Expert: Institutional Money Is Still Going After Primary Core

GlobeSt.com recently caught up with South Florida’s Eric Rapkin, chair of the real estate practice group at Akerman LLP, who touched on a number of big-picture trends and issues impacting different commercial real estate sectors in South Florida and beyond. One thing he says is that he is particularly bullish about the industrial and healthcare sectors.

GlobeSt.com: What has the firm’s Real Estate Practice Group been seeing with the transactions it handles in key markets?

Eric Rapkin: We are seeing strong activity across most real estate sectors, and the momentum has expanded to include the secondary and tertiary markets. There is still substantial institutional money going after core assets in primary markets. Trophy commercial properties continue to trade at aggressive prices. The condominium sector might see headwinds as development and the pace of transactions slow down. We are particularly bullish about the industrial and healthcare sectors.

GlobeSt.com: What big-picture issues are dominating discussions within the real estate industry?

Rapkin: Interest rates are top of mind for investors and developers. The industry anticipates a significant increase, but no one knows exactly how high they will go — and how quickly. That will undoubtedly create additional urgency to expedite transactions and put pressure on prices. The immediate impact of rising interest rates will be felt more on the residential side, but the commercial sector will certainly not be immune to it.

The tax reform legislation is another dominant topic of discussion throughout the industry. The general view is that the CRE industry is one of the clear tax reform “winners.” But the bill is so wide-ranging that it will take some time before all the changes are fully understood. There is talk of migration from tax heavy states to low tax states like Florida and Texas, which are already popular relocation markets. We are already starting to see evidence of this happening. Our developers in South Florida are reporting a substantial increase in inquiries from New York and other high tax jurisdictions. What the rebound effect of this migration may be remains to be seen.

What area in Florida is best suited to take advantage of a population influx from tax heavy states like New York?

Rapkin: South Florida has a head start in a sense, as hedge funds and other venture capital companies have moved their corporate operations to the area to take advantage of the inherent tax benefits. The Business Development Board of Palm Beach County has done a particularly good job of recruiting and incentivizing out-of-market hedge funds to relocate or expand their presence in that county. Tax reform will only intensify the demand and give all of Florida’s economic development agencies more to work with from a messaging standpoint. But Miami and Fort Lauderdale will have no shortage of demand from corporate relocation candidates, with private and public sector leaders who are creating incentives and awareness for their cities.

You also hold a high-level position with the International Council of Shopping Centers (ICSC). How is the organization– and the retail industry at large – addressing the major challenges facing the sector?

Rapkin: There has been a lot of talk about the death of retail in the e-commerce era. That notion is simply not correct. A big part of our outreach is addressing that misconception and educating our industry that while an evolution is certainly underway, brick-and-mortar retail won’t go away. There is no doubt retail property owners and developers must rethink the design and tenant mix of their centers to account for this shift. Restaurants and bars are more important than ever. Events like concerts, farmer’s markets and holiday-themed block parties can generate traffic and keep people at retail projects for longer periods of time. People still want to get out of the house, socialize and have an experience they can’t recreate at home.  It’s the experience that is key.

The flip side of the e-commerce era is that it could be a boon for the industrial real estate demand. Is your group seeing increased demand from warehouse and distribution users?

Rapkin: Demand is definitely surging across the country. It’s not just coming with e-commerce tenants. Traditional retailers are seeking new warehouse space or expansions of existing warehouse space as their online activity increases. The demand is widespread; the challenge is finding land to accommodate it. Industrial developers are going to have to head back toward urban infill areas and away from suburbs in order to meet consumer demand for immediate delivery. We will see industrial projects go vertical due to land constraints. That would be a huge shift for the industrial sector in the US.