COVER STORY, MAY 2004

KEYBANK BROADENS SOUTHEASTERN REACH
KeyBank ventures “out of the snow and into the sun” with four new Florida offices.
Julie Fritz Hunt

‘National in perspective — local in practice’ is one of KeyBank Real Estate Capital’s (KBREC) philosophies. A line of business of Cleveland-based KeyCorp, the full-service real estate finance organization is the fifth largest real estate capital lender in the United States. KBREC completes nearly $10 billion a year in originations and boasts a portfolio of more than $24 billion in permanent loans.

Until recently, the ‘local in practice’ part of KBREC’s philosophy included a relatively small presence in the Southeast. The firm had 28 locations, two of which were in the Southeast: Washington, D.C., and Tampa, Florida. Late last year, the firm added a third southeastern location with an office in Miami, which represents the first leg of its southeastern expansion.

Case

“The Southeast was our last frontier,” explains John Case, executive vice president and national sales manager of KBREC in Cleveland. “Our strategy was to create market presence in specific areas, and once we accomplished that, move on to other specific areas. So as we continue to expand out of the snow and into the sun, we wanted to concentrate in the Vegas, Phoenix, Dallas, etc. areas first. And as we got those in place, we said that our next piece of the puzzle would be the Southeast.”

Case continues, “[This has also] allowed us to diversify substantially in that we have not historically been a very significant condominium lender. There are significant condominium opportunities in Florida, and we wanted to be a bigger player in the condominium marketplace in Florida. We also wanted to focus on having a homebuilder presence in Florida, which we have not had in the past. So about 18 months ago, we decided to begin by opening a full-service lending office in Tampa. We started there with a loan production officer, a credit officer, a loan closer and processor. I’m happy to say that that office was in the top 25 percent of all my offices last year.”

The Miami office opened in December 2003, and its success prompted KBREC to open three more Florida offices in 90 days. KBREC now has locations in Boca Raton, Orlando and Jacksonville, bringing its total number of offices to 32. “We’ve opened up 10 offices in the last 40 months, and I’ve never seen an office kick off with more opportunities than our Miami office has,” says Case.

Carroll

“Having the Tampa office open for the last 18 months has been a great springboard for us in the state of Florida,” says Philip Carroll, senior vice president and Southeast regional executive for KBREC in Miami. “They’re already generating $100 million to $150 million of new commitments every year. During the rest of 2004, we can, on a combined basis, close about $600 million in commitments in Florida. Going forward, we would like to do at least $1 billion a year in this region, and I think it’s highly achievable given the growth and level of development activity in these markets.”

Opportunities Abound in Florida

The Sunshine State has always been an attractive vacation destination for tourists, and about 1,000 people move to the state of Florida every day. According to Carroll, of those 365,000 new residents each year, approximately 30,000 move into Miami, and about 30,000 move into Broward County/ Fort Lauderdale each year.

“So we’ve had huge demand for housing,” Carroll comments. “In the Boca Raton and Miami offices, the predominance of the pipeline is in the high-rise condominium construction area. We’ve probably got about $600 million or $700 million in deals that we’re looking at that are for high-rise condominiums. There are a lot of great opportunities out there because the market is still very strong for residential. We see this as a niche that we can have a lot of impact in.”

KeyBank Real Estate Capital helped fund a loan for the development of Gulfside Development’s Downtown Dadeland mixed-use project in Miami.

KBREC closed two large transactions in March: a $23 million construction loan for a power center in Stuart, Florida, which is being developed by DeBartolo Development; and a $17 million construction loan for a rental apartment project in Miami. In April, the firm closed a $125 million construction loan for a retail/multifamily project across from the Dadeland Mall in Miami (please see sidebar on page 101 for more details on this transaction). “We also have a number of other transactions that we’re underwriting,” Carroll notes. “Frankly, it’s very exciting.”

KBREC is using Florida’s size and social diversity to its advantage. “You’ve got four cities that are well over 1 million in population: Orlando, Tampa, the Broward County/Fort Lauderdale area and Miami,” explains Carroll. “Jacksonville is getting there. The people in the development community in Jacksonville see the city as what Atlanta was like 20 years ago. They see the kind of growth ramping up there that’s similar to what they saw in Atlanta in the ’80s. It’s very exciting up there.”

In terms of social differences in the different cities, there is a big influence from the northeastern United States on the east coast of Florida — from developers and residents. “A lot of the developers in southeast Florida came from the Northeast and Canada over the last 20 years, and settled and developed here,” says Carroll. “On the west coast of Florida, you’ve got a lot of Midwest developers that have moved in over the last 20 years and have really got things flowing there. The visitors to that part of Florida are also primarily from the western and midwestern United States. So there are different social factors going on. Also, Orlando, driven by the theme parks and the tourism trade, is just exploding with job growth. That, of course, drives housing needs.”

Carroll says that on the multifamily rental side, while there hasn’t been as much activity in the last 24 months, given low interest rates, demand is coming back due to Class B residential projects that are being converted to condominiums.

