The retail vacancy rate in Tampa Bay shopping centers has grown to 10.5 percent or enough empty space to fill International Plaza about 10 times.

Yet while retail rents continue declining to an average of about $15 a square foot, down from $16.53 last summer, industry experts think Florida’s retail space glut has peaked, consumer spending is beginning to come back and rents are stabilizing.

Click here for entire story from the St Pete Times….

I wandered over to the Hillsborough County-City Planning Commission’s site this afternoon to download the latest report on commercial construction activity. It probably should shock no one that the activity in the area dropped 40.85% year over year to 42 total starts from 71 total starts in Q4 2008 (Can you even consider 43 starts a pulse?). Offices starts was the only sector that showed an increase while warehousing was basically non-existent at 3 total starts.

For kicks and giggles, I went back to check out what was happening at the peak of the market. In Q4 2005, there were 201 starts with retail leading the way with 89 total starts. In comparison, Q4 retail 2009 revealed only 12 retail starts, an eye popping 86.5% decrease.  The magnitude of the collapse in activity is nothing short of stunning.  Anyone that is living it, though, is probably not the least bit shocked.

2009Q4_sdedit

I attended the Tampa Distressed Real Estate Summit in Tampa yesterday.  Although, my commercial real estate activity has picked up in the last few months and I seem to be eternally “busy,” it is always good to break away and hear what some of my peers are working on these days.

“Distressed assets” is the buzz term used for all properties that would probably not be underwritten if they were brought to the market today.  Ground Zero of the distressed assets crisis was in the residential, residential securities (i.e. Residential Mortgage Backed Securities – RMBS) and Sub-Prime markets in 2008.  The commercial real estate market always seems to lag the residential markets and this downturn is no exception.  Unless you are Rip Van Winkle and just awoke from a great slumber, it would be hard for you to escape the avalanche of negative media about commercial real estate becoming the next financial Armageddon.  I personally, see the stress cracks in the market and anecdotally see individual assets implode, one after another, but I am far from sitting in the Armageddon camp.  I do think it is different this time.  I have expressed these views in other articles, if you are interested, but I won’t bore you with repetition of my personal views.

Almost every time I attend these industry events, I am able to take away nuggets here and there that will help me help my clients.  The Summit was broken in to four parts.  I will try to give you a few of my own personal highlights of each section, as I saw them:

1.  Evaluating Commercial Properties and Partially Complete Construction: Land, Office, Retail and Industrial

Panelists: Bill Eshenbaugh, Eshenbaugh Land Company

Ed Kobel, DeBartolo Development

Chet Little, Foley & Laudner, LP

Doug Dieck, Ryan Companies US, Inc

Kobel’s Comments on demographics:

• Infill and Urban migration will be keys to the next commercial real estate development trends
• Boomers prefer a walking lifestyle and want to experience their golden years socializing with other people.  They want less stress in maintaining properties. That means they will largely exit residential suburbs and exurbs in favor of urban living arrangements.
• Generation Y, Z, Echo’s etc. will be forced to move in to Urban areas as gas prices will push through $5/gallon within the next decade.
• Light rail and public transportation will be keys and infill development will offer investment opportunities around station outlets
• Believes that “gap in equity” over the next 3-5 years with maturing CMBS debt will mean the brakes will be applied to real estate for the next 3-5 years, which he believes is the minimum time necessary to work through most of the distressed assets currently on or coming to market.

