Florida Real Estate: Tales of Its Death Have Been Greatly Exaggerated
Comment: In a recent interview, Steve Hagenbuckle, Managing Director of TerraCap Partners states that Florida real estate, one of the hardest hit markets in the country will be one of the first to emerge. Foreign buyers from Germany, Canada, UK and China, among a host of others are beginning to descend on Florida to scoff up deals on real estate that have not been seen in years. While residential real estate is probably going to be the most significant beneficiary of the activity, commercial properties are also attractive, because of the weak US dollar against much of the world’s currencies. I would expect that most of the international buying activity in our area will be centered on coastal residential real estate in Sarasota, Manatee and Pinellas Counties, but there are increasingly compelling arguments for international buyers to consider commercial real estate, as well. Net lease properties with credit rated tenants are at their highest CAP rates in years and could offer outstanding value.
Excerpts:
(3:25 min mark)
Steve HagenBuckle (SH): “ …as we talked before, the southeast, right now as far as in the last 12 months, has seen 47% of all international investing has been in the southeast on the residential side. The State of Florida has taken on 26% of all international investing on the residential home side. So, Over 1 out of every 4 homes bought by international investors (in the US) is bought in the State of Florida. “
Bloomberg TV (BT) : “Where is the money coming from , you mention Canada, …we talked a little bit about China, what about for example the UK? Are these people actually coming to use the property?”
SH: Yes, they are vacation homes as well as investments….mostly vacation homes. They are seeing that there is so much affordability that they may not see this opportunity for a long, long time. So, they are viewing it as “now is the time.” We have a currency that is strong than the dollar currency. And, we feel that if the dollar is weakening or has the chance to do so, now is the time to move. We are seeing a lot of interest from Latin American countries. 54% of Germans, when they buy real estate in the US, they buy in Florida. And 37% of the folks from Canada when they buy real estate in the US, they buy real estate in Florida.
News hit the streets this afternoon that Blockbuster may close as many as 960 stores by the end of next year. The fact that the chain is struggling and management plans on shutting stores should not be terribly surprising to anyone. Netflix, Redbox kiosks, and Internet downloads have all cut in to Blockbuster’s market share. Since the early days of the Internet boom, analysts have predicted that Blockbuster’s business model would have to change dramatically if it were to survive. Even if Blockbuster successfully adapted, the face of the company would be dramatically different.
The news of more potential store closures is a reminder of the particularly precarious times landlords have faced over the past 2 years. Not only have owners seen the repricing of even healthy assets by as much as 30% to 40%, but tenant losses continue to mount with no predicable end in sight. Today, I set out to compile a list of store closures already experienced this year and found this list instead on David Bodamer’s blog “Traffic Court.” I will let the list speak for itself, but the sheer enormity of the number of store closures from various national and regional retailers is staggering.
“We saw a few glimmers of hope with credit losses, though it is still too early to tell”
“CRE is a looming problem and will be a bigger driver of bank failures….Residential is still a bigger issue, but commercial is catching up and I do think it will be a bigger driver of bank losses and failures.”
On “going slow” on bank closures:
“The FDIC does not mandate bank closures. That is the job of the OTC or other regultor. ..its the primary regulators call as to when a bank is closed”
Commentary: It is not terribly surprising that commercial real estate will be a bigger driver of bank failures. Anecdotally, commercial banks, with which I have had experience, package their residential loans and sell them to investors as securities. Although volume of commercial mortgage securities (such as CMBS) increased dramatically over the last decade, by and large, commercial loans (with larger margins than residential loans) have been portfolio holdings, particularly with community banks.
Eric Odum: I am Eric Odum from Net Lease Commercial Advisory. Today we have with us is Michael Carlson of Carlson Studio Architecture. Thank you so much for joining us today, Michael.
Michael Carlson: Thank you, Eric.
Eric: Today we are going to talk a little bit about LEED certification. Anybody that is in the commercial real estate game has been to the conferences, has been to various meetings, and has learned about LEED. But they aren’t really sure what LEED is. So, Michael, why don’t you take a little time to explain just exactly what LEED is and why it’s important to know.
