Why Trez Capital Believes ‘Slow And Steady’ Wins The Race, Even In Fast-Growing South Florida

Florida commercial real estate owners are seeing rising insurance costs fueled by an increase in hurricanes and other natural disasters. In the past year, commercial property premiums rose to 93 cents per $100, up from 68 cents per $100 in 2022.

Even with these risks, rising interest rates and a housing shortage, South Florida continues to see tremendous growth potential, thanks to consumer spending in real estate and retail and the number of new residents migrating to the area.

Trez Capital, a commercial real estate lender with offices across the United States and Canada, relocated its Florida office to Miami and continues to take a boots-on-the-ground approach in the South Florida market and elsewhere in the Southeast.

“Even in a challenging multifamily market like Florida, we still see that people are migrating here and want to take advantage of opportunities,” said Stuart MacFarland, Trez Capital senior managing director and head of origination for the southeastern U.S. “We’re confident in the growth of this market.”

Bisnow spoke with MacFarland about why he joined Trez Capital, how the firm is navigating market challenges and its role in financing the future development of the Southeast.

Bisnow: What current trends are you seeing in the South Florida market in your sector of CRE? 

MacFarland: I think one of the major factors in real estate, in general, is the Fed indicating that the market will continue to have high interest rates for a while. I don't think interest rates will drop by two or three points next year, as some anticipate. I think this has to be taken into consideration in a market like Florida, especially with insurance costs rising the way they are. 

However, with the slowdown of multifamily development starts and the continuing movement of people to Florida, I suspect there will be some give where costs may start coming down in the next year. I think we could see some stabilization by Q2 2024. 

Bisnow: What brought you to Trez Capital?

MacFarland: I’d been working in the banking industry since 1989, in locations from India to Canada. After some 30 years in the business, I wanted to challenge myself to continue to learn and grow, and so I pivoted into the CRE industry in both Canada and the U.S. Joining Trez Capital in 2019 was an easy decision because it presented a new and exciting opportunity for me.

Bisnow: How did your background in commercial banking and underwriting help prepare you for your role leading the Miami office for Trez Capital? 

MacFarland: Whether you're looking at risk on a diversified portfolio or in real estate, the building blocks are the same. You can't do good loans unless you have a good risk background. I think my 30 years in banking have helped me find what works and what doesn't work when brokering deals. 

When I started working with Trez Capital, I found it wasn't hard to adapt because I had been on the origination side, building business books for various banks. I found with my latest role that it is more exciting to be hands-on when you're dealing with clients and projects. That, for me, always has a greater pull than sitting behind the desk and analyzing risk. I thought with my background it would be a great opportunity to launch our new office here in Miami.

Bisnow: What does Trez Capital offer borrowers in the Southeast that sets it apart from your competitors?

MacFarland: First of all, we're a diversified real estate investment firm that provides capital to the single-family lot development, multifamily, mixed-use, retail and limited-service hospitality sectors in Canada and the U.S. We are a firm with more than 5B Canadian dollars in assets under management. We intend to keep growing in this market for a long time. 

Our philosophy is that we’re not transactional but a relationship lender that wants to be a dependable provider over time by creating integrity and transparency with our partners and clients. This philosophy has enabled us to generate repeat clients over the years. 

Bisnow: How is Trez Capital pivoting to meet the demand for capital, rising interest rates, the housing shortage and other market challenges?

MacFarland: We’re targeting some of the strongest real estate markets in the U.S. and Canada with growing populations, above-average employment growth and above-average GDP growth. Our founder often says that people speak with their feet and will go where opportunities exist, whether it's for better employment opportunities or a better environment to raise their family. We follow that very closely.

If you look at the current pace of home production, there's an estimated shortage of 1.7 million dwellings in the United States. To address that shortage, we are in markets where we can make an impact and where we can provide capital to meet the demand from developers. The current market is in an interesting position because it's not a lack of capital but other factors that are causing deals not to pencil as expected. 

Florida is experiencing major operating cost issues in the multifamily sector, and if you project that out two to three years when current projects come to market, you're looking at operating expense ratios that materially impact valuations. What that essentially means is that it's very difficult for developers to actually make investor-required returns unless they have long-term hold plans.

Our job in a situation like that is to advise our clients on what makes sense for a project based on what we see today and our underwriting projections for the future. I think the current state of affairs in Florida will continue for about six to nine months, until there's a sense that costs can be controlled and that cap rates have peaked. 

Bisnow: What do you see for the future of Trez Capital in the Southeastern region?  

MacFarland: We're here for the long term and with a fresh start, building our presence with our Miami office. We know that creating a slow and steady pace to provide capital and creating strong relationships will be paramount to our longevity. We love what Florida has to offer, and we believe that people will look for opportunities not just here but throughout the southeastern U.S.

This article was produced in collaboration between Studio B and Trez Capital. Bisnow news staff was not involved in the production of this content.

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