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Coffee Talk
Material shortage means more insurance
Sarasota contractor John Proctor recently shared with Coffee Talk an AIG Private Client Group assessment of rising construction costs. Looking at the national average, AIG reported that a home that cost $2 million in 2004 cost an additional $237,000 last year. On top of the additional material costs, labor and transportation surcharges were estimated to add an addition $50,000-$100,000.
AIG attributed the material increases to the hurricane rebuilding, an increase in worldwide demand and higher energy costs.
CHANGING COSTS FOR $2 MILLION HOME
% of Cost to build Increase in
building cost in 2004 in 2005
Concrete and steel 4% $80,000 30%
Rough lumber 8% $160,000 50%
Drywall 4.5% $90,000 21%
Plumbing 3% $60,000 100%
Roofing and siding 9% $180,000 30%
Totals 28.5% $570,000 $807,000
Source Marshall & Swift/Boeckh
Speaking of ballooning construction costs
Developers are usually an upbeat bunch. So Coffee Talk was a little surprised to hear Cleveland developer Joseph Cameratta recently tell a gathering of commercial brokers that the condo party could be on hold for downtown Fort Myers.
Cameratta, chief executive officer of the Cleveland-based development firm that bears his name, says rising interest rates and fast-disappearing investors aren't the main threats to developers with plans for future condo towers.
Instead, he blames fast-rising cost of materials and labor. He says it costs 75% more to build a tower today than it did a few years ago and estimated that a builder today needs to sell condos for a minimum of $800,000 each to make a profit.
The problem for many developers is that buyers signed contracts before the big run-up in construction costs and now the projects don't make financial sense. Nearly 2,700 condos in 12 towers are in various planning stages, according to the Fort Myers Downtown Redevelopment Agency.
Still, Cameratta is confident enough to move ahead with his own project in downtown Fort Myers. Groundbreaking for the $200 million First Street Village is scheduled for this spring.
Internet company for sale
Executives with Fort Myers-based Internet company Miva confirmed widespread speculation they might sell the company.
Miva, the paid-search company formerly known as Findwhat.com, said it has hired Deutsche Bank Securities to evaluate a range of options, including the sale of the company. Internet chat rooms have been buzzing that Internet giants Yahoo or Google might acquire the company. Miva recently amended contracts with top executives to include provisions that they can automatically vest in all their stock options if there's a change in control of the company, a sign of a pending sale.
"The board and management believe our current share price does not reflect the inherent value of the company and its opportunities," says Miva Chairman and CEO Craig Pisaris-Henderson in a statement issued Jan 10.
The company's stock closed at $5.55 on January 9, down 67% from its 52-week high of $17 in January 2005. After the announcement of a possible sale, the stock bounced up 5% to close at $5.82.
Uncle Sam worries about commercial real estate
There were no bank failures in the United States last year. Federal regulators would like to keep it that way in 2006.
That could be why four agencies responsible for maintaining the smooth operation of America's banking system are sounding the alarm about commercial real estate lending practices.
"In the past, weak CRE loan underwriting and depressed CRE markets have contributed to significant bank failures and instability in the banking system," reads a Jan. 10 notice signed by officials from the Federal Reserve, the Federal Deposit Insurance Corp., and the offices of the Comptroller of the Currency and Thrift Supervision.
The regulators are floating new guidelines for commercial real estate lending as that piece of banking business picks up, following a long lull.
"Recent examinations have indicated that the risk management practices and capital levels of some institutions are not keeping pace with their increasing CRE concentrations," the federal officials say.
The regulators are concerned about commercial real estate loans to borrowers who are depending on rental income or the sale of the property to repay the obligation.
They also want bank and thrift executives to be careful about unsecured loans to developers and any loans at all to real estate investment trusts.
Banks and thrifts with high concentrations of these types of loans on their books should be raising their capital reserves, the regulators advise.
Sarasota doing more with less
The Sarasota Convention & Visitors Bureau, which is pushing to increase the Tourist Development Tax from 3% to 4% to increase its marketing efforts, may have a pretty easy time convincing the county commissioners that at least more marketing spending is needed. Consultant Nichols Gilstrap found that Sarasota's marketing per-unit spending for lodging was half that of even Alachua County.
What the three-year-old chart doesn't take into account, says Virginia Haley, executive director for the SCVB, is that both Lee and Pinellas counties have since increased their Tourist Development Tax to 5%, a one percentage point jump for Pinellas and a two percentage point increase for Lee.
County CVB Units Spending/unit
Hillsborough $6 million 19,820 $320
Lee $7 million 25,600 $273
Pinellas $10 million 38,000 $263
Alachua $1.1 million 4,600 $239
Sarasota $1.7 million 14,882 $114
Source: Nicholas Gilstrap Inc. filing issued January 2003.
What's ahead
Jan. 26 - Developers, investors and brokers will gather in Fort Myers for the annual CCIM commercial real estate conference. Register at http://southwestfl.ccimnet.com.
Jan. 17 - Sarasota's Argus Foundation will elect new board members during its annual meeting luncheon at the Sara Bay Country Club in Sarasota. For more information, contact Argus as 941-365-4886.
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