Like most real estate markets in the US today, the commercial real estate market in the Sarasota-Bradenton region is seen as a struggling one these days, compared with other markets across the country. This fact was analyzed according to a new report released by the New York-based analyst, Integra Realty Resources. Although the report says that recovery will be slow, and may not fully happen this 2008, some local experts are disputing the findings, and say that the region should not be lumped together with other weaker markets, such as those in the northeast of the country.

Office And Retail Markets Are Currently Flat, However Some Disagree

The Inegra Realty report, which is annually published for the last 18 years, verifies current market conditions for office, retail, industrial and apartment properties. IRR is made up of a network of independent appraisers and has 58 offices across the country, which includes the Southwest Florida region, Tampa and Naples. The report analyzed and ranked each market it studied as being in one of four stages: recovery, expansion, hyper-supply or recession. In analyzing the office market for 2007, the Sarasota-Bradenton area was noted as one of only three places nationwide to be in the “recession” stage, along with the cities of Detroit and Dayton, Ohio.

Majority of the other markets analyzed were either in the “expansion” or “recovery”stages. The recent report suggests that Sarasota-Bradenton region was not faring all that well with its retail market as well. Although IRR found 71 percent of markets experiencing retail expansion in 2007, the local market was analyzed to have fallen into recession in that category as well, largely in part because of the bursting of the housing bubble. The report adds that Sarasota moved from expansion into recession as the effects of the housing slump were felt.

According to the director of the Institute for Economic Competitiveness at the University of Central Florida, while he agreed with the sentiment that housing was certainly having an effect on the commercial sector, he was a bit skeptical of the report’s conclusions though. According to the UCF expert, “the commercial side is definitely seeing a decline,” referring to the local market. “But for Sarasota to be lumped in with a city like Detroit, that’s a little shocking to me. The underlying economies of those two places are just completely different. The University of Central Florida analyst notd that it’s sometimes hard to know what figures into an analysis like IRR’s, and adds that he would have to take a closer look at their methodology to see how they came to that conclusion.

Some Are Not Surprised At The Report’s Findings

According to local real estate analysts, with more businesses leaving Florida than moving to the state, the commercial real estate sector may be in for a tough and tricky year. The local experts says he was not surprised to see Sarasota-Bradenton’s office market listed as struggling in the IRR report.

Local housing observers say that, “In Sarasota, offices are very flat and will likely be that way for some time”, and that “There’s already more than what’s needed when it comes to office space.”

Some note that when it came to Sarasota-Bradenton market as a whole, there was a long way to go, and most don’t believe Sarasota is on the path to recovery yet in 2008. Many view that new construction across the board is likely to slow, with anything connected to the residential side being especially hard-hit. New condominium projects that were the norm during the boom periods are now proving almost impossible to finance.

Source: http://www.turks.us/article.php?story=20080428122752265

NEW YORK – July 31, 2008 – The U.S. commercial property market will avoid the massive troubles crippling the single-family housing sector but will face hard times in the coming year, according to industry experts at a recent National Association of Real Estate Investment Trusts (NAREIT) conference in New York City.

Overall, the market environment seems to be more stable than everyone feared, leading to predictions that the industry will weather a long but mild recession.

With gas topping $4 a gallon, U.S. consumers are cutting back on everything but the essentials. Even luxury retailers have started to feel the impact, said John Bucksbaum, chairman and CEO of General Growth Properties, Inc., a Chicago-based regional mall REIT with a 180-million-square-foot portfolio.

“In the past couple of years, everybody wanted to trade up,” Bucksbaum said in describing the trend of middle-income consumers dabbling in the luxury sector. “Today, so many of those people are scaling back. It’s all at the margins, but it makes a big difference to the retailers.”

Despite the hit to consumers, most REIT executives reported that leasing activity remains healthy. Discounters, warehouse clubs and supermarkets are benefiting from inflation on food prices. On the flip side, restaurants are hurting, said Craig Macnab, chairman and CEO of National Retail Properties, Inc., an Orlando, Fla.-based single-tenant retail REIT.

This lackluster environment will likely last for another year or so, according to Kenneth Rosen, professor of real estate and urban economics at the University of California at Berkeley. Rosen estimates the economy has entered a recession, but thinks there’s a 50 percent chance it will remain mild.

Despite the broader economic challenges, commercial real estate fundamentals remain solid in part because developers have scaled back on new projects, limiting the amount of new supply. That will provide a buffer against the kind of precipitous price declines experienced in the residential sector, Rosen said.

