Tampa Commercial Real Estate | Florida Commercial Property

Excerpt from GlobeStreet.com (click for full article):

“Volume of single-tenant property sales has declined, to be sure; RCA reports $3 billion of single-tenant properties changing hands during the first half of this year, which equates to a 60% drop from the same period last year. For retail and industrial properties, transactions are down 70%; for office assets, transactions are down 50%.

But—and here’s the cup is half full point of view—single-tenant property sales accounted for nearly one-quarter of all retail, industrial and office sales during the first half of this year. That, RCA’s report notes, is “a significant rise over the 10-15% market share averaged over the past few years.”….”Sale-leaseback transactions, meanwhile, are down by about two-thirds. “Sale-leasebacks, which accounted for 30% of single-tenant property sales in 2007, have accounted for just 10% in 2009,” RCA reports.”

Comments: There is surprising activity in net lease property sales.   I feel there are two reasons behind the movement:

1.  Flight to quality – Many investors these days are asking for investment grade tenant properties with long term leases (+10 years) because of adverse economic conditions.  These are tenants that are rated investment grade or higher by Moodys (Aaa to Baa3) or Standard & Poors (AAA to BBB).  In a single tenant property, having a long-term investment grade tenant allows you relative financial transparency with the tenant, which theoretically has a sound financial outlook and balance sheet to back the lease.

2.  Demographic shift – We are entering a period in which boomer investors wish to reduce their work load and seek more “hands free” investment strategies that allow them to indulge their time in areas of interest while they are still healthy enough to enjoy them.  Boomer’s that have owned real estate are more likely to investigate net lease investments, because they perceive that a net lease investment is relatively management free (which they are, when compared to multi-tenant properties).

An eye opening report came out today from Richard Parkus of Deutsche Bank Securites stating that the U.S. urban commercial real estate markets probably will not recover until 2017.  He goes on to compare the current state with the early 1990’s.  I am curious how he reconciles the level of inventory on the market today as compared to 18 years ago.  Annecdotally, Tampa never experienced the speculative commercial build out this decade as it did in the late 80’s and early 90’s .  The softness in this market is due to demand issues and not over-supply, as was the case 2 decades ago.  (read more about Real Estate Market)

CMBS defaults continue to increase.  Not surprisingly, the 2006 and 2007 vintages faired the worst resulting from the most aggressive underwriting standards in the go-go peak of the market.  For those unfamiliar with these instruments, they account for roughly 25% of the total debt on US commercial property.  The instruments are used primarily for very large commercial deals, packaged to provide some diversity and sold in to the debt markets.  Costar is reporting that Q1 2009 reported defaults rose to 2.25% from 1.62% in Q4 2008.  These markets remain locked, reflecting the lack of confidence investors have for the stability of the assets backing the notes.  (More info on CMBS defaults)