2.  Adding Value to Distressed Assets

Panelists: Ron Weaver,  Stearns, Weaver, Miller, Weissler, Alhadeff and Sitterson, PA

Todd Pressman, Chairman of the SWFWMD Governing Board

William Stanton, BB&T

Stanton on the banks’ position on handling troubled assets:

• If the borrower is paying insurance, taxes, some interest on the property, and the bank is upside down, the bank is much more apt to work with the borrower, than foreclose.
• In the past, the bank ordered an appraisal and if necessary, required the borrower to add equity or risk having the bank force the loan out of the bank or worse yet, face foreclosure.Transparency has become the key word for banks now.  If the borrowers are willing to disclose and be forthright with the bank, the bank will be much more willing to avoid aggressive adverse action against the borrower and property.
• The banks realize the problem is so large that they can not possibly handle all the problem loans if the situation is handled in the similar fashion in which they were handled back in the early 90’s.
• The RTC is not coming back.  The vibe is completely different this time around.  The Loss Share Agreement with BBT/Colonial has more years left and the FDIC does not have appetite to attack the problem loans like they have in the past, as it is still reeling from other losses and bank closures.

Pressman, on the topic of government budget cuts:

• If you think the delay for permits is bad now, just wait.  With all the financial cut backs recently, government has cut bone.  There will be serious log jams in permitting when the economy starts to turn around.

3.  Legal Strategies for Distressed and Foreclosed Projects

Panelists: Leigh Kellet Fletcher – Stearns, Weaver, Miller, Weissler, Alhadeff and Sitterson

Stephen Cunningham – LandQwest Commercial, LLC

Kristopher Fernandez, Attorney

Kellet-Fletcher:

• Changes in Storm water rules make entitlement on infill or reworked properties particularly risky
• On Community Development District Bonds (CDD’s)
  • Banks are hesitating on foreclosing. Why should they take foreclosure action when the CDD will follow them shortly to foreclose on the bank?
  • CDD’s have superior positions to all debt except IRS debt
  • “Oppenheimer (large owners of CDD’s) is going to own A LOT of Florida real estate”

4.  Transportation’s Impact on Future Development Opportunities

Panelists: Mayor Pam Iorio

Hills Co. Commissioner Mark Sharpe

Sharp & Iorio on light rail:

• Passionately spoke about the fact that Tampa loses business to other cities because it has one of the worst public transportation systems in the country
• Cited the example of TIA-CREF, the large financial services firm, that moved its operations to Charlotte, because Tampa had limited transportation infrastructure
• Sharpe feels like he is fighting an unwinnable fight in the world of economic development without a public transportation system.
• Is proposing a Sales Tax referendum to increase sales tax 1 penny to pay for light rail system
• The first leg of rail will run from downtown to USF, followed by downtown to Westshore, TIA and Westchase in that order
• Was asked if a sales tax is the best way to raise funds, because it is a regressive tax, hurts retailers most, and is punitive to property owners, and is counter-intuitive to building an environment of pro-business.  His response was that we could not achieve light rail without a new source of funding.  Cutting waste in government is not an option and would not generate enough funds to achieve their goals.
• Recognizes it is not a good time to be asking for money, but passionately believes that light rail will make us more efficient stewards of business, education and the environment
• They were asked why we should invest in light rail if less than 2% of population would use it on any given day.  Sharpe’s response was that there are few roads in Hillsborough County that carry 2% of the county’s population, and there are no tolls to pay for these roads, yet we build and maintain the roads for the good of the entire county. Light rail is no different, except there is fee to use the system and light rail can carry many times more people, much more efficiently than the current car and road system.

Its not terribly surprising that the University of Florida’s assessment of the 4th Quarter 2010 real estate market is largely unchanged from the previous quarter.  Market professionals continue to express concern about stagnant financial markets and rising unemployment in the state.  Here is a summary of the Tampa Bay Area commercial markets:

• Cap rates increased over the past quarter across most property types, with the largest changes occurring in Warehouse (+0.31% change) and Office: Class A (+0.26% change). The largest negative changes occur in Condo Conversions (-6.30% change) and Free Standing Retail (-0.67% change).

• Cap rate outlooks indicate that rates are expected to be mixed across most property types in the next quarter. The strongest indication of a cap rate increase occurs in Office: Class A.

• Required yields for Tampa-St. Petersburg are higher, on average, than that of the state, 14.36% compared to 13.32% statewide.