As a result of the slowdown in leasing and the difficulty of obtaining construction financing, most of the REITs are taking a more measured approach to new development. But the majority of REIT executives expect that they will be able to get through the current downturn unscathed.

“I am optimistic about the long-range outlook, we just have to be patient,” said Milton Cooper, chairman and CEO of Kimco Realty Corp., a New Hyde Park, N.Y.-based shopping center REIT. “I am very hopeful and optimistic that the market will change next year. Whoever is elected president, there will likely be an increase in taxes, which will be good for the dollar. And there will be a push to make America less dependent on oil.”

Copyright © 2008 by Prism Business Information. All rights reserved.

The Focus In Commercial Real Estate Right Now is on Finding Value, Not Growth

All right, you may call me a ‘nattering nabob of negativism’ for labeling commercial real estate as in a bear market, but the way property investors are reading today’s commercial real estate fundamentals is compelling some to revert to a traditional way of doing business: the good-old buy-and-hold.

Mid-year market conditions are clearly pointing to flat rental growth, rising property vacancies and a drought in property sales. That alone may not be enough to constitute a bear market because properties are still experiencing positive net absorption and many markets are still posting price increases.

However, in the cyclical world of commercial real estate, many in the industry identify this as a downturn.

“There is a big difference in buying property in a bull market and hoping prices will continue to rise, and hoping you’re not stuck on the top of that pyramid,” said Daniel Cabrera, senior account executive with Empire Commercial Funding Group in Albuquerque, NM, “and buying property in a bear market knowing prices will eventually rise and that you’re not on the top of that pyramid. Estimating the time of the eventual rise will be done best by those that perform their due diligence.”

“An investor client (in his mid 40s) said to me the other day, “this is the best market for creating wealth I have ever seen,’” said Jerry Anderson, executive managing director of Sperry Van Ness Florida. “I couldn’t agree more. I’ve personally seen markets like this before and in my opinion, most agents that have been “playing matchmaker” with buyer and seller the last five years are clueless about the opportunity.

“Sellers have been spoiled with multiple buyers clamoring to buy at any price,” Anderson said. “Buyers have been spoiled with easy money covering up buying mistakes and lack of market dynamics. And brokers have really been spoiled - list it, throw it out there, get out of the way of the deal and show up and collect your commission.”

“Now ’solution selling’ is in play - solving problems for owners and finding opportunities by truly understanding the dynamics of the local economy for buyers,” Anderson said. “Wealth for your clients and you is created in a down market not an up market. This is the best opportunity we have seen to create wealth in quite some time.

CoStar Group Mid-Year Market Reports characterize market conditions as follows.

Office

• Increasing vacancies: 26 office markets have seen vacancies increase over the past year, while 15 have seen vacancy decrease.
• Rents are continuing to go up: 35 office markets have seen rents go up, while eight markets have seen rents go down.
• The square footage of buildings is off 54% from the same quarter one year ago, dollar volume is off 59% from a year ago, and the total number of transactions is off 40% from a year ago.

Industrial

• Vacancy has been relatively flat: 19 industrial markets have seen vacancies drop over the past year, while 23 have seen vacancy increase.
• Rents are continuing to go up: 31 industrial markets have seen rents go up, while 11 markets have seen rents go down.
• The square footage of buildings is off 38% from what it was one year ago and the total dollar volume is off 39% from a year ago.

Retail

• Vacancy rates are up 10 basis points this quarter, 20 basis points since last year this time: 27 retail markets have seen vacancies increase in the past year, while 15 have seen vacancy decrease.
• Rents continue to go up: 35 retail markets saw rents go up, while eight markets saw rents go down.
• The square footage of buildings is off 46% from same quarter one year ago and the total dollar volume is off 55% from a year ago.

“I agree that demand has stalled and rent growth has slowed,” said Corey Schwartz, president of Serinova Financial LLC in Phoenix. “It’s interesting that I have not seen much movement in cap rates, which I really expected to rise by now. I think investment purchases have slowed primarily because of the inability of buyers to find financing rather than slowing of demand or rents. I have had a number of gold plated buyers cancel transactions and postpone projects because they were not able to find financing or unable to find financing on acceptable terms.”

A Buyer’s Market

However, Schwartz added, “the savvy real estate investor has been waiting for this part of the cycle and is poised to acquire the properties that will sustain his growth in the next cycle. Our strategy is to opportunistically buy everything that we can find that is well located and significantly below its replacement cost.”