Michael: Sure. LEED stands for Leadership Energy Environmental Design. It is a program put out by the US Green Building Counsel, so it is a nationwide program. Anyone can use it throughout the country. It is the same system everywhere. It is third party verified system, third party certification. So what it does is it is a system that you run through that proves that your building is a green building. There is a lot of talk out there in the marketplace about green buildings and you really need a third party certification system to prove that you’re doing what you’re saying you’re doing.
Eric: Absolutely. I understand that you had the highest or longest running LEED building in the State of Florida. Is that accurate?
Michael: We did. We had highest scoring LEED building in the State of Florida from 2005 through a couple of weeks ago in 2009.
Eric: Who knocked you off? You don’t want to say, huh!?
Michael: Uhhh….Willis Smith Construction here in Sarasota knocked us off!!
Eric: Okay, which building was it, by the way?
Michael: The Twin Lakes Office Complex is one of the first projects in the State of Florida to get certified. It got gold certification.
Eric: In Sarasota (Florida)?
Michael: In Sarasota (Florida).
Eric: Okay, very good. In terms of when we are talking about LEED, does this apply to an old building, a new building? If I am a current building owner, does this have any significance to me at all?
Michael: It does, actually. LEED has a lot of significance in the whole built environment so if you are building a new building, you use LEED for new construction. If you have an existing building, an existing commercial building, you use LEED for existing buildings. There is a whole system in place just to help you make your existing building healthier, more energy efficient, and more water efficient. There is also, if you are a tenant, you can use LEED for commercial interior. So, you if are just building out a space inside of another building, use the LEED CI system. There is even a LEED for home system so if you are working on a single family residence, you can do your home as a green home.
Eric: Let’s talk about this because obviously in commercial real estate, everybody wants to be environmentally conscious but it always comes with a cost. What are some of the benefits, some of the savings perhaps, or let’s talk about benefits that if you are getting a LEED certification that an owner, investor or tenant that is a LEED building that might be important to them.
Michael: Sure. There is a McGraw Hill study out now that talks about increased property values and certified buildings are showing an increase in property values from around 3% to 10% higher than comparable buildings in the same market place that aren’t green. Also, for tenant rates, if you are a landlord and you’re trying to keep tenant spaces filled, green buildings have about a 3.5% increase in tenant space occupancy rates.
Eric: And I suppose there are some savings there too and perhaps there an opportunity, depending on who is paying for the electricity – whether it is the tenant or landlord – in terms of energy savings. So what exactly have we found in terms of energy savings with LEED buildings?
Michael: Energy savings is the biggest thing. It really is the thing for buildings. They use a lot of energy; they need to save a lot of energy. LEED requires you to use 15% less energy than a standard building, a standard brand new co-compliance building. But we are seeing energy savings around 30%-40% is really typical for a typical certified building. You can push that up to 50-60-70% if you use some solar panels and do some other things.
Eric: And possibly even 100% I guess if you really wanted to go crazy on it, right?
Michael: You can absolutely get a net zero – that is the term, net zero building that doesn’t use any electricity.
Eric: But the reality is that it is around 30-40% and that in the State of Florida I think we run an average of about $1.50/sf (electric costs per square foot of office space). So we’re talking about a $.50/sf savings off the cost of running the building.
Michael: All the time, month after month, year after year.
Eric: What do you think in terms of…. let’s get into some specific things . Because I know solar, for instance, is an item that not only are we getting savings from, but we are getting tax credits from using solar. I understand that it’s both state and federal – is that true?
Michael: There is; solar power, solar panels, solar voltaic we call them, haven’t had a good return on their investment in the last 20 years. But now there are a couple of state grant programs where you actually get money back from the State of Florida and there is a 30% federal tax credit this year and next year to put solar panels on your project.
Eric: So that is a credit, not a deduction? It is writing it straight off your income tax. Right?
Michael: That is correct.
Eric: Wow! That’s a lot.
Michael: That translates into a return on investment now on solar panels of about 4-5 years. You get all of your money back from your initial investment.
Eric: So your return on capital is essentially a 4-5 year payback period on solar investment.
Michael: Right and those systems are going to last 20-25 years so you’re going to be making a lot of money on those last 15 years.
