01/08/09

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Retro zoning

This 17.2-acre parcel at the corner of Wiles Road and Coral Ridge Drive in Coral Springs is at the center of Scott Brenner’s rezoning plan.

A Coral Springs parcel initially zoned for commercial development — before a big condo developer got it rezoned for medium-density residential — is now reverting back to commercial zoning. This saga illustrates the dramatic swings in South Florida's condominium markets.

Real estate veteran Scott Brenner, CEO of Fort Lauderdale-based Brenner Real Estate Group, and his co-investors, closed a time-pressed $7.5 million purchase of the 17.2-acre property from struggling homebuilder WCI Communities last summer.

Back in 2004, WCI (founded in 1946 as Coral Ridge Properties) had convinced the City Commission to rezone the property from commercial to residential, and planned to develop 145 three-story townhouses. But before WCI went vertical, condo values plummeted in the oversupplied market. When city officials denied its request to instead develop a rental apartment community, WCI wanted the property off its books quickly.

WCI gave Brenner just a couple weeks to close the purchase, recalled Brenner's mortgage banker Paula Ingram, who was with Cohen Financial's Miami office at the time.

Since then, Brenner and his partners have been endeavoring to get the site at Wiles Road and Coral Ridge Drive rezoned back to commercial.

"And it's going rather well" now that the group's petition to rezone from RM-15 (low-medium density multi-family) to B-2 (community business) had its second reading at a City Commission meeting in mid-January, Brenner told The Real Deal. "We've done most of the heavy lifting."

The Fort Lauderdale and West Palm Beach-Boca Raton condo markets held up fairly well amid sharply lower sales of existing units in 2006. But last year, according to the Florida Association of Realtors, median prices of existing condos fell an average of 10 percent in both the Fort Lauderdale (to $187,600) and West Palm-Boca Raton (to $198,000) metro areas.

Brenner, who oversees a multi-faceted investment, management and brokerage operation, envisioned a solid opportunity to develop a shopping center at the intersection. Home Depot is also planning a 150,000-square-foot store across Coral Ridge Drive.

The property, now owned by the Brenner-led Wiles-Coral Ridge LLC, could accommodate a maximum gross leasable area of about 141,000 square feet under the requested rezoning. Brenner foresees a "box"-type anchor store with perhaps a "junior anchor" such as a pharmacy or bank. "It's a nice site; the demographics are quite attractive," Brenner added.

While Brenner conceded that demand for retail space has diminished somewhat in the current market, his group is working with a leasing agent to gauge interest and help determine the most appropriate configuration.

Later in the year, the group expects to formally submit its favored site plan, with construction potentially getting under way in early 2009. Still, the current ownership group may flip the property to a vertical developer after plans are approved and tenant negotiations progress, Brenner acknowledged.

With so little time to finance and close the deal last summer, Brenner, with Ingram's assistance, sought a pre-development type loan (as opposed to an acquisition/construction loan) through Chicago-based Wrightwood Capital. This allowed Brenner's group to quickly buy the real estate and provided additional funds to carry the property and pursue the entitlement revisions.

Wrightwood Capital looks to fund such opportunistic plans through variously structured debt, equity and hybrid capital. Predictably, traditional lenders are especially wary of lending against residentially zoned real estate in South Florida these days, Ingram said. "It's an easy deal to say 'no' to," she acknowledged.

Amidst the credit crunch, certain non-traditional lenders, like Wrightwood, are willing to fund experienced borrowers with hefty balance sheets such as the Brenner team. And Brenner has not only participated extensively in a variety of commercial and multi-housing developments, he's also been an active real estate fund manager, mortgage banker, broker, property manager and attorney.

With a loan structure Brenner characterized as "creative," Wrightwood's $9.45 million "acquisition and re-entitlement" loan funded the purchase, along with ongoing pre-development functions including the re-entitlement processing and design work. That's roughly 85 percent of the expected costs before the group seeks construction financing or flips the property to another developer, Brenner indicated.

Wrightwood is not formally a partner in the Wiles-Coral Ridge landowner venture. But the lender might be entitled to a "kicker" participation payment depending on whether Wrightwood also becomes the construction lender and on property appreciation prior to being flipped or refinanced.

Brenner wouldn't disclose the interest rate on the full-recourse, 18-month (with options) loan, but a published report says it floats at 335 basis points over LIBOR.

Whoever ends up developing the center will be seeking tenants in a chilled retail environment, with credit pull-back, a soft housing market and a slowing economy. Nevertheless, it appears they'll have at least a few aggressive bidders looking to buy the project as its income stream stabilizes.

Retail property investment activity in growing Broward County was on the frantic side in 2007 despite the diminished availability of attractive acquisition financing during the later months. Propelled by a few choice regional mall transactions, the Broward market leaped from 27th place in 2006 to the fourth most active U.S. retail property investment market last year. This was among the 53 tracked by New York research firm Real Capital Analytics.

RCA calculates Broward County's average 2007 retail capitalization rate (for transactions of $5 million and up) at 6.1 percent, in line with neighboring South Florida markets and notably stronger than other southeast metro areas. The average sales price came to $285 per square foot of leasable space.

Rutherford, N.J.-based Morris Company recently purchased the in-line space at the Home Depot-anchored Fountains of Miramar from Davie-based Ross Matz Investments and Parkland-based Newman Realty Group, for $39.5 million.

The 139,300-square-foot retail center, along SW 160th Avenue in Miramar, is about the size of Brenner's plans (not including the corporate-owned anchor store) and came in at just about the per-square-foot average.

Meanwhile, Bonita Springs-based WCI appears to have avoided a once-looming bankruptcy filing by modifying its credit arrangements with key lenders in mid-January.