“Investments sales seem to be centered on properties that have CMBS loans maturing and people that made bad buying decisions in 2005 and 2006,” said David S. Miller, vice president/national accounts commercial sales manager with CTT in Phoenix. “Targeting those sellers seems to be the most logical way to attack the investment market.”

“In any market condition — bull or bear — it is always a great time to make money. Just ask any of the recent buyers of real estate. Deals are being done because of a realistic seller and an opportunistic buyer, both win because one gets to move on to another investment, while the other gets to acquire another opportunity,” said Harry Looknanan Jr., an advisor for Sperry Van Ness in Port Charlotte, FL.

Stuart Baldwin, principal of American Capital LLC in Fairfield, CT, noted the old saying that there are always opportunities to profit in real estate, they just change with market conditions.

“There will be a tidal wave of workouts and foreclosures from all the bad individual and large-scale mortgages banks are holding,” Baldwin said. “Certainly the massive amounts of capital being raised right now for bad debt/distressed real estate purchases suggests that many see an opportunity there.”

Not Just Any Property

Cash is king was common response we heard from those surveyed when it came to the investment market, as was the focus on primary markets over secondary markets.

“All real estate is certainly not equal,” said Krista P. Black, principal of Smart Hard Money LLC in St. George, UT. “We see a dramatic opportunity in properties with this type of core value as the market continues to talk about all real estate in averages; particularly national averages. Some properties, and some markets, are an excellent bargain if they are in use for, or can be converted to, recession-resistant purposes.”

“We have redefined core value not as what is sellable, because we obviously do not expect sales in this credit market, but rather what rents actually support over the long term,” Black added. “For example, space not only needs to be occupied but must be occupied by recession resistant businesses or be supported by entry-level rents in the case of multifamily. We are not interested in the luxury market, luxury retail or travel-related real estate in this market.”

“Flexibility for the use of the property is probably key as some owners may need to go to plan “B.” This is usually achieved by staying at much lower leverage than we have seen for a long time,” Black said.

Another common theme was to invest in value.

“The best real estate strategy in a bear market is to wait for the price bounce,” said Vince Norris, a partner in Delson|Norris|Fischer in Woodland Hills, CA, “don’t jump in too early, and look at value investing not growth investing.”

“The traditional approach to investments is total return equals growth and yield,” said Brian S. Brennan, director, real estate acquisitions of Allianz of America in Westport, CT. “Now, while growth is taking a holiday, focus on yield. For real estate, that’s traditional asset management leasing, tenant retention, property renovation and/or expansion.”

Work It

Whether buying new or holding on to existing properties, the key many respondents said will be what is done with the property during the holding period.

“If you own it already and you’ve had tenants move out because of the ‘bear market,’ you’d better be sure you’re working cooperatively with the brokerage community to get it re-leased. Consider offering incentives like some free rent, tenant allowance, but hold your rents,” said Nancy L. Yates, vice president of ICORR Properties International Ltd. in Sarasota, FL. “When things turn around, you won’t be stuck with low rental rates and you won’t have to struggle to increase the rates. Always try to have a ‘wait list’ of prospective tenants. Do pre-emptive work — renew tenants early to make sure they are committed to your location. Offer them incentives - no increase for the first year for being a loyal tenant.”

“Bear market means you are offering something else to differentiate yourself, such as amenities, price point, location, etc,” said Cris E. Zenobio of Titan Realty & Construction LLC Plainview, NY. “Good product leases and sells and the capital and credit markets dictate at what prices.”

“If you are in a secondary market get aggressive in your leasing strategy and fill your vacancies,” Zenobio added. “Once you are full with quality tenants, then you can market for sale. But keep in mind what you had to do to lease up the space when you are marketing it for sale.”

Joseph S. Galli, executive vice president and managing director of Consortium Capital, an affiliate of The Bernstein Cos. in Washington, DC, concurred.

“The only tried and true tested bear market strategy is to take this time and look inside at your properties,” Galli said. “Do the things that you did not have time to do when we were so busy. Especially work your tenants and keep them happy — an ounce of prevention is worth a pound of cure.”

Sandy Schonberger, president of Schonberger Associates LLC in Livingston, NJ, summarized it best.

“Buy low and sell high,” Schonberger said. “It is advice that works. Bear markets are cyclical; they don’t last forever. They are re-adjustments that bring inflated prices back to reality. Over a period of time, prices will again increase providing value for the smart buyer.” Source: http://www.costar.com/News/Article.aspx?id=A18CF657583797014CB3AA357FC6DA9A&ref=100

With vacancies creeping slightly higher, unemployment ticking up and the bottom dropped out of new construction, local unemployment rate is at a 15-year high. Commercial real estate is starting to see rents drop, and leasing for industrial and office space is becoming increasingly more competitive.

