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Commercial Real Estate as an Economy Indicator

Ken Morris spoke with Dave Kustin of ContentBacon about the impact of the COVID-19 pandemic on commercial real estate. They talked about what property owners, landlords, and tenants are doing—and may do—during the current crisis, as well as the CRE outlook in the short and longer terms.

Key Takeaways: What You Need to Know About the Current CRE Climate

  • Cashflow is king. Tenants and landlords may work out deals to pay rent.
  • Evaluate the “act of God” clause in business interruption insurance policies.
  • Business survival is the priority, but commerce never stops. Organizations with strong business plans are already preparing for the aftermath.
  • Renegotiations of terms may be possible, based on short-term needs and long-term interests.
  • CRE prices may adjust downward but money has been sitting on the sidelines to take advantage. This adjustment could be offset by low interest rates.
  • Landlords and owners should adopt a cooperative tone—and communicate.

Our team at Morris Southeast Group is here to help support you during this difficult time if you have any commercial real estate questions or concerns. To learn more about what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Virgin Trains USA’s Impact On SoFlo CRE

Virgin Trains USA’s Impact On SoFlo CRE on morrissegroup.com

For developers, it’s all aboard

When it comes to commercial real estate, railroads have long been considered a development incubator. Capable of moving people and goods across all distances, rail is a big reason why East Coast cities boomed, why the west was won, and why Henry Flagler was able to attract tourists and developers to South Florida. Wherever a station popped up, hotels, restaurants, retail, saloons, and homes were sure to follow.

But somehow, as the rest of the world developed its rail systems, embracing high-speed and efficiency, trains in the United States slowed in favor of an interstate highway system. Our network of highways had incredibly positive impacts on the country. But today, we’ve also seen some of the other consequences of that decision—suburban sprawl, downtowns that have deteriorated, and traffic congestion.

A new look at rail

When Brightline entered the conversation in Florida, it offered a new glimpse into what rail could do for the region. The goal was a high-speed system linking major cities with centrally located stops along a good portion of the Florida peninsula. This grand but controversial plan held the promise of new development opportunities along the route and in a radius surrounding each of the stations.

While there was certainly some development, things seemed to slow as Brightline’s profits also became sluggish. That all changed, however, when the rail company entered into a partnership with Richard Branson and his Virgin Group, a globally recognized brand led by a globally recognized figure.

Virgin Trains USA’s broader vision

As a global travel giant, Virgin has already conquered air and sea and, perhaps someday, it will conquer space. It’s really no surprise then that Branson would turn his attention to rail, especially since his new adults-only cruise line, Virgin Voyages, leaves from Port Miami. By partnering with Brightline, he has expanded his ability to move people to his own products.

Within months after announcing the partnership, new station locations were announced. Joining the current stations—Miami, Fort Lauderdale, and West Palm—are Port Miami, Aventura, and Boca. In addition, tracks have already started to be laid from Orlando International Airport to the West Palm station, ultimately bringing Central Florida tourists and residents to Port Miami. In other words, Virgin Trains USA will become the only intercity rail system to link an international airport with a major cruise port in 2022.

For developers, the partnership may be an exciting one

Cities up and down the corridor are all vying for a piece of the rail pie. In locations where Virgin Trains USA stations already exist, projects are underway and open. Florida East Coast Industries, for example, has already completed two office buildings at Virgin’s Miami Central Station and is building two apartment towers in Miami. That same company also recently opened Park-Line Palm Beaches, adjacent to Virgin USA Train’s West Palm station. The 26-story building has 290 Alexa Smart Home System apartments and 14,000 square feet of ground-floor retail space.

At the same time, there is talk of Tri-Rail operating trains on Virgin’s rails to fill in the station gaps. That, along with a discussion of additional stops, travel hubs, and bus and light-rail linkages, has seen several new trackside plans incorporating space for possible terminals. One such location is University Station in Hollywood, where the city is looking for a mixed-use development on 2.5 acres of city-owned land. Other cities, meanwhile, are creating master plans for additional townhomes, apartments, hotels, and retail spaces.

There’s more rail on the horizon

There has been momentum building with the Virgin Trains USA entry into the Florida rail system. Proposals already on the table include extending the rail link from Orlando to Tampa, as well as a hyperloop, a freight-capable line between Orlando and Miami, traveling down the center of the peninsula along the western edge of Lake Okeechobee.

