South Florida’s office investment sales have shown signs of recovery over the past year, though challenges such as distressed assets and discounted transactions persist amid ongoing economic uncertainty.
According to CBRE data, the tri-county region saw nearly $2.2 billion in office deals during the 12 months ending September 30, a 28 percent increase from the previous year. This figure is also double the $1.1 billion recorded in the same period ending September 2023, which marked a five-year low for investment sales. However, current deal volume remains below levels seen during the pandemic-era surge; in the 12 months ending September 2021, South Florida closed $3.9 billion in office transactions.
“It’s definitely gotten better than it was two years ago. It will come back like a Phoenix,” said C. Todd Everett of Lee & Associates. There’s “starting to be an appetite for office.”
The financing environment is slowly improving after tightening due to higher interest rates in recent years. Commercial mortgage-backed securities and debt funds are returning to office lending, while life insurance companies and pension funds are re-entering gradually. Banks remain cautious about making new loans on office properties.
“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,” said Chris Lee of CBRE. “They might want to see deposits increased by the borrower, and some recourse worked in.”
Lee noted that lenders’ profit margins have narrowed somewhat while loan-to-value ratios have only slightly improved.
Some notable all-cash acquisitions occurred this year. Spanish billionaire Amancio Ortega purchased Miami’s Sabadell Financial Center for $274.4 million last month using cash—a strategy that can help buyers negotiate lower prices by removing financing uncertainty.
Despite these positive trends, distress continues to affect parts of the market. R&B Realty lost its Gateway at Wynwood building through foreclosure after completing it in 2021. Other owners managed to avoid foreclosure auctions by selling their buildings; for example, Coral Gables’ Columbus Center was sold for $76 million following a foreclosure suit over an unpaid loan.
Discounted sales were also reported: Sawgrass Lake Center changed hands at a price more than one-third below its 2018 value earlier this year, while One Clearlake tower in West Palm Beach sold for nearly a quarter less than its acquisition price four years ago.
Broker Douglas K. Mandel of Marcus & Millichap explained that many property trades are being driven by maturing debts: “The trades you are seeing in the market are largely due to debt maturities,” he said. “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.” He added that discounted sales do not necessarily indicate widespread distress but can allow investors greater purchasing power for higher quality assets.
Private investors and family offices have been active buyers during this period of slowdown as institutional investors pulled back from office properties but now appear to be returning gradually.
Although the Federal Reserve reduced rates twice by 25 basis points each this year following twelve hikes between 2022 and 2023, experts say these cuts have not significantly eased conditions for landlords with variable-rate debt or those seeking refinancing since long-term Treasury yields remain elevated.
Chris Lee summed up pricing expectations: “I don’t think we are going to see ‘21 prices soon,” he said. “But we are absolutely above ‘23 pricing.”