Eric: Obviously there are some benefits to the tenants as well. We were talking a little bit before, earlier in the day, about productivity gains for the people working inside the buildings.
Michael: There is. In addition to the energy savings and water savings that green buildings have, there’s the idea of having a real healthy interior environment. Green buildings use natural day lighting which really affects how people work and how they perform, how long they can do tasks and all those sorts of things. Productivity is a big thing. You can increase productivity from 5-15% in green buildings and when you take all the salaries of all the people in the building and you can increase their productivity by 10%. That is a huge annual figure.
Eric: You’re saying that natural light is the primary reason behind that? That natural light actually makes people feel better about wanting to stay and work and it makes them healthier? Is that true?
Michael: It does. There are lots of studies on natural light and the positive impact it has. It shortens hospital stays, it does all kinds of great stuff for people that are exposed to natural light. Now, you don’t want the glare and direct sunshine on your desk. It’s not like that. It’s the diffused, natural light that makes you feel better.
Eric: How long have you been dealing with the LEED and the green architectural type of work?
Michael: We’ve been doing it since 2000. When LEED Version 2.0 came out in 2000 we’ve been working with it and we’ve been working with it ever since. We’ve got LEED silver, gold and platinum certified projects and we’ve got many more in the pipeline ready to be certified. So we’ve been doing it a long time.
Eric: Awesome. Let’s try to summarize for people some of the advantages of LEED. We’ve got energy savings which is probably the first and foremost.
Michael: It is…it does a lot for you. It saves you money. Bottom line it saves you money every month.
Eric: So you’re saving money and it’s somewhere between 30-40% (of electric costs). There are tax credits for when we talk about solar. I think there is wind, but maybe in the State of Florida wind’s not a good example.
Michael: Wind isn’t very viable in Florida but in other states, tax credits apply to wind and to any renewable energy source; whether it’s solar, wind or geothermal. Solar hot water is another good thing in Florida that we can use.
Eric: We’ve got tax credits and you also talked about productivity. So we’ve got energy savings, tax credits and productivity. So when you are trying to make a determination whether you are going to do a LEED project, it really comes down to, and this is where most real estate folks are going to put the pencil to the paper and see if it really makes sense. There are definitely some compelling arguments where it makes sense to me that maybe a building owner, whether they have a new building or they are renovating a building, should at least sit down and consider some of these items.
Michael: They should because you should really consider what things cost you and sophisticated developers understand that. It may make sense to spend 2, 3, 4, or 5% more in construction because the payback is much, much greater than that. So you look at the life cycle cost analysis. You get a good design team involved and you look at the real cost of things over time – not just the first cost of things.
Eric: Terrific. Well, Michael, thanks so much for coming today. We really appreciate you and your input. Hopefully you will continue to have great success in the field. I know you have won a ton of awards and it sounds like you are in position for the next generation. We really appreciate your time today. Thank you very much.
Michael: Thank you.
For More Information:
Michael Carlson
www.carlsonstudio.org
941.362.4312
Aug. 20 (Bloomberg) — Investors asked the Federal Reserve for $2.3 billion of loans against commercial-mortgage-backed securities created before this year, an expansion from $668.9 million in its financing program’s first round a month earlier.
This is an interesting piece on the equity markets from today. Tony Dwyer of FTN Equity Capital and Lee Munson of Portfolio Asset Management finished their interview talking about the commercial real estate market. Granted, they were discussing the equity market surrounding REIT’s, which usually leads market fundamentals. Regardless, the two made points about the market that we have discussed in this forum. In a nutshell, here were their thoughts (you can click on the picture to watch the entire piece. They begin the meat of the real estate discussion at the 3:20 mark of the video):
REITs and Institutional buyers make up a significant portion of all real estate in the market
Yes, refinancing with banks is a challenge….BUT, the REIT’s don’t necessarily have to worry about refinancing. Their stock prices have risen quite a bit and they can access equity through the markets to re-balance their debt to equity ratios.
The two analysts cited Boston Properties as a REIT that took advantage of the current market price to recently access more capital.
The negativity is already priced in to the market
The US Government has said that it will intervene in markets that are not functioning properly. The government will not allow the Commercial Real Estate market to take the banking system down.