• Required yields are highest for Condo Conversion at 20.7% and lowest for Free Standing Retail at 11.3%.

• Required yields increased across all but three property types last quarter. The largest shifts in required yields occurred in Condo Conversions (+1.61% change) and Office: Class B (+1.49% change).

• The investment outlook is mixed across property types, with the most positive outlook occurring in Warehouse and Distribution and Apartments.

• The outlook for Land Development appears to be neutral to negative for all land classifications.

• Future occupancy rates are expected to be mixed for a majority of property types.

• Rental rates are expected to increase slower than inflation across almost all property types over the next quarter.

Click here to to see the complete report.

Wedged in a blighted area between Downtown and Ybor City area commercial real estate and city officials are ecstatic about what the project can do for the area.

The city of Tampa was notified by the U.S. Department of Housing and Urban Development that it will receive $38 million in federal funding from the American Recovery and Reinvestment Act to build a shovel-ready project between downtown Tampa and Ybor City on the site of the former Central Park Village apartments….more from Florida Real Estate Journal.

Encore is a 30-acre urban redevelopment project that has been in the development process for more than four years.

Encore is touted as a self-contained community with plans for grocery, retail, housing, entertainment and housing.  The area will be within walking distance of the planned station for the high speed rail project.  Check out the website if you want to learn more.

For those of you that have not been following the situation, local attorney Steve Burton was added to the Airport Authority’s Board in the last couple of months.  Since then, he has been a tempest in a teapot, challenging status quo and making the establishment more than a little uneasy.  Most of his arrows have been fired either directly or indirectly at Louis Miller, Tampa International Airport’s Executive Director.

In his first meeting, at the protest of Tampa Mayor and TIA Board Member Pam Iorio, he called for a special committee to look at why TIA does not have more international traffic.  More recently, one of Miller’s decisions to raze a building on airport grounds has not only raised eyebrows,  but also raised the ire of Burton and other Board Members.  Apparently, Miller did not disclose to the board that Moffit Cancer Center had offered to lease the building, and it was not an obsolete albatross, as had been portrayed by Miller.  One can only speculate as to why Miller would make such a decision, because he has provided the public with no reasonable response.  But, as an outsider looking in the best possible portrait that can be painted is that the decision was questionable.

There is increasing concern in the area that our government leaders are not doing enough to motivate economic development.  And, now, Miller, the Director of a facility that can have direct consequence to the area’s economic health, is involved in a brouhaha about making a decision concerning one of TIA’s assets that, if the apparent correct decision were made, would provide a fairly meaningful job to the area’s lifeless construction industry, not to mention an additional revenue stream for the Airport.

If our area is going to start seeing the light at the end of a very dark economic tunnel, we must hold our officials’ collective feet to the fire.  Needless to say, if Burton entered his position with an agenda aimed at Miller, he just acquired a little more ammunition.

Here is more about TIA’s office building from the Tampa Bay Business Journal:

Miller didn’t tell the authority at its Jan. 7 meeting that Moffitt’s commercial real estate broker had approached his staff as far back as October about leasing the 40,000-square-foot building at 4101 Jim Walter Blvd., public records show.

Ok, So I am a computer and data geek?  What can I say?  Since the time I was young, I had trouble recalling names, places and what I did the day before, but I sure as heck could recite names, numbers and statistics of the Miami Dolphin’s 1972 football team.  I also loved to use sports stats and trends to try to predict who was going to have a break out season the next year.

Well, not much has changed.  As I move (ungracefully, I might add) in to middle age, as a Commercial Real Estate Broker, I still love looking at and searching for that number or statistic that might provide a clue as to where we are headed before the economic data tells us where we have been.  I recently found this tool on Google Finance.  It allows you to track relative Google searches in specific sectors of the economy.  It does not track the specific number of searches, but rather those searches in relation to the entire Google network.

