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Commercial Real Estate
Business Observer Monday, Oct. 3, 2022 1 month ago

Need for housing and industrial space drives land sales

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Florida’s growth since the pandemic began has created a major need for housing and other essentials. That’s led to boom in demand for land.
by: Louis Llovio Commercial Real Estate Editor

While much of the discussion about real estate and the economy in the past 18 months has centered on rising home prices, rents and interest rates, land sales have been quietly spiking across the Gulf Coast, with both the volume of deals and sale prices going up significantly.

This boom is a response of sorts to what led to the higher demand for homes and apartments in the first place.

As tens of thousands of new residents poured into the state during, and in the aftermath of, the pandemic, houses sold at record rates and for record prices and rents shot through the roof. It was supply and demand in its simplest form.

The reason for the demand being so high was there simply was not enough space to house everyone coming to the state.

Enter the developers and the search for land to build houses, both to sell and to rent, and apartments.

But this growth is not simply being driven by a demand for land to build housing, as important as that is. Given the influx of people coming to the state, getting them the supplies they need in a timely matter has also led to a spike in the purchase of land for industrial use.

“The magnitude of deals, they seem to have gotten bigger, and then the pricing on a per-unit basis has doubled or tripled or better over the last few years,” says Bill Eshenbaugh, head of Eshenbaugh Land Co. in Tampa. Known as The Dirt Dog, he is one of the premier land brokers in the state.

According to data provided by real estate research firm CoStar Group, between September 2020 and mid-September 2022, three billion square feet of land has sold at an average of $2.45 million per transaction in the nine counties the Business Observer covers on Florida's west coast (The end of the CoStar's 2022 third quarter is Sept. 30). Between September 2019 and September 2020, 1.5 billion square feet of land sold at an average price of $1.8 million per transaction in those counties. That's an average rise in value of 36.11%. 

Eshenbaugh's recent flurry of activity encapsulates the boom: during the week of Sept. 19 Eshenbaugh Land Co. brokered a deal for 275 acres for $22.85 million to homebuilders planning to build 1,200 homes —  250 acres in Spring Hill to the Pulte Group for $17.2 million to build 800 homes and 75 acres in Wimauma to Lennar for $5.65 million to build 300 homes.

Two days earlier it had announced a deal for 57 acres for $8 million at Interstate 75 and Cortez Boulevard in Hernando County. This site is zoned for over 900,000 square feet industrial space.

“We’re feeling pretty good,” Eshenbaugh says. 

Bill Eshenbaugh, head of Eshenbaugh Land Co. in Tampa. (Photo by Mark Wemple)

 

A place to live

Closing a big land deal, particularly one that requires government approval, can take months or even years.

That’s important to remember when looking at the big numbers coming in from reports and announcements. Because what we are seeing in the market now is the result of work that started sometime back.

According to the CoStar data, the sales closing by the end of the third quarter of this year took, on average, 25.2 months to complete.

That means they started when the country, and the world, was just beginning to emerge from lockdowns and pandemics. Those were the days when most people expected the economy to crumble under the pressure of the world shutting down.

Instead, Florida, and few other warmer states, actually became more popular than ever for people now freed from the confines of office life and wanting a change in lifestyle.

This brought tens of thousands of new residents to the cities and counties along the Gulf Coast and state. These new residents created more demand for housing, causing prices to shoot up both for buyers and renters.

While the demand for houses is starting to cool, in part because of rising interest rates, and home and rent prices have started to drop, the fundamentals have not changed in many localities where there are more people than housing.

And that’s not going to change anytime soon. According to the state’s Office of Policy and Budget, Florida will see 294,756 net new residents in the next five years, which averages about 808 a moving here each day.

This has created a hot market for land as developers buy property to build new housing developments and, to a larger extent, multifamily and built-to-rent communities.

“Land prices have clearly escalated dramatically, and the real turning point (was) starting in 2020,” says Justin Thibaut, president and CEO of LSI Cos., a commercial real estate firm in Fort Myers.

“We were already on a rising land value market, and then it was accelerated," he adds. "And a lot of that is coming from a very unexpected, at least for my office, quick market rebound right after the height of the pandemic in early 2020.”

Thibaut says even though it is more expensive, developers see the economic benefits of buying land — even at the elevated prices.

