Results of the second quarter survey indicate that the Florida commercial real estate market continues to stabilize near or at the bottom. However, given the significant uncertainty that continues to hang over the general economy and particularly the state economy, most respondents believe we will hover along the bottom for the next several quarters.
Tampa-St. Petersburg
Cap rates in the Tampa-St. Petersburg area are, on average, equal to that of the state, and range from 8.0% (Apartments) to 12.2% (Condo Conversion).
Cap rate changes were mixed over the past quarter across property types, with the largest changes occurring in Warehouse (-0.47% change) and Flex Space (+0.42% change).
Cap rate outlooks indicate that rates are expected to remain stabile across most property types in the next quarter.
Required yields for Tampa-St. Petersburg are slightly higher, on average, than that of the state, 12.54% compared to 12.51% statewide.
Required yields are highest for Condo Conversion at 20.4% and lowest for Office: Class A at 10.7%.
Required yields increased across most property types last quarter. The largest shifts in required yields occurred in Condo Conversions (+3.44% change) and Free Standing Retail (+1.93% change). The largest decline occurred in Retail – Large (-0.85% change).
The investment outlook is neutral to positive across property types, with the most positive outlook occurring in Apartments and the most negative outlook is in Condo Conversions.
The outlook for Land Development appears to be neutral to negative for all land classifications with the exception of Land with Residential Entitlements which has an outlook of neutral to positive.
Future occupancy is expected to remain stable for all property types except Free Standing Retail which is expected to decline further.
Rental rates are expected to increase slower than inflation across almost all property types over the next quarter.
Comments: Certainly from our perspective, the market is stabilizing. A relatively new occurrence is the emergence of the national and region retailers back to the market. Doing deals? Hmmmmm, not so much, but they do seem to be out sniffing the periphery of the market and testing what types of deals can be had. This is a stark contrast to the same period last year, in which national and regional retailers were noticeably absent from our market and what little activity there was in the market involved primarily local-based, single location tenants seeking better deals or taking advantage of reduced rents by upgrading space.
While the office market appears to be stabilizing, high unemployment in the Greater Tampa Area will continue to be a drag. Sub-lease offerings continue to weigh on the market, though new sublease offerings appear to have slowed to a trickle. Displaced attorneys tend to be the most active in small spaces in the Downtown Central Business District (CBC). Space that is close to the court house and or caters to the legal profession can be successful in attracting tenants. Landlords must be open minded and creative in their efforts to attract tenants. It is our understanding that there is a substantially sized sublease space in the CBC that will come off the market shortly. Expect further word in the near term.
Though not a scientific study, tracked in-bound, unsolicited requests in to our office from potential tenants/buyers seeking assistance with site location have increased noticeably this year compared to last. It should be noted however, before landlords become too excited that the market is set to take off, that it would be near impossible for there to be less representation requests than 2009, which was a shockingly poor year. We are cautiously optimistic moving forward, along with some teeth gnashing over longer term effects that the BP oil spill might have in our market. All things considered, we have escaped relatively unharmed in the Greater Tampa Area, although hotel operators would probably strongly disagree. Activity has increased and buyer/tenants are beginning to dip their toes in the market. In the mean time, we will keep our fingers crossed and hope there is some carry through.
Attendees: Eric Odum and Brenda Dohring-Hicks, CEO The Dohring Group and Listing Broker for ENCORE!
Date: July 15, 2010
Subject: Downtown Tampa: ENCORE! Project
A 40+ acre mixed use redevelopment district in Downtown Tampa. ENCORE!’s city within a city concept unites the central business district with Ybor City, Tampa Heights and other neighborhoods.
EO: Good afternoon and welcome to another Market Report from Net Lease Commercial Advisory. I’m Eric Odum, the principal and broker for Net Least Commercial Advisory in Tampa, FL, and today we have with us Brenda Dohring-Hicks for the Dohring Group. Welcome Brenda.
BDH: Thanks Eric.
EO: Thank you very much for joining us. Big news recently.
BDH: Big News!
EO: We have big news that the ENCORE! Project was approved recently and commercial real estate people got very excited, and the city got very excited, but a lot of the city of Tampa didn’t know what it was. Why don’t you just start from the beginning and tell us what the ENCORE! project is.