Here is a graph in relation to real estate searches:

A couple of things jump out, besides the fact that relative real estate searches have decreased substantially since the peak of the real estate bubble.  Relative searches for real estate drop off the face of the earth after the first week of August.   Unsurprisingly, this reveals to me the disproportionate number of look-ups for residential real estate as compared to commercial.  The number of real estate sales are skewed to the residential side and residential sales taper off after school starts in August.  Commercial sales tend to follow economic trends and year end tax selling or buying, rather than when little Johnny or Sally start school.  (I won’t even get in to the fact that most of the commercial real estate industry has been dragged kicking and screaming in to the Internet age, and in the CRE world, the Internet still has not gained even a fraction of the traction compared to that the residential real estate world.)

But, we can absolutely deduct that there is some correlation between the residential and commercial markets.  It is easy to reason that if residential buyers are out looking for second homes, newer homes or investment homes, there will also be a spill over in to interest in commercial investment properties (strip centers, single tenant net-lease deals, multi-family, etc).  The two types of sales are not necessarily mutually exclusive and completely detached from one another.

Anyway the point is, if Google reports a relative increase in real estate related searches, it is reasonable to draw a conclusion that sales of real estate will in all likelihood follow.  And, if it is an accurate assumption, Google may be one of the leading indicators of real estate sales and activities.  I will revisit this tool over the next several quarters and see if there is in fact any correlation.

I would also love to see Google tweak this tool.  You can make comparative graphs on the tool currently, if there is a corresponding Google symbol for the subject data.  But, it would be nice to break out commercial real estate against residential.  It would also be nice to break out the commercial real estate sectors (such as retail, industrial, etc.) or regions (Miami or Orlando, versus the Tampa Bay area commercial real estate markets) and to my knowledge there are currently no symbols to identify these data descriptors.

Tampa-St Petersburg

• Cap rates in the Tampa-St. Petersburg area are, on average, higher (0.32 percentage points) than that of the state, and range from 8.5% (Apartments) to 16.4% (Condo Conversion).

• Cap rates increased over the past quarter across most property types, with the largest changes occurring in Condo Conversion (+6.92% change) and Free Standing Retail (+0.74% change).

• Cap rate outlooks indicate that rates are expected to either remain the same across most property types in the next quarter. The strongest indication of a cap rate increase occurs in Flex Space.

• Required yields for Tampa-St. Petersburg are higher, on average, than that of the state, 13.62% compared to 12.75% statewide.

• Required yields are highest for Condo Conversion at 19.1% and lowest for Free Standing Retail at 11.6%.

• Required yields decreased across all but two property types last quarter. The largest shifts in required yields occurred in Condo Conversion (-3.31% change) and Warehouse and Distribution (-2.18% change).

• The investment outlook is mixed across property types, with the most positive outlook occurring in Warehouse and Distribution and Neighborhood Centers.

• The outlook for Land Development appears to be neutral to negative for all land classifications.

• Future occupancy rates are expected to be the same or decrease over the next quarter for the majority of property types. The strongest indications of occupancy rate decreases occur in Strip Centers and Large Retail.

• Rental rates are expected to increase slower than inflation across almost all property types over the next quarter.

• Future absorption rate expectations are neutral for both Condominium Development and Single Family.

• Future price increases are expected to occur at a rate that is slower than inflation for both Single Family and Condominium Development.

Click here for  the entire report from the Bergstrom Center for Real Estate Studies.

I received a telephone call yesterday from a business owner 2 years in to a 5 year lease.  This is not an unusual occurance.  It happens frequently.  What made this unusual is the business owner (let’s call him Bob) had spoken with me over 2 years ago, inquiring about using our services to help them relocate their business in Tampa, Fl.

For whatever reason, Bob had decided to go it alone and not use our services.  Now, here he was 2 years later asking me what could be done to rework his lease.  Bob had negotiated a $22/sq ft lease, which would have been on the high side of his submarket as a modified gross lease, but not an unreasonable rate at all.

The problem was, he had negotiated a triple net lease and he was responsible for Common Area Maintenance (CAM) on top of the negotiated rate.  The CAM being charged was close to $6/sq foot and upon reading the CAM definition in the written lease, it was packed full of JUNK FEES!  In other words, CAM (which is supposed to be a pass through cost from landlord to tenant) was nothing more than a profit center for the landlord.   As a result, Bob was paying roughly 30% higher than the market rate and having a difficult time covering his rent.

The fact that we lose business to other brokers is no surprise.  It happens every day, but I am always perplexed when a buyer/tenant decides they can handle locating a property and negotiating a lease on their own.   Commercial real estate is not rocket science, but there are HUGE pot holes that tenants can hit, if they are not careful.  Most services of tenant/buyer brokers are usually paid by the landlord/seller, so it is always hard for me to understand why someone would decide to go it alone in an arena in which they (tenant or buyer) have limited experience, the stakes are high, the amount of market information available on commercial real estate to the general public is limited and the lease structures are complicated.

Here are some reasons why you should consider hiring a commercial property agent to help secure property:

1. Expertise. Good commercial property brokers scour the market on a daily basis.  They know the owner of many of the properties in the area and know how willing which landlords are to negotiate and which ones are difficult.

2.  Cost of Service. Typically, landlords have built in commissions for buyers and landlord representation.  If you elect to not have representation, the budgeted commission goes to the broker negotiating against you, not on your behalf.

3.  Time Savings. A good agent knows the market and does not have to start from scratch learning the good areas and good deals.

4.  Negotiation. Structuring leases or purchases can be complex.  It should help to have someone on your side of the table armed with knowledge on sound structure and market conditions.

5. Space efficiency. Some buildings are more efficient than others.  Common areas can consume enormous amounts of space and increase your rent dramatically.  A good agent can guide you away from buildings that have huge common area charges (or at least provide an apples to apples comparison) and provide additional insight on to how best to design office layout after you have decided on a location.

6. Data and Tools. Most commercial property agents spend hundreds if not thousands of dollars a month for reports and market data on sales and leasing trends in their markets.  This can be invaluable when making site selection decisions, discovering where your customers are and how best to logistically position your business.

7.  Integrated Services. Legal, interior design, office layout, architectural services.  Would you know where to go and who to trust to help you properly set up your business or practice?  Leverage the commercial broker’s network to help you accomplish your goals.

One final note: Please seek legal advice when buying and leasing.  It is not unusual for a 2000 square foot lease to run as much as $100,000 over the entire term. Relatively speaking, a quick review by an attorney can be well worth the investment.

Trump Sued in Tampa

Trump Tower Tampa Buyers Say They Were Bilked by The Donald in Suit Filed by Clark & Martino PA and Williams Schifino Mangione & Steady PA

TAMPA, Fla.–(BUSINESS WIRE)–Donald Trump is in hot water again – this time in Tampa where Trump Tower Tampa buyers allege that the real estate mogul misrepresented his stake in the ill-fated condominium development in Downtown Tampa and committed fraud to line his pockets with their hard-earned dollars. In a suit filed jointly on Nov. 12, 2009 by Daniel Clark of Clark & Martino PA and Kenneth Turkel of Williams Schifino Mangione & Steady PA, the 30 plaintiffs in the complaint are seeking damages on several different counts including an Interstate Land Sales Full Disclosure Act (ILSA) violation, negligent misrepresentation and fraudulent misrepresentation. Similar, but not identical, suits against Trump were recently filed in Miami, Florida and Baja California. (click here for the entire release)

Comments:  It should come as no surprise to anyone that a lawsuit became official.  We reported the news of the  foreclosure on the property earlier this year. For months there have been rumblings from investors that they had been misled by Trump and SimDag, the developer.  Earlier this month, James Thorner of the St Pete Times wrote an article about the posturing on the project.  To quote Mr. Thorner, ” Considering how many rich people lost money on Trump Tower Tampa, it’s almost surprising it didn’t happen sooner.”  Yup…that pretty much sums it up.