JPMorgan last week funded a $430 million construction financing package on behalf of Monroe Capital and Witkoff Group on The Shore Club, a historic Miami Beach hotel that is being converted into a luxury hotel and residential property. Lotus Capital Partners arranged the financing.
The financing is one of the largest-ever construction deals in Florida and will be used to redevelop the property at 1901 Collins Avenue into the Shore Club Private Collection, said Faisal Ashraf, managing partner of New York-based capital advisory firm Lotus Capital.
Although there has been a well-documented dearth of capital for acquisitions, refinancings and construction, the situation on the ground is more nuanced, Ashraf said.
“For a financing like this to succeed, you have to drown out the existing financing themes, which says there is very little capital available for development, hotels or luxury condos, and believe that if you have a great story to tell and great strength in the upper echelon of the Miami market, there will be an audience with money interested in financing it,” Ashraf said. “We approached a highly selected, small group on this transaction because we had such faith in the story that we were going to tell.”
The story behind the project includes a three-acre location on Miami Beach and the changing nature of where and how people are living, which means Miami Beach is more of a 12-month community than it was in the past. The project also saw a significant number of pre-sales for the condo portion of the deal.
Lotus also saw some reverse inquiries from lenders during the process as the market started to hear about the deal, Ashraf added. “It underscores that for the right story and the right vision, there remains attractive capital out there,” he said.
Upon completion, the Shore Club will consist of a private 49-unit ultra-luxury residential resort and a 76-key boutique hotel. The trophy oceanfront hospitality asset, which will feature a newly constructed 18-story tower, will be managed by Auberge Resorts.
“When redeveloped, I think the new Shore Club will rank as one of the three or four most luxurious real estate assets in the Americas,” Ashraf added. “The existing asset was a great asset, with a ton of history but needed someone to breath their vision into that.”
Kyle Asher, co-head of Chicago-based Monroe Capital’s opportunistic credit group, said the deal fits into the firm’s profile in which it targets complex transactions. The group is primarily a credit investor, but in its real estate business it can do specialized equity deals which fit with its overall mandate. “With the recent regional commercial banking challenges and the impending maturity wall in commercial real estate, it is a challenging market to access capital. But we are in a unique position where we can go out and do high-quality financings and close transactions with great partners,” Asher said.
Since the start of the covid-19 pandemic, Monroe Capital has been investing more in the Sunbelt markets.
“When covid hit, the real estate market as we knew it was really upended and there were significant challenges for many investors,” Asher said. “The music stopped for many competing firms but Monroe is a growing asset management firm with a healthy portfolio, which allowed us to close deals very quickly. We really started to focus on the Sunbelt, in particular South Florida, and began to expand our business in this market.”
The firm wants to continue to build out its specialization in complex deals. “These deals can occur in real estate where there is a high quality counterparty with a complex deal that needs a trustworthy lender and partner. The business we have built up is one in which high complexity does not necessarily equate to high risk. In this real estate market, covid seems like it was just the tip of the spear for the dislocation of real estate. In today’s market, even high quality counter parties are having issues financing conventional deals,” Asher added.
Ashraf believes there will continue to be more investment and financing activity in Florida, noting the state is already the world’s 16th largest economy in terms of GDP size. It is also a large beneficiary of residents and capital migration since the covid crisis.
“We have had a lot of success in financing assets in Florida in the last couple of years which now accounts for over one-third of our business,” Ashraf said. “The story of Miami Beach is one that needs to be told with a lot of nuance, and the story we are telling is the coming of age of Miami the city as a destination, the global luxury boom, the quality of the sponsorship – those are the arguments that have driven it to become the most important hospitality corridor in the United States.”
That said, it continues to be difficult to line up financing.
“This doesn’t change my belief that capital is far more constrained than it has been for the past 10 years. There are fewer lenders lending today and every step feels like it’s uphill, especially for development financing,” Ashraf said. “We have a number of large financing assignments in front of certain lenders that are in closing. Capital is available, but it definitely feels like you have to fit within the tighter selection criteria.”