It will be interesting to see what rail may do for CRE development in South Florida—and the impact could be significant. To learn more about what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Coronavirus And The Future Of SoFlo CRE

Coronavirus And The Future Of SoFlo CRE on morrissegroup.com

4 things to do now for tomorrow

There’s no easy way to begin. As you all are very much aware, coronavirus is taking an incredible toll on lives and livelihoods. Anxiety is high, nerves are frayed, and because the situation is rapidly changing, there is no way to predict the short- and long-term outcomes accurately.

It wasn’t so long ago, in fact, that investors were excited because the Federal Reserve had decided to keep interest rates steady for 2020. As of this writing, rates have been slashed to near zero in an effort to support the economy.

If the pandemic has taught us anything, it’s that we’re all in this together. Each person has a role to play, from the truck drivers to the grocery store clerks, from the first responders and medical personnel to neighbors checking on neighbors, particularly the elderly, from a safe distance. The same holds true for the CRE sector, where property owners, landlords, and tenants are going to have to find a new way to do business to survive today and prepare for tomorrow.

Things to do now

The economic impact is already being felt in South Florida, with the recreational and tourism industries taking the initial punch. As other industries have moved employees to working from home, shortened hours of operation, or have closed until further notice, it only makes sense that CRE is going to feel—and is already feeling—the impact. Without foot traffic and shoppers with disposable income, for example, retail tenants will feel the pinch and start to fall financially. A mandated lockdown will likely make economic survival impossible for many.

For that reason alone, everyone in the CRE equation needs to be proactive now rather than wait for the day when the dust settles.

1. Review liability coverage

More than likely, your liability insurance does not have a pandemic clause. As a result, an allegation that a person became infected and developed COVID-19 while on your property will most likely fall under bodily injury or gross negligence. In March 2020, for example, a passenger on Princess Cruise Lines claimed the cruise line allowed passengers to board a ship when the company was already aware of other ships having been contaminated. Strongly worded exclusions, contractual terms, and a valid defense can often prevent a lawsuit from moving forward.

2. Practice environmental cleaning

Another way to both help offset the possibility of a liability lawsuit and provide service to tenants and visitors is to practice environmental cleaning of common areas—regardless of whether there has been a confirmed or suspected case of coronavirus in the building. Using CDC guidelines, some areas may need to be cleaned several times a day. Enforcing social distancing rules by limiting occupancy is also a good step, if possible.

In addition, it’s imperative to work with the local health department and gather data to determine where in the building an infected individual may have been, as well as define other person-to-person contacts.

3. Review leases

As the crisis continues, local, state, and federal governments may intercede to protect commercial and residential tenants from the economic fallout, and it may become difficult or impossible for landlords to evict. Landlords and property owners must be sure to understand their rights, some of which may be curtailed by new government rules and social pressures.

Regardless of any executive orders or legislation, it’s a good idea to be lenient and understanding with good tenants if you are in a position to do so. Not only does it provide the opportunity to support businesses and individuals during this trying time, but it also often makes good business sense. Great tenants can be hard to find, and helping people and organizations recover can reap long-term benefits.

4. Be proactive and creative

All of this is unchartered territory, and the only way to successfully navigate it is to be informed, proactive, and creative. In Jonesboro, AR, a property investment company waived April rent for its tenant, explaining that it would rather see that money go to paying the salaries of the tenants’ employees. Similarly, Rosie’s in Wilton Manors, FL, hosted a pop-up drive-thru for free take-out food, only asking hat customers provide a donation to support the bar and grill’s staff.

While this solution may not work for all property owners, it’s imperative to find options that allow the landlord to meet his or her loan obligations while maintaining a strong relationship with a tenant. For example, the landlord may agree to temporarily relax lease enforcement, especially since some of the lease terms may be impossible to satisfy. At the same time, it may be beneficial to enter into short-term agreements that address rent abatement with defined reinstatement dates and methods to recoup losses once the economy returns.

Morris Southeast Group is in this with you

Like you, Morris Southeast Group is concerned about our families, friends, and clients. Part of what keeps us going is being proactive and looking ahead. While things are intense now, coronavirus will abate, and it will eventually be time to heal and rebuild. By taking steps today, we can lay the groundwork for tomorrow—a future that’s based on goodwill and partnership, because we’re all in this together.

If you have questions about the impact of the crisis on CRE or need any of our services, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

A Message on Weathering the Coronavirus Storm

We will get through this. And we are here to support you.

To our friends, clients, and colleagues:

Like you, we are closely watching events unfold surrounding the COVID-19 pandemic and the resulting disruption to the financial markets and our society. This impact will likely continue for several more months as the Coronavirus eventually peaks throughout the United States and the rest of the world.

We remain in regular contact with infectious disease specialists who tell us that the best things you can do right now are wash your hands frequently, avoid touching your face, and try to avoid large groups of people. Elderly individuals and those with preexisting medical conditions such as diabetes and cancer should take extra precautions to avoid crowds. If you can avoid traveling at present, it is the safest course of action.

At Morris Southeast Group, we have been through many shocks to our society and financial systems since our company was formed. These include:

  • 1979: The oil market shock
  • 1987: The stock market crash kicked off by “Black Monday”
  • 1989–1995: The savings and loan crisis
  • 1990–1991: Gulf War I 
  • 2000–2002: The bursting of the dot-com bubble
  • 2001–2002: The 9/11 attacks, the invasion of Afghanistan, and the resulting market correction and change to U.S. and global markets
  • 2003–2011: Gulf War II
  • 2005–2011: The housing bubble, the subprime mortgage crisis, The Great Recession, and their after-effects

Each of these events was incredibly disruptive—and each caused a lot of fear about the future and our personal and collective ability to survive change. But in every case, we not only recovered, but our society and economy grew and became stronger. Stay safe and take appropriate precautions. But please keep this perspective in mind as the media bombardment of minute-by-minute Coronavirus updates continues. And remember that our team at Morris Southeast Group is here to help support you during this difficult time.

If you have any commercial real estate questions or concerns, get in touch with Morris Southeast Group at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

Connect Capital Miami, Miami’s Affordable Housing Plan, and CRE

The affordable housing crisis hits close to home

Let’s cut right to the chase. Across the country, there is an affordable housing crisis. And in Miami, despite robust development and investment opportunities, the city is a high-rent/low-income region, making it one of the least affordable cities in the country.

One study reports that 71% of the households in the City of Miami are renters. Of those, 61% are considered cost-burdened, with 30% of their income going to rent and very little of it available to spend elsewhere in the community.

In May 2019, the Connect Capital Miami report was released. The effort is the culmination of months of interviews and meetings with primary stakeholders, from city and community leaders to investors and residents. The report not only provides a glimpse into the difficult situation in Miami, but also offers suggestions on how to best address the problem.

A snapshot of Connect Capital Miami

The goal of the study was to discover a way for the City of Miami to create or preserve 12,000 affordable housing units by 2024. To accomplish that, the City would have to tackle the issue using a three-pronged approach:

  • Identify pipelines to potential development. This includes building and preserving multi-family properties, single-family-home ownership, redevelopment of existing affordable housing properties, and creating supportive housing with on-site assistance, such as healthcare and case management services.

  • Establish development criteria. Here, the emphasis is on creating supportive and sustainable communities that are walkable and located near opportunities, basic needs, and public transportation. In addition to affordable rentals and on-site support services, there is an emphasis on mixed-income and mixed-use development.

  • Enabling the environment. This involves …

Enabling the environment is a key takeaway

Perhaps no other segment of the report garnered as much attention as the idea of enabling the environment—that is, clear recommendations that use Miami’s strengths and tools that already exist. Among the recommendations are:

  • Through the use of LAND: Land Access for Neighborhood Development—a map created by the University of Miami’s Office of Civic and Community Engagement—the city can identify publicly owned vacant and under-utilized land.

  • Adjust existing zoning codes to meet the challenges. An example is looking at older properties that have been labeled as out-of-compliance because their densities no longer meet current codes. As a result, it becomes challenging for them to be refinanced or purchased.

  • Coordinate public funding, permits, and application processes to lower development expenses and solve timeline issues.

  • Reduce property taxes on affordable homes.

  • Identify new funding streams and modify existing ones.