I would add to their argument that institutional buyers have written down their fee simple real estate assets substantially and with the rise in the stock market are potentially significantly underweight real estate according to their investment policies. They could very well be looking to increase their real estate holdings in the near term.
In the end, the market is profoundly complex and resilient. In spite of all the negative press surrounding commercial real estate of late, this market may not behave they way many of the pundits are predicting, with a massive crash that jeopardizes the foundation of our financial system.
“….But commercial real estate can’t seem to shake its perception as “the next shoe to drop.”
If value write-downs by the country’s two largest pension funds are any indication, the other shoe has already dropped.
California Public Employees’ Retirement System (CalPERS) wrote its real estate holdings down by 35.8 percent as of March 31. The California State Teachers’ Retirement System (CalSTRS) wrote down its holdings by 43 percent for the fiscal year that ended June 30.
The combination of huge real estate value decreases with the surge in the stock market leaves both pension funds under-allocated for real estate.
Translation: Even though CalPERS and CalSTRS just absorbed enormous losses in real estate, they now need to focus on making new real estate acquisitions at a time when many buyers are on the sidelines.”
“…This trend should actually help increase the volume of real estate transactions at a time when investment sales are absolutely anemic.”
“….One industry insider coined the phrase, “a rolling loan gathers no loss,” which aptly describes current banking protocol where it makes more sense to extend loans rather than push borrowers into default at maturity.”
Commentary: We have heard overwhelmingly from the press that commercial real estate is doomed. I found the above referenced article contrarian to current popular opinion. Not mentioned in this article, is the billions of dollars that are stacking up on the sidelines from vulture funds planning on buying prized assets at pennies on the dollar, which could potential prevent the bottom dropping out of the market, as many predict will happen. Commercial real estate investment may still end up becoming a financial apocalypse, but there will be forces acting in the opposite direction of the predicted collapse. One thing that I have learned over my career in financial services and real estate is that when the majority predicts a certain outcome to a situation, rarely does the prediction actually play out as planned.
Almost $165 billion in loans are due for renewal according to First American CoreLogic (source Bloomberg). Orlando led the way in June with $96.9 million in loan maturities, followed by Memphis with $96.2 million. It is widely predicted that maturing loans from now until 2012 will cause a significant amount of upheaval in the commercial markets. Most of these loans were written with 5 year maturities and with the real estate market peaking somewhere around 2005-2006 (depending on the sector), the balance of many of these mortgages will in all likelihood be greater than the real estate is worth.
Address 8206 Citrus Park Dr Property Type FedEx & Verizon – Store Building Sales Date 01/31/2012 Sales Amount $3,500,000 Amount/Sq Ft $531.67 (price includes .29 acres of adjacent parking) Prior Sale Amount $1,750,000 Prior Sales Date 05/11/2007 Exterior Wall Brick Address 15412 N. Dale Mabry Hwy Property Type Sonny’s BBQ – Restaurant Building Sales Date […]
Chicago group’s $4 million bid for Channelside complex rejected Two weeks ago, the Tampa Bay Times reported that at least two well-connected local groups have submitted bids to buy Channelside. Tampa Bay Lightning owner Jeff Vinik has teamed with Andrew Wright, head of Tampa commercial real estate firm Franklin …continue reading Breakfast menus serve up [... […]
Completion of Winn-Dixie and Bi-Lo’s merger means fuelperks program can continue The Hutton Company, representing Family Dollar Stores, secures former Coffee Cup commercial location JP Morgan Chase, Regions bank and Citibank all receive healthy ratings from BauerFinancial as real estate market improves and recession subsides With British Airways already on i […]
