Tampa Commercial Real Estate | Florida Commercial Property

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.

It did not come as much of a surprise when GunnAllen Financial, Inc. finally closed its doors for business today. Regulators had been digging around the firm looking for net capitalization violations after Chairman John Sykes abruptly left at the end of the last year.   With Sykes’ exit, the writing was on the wall that the firm’s future was in question and brokers began to leave the firm.

5002 West Waters Av

The real estate story behind GunnAllen is quite interesting.  An affiliated entity purchased the building at 5002 West Waters in 2004 for $9.5m and leased the building to GunnAllen.  The property had originally been owned by financially troubled Tropical Sportswear and the transaction was considered a distressed asset sale.  A parking garage was added to the property and it was sold 2 years later at the top of the market for $7.4m, or $2.1m LESS than the original sale.  A new lease agreement with GunnAllen was executed with the new owners.

GunnAllen management believed it would need the 117,000 sq ft property to accommodate its expansion plans.   When the stock market imploded, the property became an albatross for the company, whose profits were heavily tied to the market.  Management had been attempting to reduce costs associated with the build by either subleasing unused portions of the property or vacating the property entirely.

Regardless of the circumstances, Tampa will now have an estimated 400 additional unemployed people and 117,000 sq feet of office space on the market.  The property will be a challenge to market.  It is a Class A building, but the surrounding area is really better suited for light industrial or transportation, rather than an office fit for a white shoe law firm.  There is a significant common area load on the building making it best suited for a single tenant, unless the price is at a significant discount to factor in the common area charge.

From the Marcus & Millichap’s latest Retail Research Report Via the Tampa Bay Business Journal:

Forecasts included in the local report:

• Employers will cut another 4,000 positions this year. That’s an improvement over the 50,700 jobs lost in 2009.

•Asking rents are forecast to drop 3.1 percent to $13.78 per square foot, while effective rents will fall 6 percent to $11.71 per square foot. That compares to asking rents of $14.41 per square foot in 2009 and effective rents of $12.79 per square foot.

• Investors will find opportunities in operationally challenged centers in heavily populated Hillsborough and Pinellas counties. Prices have dropped low enough for investors to attempt turnarounds.

Click here for the complete story.

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.

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 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.

Over the last several months, we have engaged some banks in assisting in selling some of their distressed assets.  Sometimes the property is owned by banks from foreclosure.  Other times, the bank is asking to sell the note, prior to foreclosure.

We have seen a very wide array of asset types, everything from unfinished residential development and raw land to retail centers that are marginally to nearly cash flow positive.

Last month we closed a deal that was almost 25% below the County Assessed Value.  This is to provide you a sample of the value of the some of the deals we have seen.

Please let us know if we should contact you with deals when we receive them.  It would be helpful to let us know as much detail as possible about the types of deals that you would consider.

If you are interested in receiving updates on deals that come available, please register for our site by clicking here.

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.