With commercial office space in Downtown Sarasota and Lakewood Ranch in double digit vacancies, now is an excellent time for large tenants and users to leverage the market conditions to their advantage. For mid to large sized companies, a 10-15% reduction in their budgeted rent costs could mean the difference between breaking even and being profitable.

For any questions on how a Tenant Representative can help you with your office or commercial space needs in Sarasota or Lakewood Ranch, contact me.

The following excerpt is from the Herald Tribune with more background on changes to the local employment engine.

The hardest-hit areas were the unincorporated parts of Sarasota and Manatee counties and the city of North Port.

That the local construction industry has fallen on tough times is hardly news, but the official July 1 figures released by property appraisers place precise numbers on the downturn.

For instance, new construction in North Port totaled $193 million last year, a 70 percent drop from the $655 million reported in 2006. New construction dropped 62 percent in the unincorporated parts of Sarasota County.

“Construction is a large part of our economy and that’s going to translate into lost jobs and, of course, lost revenues for governments and for businesses,” said Steve Queior, president of the Greater Sarasota Chamber of Commerce.

That cause-and-effect relationship between construction and jobs is seen in Labor Department figures for the area. In the Bradenton-Sarasota-Venice market, construction and mining have lost 8,100 jobs since hitting a peak of 30,300 in September 2006.

That sector has led the surge in unemployment, which hit 5.3 percent in April. The last time unemployment was higher was August 1993.

Sarasota County was particularly favored by dollars from the building boom, passing for the first time the $2 billion mark in new construction in 2005 and surpassing that with $2.3 billion in 2006.

But construction ground to a halt last year, dropping to $1 billion. The fallout was apparent in May 2007 when the county eliminated more than half the jobs in its building department, where applications for building permits are reviewed.

Sarasota County Property Appraiser Jim Todora said he did not think the county’s new construction would top even $1 billion last year. But several condominium projects that were nearly complete in 2006, but were not finished until 2007, pushed the figure higher than expected.

“A lot of this, remember, are carryovers from the prior year,” Todora said. “Sometimes there are properties that are 90 percent done but they don’t go on the roll for another year.”

For that reason, construction was actually up in the city of Sarasota and town of Longboat Key last year. It was down 42 percent, though, in Venice.

In Bradenton, construction was down by more than 50 percent. Charlotte County’s numbers were comparatively better, down 25 percent for the year.

Manatee County also barely clung to the $1 billion figure despite seeing new construction drop by 35 percent.

Based on the first half of this year, the numbers for 2008 will be a lot worse, said Dale Friedley, an analyst with the Manatee County Property Appraiser’s Office.

“My projection right now is we’ll be around $400 million,” Friedley said.

Local governments were already announcing layoffs and having a hard time making ends meet because of plummeting sales tax and impact fee collections. But when property appraisers released their June 1 estimates on what the real estate downturn had done to the local tax base, the news was generally worse than feared.

Charlotte County’s tax base was forecast to drop 22 percent as falling property values led to declining property assessments. Sarasota County’s forecast was a 17 percent drop and Manatee’s was 8 percent. In all, the property tax base for the three counties was supposed to be down $19 billion.

But for some local governments, Tuesday’s numbers held some rare good news. Todora’s June 1 estimate that Sarasota County’s tax base had shrunk 17 percent would have meant the county’s tax collections would be down $41 million next year.

The July 1 number, which is considered a final number and is used to set taxes, turned out to be down only 15.2 percent, which means county tax collections will be down $36 million.

In Manatee County, the new numbers translate into about $700,000 less of a budget hit than the county had expected.

Ed Hunzeker, Manatee’s county administrator, said the county should not add the extra money to its budget since more bad financial news is likely around the corner.

There are still tax appeals filed by local landowners that have not been settled. The county could lose those appeals and the taxes that go with them. Also, state revenue estimates continue “to forecast doom and gloom,” so state-revenue sharing funds are likely to drop, he said.

Home sales in the Sarasota MLS for May 2008 stood at 627 - the highest level in 14 months, and approximately 92 percent higher than the sales in January 2008. In 2008, sales have been increasing each month, possibly due to the influence of the new property tax portability law enacted in late January. Sales have climbed from 329 in January to 423 in February, 514 in March and 567 in April.

“This year, the Sarasota real estate market has been a beacon of hope as the state and national markets continue to struggle,” said Helen Sosso, 2008 SAR President. “I believe our local agents have embraced the concept of a buyers’ market, and educated sellers on the realities of pricing. We still have advantageous interest rates, and our communities’ natural and cultural amenities always attract buyers.”

