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Why Working With an SIOR Agent Matters

Why Working With an SIOR Agent Matters on morrissegroup.com

Investor confidence is just one of the rewards

The commercial real estate (CRE) marketplace can, for some investors, seem like a very intimidating world. Properties, regulations, and legal intricacies are plentiful – and so an individual will most likely want to develop a relationship of trust with a CRE agent.

Unfortunately, selecting the right agent can be just as intimidating. Unlike doctors and lawyers, there is no highly-specific, legally-mandated designation for an individual to practice commercial real estate – and that’s why professional organizations are key to establishing a standard of practice and designating a professional’s success in meeting those standards.

SIOR leads the way for CRE professionals

The Society of Industrial and Office Realtors, or SIOR, is one such professional organization. As an affiliate of the National Association of Realtors (NAR), SIOR has committed itself to maintain the highest professional and ethical standards in the CRE industry. At present, the organization has more than 3,200 members around the globe.

As part of its mission to uphold these standards, the organization established a designation as a means of not only rewarding those professionals who have worked rigorously to meet SIOR’s rigorous requirements for entry, but to also serve as an indicator to clients that an agent has gone far beyond others in that field.

Achieving SIOR membership

Not every CRE agent is a member of SIOR. That honor belongs to a select class of professionals who have made a commitment to better themselves and the industry. To considered for entry, eligible candidates must have a minimum of five years experience in the field, with a proven significant level of deal volume.

After applying, the real estate professional then embarks on a series of SIOR-established goals, including classes on finance and a heavy emphasis on ethics – obtaining endorsements from other SIOR designees is necessary to complete the process.

SIOR designation and the investor

In addition to recognizing real estate professionals for their commitment to achieving and maintaining SIOR’s standards, the designation is also a way to communicate to clients that they can have confidence in the ethical and professional practices of SIOR brokers. When those four letters follow an agent’s name, it says a lot:

  • The agent is a member of an elite class of CRE professionals, one who is the most knowledgeable, experienced, ethical, productive, and successful in the field;
  • The agent has gained the confidence of others in the profession, from corporate executives and other brokers and agents to lenders;
  • The agent is committed to maintaining those standards and SIOR designation through ongoing education, professionalism, and ethical behavior;
  • The agent is able to connect investors to a global network of other SIOR designees;
  • The agent has a proven reputation as a deal closer.

SIOR in South Florida

Ken Morris, the President of Morris Southeast Group, is proud to be among the two percent of real estate professionals who have achieved and received the SIOR designation. His commitment to industry professional and ethical standards has elevated his team to reach for those same goals. The result is seen each day in the relationships with long-term and new clients.

For a free consultation or to learn more about our property investment opportunities and/or other services, call 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.

A Tree Grows In South Florida

A Tree Grows In South Florida on morrissegroup.com

Landscaping your CRE is an important investment

When considering the value of any residential property, a lot of attention is given to its curb appeal. It’s an industry unto itself – so much so, that countless home improvement shows are devoted to front yard makeovers.

That same attention to appearance’s detail, though, is often neglected or ignored completely when it comes to a commercial real estate (CRE) and that is unfortunate. As it turns out, many of the benefits of curb appeal are as important in CRE as they are to residential properties.

The benefits of landscaping CRE

When considering the outside appearance of a commercial property – from retail to multi-family to even industrial spaces – there is, of course, the initial investment. This amount can vary based on how much the owner or investor would like to accomplish.

That being said, the benefits typically outnumber those costs:

  • First and foremost, landscape enhancements are another way of increasing a property’s value immediately and long-term. The building interior may need regular upgrades to address changing technologies, but landscaping, if done correctly, continues to add value to a property, particularly as trees grow and become established.
  • At the same time, the first impression of your property can determine outside interest in leasing space. Ignore the outside, and it’s more likely that people – including potential tenants or buyers – will reach a negative conclusion about the building’s owner or manager.
  • Improved landscaping can mean improved foot traffic and business for tenants, which, in turn, leads to a financial benefit for the owner.
  • Study after study has shown that green space is aesthetically pleasing and has a calming effect on people, hence the old adage to stop and smell the roses.
  • Finally, landscaping is good for the environment, especially in urban areas, where the combination of sun and cement can create an urban heat island. Increasing tree canopy or the addition of green parking lots can significantly cool things off – which is why municipalities in South Florida are greening medians and adding public park spaces.

