Tampa Commercial Real Estate | Florida Commercial Property

Date: May 28, 2010

BUYER: Kforce Services Corp. Tampa, FL

SELLER: iStar CTL East Palm — Tampa LLC

PROPERTY: 1001 E. Palm Ave., Tampa

PRICE: $28.5 million

PREVIOUS PRICE: $1.25 million, September 2000

PLANS, DESCRIPTION: Kforce Inc. purchased its headquarters in Ybor City for $28.5 million.

The price equated to $213 per square foot.

The four-story, 133,660-square-foot building was originally built in 2001. It occupies a 6.37-acre parcel and features a 4,200-square-foot fitness center, 100-seat cafeteria, coffee bars on each floor and an outdoor basketball court.

Kforce previously leased the building from iStar, a commercial real estate firm.

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Date: June 24, 2010

BUYER: MCA Enterprises Brandon, Inc

SELLER: Florida Wings Group, LLC

PROPERTY: Brandon Crossroads

PRICE: $2.6 million

PREVIOUS PRICE: $.7 million, January 2004

PLANS, DESCRIPTION: The property includes 2.01 unesable acres of land, and is improved by free-standing, 6,600 square foot Buffalo Wild Wings restaurant built in 2004.

The price equated to $394 per square foot.

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Comments:

There were also a couple of sizeable trades on apartment complexes, recently.  Providence Place apartments in Brandon, FL sold on August 4, 2010 for $30 million and Carrollwood Station Apartments sold for $18.9 million on August 6, 2010.  It is good to see some of these larger trades begin to happen.

Highlights from Report:

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.

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.

Excerpt from the Tampa Bay Business Journal:

Vacancy rates are continuing to rise in the Tampa Bay area’s office market as regional employment is expected to decline by 54,600 jobs by year’s end, states a fourth-quarter report by Marcus & Millichap.

About 2,100 office jobs have been eliminated monthly throughout 2009, dropping overall office employment to a level last seen in 2003, states the report. A resumption of hiring is still several months away.

That means vacancy rates will continue to climb while rental rates decline. (Complete Story)

Commentary:  We continue to see sprouts of green on the barren economic landscape right now, but unfortunately, employment and subsequently vacancy is going to continue to be an issue in to the first quarter of 2010, if not further.  As has been stated many times in this blog, Tampa, Hillsborough County and the State of Florida have been entirely too reliant on construction and growth with limited thought or planning as to what would happen when the music stopped.

For those interested, we have started a LinkedIn group to discuss the issues at hand.  (Click here for the LinkedIn Group)

Source: Florida Real Estate Journal and Cushman Wakefield

“The economy on both the national and the local Tampa Bay fronts has been nothing short of bleak during the first half of 2009. The area unemployment rate continued on a steep incline, jumping to 10.6%, up by 4.7% from the unemployment rate recorded at this point in 2008.”

“….The market continues to struggle with increased vacancy and rising sublet availability. Both the Central Business District (CBD) and non-CBD vacancies continue to climb, with the market-wide overall vacancy rate reaching 18.6% by the close of the second quarter of 2009. This is a slight seven-tenths of a percentage point increase over the first quarter, but a much more significant 5.0 percentage point spike from the same time last year.”

Comments: If you are a tenant searching for property, this is a great time.  Keep in mind, Landlords are much more willing to negotiate free rent as opposed to lower rent.  Lowering the base sets an adverse precedent in future negotiations with you and other tenants.  Most landlords will have to renegotiate their mortgages in the next few years and it is much easier to explain free rent than reduced rent.  Reduced rents can make a forward looking income statement look pretty ugly to a banker.

We have found deals as good as 6 to 12 months of free rent, for medium term leases (3-5 years).

Atlanta Journal Constitution:  Reconfiguring Office Space

We certainly have our share of vacant space in the Tampa market.  The downtown corridor is expected to top 20% this year.  Vacancy is usually associated with failed businesses, but that is not always the case. There are many surviving businesses, for example, that needed 10,000 square feet in 2006 and now only need 6,000 square feet.  The “shadow” market vacancy rate can be much larger than the published rate, particular in downturns, like the one we are currently experiencing.   Businesses have retracted and they have either laid off workers or natural attrition has taken its course.  The problem is, the leases can run for years after the space becomes available.  What can or should these businesses do with all of their excess space.  Here are a couple of ideas:

1. Donate the space to charity – Non-Profits have been hit particularly hard by this downturn.  Many are finding it difficult to sustain themselves.  If the tenant is not using the space, donating their excess space (and allowing the non-profit to remove or reduce their current rent overhead) could allow a local charity to keep their doors open and continue their good work for the community.
2. Sublease – There is an ACTIVE sublease market.  Some of these spaces are advertised.  Other businesses prefer to not actively “market” their space.  Sub-lease spaces are almost always rented at less than current market rates. This can offer very good opportunities for companies in the market for space.
3. Renegotiating with the Landlord.  There are all kinds of ways to do this.  Your landlord understands that this is a challenging market.  They are usually willing to try to keep good tenants and there are many ways in which the landlord can show goodwill to the tenant without a major disruption in rent or income for the landlord.
4. Sharing office space.  Start-up firms are often willing to share space with an established tenant for a short period of time, while their business is getting off the ground.   There may even exist synergies between the two firms that would create business growth for both companies.

The Development Council team in Pasco County must be doing cartwheels over their most recent coup.  T. Rowe Price will move their  location to a 75 acre campus off of State Road 54, bringing with them 1500 jobs.  Amprop is the developer on the project.  Although it is not clear, in all probability, Pasco’s gain is Tampa’s loss.  Currently, T. Rowe Price has an Investment Center located off of Boy Scout Rd., near Tampa International Airport.  It is not public knowledge, as of yet, if the firm will relocate this space to the new Pasco campus.  Common sense says a move is likely.

Source:  Tampa Bay Business Journal

A recent report found that Tampa’s daily parking rate ($15) exceeds competitive cities Atlanta, Charlotte,Jacksonville, Raleigh and Dallas.  I am not sure how much of an issue this is when companies are looking to relocate to Tampa, but I am quite sure it is an issue for real estate prices in the downtown submarket when compared to other submarkets.  Westshore, the downtown market’s closest competitor, maintains average office rates at roughly $3/square foot higher than those Downtown.  Increased convenience to the Interstate and Expressway are part of the reason for the higher rates, but parking in most of the Westshore district is typically included in the rent, while it is priced separately in the downtown market.

Florida Real Estate Journal Reports:

TAMPA – As of 1Q09, Tampa Bay’s user and investment office market is best defined as “systemic monetary gridlock” as the U.S. economy still searches for its trough. Lending facilities remain stingy as several life insurance companies -normally a major source of liquidity – announced plans to significantly scale back portfolios. Meanwhile, multiple government bailouts (TALF) have shown no positive results in the near-term and will lead to an inflationary period for real estate pricing. (…more on Tampa Office Vacancy )