Knighthead prices the land under a 73 percent Doral loan

Knighthead Funding has agreed to lend Midtown Capital Partners $62.92 million against 13 small-bay industrial buildings in Doral, Fla., a 290,000-square-foot portfolio on 13.33 acres that Midtown bought off-market from Wes Realty in August for $86 million. The debt covers roughly 73 percent of the purchase price and lands against a near-record industrial sale price for Miami-Dade County, per earlier reporting by The Real Deal; the more revealing arithmetic runs per foot, where $86 million over 290,000 square feet comes to about $297 a foot. The land holds roughly 21,800 square feet of building per acre, about half of what the acreage could theoretically carry, and Knighthead's check works out near $217 a foot. What secures the loan is the assembled dirt rather than the improvements, which were developed and pieced together over 30 years: 13.33 acres within a mile of Miami International Airport, in a South Florida small-bay market the lender describes as running under 3 percent vacancy. That scarcity is what makes a portfolio financeable at 73 percent of cost when a single small-bay building, priced alone, often is not.

Arrow Real Estate Advisors arranged the debt through Morris Betesh, Morris Dabbah and Zach Strauss; Knighthead originated with a team led by Jonathan Daniel, Alexandra Wiggins and Joseph Marraccini. Wiggins calls the deal an attractive collection of assets with significant upside in an excellent infill location, and nothing in the structure contradicts her. Betesh told Commercial Observer that the capital markets' reception shows how institutional small-bay industrial has become, but the debt is doing the arguing there: a lender willing to write 73 percent against that price is a better maturity marker than any buyer's thesis.

Going that high is the right call at this basis because the downside case is a land bid from an owner-user or a redeveloper in a sub-3 percent vacancy market rather than a leased shed. The bet only works where the assemblage cannot be re-created, which is true in Doral and generally not in industrial submarkets where supply shows up on schedule. The corollary is that these 13 buildings are probably worth more sold one at a time to occupiers than they were as a portfolio, and that retail exit is what ultimately justifies the leverage.

Industrial debt has been clearing without much distress, including the SkyREM refinancing CIBC funded earlier this month; this loan is the acquisition-side version of the same appetite. Knighthead announced a $32 million deal in late August, so this check roughly doubles it.