CRE Landscaping 101

What the CRE owner is able to accomplish has a lot to do with available space, zoning, and, of course, budget. That being said, any landscaping improvements will need a degree of maintenance, such as irrigation, pruning, mowing, and edging. These responsibilities can either be added to the in-house maintenance crew or contracted to a private landscaping service.

Still, here are a few basic landscaping suggestions:

  • Consider what the property already has and determine how best to utilize it. Do current plantings need pruning? Can they be dug up and moved to another location? Make note of plantings used in large commercial parks and condo complexes and take pictures so a landscaper can match that appearance.
  • If there is a lawn area, ensure that it’s properly maintained or improve its appearance with sod.
  • Investigate alternatives to traditional gardening such as xeriscaping, which means using slow-growing, drought-tolerant plants that will not put a strain on water supplies, and planting South Florida native plants, which are better adapted to local growing conditions.
  • If there isn’t a lot of room for major landscaping, try using large, colorful pottery on either side of the door or along the sidewalk. These can be planted with small trees, shrubs, or seasonal flowers.
  • With many tenants now sharing indoor commercial spaces, extend that shared space outside with a common area for outside working, dining, or relaxing. It’s another way to make a property more attractive for potential tenants.
  • Keep landscaping interesting with plants, shrubs, and trees that can provide color, flowers, or texture.
  • When it comes to trees, keep an eye toward hurricane season. As much value as trees add, they do require maintenance to make sure they’re healthy and safe.
  • Don’t forget about the nighttime appeal of the property. Landscape lighting helps to keep the property looking its best at all hours.

Landscaping in South Florida

Morris Southeast Group is fortunate to be located in South Florida, where there is a 12-month growing period. There really is no excuse to not take advantage of the climate, the wide variety of rugged, low-maintenance plants, and our ability to connect you with landscaping professionals to help you achieve and maintain your curb appeal vision for your CRE investment.

For a free consultation or to learn more about our property investment opportunities and/or other services, call 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.

Beware of Hidden CRE Issues

Why smart, thorough inspections are vital in real estate

There is no doubt that a property inspection, as nerve-racking as it may be, is an important and necessary part of the purchasing process. The last thing anyone wants when purchasing a commercial property – or any property, for that matter – surprise, or what I like to call “landmines.”

Sadly, buyers cannot count on sellers to disclose all there is to know about a property. But having a qualified third-party inspector take a hard look at a building not only uncovers these landmines but can also save investors and owners money in the long run. There are three key areas where landmines are usually found:

1. Physical structure

It goes without saying that a proper inspection will include the physical structure itself. This means taking a closer look at everything from the roof to windows to wiring to heating and air conditioning units to drainage and ADA and code compliance.

There’s also the matter of what cannot be seen with the naked eye – and subsurface plumbing is a prime example. All too often, broken water and waste lines are not discovered until after purchase, when the new owners receive water bills higher than budgeted. Issues missed with an improper inspection can result in expensive headaches and repairs – in this case, breaking up cement flooring.

2. Zoning

Unfortunately for investors, zoning is an area that’s not only overlooked, it’s also not even on the radar. The bottom line is that it’s imperative to ensure that zoning and codes allow the intended use of the property before purchase.

3. Environmental

Again, this is an inspection of what isn’t so apparent. I often like to make sure my clients have, at the very least, a Phase 1 audit, in which an environmental audit company does a thorough look at the books and records of the property’s previous use. This will help uncover any environmental issues that may still be lingering in the soil surrounding and beneath the structure.

