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(This story, in slightly different form, originally appeared in ALM’s Daily Business Review.)

MIAMI-There is no question the past 12 months have been a nightmare for South Florida dealmakers. But if it’s any consolation, the worst may be behind them.

Local brokers, who have watched commercial real estate sales stall and prices plummet, say they expect the deal pipeline to start flowing soon, but there’s no reason to celebrate yet. Sellers and lenders will continue to face big losses as they rid themselves of unwanted properties.

“People confuse contraction with recovery,” says Alex Zylberglait, vice president of investments at Marcus & Millichap in Miami. “Just because the patient is bleeding less doesn’t mean it is stabilized. It’s still bleeding.”

The optimism and warning come on the heals of a horrendous year for deals. About 113 commercial properties priced at more than $5 million sold in South Florida from October 2008 through last month, totaling about $1.9 billion, according to Real Capital Analytics. That’s nearly a 70% decline in sales volume compared to the same period a year earlier.

Deal sizes also shrank, with most valued for less than $15 million. Real Capital estimates that only 20 South Florida properties with price tags of more than $20 million sold over the last year, compared to 72 in the previous 12 months.

Despite or because of that, industry insiders are cautiously optimistic things will get better. It couldn’t get much worse.

“Next year is going to be better than it is right now, but it will be a very measured, paced unfreezing of the market,” Zylberglait says. Many sellers will continue to be the lenders and investors that bought at the height of the market, have troubled assets or are upside down on their mortgages, brokers say.

Most major properties that sold over the past 12 months went for much less than their previous purchase price. In September, the Sonesta Beach Hotel in Key Biscayne sold for $78 million, at least $40 million less than the $120 million paid for it in 2005. SBR-Fortune Associates sold the 10.6-acre site to Consultatio SA, an Argentine development group that plans to demolish the building and construct a luxury condominium complex on the site.

Four years ago, SBR probably thought the luxury oceanfront property was a trophy purchase. “It would have been a great deal if the market had not shifted,” says Michael Fay, president of Coral Gables-based Colliers Abood Wood-Fay who was not involved in the Sonesta Beach deal.

Fay says sellers who know they will not be able to hold on to their properties or proceed with construction plans, are often better off when they accept their losses and sell early so they don’t incur more expenses or ruin their standing with the lender in the case of a loan default. “Your first loss may be your best loss,” he says.

Another seller that took a big hit was New York-based Clarion ING Partners, which earlier this year sold West Palm Beach’s 20-story Esperante office building for $67.5 million. It purchased the tower for $104 million in 2005. CB Richard Ellis Investors, a Los Angeles-based management firm affiliated with CB Richard Ellis Group, acquired the building for cash as part of a three-property portfolio.

“I think that one was a little misleading for the market in general because it was sold in a portfolio [including out-of-state properties],” says John Bell, a broker and managing director with New York City-based DTZ Rockwood at its Miami office. Bell was not directly involved in the Esperante sale but did market the property for about a year in early 2008 when the asking price was $110 million.

As bad as some of the deals may have seemed to the sellers early in the year, they could have had greater losses if they had held on to the properties and tried to sell in today’s market, says Rosendo Caveiro, an apartment broker at Cushman & Wakefield. Caveiro helped put together the sale of Pembroke Cove, a 302-unit apartment complex in Pembroke Pines, which went for $30 million less than its 2005 purchase price.

Pembroke Cove LLC paid $66.4 million for the property in 2005. It sold for $37.42 million in late 2008. “It would probably sell for $3 [million] to $5 million less today,” Caveiro says.

Apartment buyers are now looking for properties with higher capitalization rates than were available 10 or 11 months ago. Pembroke Cove sold at a 7.1 cap rate. Today, most buyers would want a cap rate above 7.5, which would force the price down to make the investor’s targeted return possible, Caveiro says.

“There is a lot of demand from institutional buyers,” he says. “Many of them sold at the height of the market and want to get back in the game.”

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