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Cape Growth
Commercial real estate by Jean Gruss | Editor/Lee-Collier
Cape Coral is the fifth-fastest growing city in the nation. Developers have taken note.
Every year in the fall, real estate investors flock to Cape Coral for an annual gathering called Capeopoly.
But this is no game. Hundreds show up at Capeopoly to learn about new business opportunities in a city that has become one of the hottest areas for commercial real-estate development.
It's easy to understand why: Cape Coral was the fifth-fastest growing city in the nation with more than 100,000 population in 2005.
The U.S. Census says Cape Coral's population grew 9.2% from July 2004 to July 2005, adding 11,817 new residents.
Businesses have followed, driving down the vacancy rate for every type of building to nearly 1%, according to CoStar Group, a company that tracks commercial real estate activity. For example, out of the 328 non-owner occupied retail buildings in Cape Coral, just 0.7% is vacant, according to the most recent CoStar data.
Developers have jumped into the void. Fort Myers-based McGarvey Development has two office and industrial parks in the pipeline with plans for enough space to fill 10 football fields.
Williams Price Jr., senior vice president with McGarvey, says the decision to build in Cape Coral was simple: "We wanted to follow the rooftops," he says.
Meanwhile, downtown Cape Coral created a community redevelopment agency that is helping developers assemble land and build a mix of offices, shops and residences using tax-increment financing. This kind of financing gives developers a break on future taxes based on property improvements.
"There's over a billion dollars' worth of projects here," says Suzanne Kuehn, executive director of the Cape Coral Community Redevelopment Agency.
Meanwhile, there's speculation that a regional shopping mall is in the works, though there's debate about where it might go. For now, Cape Coral residents must travel over the bridges that straddle the Caloosahatchee River to Fort Myers or Bonita Springs to shop at a mall.
"We are getting close to seeing a mall in Cape Coral," says Gary Tasman, a commercial real-estate broker with VIP Commercial in Fort Myers.
One of the major obstacles to development is the fact that Cape Coral was platted years ago almost exclusively as a residential development. Developers who want to build offices and shops must assemble dozens of small lots, which is no easy task. One possible solution: the city is backing a landowner's request to the Lee County Commission for the city to annex 4.5 square miles on the north side of Cape Coral. The city would allow more density on the land and would also steer commercial development there. So far, county commissioners have balked at the idea.
Tight spaces
Despite the fact that there is virtually no vacant commercial space, many tenants are still paying relatively low rents established before the recent population boom. Because of the high cost of land and construction materials, developers have to charge double the current rents for new space.
"Developers are taking the risk right now getting product out of the ground that's expensive," says VIP's Tasman.
For example, tenants in older office buildings may be paying about $10 a square foot net of expenses while new buildings will cost $18 to $20 per square foot. Tasman says tenants in older buildings are in for sticker shock when their leases will be up for renewals and rents will spike.
"It's a metamorphosis of the market where prices are going up for everything," Tasman says.
Executives at McGarvey Development forecast the demand for commercial and industrial space about four years ago. They assembled large parcels of land for an average of $5 to $6 per square foot. While those numbers seem low today, they were high back then, says McGarvey's Price.
By contrast, land on the hot Pine Island Road corridor today now costs about $20 per square foot. A year ago, it was $15 a square foot, says Mike Jackson, director of economic development for the City of Cape Coral.
By Jackson's estimates, Cape Coral might need as much as 36 million square feet of office space by the time the city reaches its population limit of 400,000 residents. The city's population currently is 140,000, according to the most recent estimates by the U.S. Census.
Still, developers like McGarvey aren't going to build hundreds of thousands of square feet of new space all at once. "The worst thing to do is to overbuild a market," says Price.
McGarvey is building about 100,000 square feet of office and industrial space now, but it's going to wait until it's leased over half of that space before it starts building more. Then, it will build smaller 30,000-square-foot buildings so that supply doesn't overwhelm demand.
