A Lender’s View: South Florida Development Going Strong
Although creditors are starting to grow cautious due to the current real estate cycle, developers in the Sunshine State continue to secure construction financing in a market showing no signs of a slowdown.
The current construction lending landscape in South Florida continues to thrive, despite rising interest rates and the mindful approach of traditional lenders. Demand for new development is strong, as the Miami metropolitan area is now the eighth most populated in the nation, according to the U.S. Census Bureau.
Developers and investors recognize the opportunities of a booming market such as South Florida and areas that were previously overlooked are now almost fully built out, according to Eddy Arriola, chairman & CEO of Apollo Bank—a local lender. In an interview with Multi-Housing News, Arriola discussed construction financing, the most in demand asset types as well as the bank’s business strategy.
What is the current demand/supply dynamic for new construction financing across South Florida?
Arriola: Demand for new construction financing is very high right now. We are seeing a lot of local owners and developers who may have been sitting on properties for a while, who are now ready to make deals and get new projects off the ground. There is also significant interest from out-of-market buyers and institutional investors that view South Florida as ripe for development and want to stake their claim on the market.
Demand for construction financing is outpacing supply and interest. Traditional lenders are growing more conservative as rising interest and capitalization rates are impacting the course of the real estate cycle. However, non-bank lenders such as hedge funds and mezzanine lenders are helping to bridge that gap in getting new construction projects financed.
How has the request rate for commercial real estate loans changed over the past year?
Arriola: The request rate for real estate loans remains strong. While the velocity of loan requests may not be quite as high as it was in 2016 or 2017, we are finding that our sponsors are still very optimistic about the state of the market. Some experienced real estate investors may be waiting to see how much increasing interest rates and land costs rise before committing to new projects, but overall the economy and real estate market fundamentals remain strong enough to support new developments that are well-positioned and backed by qualified borrowers.
Which CRE lending sectors in South Florida are currently the strongest?
Arriola: From a lender’s perspective, there is very strong interest in new single-family home and multifamily development. South Florida’s residential population is booming—the U.S. Census Bureau recently found that the Miami-Dade/Broward/Palm Beach metropolitan area is now the eighth most populated in the nation, recently surpassing six million people for the first time—and our residential market is playing catch-up. Both local and national banks are vying for ground-up residential projects as well as the refinancing of existing residential properties.
Which South Florida markets are seeing the most lending activity and why?
Arriola: Apollo Bank operates across all of South Florida, with a presence in key residential markets and the chief business hubs. Virtually, every submarket is in growth mode as developers and investors are scooping up properties in the region. Areas that didn’t even have name recognition in the real estate market 10 years ago—i.e. Little Haiti, Miami Gardens, Tamarac, Pembroke Pines—are now almost fully built out. South Florida is attracting some of the most credible, well-capitalized real estate players in the world right now and they are making the local real estate ecosystem better and smarter.
What can you tell us about Apollo Bank’s approach to lending?
Arriola: At Apollo Bank, the quality and experience of the sponsor always come before all else. We look for borrowers with a clear vision and structured plan—preferably with a plan A, but also B and C—to deliver on their proposed projects. Apollo actively seeks out sponsors with a proven track record of success, realistic expectations that will keep them from being overleveraged and a healthy amount of liquidity in their real estate deals.
Image courtesy of Apollo Bank