The May 2008 report continued to reflect strength in pending sales, which stood at 692 - the second highest level since June 2006.  Last month’s pending sales stood at 756, the highest in the period.   In May 2007 only 541 pending sales were reported.  Like closed sales, pending sales have been edging upward since December 2007, when there were only 374 pending sales reported. Pending sales reflect contracts executed by buyers and sellers, and indicate more closings in upcoming months and an improving market in the early summer months.

Inventory levels were lower in May 2008 for the third month, and are the lowest they have been since February 2006.  Still, with 9,500 single family and 5,100 condos listed, buyers have a huge selection of more affordably priced housing to select from.  The reduced inventory is a combination of fewer properties being listed, and increasing sales numbers.  As the inventory continues to decline, the market will come back to more balance.  As we approach equilibrium, the buyer’s market we’ve been experiencing will be gone, and price appreciation will creep back into the market.

In general, the Sarasota MLS statistics show a rebound throughout 2008 - every month seeing stronger numbers than the month before. In fact, Sarasota statistics have been stronger in recent months than sales in the Miami market, which is a much bigger geographic and demographic area.

In the local Sarasota market, we have seen the trend already beginning toward lower inventories, higher sales, and a leveling of prices after several months of declines. The May figures reflect this new reality.

Click HERE for the complete press release, including PDF with two charts.

TALLAHASSEE, Fla. – June 24, 2008 – An aspiring state Senate president began his campaign on Monday to defeat a ballot proposal that would slash property taxes by raising the state sales tax and possibly carving into the state budget.

The political battle pits Mike Haridopolos, in line for the Senate presidency in 2010, against former Senate President John McKay. McKay, a Bradenton real estate developer, proposed the tax swap as a member of the state Taxation and Budget Reform Commission, which voted this spring to place the question before voters in November.

The tax-swap fight transgresses usual political boundaries. Both Haridopolos and McKay are Republicans. Backing Haridopolos are school boards and the state teachers union, farmers, hospitals, AARP and the fiscally conservative National Federation of Independent Business. It’s an unlikely coalition of groups that often lobby on opposing sides, but whose overlapping interests in state funding and tax exemptions – as well as possibly currying favor with an incoming Senate president – have united them against Amendment 5.

On McKay’s side: the powerful Florida Association of Realtors (FAR), which invested $1 million in the campaign to pass the Amendment 1 tax cut in January and says it intends to spend at least as much on Amendment 5 this fall.

“Some of the groups that stood against this today, I haven’t seen any comprehensive property tax relief coming from them,” said John Sebree, FAR vice president of public policy. “Is any property tax relief good to them?”

Amendment 5 would eliminate the portion of property taxes that pay for public schools, in exchange for increasing the sales tax by a penny, repealing some sales taxes exemptions and exclusions, cutting the budget, revenue growth attributable to Amendment 5 or some combination of those.

The state-mandated schools portion of property taxes is worth $8.9 billion, about 25 percent of total property tax collections. Amendment 5 would require lawmakers to pay back the entire amount to schools.

Wayne Blanton, director of the state School Boards Association, said Monday that he does not trust lawmakers to do it. “They’re more prone to come in and cut services than they are to do the right thing.”

McKay said that’s a sad commentary, “but in the event that the Legislature does not uphold its constitutional duty, as outlined in the amendment, we’ll be in court very quickly.”

Haridopolos has argued that growth in school funding will boost the true cost of the plan from $8.9 billion to $11 billion.

Raising the sales tax by one penny, he said, will generate about $3.5 billion, leaving lawmakers without sufficient means to fill the gap unless they pass “the biggest tax hike in Florida history,” carve deeply into the state’s shrunken budget, or both.

Haridopolos and McKay disagree on the potential for filling in the gap. On Monday, Haridopolos challenged McKay to debates across the state on Amendment 5.

McKay said he would be happy to debate Haridopolos, a responsibility he would share, he said, with other commission members.

McKay criticized some of his opponents for “playing loose” with the numbers.

“Some folks are quoting future projects for the schools portion of property taxes, but then quoting only what a penny in sales tax would raise today,” he said.

Sebree said the relief from Amendment 5 would reach much further than the effects of Amendment 1, which primarily targeted homesteaders.

“This amendment would affect every property owner in Florida,” he said.