If warranted, this can lead to a Phase 2 audit, in which the environmental audit agency takes soil samples to check for any contaminants. Although this is more suitable for industrial properties, there have been cases of office properties located near gas stations that have experienced a leak, thereby impacting the surrounding properties.

The Morris Southeast Group response

Throughout the CRE process, you must learn all you can about a property of interest. While it’s impossible to protect oneself from everything, a thorough inspection can bring you that much closer to that everything ideal.

Working with the professionals at Morris Southeast Group can connect you to your perfect property, and help you learn all there is to know about that property so there aren’t any landmines getting in your way.

For a free consultation or to learn more about our property investment opportunities and/or other services, call 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.

To Buy Or To Lease?

That is the CRE question

It seems fitting for Shakespeare to be the inspiration for this headline. In many ways, the Bard faced this same dilemma as a playwright, actor, and businessman. In his time, traveling troupes of actors would perform in rented locations or even out in the open, often passing around a hat for payment. As London’s population grew, building owners would lease out performance space and keep a portion of the profit.

When the owner wanted to do something different with the building, the actors found themselves back on the street and performing for a pittance. Shakespeare, already an established playwright and founding member of a joint-stock theater company, and his fellow shareholders were tired of remaining dependent on landlords and decided it was far better to own a theater: The Globe.

Times haven’t really changed

While times have changed, Shakespeare’s work has remained timeless – and so too has the “to buy or to lease” question. In fact, it’s often the top question among my commercial clients, regardless if they’re interested in an office, retail, or industrial space.

In order to come up with the best answer, there are a few questions and metrics that need to be examined:

1.  What is the nature of the business?

All businesses are not created equal, and as a result, there are specific variables that will often drive the answer to the own/lease question. For example, a manufacturing business will most likely need to own a space so it can have a facility specifically designed for its needs – which can include smelting equipment, laser-cutting technology, or something else that’s very expensive to relocate each time a new location is leased.

On the other hand, a more standard company – office, some industrial, or even retail – may have a more difficult time coming to an own/lease conclusion. Factors that drive that decision to own include a business model that is unlikely to change, quick expansion being unlikely and plans to be in business for a long time.

2.  What is the opportunity cost?

Determining this requires the entrepreneur to look at an amount of money and to decide where that money is best used. For some, the answer will be to invest in a property as an owner, anticipating back-end gains as it appreciates in value. For others, a wiser choice would be to put that money back into their business, the bond market, pork belly futures, or whatever else they choose.

3.  What is the cost to operate and occupy vs. leasing?

As with any business-related decision, it’s critical to look at the bottom line – and this question gets to the heart of the own/lease dilemma. Owning and operating have their own costs, as does leasing. When looking at these numbers, it’s important for the costs of either option to be at or near each other, plus or minus 10%.

If either number is significantly higher or lower, then the next step is to closely examine what’s driving that discrepancy. With more questions come more answers, and this results in greater clarity on whether to buy or to lease.

4.  What if Shakespeare lived in South Florida?

When we think of Shakespeare, we often consider him as a solitary worker, a genius locked behind closed doors with his quill and paper. Scholars, though, believe otherwise. Shakespeare was part of a talented team that worked closely together, excelling in boldness, flexibility, and foresight.

That’s pretty much how I would describe the team at Morris Southeast Group, especially as we assist clients in making smart decisions for their businesses and their investments.

For a free consultation or to learn more about our property investment opportunities and/or other services in South Florida, call 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.

Site Selection in Tertiary Markets, Making the Most of Incentives

Site Selection in Tertiary Markets, Making the Most of Incentives on morrissegroup.com

Incentive packages can really make a difference to a smaller company’s profit and loss statement… There is no question that incentives play a role in site selection, even in small-town America.

While the Amazons of the world grab headlines for site selection and financial incentive packages to lure them to community ‘X’ and ‘Y,’ it’s worth remembering when seeking an industrial site or back-office location that tertiary markets in many U.S. markets are working just as aggressively to attract businesses with programs and incentives that appeal to manufacturers, distribution companies, and office occupiers.

