Summer’s Beginning

The heat and humidity is rising as March turns to April. Plodding the street for my daily steps becomes more moist by the day. The pool does not seem so cold when I take my post walk plunge. The spring leaf drop is nearly complete and the oaks are sporting new green, tender and perfect.


Fundamental Elements

As the covid pandemic plays bull in our china shop economy, anyone underwriting real estate values and risk would be wise to go back to basics.

Yesterday, the latest issue of “Commercial Investment Real Estate” (the magazine of the CCIM Institute) came to my mailbox – my real mailbox.  So, after sanitizing it, I sat down to read.  Its contents include a great article by Christopher H. Volk titled “10 Biases in Retail Investment”.  The author presents ten common cognitive biases that plague investors/underwriters in their analysis of retail real estate investment opportunities.  Some of the biases relate to misunderstanding structural differences between corporate bonds and net leases, but Volk points to five specifically labeled real estate cognitive biases that pertain to both private and publicly held assets:

  • “More highly valued real estate is always apt to deliver safer and assured returns.
  • Tenants having strong credit quality elevate real estate value, performance and safety.
  • The quality of real estate is evidenced by the yield (cap rate) at which it trades.
  • Differences in investment cap rates represent proportional risk differences.”


  • “Net asset value is an indicator of asset desirability and expected economic performance.”

Most of us have encountered these assertions in one form or another in offering memoranda or valuation reports.  Volk suggests these biases tend to come from loosely recalled or anecdotal experience – never supported by academic studies.

Obviously, rising tides float all the boats.  In good times, our biases are less likely to precipitate serious financial loss.  At low tide, though, hull wrecking shoals and spoil are more clearly revealed.  As we sort through the pandemic wrecked economy, we begin with few footholds.  Historic data, even recent historic data becomes much more unreliable.  This is particularly true in this downturn because we also face the prospect of significant, permanent behavioral modifications.

One beginning point we can latch onto is cost.  The replacement cost of a functional real estate asset represents the cost of production.  Yes, the hard parts remain – estimating site improvement costs, estimating profit, estimating depreciation from all causes and, of course, land value.  That’s why appraiser’s and underwriters rarely develop or rely on cost analysis in good times – too many areas that can be wrong or subjective or difficult to source.

But until a “post lockdown” set of sales and leases is completed, cost analysis has equal reliability with sales and income.

In estimating cost in our practice, we have always relied on Marshall Valuation Services Commercial Estimator Software.  To mark the moment, we took a stab at estimating the costs of typical commercial buildings that might be constructed in South Florida zip codes.  These prototypes are not actual projects.  Included in the portfolio are a suburban office building, a high-rise office tower (with structured parking), a distribution warehouse, a suburban apartment building, a limited service hotel and a full-service hotel (with structured parking).  The cost rank selected was above average.  Additions to the base cost were made for soft costs not included in the cost service and a 15% profit was added.  The delivered product is an estimate of the cost of the base structure without provision for site improvements or land value.  Hopefully, I’ll have energy for revisiting these numbers in future months.

cost summary snip

Stay safe.


CCIM Outlook 2017 – Storm Clouds

The Miami-Dade/Monroe District of the Florida Chapter of CCIM presented their fine Outlook Conference at the Coral Gables Country Club last week (January 18).  An outstanding array of speakers provided a useful current overview of the real estate economy and the current state and prospects of the Office, Industrial, Retail and Multifamily markets.  Here is a brief bullet point style summary from my notes.  The complete pdf records of the powerpoint files used by the speakers are available at .

