Like the proverbial butterfly that flaps its wings and sets off a hurricane in another part of the world, the commercial real estate world today is witnessing its own version of the "butterfly effect."
In this case, the disturbance was the election this summer of Gustavo Petro as president of Colombia. Even before Petro took office Aug. 7, Colombian investors were looking to Miami as a safe haven for their money and creating a small storm of CRE investment in South Florida.
This move is driven by concerns about the new president’s plans to raise taxes, particularly on the wealthy. In addition, he has vowed to cut back on fossil fuels exploration in Colombia, which is South America’s largest coal producer and second-largest producer of petroleum.
Those plans sent shockwaves through segments of the Colombian population. As a result, Colombia now is at the top of the list of foreign countries whose residents are searching for real estate in Miami, according to the Miami Association of Realtors. They are looking for a safe place to park their money — and perhaps even move their families — during this uncertain time at home.
“I think if you had a picture of a ‘safe haven,’ it would probably look like Miami,” said George Fraguio, vice president of portfolio lending for Vaster, a Miami-based private portfolio lender in the CRE and residential space.
Fraguio said the Florida metropolis has long been a magnet for foreign investors, particularly from Latin America. A multicultural city and a financial hub for Latin America, Miami is a comfortable fit for these investors.
“For our Latin American clients, it's an extension really of their own country in most cases,” Fraguio said. “In fact, you can see the influence of Miami in other countries in Latin America, where they're adopting the Miami lifestyle. But the United States is a safer country for them to come to. There's rule of law here and a safer business environment.”
Vincent Diaz, a business development specialist with Vaster, pointed out that the area doesn’t only attract investors from points south. Microsoft, Citadel and other major U.S. businesses have recently made the decision to put down roots in Miami.
But the exodus of capital and people from Colombia involves a greater sense of urgency.
“The president there is definitely taking the country toward socialism,” Fraguio said. “That’s a big motivator for a lot of Colombian investors to start making decisions about investing their money outside of their country. Like it’s been said, there’s got to be a Plan B for them, and Miami is their Plan B.”
In the past, Colombian investors were underrepresented in Miami compared to those from other Latin American countries, Fraguio said. The few who did invest there were mostly interested in retail, industrial or multifamily properties.
But now, residential properties seem to be a priority among many Colombian investors, both for personal and investment reasons, because they might be thinking about moving their families to South Florida in addition to their money. And, in the process, they might be helping to address the region’s severe housing shortage.
“A lot of Colombian investors are looking at fixing and flipping small lots to build either duplexes or multifamily units that will satisfy the short-term need for housing inventory in South Florida,” Fraguio said. “We’re seeing more interest in affordable neighborhoods where they can obtain guaranteed rates through something like Section 8.”
Diaz noted that because Miami is a major port city, there is also interest in industrial and warehouse properties.
But as welcoming as Miami might be for this new wave of foreign investors, doing business in a new country is never easy. There are new laws, regulations and customs to be navigated. To be successful, Diaz said these new investors need to find a team that understands Miami commercial real estate.
“They need to align themselves with professionals who have done this for a while and done it well,” he said. “Mistakes can be too costly to risk starting with a novice. You need someone who knows exactly how to set you up and has the contacts, the attorneys and knows the type of insurance you need to help you save money throughout the process and set you up right for the long haul.”
Diaz said the process can be slow-going in the beginning but will pay dividends down the road if it is managed well.
“I have a Colombian client that I've been working with since 2018, and their goal was to build a portfolio of rental properties here to create an income stream,” he said. “We created an LLC for each property we acquired. We helped them with proper insurance coverages and made sure everything was in place. Today, they have a portfolio of over a dozen properties here. They’re all rented and generating a nice income, and it's making that client’s transition to South Florida easier.”
Diaz said that’s the sort of support a firm like Vaster — which began as a joint venture between South Florida’s Fortune International Group and The Related Group — can provide a new investor. But he suggested that South Florida brings its own energy to help make CRE deals pencil.