Florida Banks Cash In on New Tide of Miami Money
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By Jackie Stewart
May 15, 2015
Miami is making a comeback, and Florida’s banks are angling for a piece of the action.
South Florida’s economy is diversifying beyond tourism, industry experts said. A flood of foreign investors and nondepository financial firms, like hedge and private-equity funds, have moved to the area, opening up opportunities for local banks.
“Miami is booming,” said Carl Fornaris, co-chair of the financial regulatory and compliance practice at Greenberg Traurig. “We’re becoming a true global city and global financial market. It all has a trickle-down effect into the depository institutions.”
Tourism remains an important part of the economy, but other industries are starting to take root, industry experts said.
“South Florida is a very healthy market right now,” said Daniel Sheehan, chairman of Professional Bank in Coral Gables, Fla. “The economy is getting more diverse … and the job prospects for young people are improving.”
South Florida is now the home of nearly 40 private-equity firms, a 9% increase from a year earlier and up 37% from 2010, based on a report from the investment banking firm Cassel Salpeter.
A number of factors are luring investment firms. Florida has no personal income tax, distinguishing it from states such as New York, Illinois and Connecticut. Recent changes to the federal tax code, such as limiting the amount of state and local taxes that high net worth individuals can itemize on their federal returns, have also made Florida a more attractive option, said Bowman Brown, who chairs the financial services practice group at Shutts & Bowen.
“There are powerful tax reasons for hedge, private-equity and venture capital funds to move to Miami,” Brown said. “Florida is clearly a business-friendly tax jurisdiction and will remain a low-tax jurisdiction.”
Foreign investment continues to give the area a lift, said Thomas Rudkin, a principal in investment banking at FIG Partners. He said that investors from Latin America are interested in South Florida because of its proximity to their home countries and sizable populations of immigrants from Venezuela, Brazil and Argentina.
For instance, the Venezuelan Benacerraf Group announced in May that it would buy Espirito Santo Bank, a unit of the now-defunct Portuguese bank Banco Espirito Santo.
“There’s a lot of foreign money coming in,” said Rudkin, who was an adviser to Espirito Santo during its sale. “They consider an investment in the U.S. to be solid.”
South Florida also has good infrastructure, including the closest U.S. seaport to the Panama Canal. Miami also has a renewed focus on cultural activities, including a new arts district that is rapidly expanding, industry experts said.
And if all of that was not enough to attract investment, the “weather is great, too,” Fornaris said.
“Clearly, it has become more diverse in the last five years,” Brown said. “The real estate development business has been a powerful engine in South Florida. The business of culture has really taken off, and the airport and seaport are major East Coast world-class operations.”
Banks can benefit from these developments, industry experts said. The area is enjoying a boom in property development. Banks can provide mortgages to people looking to buy homes and commercial loans to developers and businesses that support the construction industry.
Banks could also have an opportunity to work with the nondepository institutions that are relocating to the area, along with their employees, Fornaris said. Such firms, in addition to foreign investors, need a place to park their deposits. They may need other services, such as wealth management or private banking, though they are more likely to turn to bigger financial institutions for those products and services.
Community banks, nonetheless, are looking for ways to capitalize on the area’s transformation.
The $241 million-asset Professional Bank recently raised $15 million in a private offering to “take advantage of opportunities” in the area that could include acquisitions or hiring talent, Sheehan said.
“Business school graduates are considering Miami as an institutional market, not just New York, Boston, D.C., Los Angeles or Chicago anymore,” Sheehan said. The overall trends that are helping South Florida “are not going away anytime soon. There’s an awful lot of capital flowing in from other parts of the country.”
Still, banks must be aware that risks abound in South Florida.
Real estate development has “always been up and down” across the state, said Fernando Margarit, a partner at Hunton & Williams. South Florida is likely to go through another down cycle, but industry experts are hopeful that developers and lenders learned from the financial crisis. Current growth also seems more measured compared with past booms.
South Florida is “already highly competitive,” and banks are generally at a disadvantage because of the tough regulatory environment, Margarit said. As a result, potential customers could turn to nonbanks for capital and other services.
Regardless, Margarit said the area’s transformation should be viewed as a positive one for local banks. “As Miami becomes more sophisticated, it is like a snowball effect,” he said.
“All of this is leading to more people with money coming down and all of that helps the banks,” Margarit added. “There are a lot of synergies that will help the city and the banking industry.”