Economy Overview – George Ratiu NAR Economist

  • Global economies in slowdown
  • We are back to “normal”
  • U.S. population up 8.8% in last decade
  • Consumers getting squeezed – especially younger people
  • Since 1960 – wages down 2.2%
  • Consumer Credit Growing (good in the short term, not so much in the long term)
  • Labor force participation declines
  • Consumer confidence – “tentative”
  • Business inventories lose momentum
  • Corporate balance sheets reflect cautious outlook
  • Inflation expected to be creeping up with interest rate hikes
  • Large caps slide, small caps heat up
  • Yield seekers move to secondary market – 6.7% to 7% caps
  • Capital markets flush with liquidity
  • Lending conditions tighter for small cap commercial real estate

Retail – Beth Azor – Azor Advisory Services

  • Occupancy up
  • Rents up
  • Cap rates down
  • Exception – South Beach rents falling from =/-$300/SF to =/-$150-$200/SF; Brickell Rents down
  • 7.9MM SF proposed plus Macy’s and Sears closures – Sole (NMB) on hold
  • Major sale – Palms at Town and Country – $285MM for 664k SF = $429/SF
  • What’s hot? – Pop up stores and Food Halls
  • Not so hot? – Men’s ready to wear, sporting goods, office supplies
  • Millenials spend 80% of food dollars eating out
  • Experience retail
  • Who bought the most shopping centers in Florida? Publix – 71 centers (22 in 2016, 23 in 2015, 26 in 2014)
  • Storm clouds!

Industrial – Jose and Sebastian Juncadella – Fairchild Partners

Demand Drivers

  • Population – TriCounty area is the 8th most populous in the US
  • Visitor growth – 15.5 MM in 2015
  • Florida has 6 of the 20 fastest growing areas in the US
  • 65% of the population growth is from other countries (last 5 yrs)
  • Visitor growth – 15.5MM in 2015 (8MM domestic; 7.5MM intl.)
  • 136.1M jobs created in leisure and hospitality in 2015
  • Record hotel occupancy
  • Port of Miami – $28 billion economicO impact; 207k jobs
  • Miami Intl. Airport – $33.7 billion; 282k jobs

Market Statistics

  • 218.8MM SF inventory; 3.7% vacancy
  • 2.8 MM SF demand based on population growth
  • 2.1 MM SF of deliveries expected
  • New Class A product features wider columns, increased truck courts, taller heights

No Storm Clouds here!

Office – Donna Abood – Avison Young

  • 2600 buildings housing 65.6 MM SF with 8.9% direct vacancy and 9.1% vacancy overall
  • Class A asking rates at $41.26/SF; Class B $27.99
  • New space should meet design preferences of millenial workers
  • Continued improvement expected in 2017

Multifamily – Arnaud Karsenti – 13th Floor Investments

  • Trump effect – Tax reform, loosening of regulation, infrastructure spending
  • Interest rate increases will push more households into rental housing
  • Demographics are favorable to support job and wage growth and hence, rent growth
  • Florida ranks second nationally for net in migration – 1000 new residents per day
  • Inferred demand is 56.3K units per year
  • Miami-Dade exhibits lower home ownership rate than the state – 50.6% vs. 63.9%
  • New construction will outstrip demand for the next few years but a massive oversupply does not exist
  • South Florida fundamentals remain strong
  • Rent growth projected to be greater than 3% from 2018 to 2020
  • SoFl multifamily cap rates in a range from 4.9% to 5.5%
  • Conclude – Partly cloudy, but clearing

Capital Markets – Manny DeZarraga – HFF

  • Economy heading into 2017 generally looks good
  • Cost inflation limiting new supply
  • Occupancies increasing – near peaks
  • Institutional investors allocating more dollars to commercial real estate – 2.1% in 1980 vs. 8.9% in 2016
  • DOW up 25% in January 2017 over 2016
  • Oil prices down from 2014
  • Investors continue flight to quality
  • Office sector investors looking to suburbs
  • Multifamily could see some cannibalization in urban areas
  • Ample liquidity on both mortgage and equity sides
  • Some investors pulled properties from market anticipating improving tax treatment
  • Trump buoys dollar
  • Interest rates up
  • LIBOR moving up, but still “super cheap”
  • Transaction volumes lower but single trades up
  • Foreign investment down
  • $8.324 billion dollars in sales in Miami in 2016
  • Bigger deals to foreign investors
  • Conclude – Mostly sunny

Local Economy – Tom Hudson – WLRN

  • SoFL population exceeds 6MM
  • Unemployment down to =\-5% from a peak of =\-12% in 2010
  • Avg. weekly wages increasing
  • Private sector jobs up 20%
  • Housing costs disproportionately high
  • GDP growth of major South American trading partners declining, but expected to begin to improve
  • Outlook – partly cloudy

Great job to all who put the program together!