Besides assembling land, one of the major challenges to development in Cape Coral is the city's Byzantine permitting process.
Developers and brokers say the city's permitting department hasn't hired enough permitting officials to keep up with the flood of applications, which can bog down a project for a year or more.
But the city's economic development department is hoping to change that. "After years of complaints, it's our objective to be known as the most rapid place to be permitted," says Jackson. His office recently received approval to hire "facilitators" who will help steer businesses through the permitting process.
Downtown boom
Cape Coral boosters hope the creation of the downtown community redevelopment area and its ability to offer tax-increment financing will help lure developers to the area.
There's about $1 billion worth of projects in the works with most of those in the design or permitting phase. Most combine condos, offices and shops so residents don't have to travel far to work and play. Despite the general slowdown in condo sales, Kuehn says condos in the $200,000 to $400,000 range in Cape Coral are still selling briskly.
One of the largest projects in the works is Cape Villagio, which will include 120,000 square feet of offices and shops and 236 residential condominiums. Bob Peterson, one of three partners in the project, says Cape Villagio has been in permitting for about a year and groundbreaking will likely take place in another year. "These things don't happen overnight; we've been working on this for years," he says.
Cape Villagio will sell the office and retail space from $300 to $600 per square foot, while residential condo prices have not yet been established. Peterson says he's not concerned about the recent decline in condo sales. He believes that demand for condos will remain strong if they're part of a mixed-use project that includes restaurants, shops and offices.
"This is a unique product," he says. "There's no competition like this out there."
FOCUS: CAPE CORAL
Cape Coral has some of the lowest vacancy rates of any city along the Gulf Coast. Data below is for non-owner-occupied buildings.
Office Space
Number of buildings: 161
Total rentable space: 1,371,114 square feet
Percent vacant: 1.9%
Year-to-date net absorption: 3,828 square feet
Average asking rent (full-service gross): $21
Industrial Space
Number of buildings: 196
Total rentable space: 2,645,884 square feet
Percent vacant: 1%
Year-to-date net absorption: 20,073 square feet
Average asking rent (triple-net): $8.50
Retail Space
Number of buildings: 328
Total rentable space: 2,489,070 square feet
Percent vacant: 0.7%
Year-to-date net absorption: ?6,650 square feet
Average asking rent (negotiable): $21.96
Source: CoStar Group
Major commercial projects planned in Cape Coral
Hancock Creek industrial area
Location: N.E. 24th Place and Littleton Road
Developer: Tri-State Development
Description: 330,000 square feet of industrial space
Mid Cape Corporate Center,
Phase II & III
Location: Pine Island Road and Santa Barbara Boulevard
Developer: McGarvey Development
Description: 176,500 square feet of office space and 111,600 square feet of industrial/flex space
East Cape Commerce Center
Location: Pondella and Pine Island roads
Developer: McGarvey Development
Description: 262,000 square feet of industrial/flex space
Cape Villagio
Location: S.E. 47th Street, S.E. 17th Place and S.E. 46th Lane
Developer: Cape Renaissance LLC
Description: 120,000 square feet of shops and offices, 236 residential condominiums
Cape Vincent
Location: Bimini Basin
Developer: VK Development Corp.
Description: 236 residential condominiums, 46,000 square feet of shops and restaurants
Hampton Inn
Location: 619 S.E. 47th Terrace
Developer: Cape Hotel Suites LLC
Description: 75-room hotel
Huggins Building
Location: 815-827 Miramar Street
Developer: Roy Huggins
Description: 38,000 of office space, 10,000 square feet of shops
Piazza di Venezia
Location: Four blocks from Coronado to Triton Court
Developer: RTS – Tom Cirrincione
Description: Hotel, convention center, movie theater and residential condominiums
Sources: Cape Coral Community Redevelopment Agency, City of Cape Coral Economic Development, McGarvey Development.
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