Of course, the main elements of a site search – location, facilities, access to a qualified and perhaps abundant employment pool, and connectivity to major transportation services such as freeways, rail, cargo-friendly airports, and ports, remain the most important aspects of in a site search, yet securing incentives for your clients will add real operating income to their bottom lines.

Our firm was recently involved in the $4.5 million acquisition of a 280,000-square-foot manufacturing and distribution facility on 19 acres on behalf of The Legacy Companies, a leading food service and consumer appliance organization with multiple household name brands based in Fort Lauderdale, Florida.

After evaluating at least a dozen sites in six southern states, including Tennessee, Arkansas, Mississippi, and Alabama, the client selected a Paris, Kentucky property because it checked all the boxes and the Commonwealth of Kentucky offered a flexible incentives package. The Kentucky Business Investment (KBI) program allows companies to decide what percentage of their annual incentive allotment they’d like to take in payroll tax and/or corporate income tax. For example, they can do 0% in payroll and 100% on income one year, then change it up and request 36.3% in payroll and 63.7% the following year, or whatever split they choose.

This creates maximum flexibility for recipient companies. A company with few employees and high-profit margins may want to take more on corporate income. Those with many employees and lower income may want more back in payroll. It allows individual companies to decide on the best fit for them.

As well, KBI has three target requirements, which companies must meet annually to be eligible for their incentives:

  • A negotiated jobs number
  • A negotiated average hourly wage
  • Corporate investment amount

The Legacy Cos. opted for the payroll incentive package worth up to $600,000 if the firm hits its targeted numbers annually for employment, average hourly wage and investment over a 10-year period. The performance-based incentives are available at the company’s discretion on corporate income and/or payroll tax deductions. On payroll tax, the incentive contribution breakdown would be one-half percent from the City of Paris, one-half percent from Bourbon County and 3 percent from Kentucky.

We worked closely with the Gordon Wilson, the Executive Director of the Paris Bourbon County Economic Development Authority and Taylor Sears, a Project Manager with the Kentucky Cabinet for Economic Development, an executive branch of government that reports to the state governor, to negotiate the incentive package.

Our criteria during the site search featured:

  1. Maximum drive time from major terminals – UPS, Swift, Conway
  2. Distance from the property to nearest interstate, which is important for freight routing
  3. Employment data, average hourly employment rates and cost – for manufacturing and warehouse workers
  4. Facilities – with right column spacing, ceiling heights, loading capacity
  5. Fit within a pricing model that aligned with the client’s business plan

Here is why the deal worked for The Legacy Cos. Paris is 18 miles from Lexington, KY, the horse country capital of North America with an MSA population of approximately 400,000. The region has a deep pool of potential assembly and distribution workers, but also mid-level and even senior management personnel, if Legacy decides they want to continue expanding in Paris. The current plan is to employ 60 full-time people at its new facility.

Lexington also has culture, The Lexington Opera, the University of Kentucky Center for the Arts, University of Kentucky sports, Churchill Downs Racetrack in nearby Lousiville (home to the Kentucky Derby) and NASCAR racing. Interstate 75 is about 15 minutes from Paris. Paris landed CMWA, or Central Motor Wheel of America, which supplies aluminum and steel wheels to major car makers such as Toyota, which built a plant in nearby Georgetown, KY in the 1980s and has been a draw for automotive components makers ever since.

As logistics go, trucks can depart from Paris and reach two-thirds of the U.S. population with a one-day drive. The Cincinnati/Northern Kentucky International Airport (CVG) is currently ranked #2 in the U.S. for air cargo and with a new, $1.5 billion Amazon facility there, the airport expects to move into the #1 spot soon. DHL has one of its three worldwide air cargo hubs at CVG. As well, Louisville International Airport (SDF) also has two major UPS operations; Worldport air hub and Centennial ground hub.