We’ve Moved!

After 30 years in downtown Miami, we have relocated the Miami office to home office facilities in Pinecrest.

We’re at:

Blazejack & Company
5890 SW 100th Terrace
Pinecrest, FL 33156


This was not an easy decision.  We have always felt that our downtown location contributed to our ability to monitor the pulse of the market but the nature of how work gets done in the financial services sector has changed, undercutting that locational advantage.

Cost and speed are the preeminent considerations in the real estate service sector today.  Whereas normal assignment delivery timeframes once centered on 30 days, now three weeks is often too long.  In a rising market, this might be expected.  But as the market approaches inflexion, sacrificing experience for a few hundred or even a few thousand dollars in fee savings becomes fraught with increasing risk.  Just one mistake and all those fee dollars saved on dozens of deals, are flushed away.  So let me suggest that as this market continues to slow, take a little more time and be a little more thorough with real estate due diligence.

Coupled with this increased competitive environment, the declining efficiency of automobile transportation in Miami has been doubly frustrating.  Since I lost a sister to “an accident” and because I subsequently worked as a bike/ped advocate in her memory, I am not as keen on taking shortcuts with day – talking on the phone and/or texting while operating a vehicle.  That means my commute time in the car is truly dead time.  Using transit and going on foot is great, but sweaty most of the year in South Florida.

And our new technology doesn’t really require us to be physically proximate in order to collaborate closely.  We can be at home, in the co-working space of our choice, or in the local coffee shop.

We will save time commuting.  Time I hope we will spend on the street thinking about how our client’s properties are situated, physically, legally and economically.

We look forward to providing you with the best real estate consulting we’ve ever done and you have ever received.

Thanks!  Happy New Year!

Tom Blazejack



The availability of data has improved due to online resources and increased Public access to government-funded research. Appraisers are always working on the confirmation of  and understanding of recent transactions. We are having a difficult time confirming the sale of notes sold by local lenders. When a property is in distress or loses tenants the outstanding mortgage amount can be less than value of the property. The lender will often sell the note at a discount. The note buyer then steps in and forecloses the loan. The terms of the note purchase are not disclosed.

Argus Consulting

Just a quick reminder that in addition to our Real Estate Appraisal practice, Blazejack & Company provides Argus consulting services for commercial real estate service providers as well as prospective buyers and sellers of commercial real estate. Joseph Blazejack has a Master’s Degree in Real Estate and is certified in both Argus and Argus Enterprise Software. Joseph has more than 5 years of experience using Argus software and has worked across multiple property types including retail, office, multi-family, and industrial. 

Services provided include:

                       ·         Auditing of Argus Models provided as part of Offering Memoranda

·         Building Argus Models from excel Rent Rolls & Pro formas

·         Editing Argus models included in OMs with the buyers assumptions

·         Lot/Unit sell-out models

·         Comprehensive explanations of the software’s calculations and results

 So if you’re looking to better understand the workings of an existing Argus model or you would like to add an Argus analysis to your due diligence or offering package without the ongoing expense of a license and training, give Joe a call at 786-218-7281.  He can work within your budget and, if you need expanded analysis, we can team him with one of our licensed professionals.

 Thanks for your consideration and have a great summer!

Invest Florida Show – Episode 87


I had a chance to chat with Eric Odum and Steve Silverman about the Miami CRE market.

It’s here.

To summarize.  A dynamic market with game changing completions just occurring.  Please let me know your thoughts.





2016 Capitalization Rate Expectations

2016 Capitalization Rate Expectations

As an extension of the CCIM Outlook Conference presented by the Miami-Dade/Monroe District of the Florida Chapter of the CCIM Institute, Blazejack and Company undertook an unscientific survey of attendees regarding their expectations regarding real property capitalization rates in 2016.  Simply stated, the capitalization rate in a transaction is the percentage indicated when the net operating income is divided by the sale price.  For instance, if a property that was producing net income of $7,000 per year sold for $100,000, the indicated capitalization rate would be 7.0%.