Copyright © 2008 Tampa Tribune, Fla., Catherine Dolinski

LAKEWOOD RANCH Lakewood Ranch Corporate Park wants to add 2 million square feet of office space to its 1,300-acre complex off University Parkway, which many already refer to as the new commercial hub for the region.

Developer Schroeder-Manatee Ranch was limited in an earlier plan to building 2.3 million square feet of office space at the park through 2014. But it has already built or has construction approvals for 2.2 million square feet, so it is petitioning the county to expand that figure to 4.3 million square feet.

“We’re up against it; that’s why we’re here,” said Todd Pokrywa, SMR’s vice president of planning. The developer won an 8-0 vote Thursday night from the Sarasota County Planning Commission. The change of plans next goes to county commissioners for a final vote on Aug. 26.

The going might be tougher there since county officials are pushing SMR to make its huge development more multimodal. That is an industry term for beefing up plans for bus and shuttle service, bike paths and pedestrian access with the aim of making the park less reliant on the automobile.

“We’re committed to working on a multimodal plan,” Pokry- wa said, noting that negotiations with the county are ongoing.

Sarasota County Commissioner Joe Barbetta said there was “no question” that pushing the developer for commitments on an overall transit plan would be the biggest issue at the August hearing.

The county is considering the addition of a bus route to the corporate park and is interested in plans for a local shuttle that would feed into the public transit system.

SMR’s new plan also calls for another 534,000 square feet of office space to be built between 2015 and 2019, bringing the total to 4.9 million square feet.

To get a grasp on how big 4.9 million square feet is: It is 112 acres, or 1.1 million square feet more than is contained in the Sears Tower, North America’s tallest building.

The numbers are big enough that the county now considers SMR’s corporate park to be the region’s commercial center, said Sarasota County Administrator Jim Ley.

The park has been so successful that other areas in northern Sarasota County once envisioned as being home to commercial office space have not gotten off the ground.

“They’re the sucking sound sucking things into that area, and that’s not bad,” Ley said.

Unlike other parts of the country, most of the income of Sarasota County residents comes from transfer payments, such as investments, Social Security checks and other forms of income that are not wages.

In most places, workers’ paychecks are the biggest source of income.

It is that need to diversify the local economy and attract higher-paying jobs that led to the county’s approval of the project in 1995 and its continued support for it, said County Commissioner Jon Thaxton.

While SMR is not immune to the downturn in real estate, the plans reflect what the developer believes will happen over the next six years, Pokrywa said.

The new plan suggests long-term hope for a commercial market that has grown soft with the other sectors of real estate. However, the plan also shows an uncertainty about Florida’s ability to attract manufacturers.

SMR is cutting the amount of industrial space at the corporate park in half. Earlier plans had called for 2.8 million square feet for manufacturers, but that number is cut to 1.4 million square feet in the new plan.

“The office market is weak right now,” said Carl Wise, a principal with Preferred Commercial in Sarasota. “The housing downturn hit everyone in the butt.”

But Wise added that executives at SMR are “good, thoughtful, long-term thinkers.”

In the current market, an industrial building will sell for $80 to $150 per square foot, while an office building will sell for $250 to $350 per square foot, Wise said. So, it is lucrative for a developer to switch to commercial from industrial, if it can, he said.

“We’re not seeing anything conducive to industrial in Florida,” Wise said. “They tax these guys to death and make it really hard for them. That’s why so many manufacturers are leaving.”

By Carl Cronan

Money is apparently no object for guests staying in luxury hotels with traditionally upscale flags such as Ritz-Carlton or Waldorf-Astoria. The same might also be said for capital sources when it comes to financing such facilities. While lenders appear to be in lockdown mode for every other type of commercial real estate, they seem to be more willing to open the vault for established upscale hotels. Financial services firms believe that charm can be extended to new projects, depending on where they are located across the country.

“It’s just a pure flight to quality in this market,” says Andrew Colman, vice president with Walker & Dunlop in Bethesda, MD, whose Hotel Finance Group has arranged more than $300 million in loans to hotel development and management companies over the past year and a half. The volume of transactions in the luxury hotel market is double its normal level, rising from 25% to 50% this year, he says.

Walker & Dunlop’s latest transaction is a $65-million refinancing for the Ritz-Carlton Philadelphia, which the firm says is based on the hotel’s brand, strong asset quality and exemplary owner sponsorship. Miami-based Gencom Group owns the 303-room, full-service luxury hotel that is designed to resemble Center City landmarks related to the nation’s birthplace.