Kentucky Governor Matt Bevin is an American businessman and has helped set the tone for Kentucky’s economic growth. In January of 2017 Kentucky became a right to work state. Kentucky smashed records for investment growth when it attracted $9.2 billion in 2017 compared with its previous best year, 2015, which drew $5.1 billion of investment capital to the state — only including manufacturing, distribution and technology business – not retail or restaurants, according to a spokesman for the Kentucky Cabinet for Economic Development.

Similarly, a SIOR colleague of mine, Tim Echemann, SIOR, CCIM with Industrial Property Brokers in Piqua, Ohio, recently leased half of a new 100,000-square-foot factory building in Defiance, OH to DECKED, the truck bed storage and cargo van storage systems manufacturer. He said the city payroll tax rebate would likely save DECKED $50,000 a year in city income taxes, or enough to pay for one full-time employee with benefits for a year, and that was a significant reason for the auto parts company to select that property.

Echemann is also listing an industrial building in Tiffin, OH that is within a property tax abatement zone in which the owner/occupier can save about $30,000 in property taxes a year during a 15-year period, based on the assumption that the new building would be valued at $2 million.

“The cities in the tertiary markets of Western Ohio and Eastern Indiana that offer incentive packages can really make a difference to a smaller company’s profit and loss statement. There is no question that incentives play a role in site selection, even in small-town America,” Echemann said.

This article was originally published at GlobeSt.com.

Ken Morris is principal of Morris Southeast Group. To reach Morris Southeast Group, call 954.474.1776. You can also reach Ken directly at 954.240.4400 or via email at kenmorris@morrissegroup.com

Surviving the Zombie (Property) Apocalypse

Is it a good idea to lease a neglected fixer-upper?

These days, zombies are big business. From television shows to movies, books to bumper stickers, zombies are everywhere. Not only have Abraham Lincoln and Jane Austen jumped into the flesh-eater-fighting fray, but the Internet is full of expert advice on how to survive a zombie attack. There’s so much zombie stuff out there, it’s as if the apocalypse has already begun.

In the CRE world, though, zombies are a whole new breed of monster. What may work for the undead doesn’t work on a property, leaving many tenants to wonder if it’s financially wise for them to lease what’s called a “zombie” space.

What is a zombie property?

In markets around the country, including South Florida, there are many Class B and C and older tiered properties suffering from neglect. In a perfect world, many of these properties can be repurposed and fixed up into something new and exciting, but the owners of these properties lack the capital to provide even adequate maintenance.

In time, the fixer-upper looks more and more like a zombie, a battered, dusty shell of its former self: parking areas full of weeds, dead landscaping, water-stained ceilings, AC and plumbing issues, falling rents, and mostly-vacant spaces.

Is leasing a zombie property worth it?

There’s a sadness when it comes to zombie properties. Neglect of any kind is never easy to witness, and for tenants, that unease often translates into walking by some really good deals. In other words, some zombie properties shouldn’t be ignored, but should be considered with even greater caution than usual.

To help navigate that path, it’s important to develop a relationship with the landlord and or the management company and to get a firm understanding of their current financial state and financial wherewithal.

Finding comfort in a zombie property

When a potential tenant is interested in leasing a space, the owner can request to see the financials of that tenant to determine if it’s a financially secure deal. The tenant, though, often doesn’t have that same ability when it comes to getting a better sense of the landlord’s financial status.

While paper proof isn’t an option, there is a way of establishing a comfort level through a few key questions. For example, if you’re going to lease a facility that requires some additional work after you take occupancy or you’re aware of some issues, such as HVAC units that are older than five years or a roof that will need replacing during the time of your lease, tenants can ask the landlord/management team:

  • Do they have specific plans in place for the repairs?
  • Do they have adequate reserves for the repairs?
  • Do they have access to financing to solve those problems?

The definitive solution for survival

Many states, including Florida, have detailed laws that explain a commercial landlord’s building management responsibilities. As a result, many commercial leases have a maintenance clause that stipulates that responsibility, and the consequences if the landlord fails to address those issues.

That’s why it’s always a good idea to work with knowledgeable professionals in the commercial property – zombie and otherwise – leasing business; professionals like the team at Morris Southeast Group.