Our survey was simple:

What do you think will happen with real property capitalization rates in South Florida in 2016?

a. decrease substantially (higher values)
b. decrease slightly
c. not much change
d. increase slightly
e. increase substantially (lower values)

Follow up question – why?

The results:

Survey results 2016

The results reinforce what the speakers had to say about the market(s). Here is a summary of some of the comments cited by survey participants for their opinions:

Among respondents who expect a slight decrease:
• Scarcity of product
• Hot market
• Capital markets appetite for deals produces continued competition

Among respondents who expect cap rates to stay roughly the same:
• Continued demand (multifamily)
• Capital moving from stocks to real estate

Among respondents who expect a slight increase:
• Greater perceived risk generally
• Stock market/global rist
• Saturation (retail)
• Increased global risk
• Inflation
• Interest rates

The PwC/Korpacz Survey has been undertaken quarterly for more than a decade and it is a recognized “ball parking” source for capitalization rate indications – particularly for rates applicable to institutional grade product. The survey provides valuable data on a host of topics, including yield and growth rates as well as retention percentages and TI expectations. Some of the capitalization rate data from their most recent survey follows:

Commercial Cap Rates

Here is how one capitalization rate indication has changed in the response to the great recession and the recovery that has followed. This is the South Florida Office capitalization rate indication.

S FL Cap Rates

Of course, different participants in the real estate market regard capitalization rates from different perspectives. Investors (and lenders) who depend on leverage tend to be more concerned with mortgage interest rates. Here is a simplified mortgage/equity calculation using an interest rate of 4.5% and assuming a loan to value ratio of 65% and a 30 year amortization schedule. The indicated mortgage constant is 6.080%. In this instance we plugged in an equity return of 9%.

Band of Investment

Lenders can use the same assumptions (without the need to make assumptions about the equity position) to determine what minimum capitalization rate will ensure the debt service coverage they seek. Since the great recession traditional lenders have been more focused on credit and cash flow than they have been on collateral. They simply multiply the coverage they seek by the loan to value ratio and they multiply the result by the indicated mortgage constant. Here is the “Bankers Cap Rate” calculation:

Bankers Cap Rate

After holding interest rates at historic lows, the Federal Reserve finally acted to move interest rates up 25 basis points and indicated that further upward movement was to be expected. However, falling oil prices and a global economic slow down seem to be nixing that intent.
Cap rates are great, but in the digital age many more investors (and virtually all institutional investors) are more focused on IRR (internal rate of return) or the yield rate. Yield rates are more explicit than cap rates. Capitalization rates are applied to a single year stabilized net income estimate. Yield rates are used to discount the full slate of income cash flows anticipated from ownership, including the property sale at some future date. Yield rates are suitable for direct comparison to returns anticipated from alternate investment options. Since the pWc Korpacz survey also provides indications of yields sought by investors, we can use the data to examine the spread between yield and cap rates. This provides some indication as to whether there is “cushion” to absorb interest rate increases without a cap rate increase. Here is a graph showing the historic relationship between yield rates (IRR) and cap rates.

S FL Yield and Cap Rates

Since the 1Q2008 survey, the average spread between the average quoted Yield Rate and the average quoted Capitalization Rate has been 1.35%. It has fluctuated between .67% and 2.70%. As of the end of 2015, the spread was 1.15%. So, while there is some cushion for cap rate movement, there is not a lot.

Thanks again for participating in our study. We hope to be able to work with you on your most interesting real estate problems in the coming year.

Drone flyover video of Brickell CityCenter

Here is a cool video of a drone flying over and through the construction of the new Brickell CityCenter development in Miami in May 2015.

Put your seats & tray tables in their upright positions, click on the link below, and enjoy!

Source:  thenextmiami blog at

– Jay Mlinar

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Welcome to the site of Blazejack & Company’s online market commentary, dealing with issues pertaining to commercial real estate in South Florida and beyond.