BDH: ENCORE! Is a brand new mixed use project….probably heard about it in the news the past couple of years as it was being formulated. We’re going to end up with somewhere in the neighborhood of about 900 residences, residential units in the project, but it’s a mixed use project. So it has commercial uses, there’s a site for a hotel; there’s a site for an office building, a couple of other commercial sites, one that we have ear-marked for a grocer.
EO: The entire project is on the East side of Downtown Tampa, correct?
BDH: That’s a good way to describe it – it’s on the NE side of Downtown.
EO: The NE side.
BDH: Yeah, people have been looking at maps lately to see where rail is coming in. That’s where it is. It’s on the NE side (of Downtown).
EO: Now, your involvement in the project is what?
BDH: We’re the broker responsible with our broker partner, Bill Eshenbaugh.
EO: So, Bill Eshenbaugh, the Dirt Dog.
BDH: The Dirt Dog. So the Dohring Group
EO: Ok
BDH: And as a brokerage firm, we specialize just in urban locations. So this is what we do.
EO: Got it.
BDH: We reached out to Bill Eshenbaugh because he’s so good at land, and let’s face it, when you’re an urban broker not many opportunities you get to do 40 acres of land in an urban location, so we brought Bill on board and the 2 of us work as brokers. We co-broke the entire thing. There are opportunities for other brokers, because we have two things to sell right now.
Number 1, the grocer – we really want to get that grocer in.
Number 2, there was a site that was set up for the Housing Authority for an office building for their use. They have decided to go ahead and put that one up for other commercial use, because we believe the community needs it.
EO: In getting back to the terms of the players – you’ve got Bank of America, who really heads the project. You’re the broker. Who’s the contractor on the deal?
BDH: The contractor is ZMG Construction. They are out of the Orlando area by home-base. It’s about a 1200 person National, and now International. They just got invited to go down to do some work in Haiti. They have formed a partnership with Malphus & Son who is a local Tampa contractor. So, the two of them now have a partnership – ZMG-Malphus. They are on the street as the contractor which is responsible for hiring all of the subs.
EO: Ok, so you have an external, larger contractor and a local contractor. And, of course, you and the Dirt Dog are the brokers and the Bank of America is the organizing entity, the driving force.
BDH: Yes, there’s a partnership between Bank of America and the Housing Authority. Bank of America is the managing member of that, but it is a partnership, ok?
EO: Ok, so between the Housing Authority and Bank of America. I heard you mention about multi family. You and I have talked about this in the past. I think a lot of people will be surprised, but there’s no a lot of discussion about….well there are all these towers that don’t have any people in them. Let’s talk about that a little bit. Because just north of us two blocks, we have two projects that everybody thinks are completely empty. So, let’s talk about housing in the downtown core.
BDH: Ok, well now, you know, those projects came out….. thank goodness they’re here. Skypoint 100% sold out, and well occupied. So, it’s not just sold out to the investors and nobody is living in them. Many of those investors if they didn’t want to be in this themselves, at least have the spaces leased…The Element was built as a condo project, but luckily was able to go rent them before they sold any. Its occupancy level is up in the low 80’s.
EO: Low 80’s – not bad for starving. They’ve only been less than a year on the Certificate of Occupancy. That’s not bad at all. A lot of people were surprised to hear that because they just assume that you’ve got vacant buildings downtown and it’s really not true. So there’s a need for this additional multi family in the ENCORE! Project.
BDH: There’s definitely a need. The problem in the downtown area is finding affordable housing because it comes very expensive. As we all know, the land or lack thereof, makes it very pricey. By this project coming on board and the partnership and because of the basis on how they were able to acquire this land, get grant funding, get very creative funding from different, from the neighborhood stabilization funding, their basis is lower. So, because of that strength from the financing, they can provide affordable housing. And that’s going to make them a different player than a Skypoint or an Element is going to be. So they are going to fill the niche because there are a lot of workers in Downtown, Tampa. Everybody isn’t an attorney. I know you might find that difficult to believe.
EO: It is hard to believe, most of my office tenants, or clients are attorneys. But, there are other people besides attorneys in Downtown Tampa. Talk about the transportation situation a little bit.
BDH: They always looked at transportation as an important piece as we started developing this property. Let’s face it. It has entrance and exits to the Interstate right where it is. So if nothing else had happened, it would still be good. The Project is close to bus routes, and its walk able. There’s no reason – I walk from my office which is what we call down in the core, up to this project all the time. I don’t like to do it in 95 degree weather, but nonetheless, it’s walk able. With the high speed rail that is coming in, it’s coming in due East one block from this property. So, with that high speed rail that comes, what we’re all looking at now is the intermodal transportation piece that will be for Hillsborough County, and connecting….. is your improved bus service, your improved taxi service, your improved walkability to have people have pedestrian access back and forth.