For a free consultation or to learn more about our CRE investment opportunities and/or other services, including finding a great lease or property management, call 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.

Ft. Lauderdale’s Changing Coastline

Ft. Lauderdale’s Changing Coastline on morrissegroup.com

Including new waterfront projects that embrace the view

These days, any discussion of South Florida’s changing coastline inevitably resorts to a debate on climate change and rising sea level, pumping stations, and adding ground height to new construction.

In Ft. Lauderdale, that conversation must also include the amount of new construction that will forever alter the city’s beachside appearance. While downtown is already in the midst of a makeover and luxury hotels are now a staple along the north end of Ft. Lauderdale Beach, these new projects – already approved by the city – provide a re-do of where Las Olas Boulevard meets the sea.

Ft. Lauderdale’s most controversial project

Perhaps the most controversial project is the current site of the Bahia Mar, a 38.6-acre peninsula-shaped property that sits on the Intracoastal. Because the city owns the land, there has been a years-long tug-of-war between investors, developers, residents, special interest groups, and commissioners.

City approval was finally given in December 2017 and has a 2028 completion date. The new Bahia Mar will include:

  • Seven high rises with 651 rental apartments and one high-rise hotel with 256 rooms. The towers will have an open-aperture design, so visitors will have a view of the water and of the yachts;
  • one five-story mixed-use building with a grocery store, office space, and parking;
  • one two-story restaurant;
  • a yachting amenities complex;
  • an above-ground parking garage;
  • a marina village that will feature kiosks, cafes, and a state-of-the-art 1,900-space, underground, two-level parking garage; and
  • a public promenade.

Las Olas Boulevard and A1A get a makeover

To help make the beach a more exciting place for tourists and investors seeking the beach life, Las Ola’s luxury is moving closer to the shore. At the intersection of Las Olas Boulevard and A1A, six projects are already underway:

  • The parking lot at A1A and Las Olas, across from the iconic Elbo Room, will be converted into Oceanside Park, with public restrooms, water-play features for children, and a beachgoer drop-off area.
  • To compensate for the loss of this parking lot, there will be a 670-space public parking garage to the north of the Las Olas Bridge and adjacent to the Intracoastal. During peak beach times, the city plans to provide free shuttle service so beachgoers do not have to make the two-block walk to the shore.
  • Just south of the Las Olas Bridge, a city parking lot will be converted into additional green space.
  • The Las Olas Marina, off of the Birch Road parking lot, will be rebuilt and expanded to include two restaurants.
  • The historic Fort Lauderdale Aquatic Center, home to the International Swimming Hall of Fame Museum, will be upgraded and modernized so pools there meet the latest standards for swimming competitions.
  • An additional parking project will be added near Sunrise Boulevard, just south of Bonnet House Museum and Gardens.

On the Ft. Lauderdale waterfront

Earlier this year, an additional 4.46 acres with 500’ of beachfront just north of the Elbo Room also came on the market – and developers have already started talking about luxury residential space and high-end commercial possibilities.

The professionals at Morris Southeast Group are excited to witness Ft. Lauderdale’s renaissance. Investors and developers are at last seeing this jewel as we’ve always seen it – a city that’s more than mobs of spring breakers. Ft. Lauderdale is simply stunning.

For a free consultation or to learn more about our property investment opportunities and/or other services, call 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.

Calculating Your Overall Return on a CRE Investment

The ROI of the commercial real estate requires a little math due diligence

Anyone involved in real estate investment, from the entrepreneurial veteran to the newbie looking to get into the game, has a common question at the start of the process: What will be the return on my investment? That is, after all, the reason people get involved with investment properties in the first place.

To reach the bottom line answer to the bottom line question, there are two rate-of-return calculations worth exploring. While one is simple and the other complex, they both provide the guideline to help investors determine their next move.

The basics of cash-on-cash

For most entrepreneurial investors, the cash-on-cash calculation is the way to go. It’s simple and provides an easy-to-understand cash flow outcome. In basic terms, cash-on-cash means subtracting expenses and debt services from gross income. The answer is the annual return.

