florida is one of growth and opportunity. While there are challenges posed by the pandemic, the region’s growing population and diverse economy continue to drive demand for multifamily housing. As the market continues to evolve, developers will need to adapt to changing demand patterns and regulatory requirements to stay competitive.
by Chad Massaker | Mar 15, 2023 | Commercial Real Estate, Commercial Real Estate Investment, Flex, Industrial, Land, Leasing, Multifamily, Office, Retail
DSCR stands for Debt Service Coverage Ratio, which is a financial metric used to measure a company’s ability to pay its debts. It is a ratio of a company’s net operating income (NOI) to its debt service payments, which includes both principal and interest payments.
The debt service coverage ratio is calculated by dividing the company’s NOI by its total debt service payments. The higher the DSCR, the more capable the company is of paying its debts.
- A DSCR of 1 indicates that the company is generating just enough income to cover its debt service payments.
- A DSCR ratio of less than 1 means that the company is not generating enough income to cover its debt payments.
- A DSCR of more than 1 indicates that the company is generating sufficient income to cover its debt payments, with higher ratios indicating a stronger financial position.
Lenders use DSCR as a measure of creditworthiness when considering loan applications. A DSCR of 1.2 or higher is generally considered a good indicator of a company’s financial health, although the ideal ratio may vary depending on the lender and industry.
However, it’s important to note that DSCR is not the only factor that lenders consider when assessing creditworthiness. Other factors such as the company’s financial history, cash flow, collateral, and industry trends are also important in determining whether a company is creditworthy.
by Chad Massaker | Mar 15, 2023 | Commercial Real Estate Investment, Industrial, Land, Leasing, Multifamily, Office, Retail
“The Complete Guide to Real Estate Finance for Investment Properties” by Steve Berges: This book covers the financial aspects of real estate investment, including commercial real estate.
“The Due Diligence Handbook For Commercial Real Estate” by Brian Hennessey: This book is a comprehensive guide on how to conduct due diligence on commercial real estate properties.
“The Intelligent REIT Investor: How to Build Wealth with Real Estate Investment Trusts” by Stephanie Krewson-Kelly and R. Brad Thomas: This book explains how to invest in real estate investment trusts (REITs), which are a popular way to invest in commercial real estate.
“Real Estate Investing For Dummies” by Eric Tyson and Robert S. Griswold: This book provides an overview of real estate investing, including commercial real estate.
“The Millionaire Real Estate Investor” by Gary Keller, Dave Jenks, and Jay Papasan: This book provides advice on investing in real estate, including commercial real estate, and shares the strategies of successful investors.
“Commercial Real Estate Investing” by Dolf de Roos: This book provides a step-by-step guide to investing in commercial real estate, including how to find properties, finance deals, and manage properties.
“The ABCs of Real Estate Investing” by Ken McElroy: This book covers the basics of real estate investing, including commercial real estate, and provides tips for finding and analyzing properties.
Books to Read if You’re Considering a Career in Commercial Real Estate:
“Thrive: Ten Prescriptions for Exceptional Performance as a Commercial Real Estate Agent” by Blaine Strickland: Proven strategies to accelerate your commercial real estate brokerage career.
“Adapt: Disruption Is Coming to Commercial Real Estate Brokerage.” The nine forces that are poised to disrupt your world.
by Chad Massaker | Mar 12, 2023 | Commercial Real Estate, Commercial Real Estate Investment, Industrial, Multifamily, Office, Retail, South Florida
The comparison approach, also known as the sales comparison approach, is a commonly used method for valuing commercial real estate. Here are the steps involved in using this approach:
- Identify comparable properties: Identify recently sold properties that are similar in terms of location, size, age, condition, and other relevant characteristics to the property being valued.
- Adjust for differences: Once you have identified comparable properties, you need to adjust their sales prices to account for any differences between them and the property being valued. For example, if the comparable property has more square footage than the property being valued, you would adjust the sales price of the comparable property downward to reflect the fact that the extra square footage does not add as much value as the rest of the property.
- Determine the value: After making adjustments for differences, you can determine the estimated value of the property being valued by averaging the adjusted sales prices of the comparable properties.
It’s important to note that there may not always be enough comparable sales data to accurately determine the value of a property, especially if the property is unique or located in an area with limited sales activity. In such cases, additional valuation methods such as the income approach or cost approach may be necessary to determine the value of the property.
by Chad Massaker | Mar 7, 2023 | Commercial Real Estate, Commercial Real Estate Investment, Flex, Industrial, Leasing, Multifamily, Office, Retail
The cost approach to valuing commercial real estate involves estimating the cost of constructing a similar property from scratch and then adjusting that cost for depreciation and other factors that affect the property’s value. Here are the basic steps involved in using the cost approach to value commercial real estate:
- Estimate the cost of constructing a similar property: This involves estimating the cost of the land, materials, labor, and other expenses that would be required to build a property similar to the one being valued.
- Determine the property’s depreciation: Depreciation refers to the decrease in value of the property over time due to wear and tear, obsolescence, and other factors. The amount of depreciation can be estimated by considering the property’s age, condition, and other relevant factors.
- Calculate the property’s value: Subtract the estimated depreciation from the estimated cost of constructing a similar property to arrive at the property’s current value.
- Consider other factors: In some cases, adjustments may need to be made to account for other factors that affect the property’s value, such as changes in zoning laws or the availability of financing.
It’s worth noting that the cost approach is just one of several methods used to value commercial real estate, and it may not be appropriate for all types of properties or in all situations. It’s important to consider a range of factors, including market trends, comparable sales, and income potential, when determining the value of a commercial property.
The multifamily market in South Florida is currently in a state of growth and opportunity. Despite the challenges posed by the COVID-19 pandemic, the demand for multifamily housing in the region remains strong. South Florida is a popular destination for both domestic and international migrants, with a growing population that has been driving demand for housing.
DSCR stands for Debt Service Coverage Ratio, which is a financial metric used to measure a company’s ability to pay its debts. It is a ratio of a company’s net operating income (NOI) to its debt service payments, which includes both principal and interest payments.
“The Complete Guide to Real Estate Finance for Investment Properties” by Steve Berges: This book covers the financial aspects of real estate investment, including commercial real estate.
The cost approach to valuing commercial real estate involves estimating the cost of constructing a similar property from scratch and then adjusting that cost for depreciation and other factors that affect the property’s value. Here are the basic steps involved in using the cost approach to value commercial real estate: