Tampa Commercial Real Estate | Florida Commercial Property

An affiliate of investment firm W.P. Carey & Co. paid $57.2 million for two buildings in the Westshore area that are leased by JPMorgan Chase Bank N.A.

Carey affiliate Corporate Property Associates 17-Global Inc. disclosed the purchase price in a filing with the Securities and Exchange Commission Tuesday, one day after Carey published a release about the purchase. (…..Full Story on Loopnet)

We reported on the original building sale in the Westshore SubMarket of Tampa earlier this year.

Well it was rumored for several weeks prior to execution and it came to fruition May 3rd of this month.  The Church of Scientology acquired Ybor Square, one of the most notable and significant historic landmarks in the Ybor District.  Ybor Square had been owned by Zybor Inc.  The property sold for $7.05 million. Zybor purchased the building in 2000 for $3.9 million, not a bad profit on a building for which discussed plans never seemed to fully materialize.

The building was constructed as a cigar factory by Vicente Ybor, the father of Ybor City, in 1886.  In the early days of Ybor, Jose Marti, the legendary father of Cuban Independence frequently waxed eloquently about the need for Cuban independence on the steps of the entrance to the building.

Needless to say, because the buyer is the Church of Scientology, the sale and zoning changes are controversial.  The zoning changes seemed to be hurried through, and allegedly, places of religious assembly are prohibited in that part of Ybor.  Because the Church is a not-for-profit, the city loses all property tax revenue.  Additionally, local residents are concerned that the increased presence of the Scientologists will change the vibe of Ybor and the Church could further restrict access to the space.  The most notable tenants in the property are Creative Loafing and the Spaghetti Warehouse.

Sublease space, rented property in which the tenant gives up all or a portion of the designated space to a 3^rd party, continues to be a hot topic in the commercial real estate market in Tampa.  Although absorption rates have stabilized somewhat in the Tampa area, there still remains a considerable amount of sublease space in all the submarkets.  Last we checked, West Shore had over 500,000 sq feet in available sublease space alone.

There is no question that subleased space can be considerably less expensive than renting outright from the landlord.  Owners need to maintain pricing on their properties not only for future negotiations with other tenants, but also for refinancing with the banks. Sublessors, however, do not have the concerns of precedent that extremely low rental rates would create for owners.  Sublessors are only concerned with reducing the costs of their current lease commitment.

Here are some examples of deals we have either been involved with or know of in the last year:

We know the primary reason subleasing is attractive….pricing and affordability.  But, there is downside risk that should be considered.

1. Default by Sublessor – The legal agreement with the owner of the property is with the original tenant.  More often than not, the deal is structured so that the sublessor is paying the difference between their rent agreement with the owner and their agreement with the sub-tenant.  In the event the sublessor defaults to the owner, the owner will come to the subtenant to pay for the entire lease.  In all probability, the sublessor defaults because their business is in financial jeopardy, making the likelihood of financial remedy improbable.
2. Chargeback’s/Expensive Provisions – Leases can be very complicated.  It has always amazed me the types of poor deals that people negotiate (usually businesses trying to negotiate without the assistance of a good broker or attorney).  The Sublessor might try to pass on these disadvantageous terms to the subtenant.
3. Term of the Sublease – The vast majority of subleases is short term (less than 30 months).  Short terms can be terrific for a start up business or a company that is rapidly expanding.  For an established company, however, a short term can mean higher expenses.  Moving a company can cost HUGE dollars and these costs should be considered in the analysis of whether a sublease is a good fit or not for any given business.

The cross-bay twins – Tampa’s Westshore business district and St. Petersburg’s Gateway business district – continue to suffer from unusually high office vacancies.

Westshore is lumbering along with 21.7 percent of its offices unoccupied. Gateway’s vacancy totals 23.4 percent.

More from James Thorner, St Pete Times

Very competitive labor costs along with moderately-low office/industrial leasing and sales tax costs help make Tampa the least-costly place to do business among 22 U.S. cities/locations with populations exceeding 2 million, according to a study by KPMG LLP, the audit, tax and advisory firm.

Click here for entire press release.

This is not entirely surprising.  The Tampa commercial real estate market has been pummeled by vacancies and falling rent rates.  With high inventories of shadow-space and vacancies, one can conclude that the pain is not over. Tampa’s once bullet proof economy has shown to be WAY too reliant on the construction industry to employ its citizens.  With the highest rate of unemployment in decades, devaluation of rents and prices of commercial property is a natural occurrence.

Every month, we try to post a handful of interesting sales or other lease activity in the area.  Here are some of the recent high profile transactions in the Tampa Area:

• Sams Club (SAM’s East, Inc.) purchased a tract of land from DeBartolo in Southeastern Hillsborough County, close to Summerfield in Riverview, Florida on February 10, 2010.  The purchase price was $5.2 million
• Chase Bankcard Services quit claimed 2 large parcels in Fountain Square to BREOF BNK3A Independence LP, whose address is c/o Brookfield Real Estate Opportunity Fund in Brooklyn NY.  It appears that Chase Bankcard purchased one parcel in 1993 for $31,000,000 (L2B1) and the other in 1994 for $3,500,00 (L1B1).  The quit claim values were listed at $15.75m and $27.75m, respectively.  Feb 18, 2010.

I attended the 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.

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.

“We are going to see distress continue to mount this year,” Bach said.

Leasing rates for all sectors, including multifamily, retail, industrial and office, will continue to rise at least through the first six months, he said.

Grubb & Ellis’ Chief economist Robert Bach was in Tampa today to speak with Florida Gulf Coast Association of Realtors (FGCAR) and West Coast CCIM’s to discuss the outlook for commercial real estate.  (Complete story at the Tampa Bay Business  Journal)

The U.S. average apartment vacancy rate was 8 percent and the asking rental rate was $1,026.

Of the other major Florida markets, Miami had the lowest vacancy rate at 5.8 percent as well as the highest asking rental rate at $1,063. Tampa-St. Petersburg had a 10.7 percent vacancy rate and an $827 asking rent and Orlando had a 11.2 percent vacancy rate and an $869 asking rent.

New York-based Reis (Nasdaq: REIS) is a commercial real estate performance information and analysis company.

Copyright 2010 bizjournals.com

Full Article

601 Ashley - Office Space in Downtown Tampa

I just learned that  601 N. Ashley sold last month. Besides the fact that the building is immediately next to our office, I find the sale interesting as I believe it is a microcosm of what is going on in the Tampa market. Novare Development and partners purchased the building in 2005 with the intent  to convert the building to condos.

Well, life happened in the wake of what seemed like a great plan and the market downturn torpedoed any opportunity to break the building down and sell it.  The purchase price in 2005 was $7,000,000 or $114.27/sq ft.  The price on last month’s sale was $4.1 million, or  $67/sq foot, a 41% decrease.   While the Tampa Downtown Sub market hovers around 20% vacancy, it will be interesting to see what the new owners have in store for the property.