Using a potato chip analogy, if I throw a bowl of potato chips into an investment, I need to know how many potato chips will be thrown off in a year for a rate of return for that investment.

In dollars and cents terms, the annual amount earned from an investment ($6,000) is divided by the amount of the initial investment ($100,000). The answer is then multiplied by 100 to get the cash-on-cash rate of return (6%).

The complexities of an internal rate of return

The internal rate of return formula adds a complex spin to the calculations. In essence, the formula looks at the net present value of either the negative or positive cash flow that comes out of a specific property. If the internal rate of return is higher than your floor number, then it’s a good investment. If it’s below, then that is not an investment you should be making.

While that certainly seems logical, the formula grows in complexity because it uses an assortment of variables, such as depreciation and appreciation. Because some of these variables change with time and other outside forces, they cannot be firmly defined with a consistent number value. As a result, the internal rate of return cannot be calculated analytically and is instead achieved through trial and error or computer software.

This doesn’t go to say, however, that the internal rate of return doesn’t have a place in real estate investment. Using this formula is especially valuable when determining if a property should begin a new operation or whether it should expand/upgrade an existing one.

Understanding the bottom line in South Florida

To help navigate the ups and downs of real estate investment, it’s always a good idea to work with a team skilled in both rates of return calculations, available properties, and client needs. Morris Southeast Group is able to provide the professional guidance you need before, during, and after you make your investment.

For a free consultation or to learn more about our property management, investment opportunities, and/or other services, call 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.

What Cannabis Can Do for South Florida CRE

What Cannabis Can Do for South Florida CRE on morrissegroup.com

A green revolution is on the horizon

In 2016, Florida voters passed a measure to legalize medical marijuana. Ever since that same measure has been locked in a sort of legal limbo at both the state and local levels. Back-and-forth lawsuits in Tallahassee have resulted in delays, go-ahead, and more delays, while some local communities have passed moratoriums and bans on the location of growing facilities and dispensaries.

Despite these growing pains, one thing is certain: medical marijuana is profitable. In 2016, legal cannabis sales reached $6.7 billion. This number is expected to jump to $20 billion by 2021. For commercial real estate, particularly in South Florida, those numbers are just too big to ignore.

Light industrial space is a natural location

At the moment, legally-grown cannabis cannot be transported across state lines. As a result, states with approved medical marijuana initiatives must grow their cannabis locally – and the real estate that is most suitable for doing so are warehouses zoned for light industrial.

Generally speaking, these spaces are large enough to be converted to meet various growing needs (growing and processing plants, producing edibles, and distilling oils), ventilation, moisture controls, and lighting.

While conversions can run in the millions of dollars, the result will be profitable. One only has to look at Denver and other areas where the medical marijuana industry is fully operational. There, lease prices for vacant warehouses that couldn’t be given away pre-pot have jumped more than 50% in just a few years.

Owning is more than a pipe dream

Investors looking to get into the medical marijuana business are just one part of the CRE equation. The other participants are the grower entrepreneurs looking to own their spaces. In Denver, for example, many growers soon learned that skyrocketing rents could quickly put them out of business. In fact, many growers seem to have taken a page from lessons learned from Wynwood artists and gallery operators who quickly learned that owning their own space put them in charge of their profits.

At the same time, legal cannabis markets have seen a sort of offshoot to the CRE boom: investors who also get a grower’s license. Once the warehouse conversion is complete and the business is up and growing, the investors then sell the entire operation.

Issues that are unique to the medical marijuana business

In addition to an inability to transport crops and products across state lines due to Federal regulations, there are other issues that are especially unique to the growing business.

At the moment, it’s impossible for those in the legal cannabis trade to receive bank loans. The result is that financial transactions – from rents to purchases – are cash only.

Similarly, cash earned through medical marijuana requires banks to do more compliance work, which means higher account fees. Investors and entrepreneurs, then, tend to look for other venues in which to invest their money – and the short answer is often more industrial, commercial, and residential real estate. In other regions of the country, for example, residential neighborhoods have seen home values skyrocket because of medical marijuana.

Catching the buzz in South Florida

Two years after Florida voters approved the medical marijuana measure, the state and various municipalities are still in a range of stages. Miami, for example, opened its first dispensary in April 2017, while it took until January 2018 for Broward County to approve dispensaries, which can only be located in unincorporated regions of the county. (Critics believe this relegates dispensaries to low-income, high-crime, predominantly black neighborhoods, while advocates maintain this measure will breathe new life into these communities.)

In the meantime, properties are readily available for investment, purchase, and conversion, and the entire CRE industry is waiting for a firmer understanding of local zoning restrictions and statewide regulations. The team at Morris Southeast Group is ready now to help connect clients with the facilities necessary for the coming boom.

For a free consultation or to learn more about our property investment opportunities and/or other services, call 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.

Inventory Issues Impacting CRE In South Florida

Is there space left for great investments?

It’s easy to understand why some investors and tenants get discouraged about CRE space in South Florida. Gentrification projects are well underway, empty lots are fenced and prepped for new construction, and the tremendous amount of traffic creates a sense that prices are in the stratosphere because all of the good space is gone.

Nothing could be farther from the truth. Depending on the type of real estate owners, tenants, and investors are considering, there are millions of CRE square feet of 2nd- and 3rd-generation space available in South Florida. Finding the intersection of the right real estate at the right price in the right place can certainly still be done – though it’s not always easy.

Flexibility in the CRE landscape

No matter the market – Los Angeles, New York, Atlanta, or Miami – there are essential considerations when matching the unique needs of clients with the proper space.

A key to making this link is flexibility. In South Florida, for example, there is an abundance of warehouse space that has the potential to be repurposed into something else. The low ceilings of many 2nd- and 3rd-generation warehouses are no longer suitable for today’s industrial/distribution center needs. They are, however, perfect for converting into office space or other uses.

Before embarking on such a project, it’s essential to understand the cost of the conversion. Parking, air conditioning, and roofing may need to be updated, and these costs could be very high.

Getting to know zoning

While conversion costs can certainly hamper development plans, another issue can be as much of a hindrance: zoning regulations. The last place any buyer, renter, or seller wants to be is at the table while the deal falls apart because no one thought to investigate zoning regulations and restrictions.

To prevent surprises, it’s essential to understand the zoning rules that are specific to the municipality where the property is located. What’s allowed in location A may not be permitted in location B, and that can make all the difference.

The zoning departments in all municipalities tend to not like surprises. Sooner or later, they will discover the work being done on a property and issue fines and/or work stoppage orders. To prevent these costly consequences, take the time to visit the zoning department in which the property is located. Ask questions and help to bring the municipality on board with the property’s new concept.

On the South Florida CRE horizon

Marijuana provides a great example of how a potential business trend can interface with flexible CRE space. In 2016, Florida voters overwhelmingly approved medical marijuana. Ever since, the proposal has been in a sort of limbo – tied up in hearings and court cases.

Soon after voters approved the measure, the Florida legislature passed a law preventing patients from using smokable marijuana. This then resulted in a circuit court judge ruling that patients have the right to use medical marijuana in any form – and this led to an appeal from the Florida Department of Health, which means an automatic stay so the judge’s ruling cannot go into effect.

This back-and-forth means many obsolete warehouses – many of which can be quickly converted into indoor grow spaces for medical marijuana – remain empty. Florida CRE investors are waiting – and looking at the example of Denver, CO, where marijuana has been legalized and it’s now nearly impossible to find available warehouse space.

Knowledge is the key

When investigating CRE possibilities, it’s important to work with an agency that knows the rules of the market and looming trends. Morris Southeast Group has a 40-plus year history, which translates into a team of professionals who are not only aware of opportunities but also know the ins and outs and changes in zoning regulations in the municipalities which we serve.

For a free consultation or to learn more about our property investment opportunities and other services, call 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.

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