Whether that translates to new projects remains to be seen. For example, New York-based Carlton Advisory Services is working with developers of a proposed 225-room Waldorf-Astoria hotel in Sarasota, FL, to get $100 million in bridge financing for land acquisition and pre-development costs. Lion’s Gate Development and Hilton Hotels Corp. are advancing the 18-story hotel as part of a planned $1-billion mixed-use project called the Proscenium in Downtown Sarasota.

Financing for luxury hotels can be difficult because of their size, though not impossible even in the current credit-squeezed environment, says Kenneth Herzberg, director with Carlton Advisory. Even upscale condominium units, which banks might not touch at normal pricing levels, are favorable if they have a hotel’s brand attached, he says.

“We have some significant interest from some groups,” Herzberg says. “It’s a combination of the brand, the sponsorship and how it’s presented, and the overall valuation of the project at the end of the day. If it’s a top label and it appeals to folks on the upper end of the scale, and it has a branded residential component, it’s going to make a deal a lot easier.”

Other luxury hotel brands such as JW Marriott, Renaissance and Grand Hyatt are still able to get financing at good terms, according to Colman, whose family has a lengthy history in the hotel industry. Now that commercial mortgage-backed securities have gone from abundant to extinct in just the past year, hotel financing is now driven more by who and what owners and developers know.

“My relationships take on increasing value,” Colman says. “Even if it’s a great deal, it’s still tough, but they are getting done.”

Article published Jun 16, 2008

Manatee land market said to be iffy
Real estate agents say the overall sales trend is still declining

PALMETTO Palmetto developer Alan Zirkelbach sold 138 acres of industrial land near Port Manatee to two groups of investors in April for $18 million.

Those two sales represented 46 percent of $39 million in land sales that took place in Manatee County during the 12 months ended May 31.

Because of those sales, the total dollar volume of land that changed hands was down only 4 percent from the $40.8 million in sales that were concluded in the county during the same period a year ago.

Commercial real estate agents, however, say that Zirkelbach’s sales were a blip on the radar screen. The overall trend in the market for vacant land continues to be downward with respect to price and the number of closings.

“There are a lot of buyers and a lot of sellers out there, but they’re miles apart in their philosophy at the moment,” said Stan Rutstein, an agent with Re/Max Gulfstream in Bradenton. “Buyers are evaluating land values with a microscope, while sellers, who either got in too high or are too leveraged, are operating with unrealistic expectations.”

The real estate buying decision is based on confidence, Rutstein continued.

“If you are nervous, which is the prevailing mood right now, you are going to take much longer to work out deals as you try to squeeze out all the risk out.”

Two years to recovery?

All told, there were 50 undeveloped land sales in Manatee County during the 12 months ending May 31, a 17 percent drop from the 60 deals that took place during the same period a year earlier and a 78 percent drop from the 215 sales that took place during the 12 months ending May 31, 2006, Manatee County property appraiser data show.

John Stephens, an undeveloped land specialist with North Manatee Realty in Palmetto, predicted that it will take at least two years before the market revives from its current moribund state.

“How many thousands of vacant residential lots are out there that we don’t have buyers for?” Stephens asked. “Until those lots are absorbed, there won’t be any demand for raw land.”

Stephens said the restrictions on the digging of new wells only exacerbates the problem.

“Because the water management district won’t allow new wells for farming, new farms can’t come in,” Stephens said. “As a result, demand for farm land has been depressed to zero.”

Another factor depressing the market is the price of gas, said Barbara Anson, an agent with Wagner Realty in Myakka City.

“People are holding back on buying land in rural areas because they don’t know what it will cost them to drive back and forth,” Anson said.

Demand hitting prices

Manatee County property appraiser statistics show that falling demand for empty land is having an impact on prices.

Where land was selling for an average of $78,210 per acre in 2006, the average price for the 17 deals that have closed this year is just $25,182 per acre — a level not seen since 2004.

There may not be enough sales in 2008 yet to get a clear picture, said Dale Friedley, a data analyst with the Manatee County Property Appraiser’s Office. “However, there is a definite further price downtrend,” Friedley said.

Paul Klick, a commercial agent with Coldwell Banker in Sarasota, agreed that the market for residential land is catatonic. But he said buyers are still interested in commercial and industrial land. Zirkelbach’s two sales in April are certainly proof of that, Klick said.

Zirkelbach originally paid $6.1 million for the 138-acre tract off Buckeye Road in northern Manatee in July 2005. He then submitted plans to convert the land into an industrial park for distributors and light manufacturers, originally intending to market the park to end users over time. But when the downturn hit, Zirkelbach put the whole property up for sale.