You are starting to imagine every aspect of the new restaurant you are about to open, the satisfied customers, the busy tables and the waiters buzzing round ensuring everything is perfect. You can visualize the space, where the kitchen is in relation to the dining area, where you’re going to greet the multitude of guests and how […]
Address 401 E Jackson ST Property Type SunTrust -Office Building Sales Date 12/15/2011 Sales Amount $82,500,000 Amount/Sq Ft $140.33 Prior Sale Amount $114,500,000 Prior Sales Date 09/17/07 Exterior Wall Glass Address 7911 W Hillsboroug AVE Property Type McDonald’s -Restaurant Building Sales Date 12/19/2011 Sales Amount $250,000 Amount/Sq Ft $91.47 Prior Sal […]
ULI Tampa Bay Commercial Real Estate Conference, held at A La Carte Event Pavillion, hear of economy that is slow to recover Tampa Bay Lightning, Wilson company and Tampa Tank team up to find real estate for homeless in Hillsborough County Columbia Restaurant and Metro Bay Real Estate win bid to Renovate Tampa Heights’ Waterworks […]
Owners of Belleview Biltmore hope to demolish property and replace with townhouses Retail or Medical office space to be put on Palma Ceia church site Wellcare, HCPCI and ConnectWise help put positive spin on Office Real Estate lease market Lee Roy Selmon’s Restaurant to Fill Space Vacated by Giordano’s Mexican Restaurant Taco Bus looks to […]
Attendees: Eric Odum with Ken Evans, Principal at Evolution Advisors Date: January 9, 2012 Subject: The Market Minute EO: Good afternoon and welcome to today’s Market Minute. I’m Eric Odum, principal Real Estate Broker for Net Lease Commercial Advisory. Today we have Ken Evans with us. Ken is a friend of mine now, but we […]
Purchase of Schalamar Creek Golf and Country Club the largest Commercial Real Estate transaction of 2011 Retail Real Estate showing signs of improvement according to LandQWest and Franklin Real Estate services Office Real Estate sector worst affected by turbulent market LongHorn Steakhouse, Kohl’s and Dick’s Sporting Goods just some of the new businesses alo […]
Real Estate values move in a continuing economic cycle. Understanding the general principles of the economic cycle is key to successful real estate investing.tampacommercialrealestate.com/real-estate-cycles/ […]
Tags Commercial real estate Commercial Houston commercial real ... Tags Tampa commercial real estate Top real estate broker tampa bay Broker commercial real ...www.webstatsdomain.com/domains/www.kesmat.com/ […]
CoStar introduced CoStarGo™ to about one hundred commercial real estate brokers in Tampa The event held at the Westshore Marriott was asuccess as CoStar ...article.wn.com/.../Top_of_the_list_Commercial_real_estate_br... […]
Tampa Commercial Real Estate, a commercial real estate brokerage firm based in Tampa FL, is inviting local commercial real estate brokers and associates to ...www.prweb.com/releases/.../prweb9485525.htm […]
South Tampa Real Estate Market Overview and Analysis Video by The Duncan Duo Show ... Tampa Commercial Real Estate How to Leverage Commercial Real Estate ...www.youtube.com/watch?v=zYXSejQ76J0 […]
The broker, Steven Silverman of Tampa Commercial Real Estate, recently located a suitable building for Freedom Scientific. They required a building that ... […]
Administrative Support Associate - Commercial Real Estate - Find Admin - Clerical Jobs at Franklin Street in Tampa Bay, Florida.www.careerbuilder.com/JobSeeker/Jobs/JobDetails.aspx?job... […]
The new home for Freedom Scientific is an 11500 sf building located close to Tampa International Airport and close to the Veterans Expressway Freedom ...topics.dallasnews.com/article/0fdY7lu2V64qz?q=Florida […]
Tampa Commercial Real Estate, a commercial real estate brokerage firm negotiated the lease of an Office Warehouse to Freedom Scientific.www.prweb.com/releases/.../prweb9454203.htm […]
He might be contacted at: Tampa Commercial Real Estate. Web Site: http://www. TampacommercialRealEstate.com. (813) 785-3665. Sierra Trading Post ...www.hugohosting.com/tampa-real-estate-relocates-defense-co... […]
Tampa Commercial Real Estate, a commercial real estate brokerage firm based ... Full Story »Tampa Commercial Real Estate Relocates Defense Contractor to ...news.yahoo.com/cautiously-optimistic-commercial-real-estate-... […]
TAMPA — Commercial real estate company CBRE announced it has signed a long-term lease for approximately 25000 square feet of office space at the Bank of ...www.review.net/section/detail/4-25-2012-cbre-signs-lease/ […]
News hit the streets this afternoon that 
