Capital Analytics Spotlights CenterPoint’s East Region Investments SVP Roy Rosenbaum

Roy Rosenbaum, CenterPoint's East Region SVP of Investments, spoke with Capital Analytics Associates about the rapid growth in South Florida and why 2025 will be a stabilization year in the market.

Roy explained the challenges surrounding regulations and new tariffs and how CenterPoint's fully integrated service makes it an ideal partner for stakeholders in this CAA Spotlight.

What were the key milestones and achievements for CenterPoint in the region over the last 12 to 18 months?

Roy: I joined CenterPoint in late 2024 as head of investments for the East Region. I oversee seven markets up and down the East Coast, including South Florida, where we own over 5 million square feet of industrial warehouse space across 22 assets in Miami-Dade and Broward counties. Over the past 18 months, market conditions in South Florida have mirrored the industry at large, which is to say that after more than a decade of consistent growth, global logistics-related real estate rents declined as market conditions normalized following historical growth during the pandemic.

An influx of new supply coupled with positive, yet subdued, demand rooted in financial market and supply chain uncertainty pushed vacancy rates up in most submarkets in South Florida. Our most significant achievement in the last 18 months has been to keep our properties well-leased and avoid a significant slip in rental rates or occupancy. Keeping our properties leased and our rental levels at or close to where they were before this period of transition has been our priority. The drop-off in demand after COVID-19, combined with the increase in the supply of new buildings coming into the market, led to a decrease in fundamentals.

Where do you see South Florida today compared to other markets where you operate?

Today, South Florida is performing better than Los Angeles and New Jersey, something I never expected to say. Evaluating capital market conditions, investor risk tolerance appears greater in South Florida than in New Jersey. There is a finite amount of supply in South Florida. There are tremendous geographical restrictions between the ocean and the Everglades. You have a lot of capital that firms want to invest here and not a lot of product that trades. Right now, similar deal pricing is stronger on the capital markets side and more aggressive, and investors are accepting lower returns in South Florida than in New Jersey and Los Angeles.

What are some of the challenges South Florida is facing?

Challenges in South Florida are similar to industrial challenges elsewhere in the country. Most of it has to do with macroeconomic conditions. Cautious decision-making by tenants amid elevated interest rates and persistent economic uncertainty has slowed leasing activity over the past 18 months, and net absorption has fallen 30% nationally.

What we're seeing in South Florida is that there is a complete dislocation between the capital markets and the leasing markets. The biggest challenge South Florida faces right now is that there's a significant amount of supply in terms of new buildings dumped onto the market during a time when tenants, due to macroeconomic uncertainty, are taking longer to make their decisions, being more cautious, and staying put instead of moving around. They're hesitant to absorb new or additional space. If you look at the volume of leases in South Florida over the past year, compared to the COVID years, it's down 25%. Until that new supply gets absorbed, the leasing market will remain depressed for the remainder of this year.

What are some of the key factors that make CenterPoint an attractive partner for its stakeholders?

For our first 12 years, CenterPoint was a public REIT. In 2005, we were taken private by CalPERS, the nation's largest public pension fund. It owns about 98% of our company, but we retained all of the vertical integration we had as a real estate investment trust. We have more than 140 employees.

Our shop has construction, accounting, environmental, tax, insurance, marketing, and legal teams all in-house. We're a fully integrated, full-service investment trust that happens to be private. We're also a developer and an asset manager with an entire construction team in-house. We can help our tenants with anything they need, such as expanding a building, dividing their space, clearing some land for additional trailer parking, creating a road that circles the property, navigating an environmental issue onsite, reducing their insurance bill, or putting solar panels on their roof. We don't have to go outside to a third-party consultant because we have all those capabilities in-house. Many companies get taken private, parts get sold, and people get laid off. That did not happen at CenterPoint. We can service the tenant in a way that a private equity fund or pension fund owner cannot. We can be nimble and respond much more quickly.

Are there any potential regulatory changes that may impact your investment strategy or tenants?

The regulatory environment is a significant concern. For example, we're developing a large property in New Jersey using Canadian steel. In early February, our development team was frantically trying to understand where the new tariffs would land and if they were on raw materials or finished products.

Tariffs could result in lawsuits between developers like us and general contractors with guaranteed-price contracts. Still, those contracts also have force majeure clauses that negate increases due to tariffs. Developers underwrite fairly thin margins. If the cost of steel in a project goes up by 25%, that will be a significant problem for the development industry and for building out or retrofitting existing space for our tenants. Nobody wins a trade war. We're all hoping for the best, but as we have seen, it may have all just been a lot of bluster at the end of the day. As somebody who has met Donald Trump a couple of times, I feel it's in line for him to send mixed signals. We're hopeful that it all gets worked out without significant market disruption. If these tariffs go into effect, they will have a significantly detrimental impact on us and our competitors.

How do you foresee investor sentiment evolving?

Investor sentiment is stronger now than in the past few years in the industrial sector. Buyers are optimistic about medium to long-term fundamentals. Supply is down about 60% from the 2022 peak. Construction starts are way down, so new supply coming online will be limited. I think we'll see more investment activity in the next year than we've seen in the past three, especially in South Florida.

The two most recent institutional industrial real estate trades in South Florida - one in Broward and another in Miami-Dade - both set consecutive price-per-square-foot records in South Florida. Investors are willing to accept a much lower risk when investing in the market. Despite the economic headwinds, people are getting aggressive in the region. We'll see if that holds, but it is certainly the brightest spot on the map right now in terms of competitiveness.