“Some parts of Florida, like southeast Florida, are constricted by the Everglades and the Bay on the east side,” says Carroll. “So the availability of land for single-family homes is being used up very quickly, and that’s driving a lot of this mid-rise and high-rise multifamily construction and development in southeast Florida.”

Looking beyond the multifamily sector, retail is driving a lot of KBREC’s pipeline in South Florida, according to Carroll. “Retail is very strong down here and it’s also being driven by the fact that there isn’t a lot of land available remaining to be developed for retail,” he says. “So there’s some redevelopment of existing retail and a little bit of new retail up to the north of Palm Beach County.”

As for the industrial/warehouse sector, Carroll says it’s coming back. “The industrial market had a pretty bad slump in the last 3 years with very little new construction, but that’s coming back in a big way. Miami Airport freight volume is steady, where it’s been for the last 3 or 4 years, and we see some opportunities there,” he adds.

Future Southeast Offices

KBREC plans to open an Atlanta office next year and is considering a location in Charlotte, North Carolina, in 2006.

“There are two reasons why Charlotte and Atlanta are coming second to opening up the Florida offices,” says Carroll. “Number one, the Florida market has been a strong market throughout this past 4-year recession, and with the population and job growth that’s going on in the major Florida cities, I think that it’s a very active and good environment to be financing real estate in today — as well as yesterday and tomorrow. In Atlanta and Charlotte, there was some softness in the multifamily housing markets in the last 3 years. I hear that things are coming back in those markets, so the timing for us to move into those markets in 2005 is more appropriate than it would have been a year ago. The second reason is our ability to assemble our personnel and open up our offices.”

Another reason KBREC decided to enter the Southeast now involves the products the firm offers. “We’re very active in the permanent loan and CMBS markets; Fannie Mae, Freddie Mac, life company and pension fund permanent loans; as well as mezzanine and equity,” explains Case. “And we are seeing a huge market for those products in the Southeast.”

Carroll agrees: “I see particular opportunities for us in the mezzanine financing area. We have a very well developed mezzanine finance group at KeyBank, and they like to work hand-in-hand with our senior debt real estate side so that we can provide all the capital necessary for a given project. In Florida, with so much condominium development going on, and merchant building of rental apartments, there is tremendous demand for mezzanine financing in these projects.”

And it’s not as if Florida is uncharted territory for KBREC. Complementing the company’s ‘national in perspective, local in practice’ philosophy is its commitment to follow its developers. “We have a number of developers from Ohio and other areas that have been going into the Southeast, primarily in Florida, and we follow our developers wherever they go,” says Case. “So we’ve been doing business there with our clients, but we haven’t been down there originating new clients. So we’ve become more familiar with that market, and now we’re ready [to open additional offices].

“Based on what we’ve experienced in other parts of the country where we’ve expanded offices,” Case continues, “a combination of attracting talent and the quick start that we’ve had, as well as the early wins that we’ve had, we feel very confident that this is going to be a much faster region for us to develop than what we’ve experienced basically anywhere else we’ve opened offices.”

Philip Carroll Senior Vice President and Southeast Regional Executive KeyBank Real Estate Capital Based in Miami, Philip Carroll has direct responsibility for the commercial loan origination business in the southeastern United States. With offices currently in Miami, Boca Raton, Orlando, Tampa and Jacksonville, Florida, the region will eventually include origination offices in Atlanta and Charlotte, North Carolina. Carroll’s group provides the full range of real estate finance products and services including construction financing, permanent loans through a Fannie Mae, Freddie Mac and FHA origination unit, a securitized lending unit, institutional placements, interest rate protection products, mezzanine and equity capital, investment banking, and loan sales and syndications for real estate projects. Key also offers developers and owner-investors traditional banking products and services such as private banking and cash management. In Florida, for example, Key has private banking professionals in Bonita Springs, Fort Myers, Naples and North Palm Beach. Prior to joining KeyBank in 2003, Carroll managed the Miami-Dade County office of the Commercial Real Estate Banking Group for Bank of America. During the 6 years Carroll managed this office, construction loan origination increased annually to more than $600 million in 2003. Prior to Bank of America, he worked at the Chase Manhattan Bank in New York City for 6 years.

Deal Spotlight In December 2003, KeyBank Real Estate Capital committed $62.5 million to co-lead a $125 million construction loan with GMAC Commercial Mortgage for the development of the Downtown Dadeland residential/retail project in Miami. Canyon Johnson Urban Fund also made a capital contribution to get this infill project out of the ground. Gulfside Development, led by Jackson Ward and Stefan Johansson, is developing Downtown Dadeland. The proposed project will contain seven buildings containing 120,980 square feet of gross leasable neighborhood/specialty retail space and 416 condominium and apartment units with a net livable area of 462,354 square feet situated above a two-level subterranean parking garage containing 877 parking spaces. The proposed complex will also contain surface parking for 107 spaces as well as a rooftop clubhouse with fitness center, swimming pool, spa and sundeck available to the residential owners. The retail component will be located on the first floor, while the residential component will be located on the second through seventh floors.

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