Borrower Profile: Oak Row Equities dials up Miami focus

Oak Row Equities has plans to expand its scope in Miami further as it finds more lenders willing to finance activity across the South Florida market. 

Following the $215 million loan the New York-based firm secured last week alongside L&L Holding Company via Bank OZK for a Miami mixed-use development, Oak Row wants to expand its multifamily footprint in the city.

Erik Rutter, managing partner at ORE, told Real Estate Capital USA the manager has been all-in on Miami since 2018 when the firm first began to look for fast-growing markets further afield than its New York headquarters.

Rutter said since March 2018, the firm has acquired another 4 million square feet of developments approximately, including an estimated 1,600 multifamily units in the pipeline, about 500,000 square feet of office space between pre-development and construction, and close to $1.75 billion in total development costs including debt and equity allotments. “We are looking to continue to grow,” Rutter said.

At present, ORE managing partner David Weitz has moved down to Miami to operate out of the city full-time and Rutter said he is also in the process of relocating. The duo – who previously worked at Tishman Speyer together prior to ORE’s 2017 launch – went from splitting real estate investment activities in half between New York and a high growth market to now being 100 percent focused on Miami and South Florida at large.

Rutter said ORE has found success in buying deals off-market after conducting research on Miami’s various submarkets and neighborhoods, be it in Edgewater, Wynwood, Miami Beach or other locales. A key factor in due diligence is macro and micro demand drivers.

“When assessing an acquisition, we focus on the old mantra in real estate development. ‘location, location, location.’ Beyond anything else, location is where we start our thesis building and where we end our thesis building,” Rutter noted. “In addition, we typically are not chasing widely marketed sites that everybody is looking at. Our value add to the capital markets has really been being able to pry sites loose off market.”

This approach was exemplified in ORE’s purchase of Wynwood Plaza, the deal the firm is working on with L&L. The firm assembled 15 parcels of land from five different sellers all off-market because Rutter said they wanted an anchor piece of the project to be on Northwest 29th Street and 1st Avenue. The inbound asset will share the block with R&B Realty Group’s Class A office, The Gateway at Wynwood.

Capital conditions

The firm looks for long-term relationships when it comes to lending partnerships. “Construction documents take a long time to negotiate, it’s easier to work with a partner we’ve worked with in the past,” Rutter said. The firm also factors in leverage point, interest rates and certain covenant inclusions as important in a lender. “We typically like to find a partner that is not only going to be a good lender on one asset, but on multiple assets.” 

For future opportunities, Miami and South Florida multifamily ranks atop ORE’s priority list.

“Depending on the submarket and the neighborhood, we think that there are areas that are really supply-constrained,” Rutter said, noting the top question is still about multifamily supply coming online in Miami. “We believe long-term in multifamily down here.”

Rutter said there are also certain instances where ORE is bullish on new construction office in Miami too. The firm is notably building some office assets in the city and is similarly selective on its location choices.

“We’re not highly leveraged guys, we’re somewhere between 50 to 65 percent loan to cost depending on the deal,” Rutter said. “The market has also shifted a bit, leverage has gone down, so if you were typically at 65 percent LTC, you’re probably closer to 55 to 60 percent LTC today just given the tightening of the market.”

The firm steers away from low cap rate multifamily, with Rutter noting there are still some sellers who have not adjusted pricing at all, which in turn creates a bid-ask spread on existing stabilized core multifamily assets.

“We find ourselves most competitive in either drumming up our own business off market, or when there’s a story for why the site is being sold,” Rutter said. “When someone is just looking for the highest number and the fastest closing, it’s not really that interesting.”

Weitz said ORE likes – to the extent possible – to develop counter-cyclically. “With everything going on from a macro-economic perspective, I think Miami still does have some pretty strong tailwinds and we have a lot under development in the pipeline right now and the goal with those existing projects is to really move them along expeditiously regardless of everything else that’s going on in the economy and globally,” he said.

Once shovels are in the ground on a quicker timeline, Weitz said ORE is ideally delivering a product into a market that is on its way up rather than trending downward. “With great equity and debt behind us, we’ll be able to deliver projects when maybe other people aren’t as fortunate and capitalized so the goal really is to develop what’s going on in the existing portfolio right now and then you open your eyes back up in 24 months with the markets a lot better and you’re delivering great product into a great market,” Weitz said.

More movers

ORE’s singular focus on the region has been supported by an increased influx of blue-chip, institutional developers, according to Weitz. He noted Related Group, Sterling Bay, Lennar, AMLI and Kushner, among others, are recognizing Miami in general as a viable market, and this includes neighborhoods such as Wynwood that have seen outsized growth in a short period of time.

“The influx of these real institutional blue chip quality developers is also bringing that same type of institutional nature of equity and debt to the market as well, which Miami has historically never seen up until very recently,” Weitz said.

He continued: “What you’re seeing with higher quality capital and higher quality developers, owners, sponsors and lenders is you’re getting more thoughtful projects, you’re getting projects that are built faster and you’re getting projects that are delivered on time – and that’s a big change for Miami.”

Atop the institutional evolution, Rutter said Miami is also expanding the slate of its commercial real estate use cases to move beyond the previously famed designation as one of the condominium capitals of the world. “Now you have a huge spring in multifamily, which I think allows a workforce to really begin to build a lifestyle here,” he said.