The City of Miami releases its strategy

With the release of the final Connect Capital Miami Report in May 2019, the City of Miami took the findings to heart. Working with the Jorge M. Perez Metropolitan Center at Florida International University, the city developed the Miami Affordable Housing Master Plan in January 2020. The effort took into account many of the recommendations from the Connect Capital Report, such as streamlining the permit process and reviewing zoning regulations.

The core of the plan is for small and mid-sized developers and builders to renovate or develop small- and medium-sized lots—“infill” projects. Much of the master plan relies on private enterprise, but the city would create an independent Miami Affordable Finance Corporation for loan coordination. It would also use the Miami Housing Innovation Fund, a pool of funds from public, private, and philanthropic sectors.

Building a future through local partnerships

At Morris Southeast Group, we cannot say enough about the strength of partnerships and the power of community. It’s one of the reasons we’ve been proud to call South Florida home for more than 30 years. In partnering with affordable housing solutions, CRE developers enrich the community by providing jobs, goods and services, and increasing traffic to CRE properties. It’s good sense, all around.

To learn more about what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

The Pop-Up Park Has Arrived

A newer twist on a new idea impacting commercial real estate

In the realm of commercial real estate (CRE), pop-ups are relatively new. What were once considered trendy have proven to be very popular, and there is no denying the positive impact they’ve had on CRE.

Thanks to short-term leases, building owners can generate income from properties that would have otherwise remained vacant. At the same time, these unique leasing opportunities allow a new business to introduce itself to the public and, if successful, become a long-term tenant.

Part of the fun of a pop-up is creating new ways to repurpose space. Pop-up art galleries became pop-up retail shops, which became pop-up museums and libraries. Recently, pop-up attention has been looking at available outdoor areas, from vacant lots to curbside spaces to underutilized properties—and all of this has given rise to the pop-up park.

What is a pop-up park?

Pop-up parks, or PUPs, are a spin-off of Park(ing) Day, a program that began in 2005 in San Francisco, when a design collective rented out a parking space for a few hours and installed a temporary garden. That idea literally and figuratively grew into PARK(ing) Day and is celebrated in countless parking spaces around the world.

The idea evolved at the same time many cities were eager to revitalize downtowns into pedestrian-friendly zones, and city dwellers craved greater contact with nature. Park space seemed like a logical idea, but many of these urban areas were already cramped with pavement and properties—with the exception of available space in curbside parking, vacant lots, and other underutilized areas.

What began as an initiative for local governments and city planners to create green spaces for residents has evolved into a partnership opportunity between municipalities, community groups, and developers.

How pop-up parks benefit CRE

Generally, PUPs are less expensive than traditional park projects and can often be completed more quickly. Rather than removing asphalt, for example, green paint can delineate the park area. The addition of benches, tables and chairs, and potted plants and raised beds make it a hub where people and nature can come together.

While there is little doubt that green spaces have tremendous benefits for the physical and psychological health of people, as well as boosting wildlife and bio-diversity, what are the pluses of PUPs—other than a lower development cost—for CRE?

  • Creating a pedestrian-friendly hub helps generate foot traffic, which, in turn, benefits under-performing or emerging properties. The benefit of transforming a curbside parking space could outweigh the parking convenience of that space.

  • PUPs provide an opportunity to examine how the public will make use of green-space projects, such as plazas, esplanades, and permanent parks that can be included in future projects.

  • It’s a natural area for partnering with community groups and local governments. Through these interactions, developers have an opportunity to build community support for future projects and to gauge the needs of the local community.

Key ingredients for a pop-up park

Although PUPs are designed to be temporary, remember to keep a few key ingredients in mind. In addition to plant material and outdoor seating options, it’s important to include flexibility. While the PUP may serve as an outdoor lunch and meeting space during the workweek, what will it be after hours or on weekends? Can the space become a craft bazaar on a Saturday morning, a small venue for a Saturday afternoon concert, and then an outdoor yoga space on a Sunday morning?

In addition, each locale has its own rules and regulations—so it’s important to work with a team that can help negotiate the permit and zoning processes. At Morris Southeast Group, we are firmly planted in the belief that wonderful transformations occur—whether it’s a pop-up or something permanent—when developers and community work together.

To learn more about what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at kenmorris@morrissegroup.com.

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