Torose Capital, a Miami-based investment company that recently opened its doors, is taking a contrarian approach to building its portfolio by focusing on value-added office, retail and mixed-use transactions.
“As an investor, we have always been contrarian in nature,” said Scott Sherman, founder and principal. “We also believe that not all retail and office are the same. The headlines for office have been negative, although the coverage of retail has become more favorable in recent months. But neither of these sectors have been in the good graces of investors like industrial and multifamily have been for the past few years.”
Sherman opened the doors to Torose Capital after launching Tricera Capital, another Miami-based investment company through which he assembled a portfolio of more than $700 million of retail properties totaling over 2.5 million square feet. While Sherman launched Tricera several years ago at the height of what is now known as the retail apocalypse, Torose is making its debut at a time when the market is seeing a different set of challenges – less demand for office properties and rising interest rates.
This means the firm will be very careful in its asset selection, particularly in the office sector.
“We will be looking for a story, for a market or a location that is either unique or irreplaceable, and a situation in which we can create some kind of value to make that property desirable for tenants,” Sherman said. “What we won’t do is buy a generic office building that will just be competing against 30 other similar office buildings. That strategy is risky.”
The company’s geographic footprint will focus primarily on both coasts of Florida, targeting properties of $10 million to more than $100 million in core markets in Miami, West Palm Beach, Fort Lauderdale, Tampa, St Petersburg and Sarasota, along with Nashville, Raleigh-Durham and Atlanta.
“We also can see opportunities on the horizon in the debt markets and could play in that sandbox too,” Sherman added. “But I think because of the rising rate environment we are all dealing with, we are starting to see a repricing of assets that is creating some good buying opportunities.”
As for the bigger picture, debt markets today are different from anything Sherman has seen in his career. But there is a key difference between today and the GFC: liquidity.
“There is a lot of capital out there, but it is expensive and a lot harder to get because many lenders are either on the sidelines or they’re priced out because of the cost of their warehouse lines – the banks that provide their warehouse lines don’t really know how to price risk today. This is creating a lot of uncertainty that is leading lenders to be extra conservative or to even sit out for a bit,” Sherman said.
The current situation is exemplified by a deal Torose is working to close right now, with Sherman noting the number of lenders wanting to participate is much lower than it would have been months ago.
“A year ago, we probably would have had 15 term sheets for all different types of lenders, and we’d pick a horse and go forward,” Sherman said. “Today, we’d be happy if we had two good options on the table. There are a lot fewer options out there, but there are still options and the ability to finance.”
There are similarities between today’s market and when Tricera was launched. Now and then, difficult circumstances can create opportunities, Sherman noted.
“It is never the perfect time to launch a company, but you have to start somewhere. And in a market today, you have to be extra cautious,” he said. “But there is also a lot of money to be made in a market like this. The last 10 years we had a run-up where it was possible to do well and look smart without actually doing anything. Today, it is harder to get things done and it takes more creativity and experience to find value and make money.”