Commercial broker Jarrett Terkel is ready to rock and roll.
Terkel posted a GIF of dancing Minions with the tagline, “It’s party time!” Federal Reserve Chairman Jerome Powell announced on Wednesday that he would keep interest rates on hold, shortly after suggesting three cuts of 0.25 percentage points next year.
“We’re back, baby. LFG!!!!!!!!” read another tweet from Terkel, who focuses on selling multifamily housing and investment land in Bercadia, South Florida. (LFG stands for “Let’s f**king go.”)
“Sentiment changed almost overnight,” Terkel said, tempering some of his initial enthusiasm. “I’m not saying we’ll be back in 2021. Valuations will start to become a little more achievable.”
“A large-scale disaster will be somewhat unexpected, at least I hope so,” he added.
The Fed’s decision is expected to boost confidence in commercial and residential real estate, especially in South Florida. While the region has been somewhat insulated from headwinds in other U.S. markets since the Fed began raising interest rates in spring 2022, investment sales have fallen significantly.
Above all, the expected cuts are a sign that the situation is improving, not worsening. Brokers and lawyers say this could boost sales and fundraising in the second half of next year.
“Real estate is a liquid asset and it takes time for conditions to change. It takes time for that sentiment to be reflected in transactions,” said Charles Foschini, senior managing director at Bercadia. he said.
Still, experts say the planned rate cuts won’t solve all problems.
Brokers say high insurance and construction costs will continue to deter deals. Foschini said South Florida maintains an advantage over other major U.S. cities, but the biggest drawback is insurance.
Eternal optimism meets reality
Some pointed to this week’s rise in stock markets and falling inflation as breadcrumbs that indicate more good news is on the way.
“Signals that interest rates have stopped rising and are going to fall are very psychologically powerful,” said Ed Easton, an industrial developer and broker. But he added that it was “not earth-shattering.”
In fact, most expectations were that Powell would leave interest rates unchanged.
“No one expected anything more than stagnation at this time of year,” said Steven Bittel, chairman of commercial broker and developer Terra Nova. He said the expected cuts “are not very meaningful adjustments, but they do convey expectations for the future.”
Jamie Sturgis, CEO of Fort Lauderdale-based Native Realty, said he’s already seeing that confidence translate into better terms. “That will continue next year,” he added.
Still, asset classes such as office and multifamily housing may suffer disproportionately, especially as suburban office tenants continue to shrink and multifamily landlords struggle to turn a profit.
“There’s going to be pain and suffering in that market, there’s no question about that,” Sturgis said.
Some multifamily landlords and developers were “already operating on thin margins to begin with,” Sturgis added. “The slightest difference in that model can break it.”
Ashi Cymbal, a multifamily developer with projects in Miami Gardens, Fort Lauderdale and Dania Beach, agreed that lower rates won’t solve major problems, such as when developers pay too much for land.
But he said “the worst is over”.
Cymbal and his colleagues expect further groundbreaking work to take place in 2024, with some of the initial construction being self-financed and hoping that financing can be secured. He plans to use his own money to break ground on Nautico, a $1.5 million mixed-use development on the New River in Fort Lauderdale, over the next 90 days.
The Fed’s news could help “top-tier” developers lower construction rates. But most are not, he said. “Lenders will continue to be conservative,” Cymbal said.
Joe Hernandez, a partner at Bilgin Samberg, said some potential buyers who are ready to buy may hold off on making a decision until after a rate cut.
“It may be negative for trading volume now, but it will be positive later,” Hernandez said.
Status in 2023
Native Realty’s Sturgis said the series of rate hikes “frozen everything.” “2023 was a tough year for deal flow and investment sales.”
A “huge” amount of cash earmarked for rescue efforts has been left on the sidelines. Sturgis and others are hoping for the much-talked about “soft landing,” but no one knows how harsh that will be.
“Maybe some of that capital could come back into the market in a more traditional way,” Sturgis said.
Bill Kramer, a real estate attorney with the Fort Lauderdale law firm Brinkley Morgan, expects transaction volume to increase as people wait for the money to come in.
“We should take more money out of cash and invest it in real estate,” he said.
Anthony Kang, an attorney and partner at the Saul Ewing law firm, said people with loans due in the spring are likely already talking to their lenders, but there is still no certainty about the Fed’s timing.
“It would be helpful if interest rates actually went down,” Kang said. “Meanwhile, I think people are still wary of what’s going to happen next year.”
Kang pointed out that while it may be true that the market has bottomed out, many loans will mature over the next 18 months.
“Some may argue that they don’t even see the impact of high interest rates,” he said. “Even though the market has slowed down, we haven’t had a ton of foreclosures or anything.”
Ben Jacobson, a partner at Forman Capital, said the market is “slightly overreacting to the rate cut.”
“On the surface, it’s good news. I don’t think it’s going to be the savior of most problems, especially in Florida, where we have a lot of problems,” he said. “I see credit issues, a collapse in the capital structure, borrowers can no longer hang on. There are challenges that are not working well through the system.”
Jacobson also addressed South Florida’s infrastructure issues, noting that recent population growth has put increased pressure on water, wastewater, and waste management systems.
“Everything is happening so fast,” he said. “It would be like a cartoon if someone dropped a completed house from the sky and they never had a chance to build it. [get inside] House. ”
cash register rebound
The increased confidence will extend to home buyers and sellers, according to housing brokers. Annual sales have been declining for more than a year, and price growth has slowed. Still, home sales continue to set records across the region.
“People are delaying life decisions based on inflation and interest rates,” said Jeff Polashak, regional vice president at Compass. “This will give consumers access to lower rates, lower costs and bring more people back to the homebuying table.”
Polashak said this was a top concern during Compass’ “mastermind conference call” with about 100 Florida agents Thursday morning, and they said they “wanted to take this as a buyer. He said he was encouraged to “use this as an opportunity to educate sellers.”
Compass will also bring in mortgage experts next week to explain how lower interest rates will affect purchasing power. Polashak said banks are already offering low interest rates.
Craig Studnicki, CEO of brokerage firm ISG World and Associated ISG, expects the migration of buyers from other states will continue.
“We’re going to see a surge in inventory and sales,” Studnicki said, pointing to what he called the “biggest pent-up demand of buyers” waiting to buy. “I expect prices to go up next year.”
Calixto García Vélez, Banesco’s president and CEO, also expects more buyers to enter the market. Unlike many of its peers, Vanesco continues to lend through 2023. “Our pipeline is very deep and we’re very selective,” he added.
“We hope this will energize the real estate market, not only the residential market but also the commercial market,” García Vélez said. “There are a lot of projects that are no longer viable at very high rates.”