South Florida’s office investment sales have increased over the past year, signaling a recovery from previous lows, though challenges such as distressed properties and discounted transactions persist.
According to CBRE data, the tri-county region recorded nearly $2.2 billion in office deal volume for the 12 months ending September 30, representing a 28 percent rise compared to the same period last year. This figure is double the $1.1 billion seen during the preceding year, which marked a five-year low for investment sales. However, current volumes remain below those of the pandemic-era market boom when South Florida saw $3.9 billion in deals during the 12 months ending September 2021.
Broker C. Todd Everett of Lee & Associates commented on the improvement: “It’s definitely gotten better than it was two years ago. It will come back like a Phoenix,” he said. There’s “starting to be an appetite for office.”
Financing options are gradually returning after being limited by higher interest rates in recent years. Commercial mortgage-backed securities and debt funds have resumed lending for office properties, while life insurance companies and pension funds are slowly re-entering the market. Banks continue to approach office loans with caution.
Chris Lee of CBRE explained: “The big banks are willing to selectively do high-quality office properties, and the local and regional banks are now making some office loans, and it’s very borrower specific,” he said. “They might want to see deposits increased by the borrower, and some recourse worked in.” He added that loan spreads have narrowed slightly but loan-to-value ratios have not changed much.
Several all-cash transactions were completed this year as well. Spanish billionaire Amancio Ortega purchased Miami’s Sabadell Financial Center at 1111 Brickell Avenue for $274.4 million last month without financing—a strategy that often allows buyers to negotiate lower prices due to reduced uncertainty for sellers.
Despite signs of recovery, distress remains visible in parts of South Florida’s office sector. R&B Realty lost its Gateway at Wynwood building through foreclosure after completing it in 2021.
Some owners managed to avoid foreclosure auctions by selling their assets instead. For example, Coral Gables’ Columbus Center was sold for $76 million after its previous owner faced foreclosure over an allegedly delinquent loan of $71.6 million.
Discounted sales have also been reported; Foundry Commercial sold Sawgrass Lake Center in Sunrise for $36.5 million—36 percent less than its purchase price six years earlier—and One Clearlake tower in West Palm Beach changed hands at a price nearly 26 percent below what its owners paid four years ago.
Brokers say these sales are largely driven by debt maturities forcing owners with floating-rate loans issued during low-rate periods into difficult decisions about injecting new equity or selling properties under pressure.
“The trades you are seeing in the market are largely due to debt maturities,” said Douglas K. Mandel of Marcus & Millichap.“If you put floating-rate debt on loans [issued] in 2022, I think you are in a bad situation… They are kind of forced to make a decision, whether they put new equity into a deal, or they sell it.” Mandel noted that discounted sales do not necessarily indicate widespread distress but reflect opportunities for investors seeking higher-quality buildings at lower prices.
Private investors and family offices have been active buyers during recent slowdowns as institutional investors begin returning cautiously after avoiding offices over the past two years.
Following twelve Federal Reserve interest rate hikes across 2022 and 2023—which made refinancing more expensive—the central bank cut rates twice this year by small increments but not enough to ease conditions significantly for landlords with variable-rate debt or those looking to refinance existing loans since benchmark Treasury yields remain elevated.
While property values remain somewhat suppressed due to ongoing capital costs, experts believe downward pricing pressure is starting to subside.
“I don’t think we are going to see ‘21 prices soon,” Lee said.“But we are absolutely above ‘23 pricing.”