Klick, who helped Zirkelbach sell the land, said the ultimate sale resulted from three factors: intensive marketing, obtaining site plan approval and getting a group of developers to commit to building a 123,367-square-foot regional distribution center for Federal Express Ground.

“Federal Express ended up being the anchor tenant for the industrial park, which was the linchpin to putting the deal together,” said Klick, who was assisted in the sale by Coldwell Banker agents Charles Clifton and Jerry Lamb.

Indianapolis-based Scannell Properties ended up paying $5.5 million for 16.5 acres where the FedEx distribution center is being built. The rest of the property was bought for $12.5 million by a consortium of developers led by Clearwater builder Brad Shirley of Jomar Development.

Klick said that while the Fed-Ex sale was driven by a national company’s need to expand its regional distribution network, the sale of the remaining land was due to developers who believe in the future of the area.

“Port Manatee is expanding tremendously,” Klick said. “It is starting to handle containers. And being the closest U.S. port to the Panama Canal, it will benefit from the expansion of the Canal Zone.”

Besides commercial and industrial users, the only other buyers of undeveloped land in recent months have been investors who are taking advantage of the fact that they are the only ones taking advantage of available opportunities.

Carlos Beruff, a longtime Southwest Florida builder and developer, bought 47 acres for $1.1 million, or $23,787 per acre, in December, according to property appraiser records. That price was 74 percent less than the $4.2 million, or $89,362 per acre, that Kimball Hill Homes paid for the South Manatee property in April 2005.

Similarly, Ronald G. Allen, an Osprey resident who made a fortune investing in real estate, bought 101 acres near Myakka City in May for $3.4 million, or $33,663 per acre.

“I didn’t steal it,” said Allen, who bought the property from Michael Ferro. “But I don’t think I got taken either.”

Allen said that he sold his house on Casey Key to Ferro for $3.2 million and agreed to pitch in an extra $200,000 for Ferro’s land in eastern Manatee.

“The land has already been rezoned,” Allen said. “The former owner spent about $500,000 to develop it. That’s what made it interesting to me.”

Allen believes his money is better off invested in land than it would be if it were sitting in the bank.

“If you don’t panic and you hang on to what you have, the market will come back,” Allen said.

TALLAHASSEE, Fla. (AP) – June 13, 2008 – Local governments in the midst of writing annual budgets face lower property tax revenues because of a new state constitutional amendment and falling real estate values.

Amendment 1, which voters approved in January, was expected to cut local property taxes by $9.3 billion during the first five years, though it may be a bit less because of the housing market decline, said Chris Holley, executive director of the Florida Association of Counties.

Holley, speaking Thursday at a news conference about how local governments are cutting expenses, said the full effect of the real estate slump hasn’t yet been calculated. But one thing is certain.

“The impacts of the housing market thud are much more severe to local government than Amendment 1,” he said.

Holley estimated property values will drop about 8 percent on average, but he said it could be worse for high-growth coastal counties. And it may be worse next year, he said.

The housing slide that began last year follows several years of soaring property values. That boom resulted in dramatic tax increases for many taxpayers and prompted the Legislature to order a tax rollback in 2007 and put Amendment 1 on the ballot.

Primary homeowners are expected to get an average $240 annual reduction because of a higher homestead exemption in Amendment 1. Homesteaders were sheltered from the worst of the tax increases during the boom by the 1992 Save Our Homes Amendment, which limited annual assessment increases to 3 percent.

They were unable, though, to transfer accumulated Save Our Homes benefits when they moved, but Amendment 1 also has a “portability” provision to fix that. It lets homeowners take those benefits with them for up to $500,000 in property value.

The depressed market means fewer people are moving, so the portability provision won’t be as costly as initially thought, Holley said. The estimate was $2.7 billion of the five-year total.

He said most cities and counties are cutting what are considered nonessential services such as libraries, parks, health care and transportation to avoid reducing core services such as fire and police protection. The vast majority are also trying to avoid tax increases.

“What I’m hearing from my members: ‘The people have spoken, we’re going to try to implement Amendment 1,’“ Holley said.

He joined Florida TaxWatch at the news conference to announce a report by the private budget watchdog group that contains 150 ways cities, counties and school districts have cut costs in recent years.

It’s an effort to share those ideas with other local officials now looking for ways to trim costs.

They include a limit on annual spending increases in Hillsborough County that’s based on the inflation rate and population growth; Palm Bay’s use of plastic instead of wooden to form concrete sidewalks; and a Miami-Dade County program that lets people exchange conventional shower heads for high-efficiency models.

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