EO: And the agenda that’s coming down the pike with the light rail, that’s going to be on the agenda for the transportation initiative, coming up at the end of the year, correct?
BDH: Correct.
EO: So you’ve got light rail, high speed rail, the regular rubber on road transportation which is all within very short distance from this new…
BDH: Less than a block
EO: Less than a block, so it’s going to be the center of the universe really in terms of Tampa.
BDH: It’s the center. Right now it’s the terminus for the high speed rail, and so everything else is going to emit from it. So as we walk now. A big part of this project is the park that has always been there. There’s a linear park that has always been there. Affectionately referred to as the “Bro Bowl”… this was the skate park that became very, very famous. That park is going to be completely redone, so that will remain. It will be a really nice park. To the North of that, we’re putting in a Middle School. This area, when we looked at what it needed, it needed a middle school. Elementary schools are covered; everything is good, so now we’re going to have a middle school there. The primary boulevard coming through the project,….. you know, “encore” means ‘yes, let’s do it again, bring back more,’….. The whole project is bringing back Central Park Village, which was a very vibrant part of North Downtown in years past, so we’re bringing that back. Ray Charles Boulevard is the primary boulevard coming through the place, and the buildings are named things like “The Ella,” “The Fitzgerald,” you know those kinds of names….. “The Trio,” …..So, it’s really going to be the first time we’re going to have what we can call, “a city inside of a city.” We’re not alone. There are other cities that were able, but usually it’s something like we saw develop in Channelside, where there was an old industrial sector, and so it’s close enough to the city to be called a city. But, Channelside has a distinct personality to downtown. This is DOWNTOWN!
EO: Absolutely. Now let’s talk about it from the broker standpoint. Why should brokers pay attention to this project? Is there anything for the local broker community? Is there any way for them to participate?
BDH: Participate by bringing buyers for these parcels, typically about an acre in size, to put up multi family, put up an office, to find that grocer, to find that commercial piece – the new commercial piece is very excited to us because now we don’t have to put a corporate office there. Now we can put something that could be the likes of a drug store, a branch bank, coffee, fast food. There’s a prime opportunity. Again, bring it back to where the rail is, as well. So, some of those uses that might not have seemed to fit before because they were on the outskirts of downtown and now are at the epicenter of where all the people are going to be.
EO: In time frame, is this going to be 10 years out, 5 years out, what’s your timeframe for sinking the shovel?
BDH: Well, we’ve already started clearing, so we’re doing the entire infrastructure, and it’s a complete self contained. This will be a (LEED) Gold status from the infrastructure. I don’t think that’s been (LEED Gold) from an infrastructure standpoint. So, they’ve got their own water treatment plant, etc., etc. All of that will be in the ground. We must, by directive of the funding that we have, have more than 300 to 350 people living in units within 15 months now.
EO: 15 months! WOW! So you’re on roller skates…
BDH: There are a lot of people crawling all over that site right now. And with that, remember, these are mixed use buildings. So, it will be ground level retail. There are anywhere in the neighborhood of about 10,000 square feet per building that will be up and ready for someone to go into with some ready population within the next 15 months.
EO: That’s awesome. I mean it’s really good for us to see some activity. The last couple years, commercial real estate’s been tough, and so when you start to see some new initiatives start to roll around, you start to get the feel that maybe we’re starting to pick up a little bit…. things are starting to move forward in the right direction.
Brenda, I’d really like to thank you for being with me today to explain the ENCORE! Project and hopefully our viewers had a chance to watch and get something out of it. And, if somebody would like to get in touch, there’s an Encore site and I believe also your website, if you’d like to give us real quick idea how people can get in touch with you about the project.
BDH: Absolutely. There’s a couple ways to do it. http://www.DohringGroup.com. You can get a link there, but the best place to go is http://www.EncoreTampa.com. All the info that I might have in front of me as I’m referring and taking a look is out there. Information on how to get in touch with us direction is absolutely the best way.
EO: Brenda, thanks again so much, I appreciate you giving me the time.
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stabilize near or at the bottom. However, given the significant uncertainty that continues to hang over the general economy and particularly the state economy, most respondents believe we will hover along the bottom for the next several quarters.