The idea is that with interest rates going up and slowing housing sales more people are going to turn to rentals either in the form of traditional apartment complexes or built-to-rent communities. Developers in many cases believe this will keep the costs of rents high, meaning that even with the cost for land going up there is room for profit.

With that dynamic in play, build-to-rent developers in particular see a big opportunity. Across the region, from Naples to Lakewood Ranch to as far as Spring Hill in Hernando County, 50 miles north of downtown Tampa, there are dozens of these developments catering to the kind of resident who can’t afford, or doesn’t want, a single-family home but wants the benefits that come home ownership.

One of those developers is Kaplan Residential out of Atlanta. It is building a 239-unit luxury townhouse complex in Venice and is bullish on Florida, where “we believe growth will remain strong and where we have a heightened expertise,” says Morris Kaplan, the company’s president.

“Florida continues to be a high growth state, outperforming most other parts of the country, and is an attractive place to live and do business,” Kaplan says.

 

A place to sell

The flip side of the population-driving-land-sales narrative is the industrial sector.

It too has reaped great benefits from growth in the state as corporations look to build distribution facilities to make it easier to reach consumers. One of the biggest beneficiaries of this movement has been Southwest Florida.

Thibaut says the area has long been a “target on its back for large scale industrial development” and the shift is bringing big-name companies that weren’t in the area before or had aging facilities to Collier, Lee and Charlotte counties. Among the companies that have established, or are now establishing, a presence in the area are FedEx, Amazon and Uline, which began work in November on a $96 million distribution center.

“These are large facilities, and we didn’t have 250,000(-square-foot) to 400,000-square-foot facilities popping out of the ground like we do today ever really.”

The Interstate 4 corridor in Lakeland and the Interstate 75 corridor in Pasco County are seeing a similar demand and attracting major industrials players.

But even a more densely populated area like Tampa Bay has seen land sales grow as companies buy property to build industrial sites.

One example is the 65-acre Gateway Centre Business Park in Pinellas Park just outside St. Petersburg and across the bay from Tampa.

The park is in a part of Pinellas County that has access to one of the most populous areas in the state. The county itself is home to nearly a million people — 956,615, according to the U.S. Census. But it’s also in the heart of the Tampa MSA which has a population of 3.1 million people.

This has made the park an attractive destination for companies looking for a foothold and to find workers.

Since December 2020, four pieces of properties have been sold in the park all by companies looking to build facilities. Among those, Tavistock Development is building a 100,000-square-foot distribution facility set to open later this year; Everest Hospital is building a 100,000-square-foot rehabilitation hospital; and Polypack is expanding with a 100,000-square-foot manufacturing development and special use facility set to open in 2024.

The most recent purchase was by South Carolina developer Johnson Development Associates, which bought 18.6 acres in September for $3.58 million. It plans to build a 110,000-square facility on the site.

Three parcels remain.

Nancy Surak, a senior land advisor and managing broker for Land Advisors Organization in Tampa, the firm which represents the sellers, says the area is becoming a hub and that as it grows the expectation is that employers will follow.

She says since listing the properties “in early 2020, just before the Covid pandemic began, interest has been growing from a variety of industries. In fact, we estimate that by 2025 the park will create more than 570 jobs with an annual payroll of over $25 million being generated from the four parcels that have already sold.”

 

A place to grow 

All across the region, with deals like that, there's plenty of proof that what’s driving land sales in Florida is by no means a land grab. As the state’s population grows there is a need for the infrastructure to grow along with it.

While today that infrastructure and need for land is to house people and to be able to reach them with the goods they need, tomorrow that need could be land for schools or fire station or to expand roads, changing the market.

For Eshenbaugh, while the deals are still rolling in, tomorrow is arriving. He’s already seeing deals slow down as developers and buyers become more cautious, looking at details more closely, cherry picking deals and just being a little bit more conservative.

They still want to spend money, he says, but they don’t want to spend $500,000 on due diligence on a deal that may not close. And there are also fewer offers on properties.

Does this mean the boom is over?

Eshenbaugh doesn’t know but he’s been doing this for a long time and isn’t worried, using a football analogy to describe the current situation. “In July we had to move from being the quarterback throwing passes where our receivers caught every ball. Now we’re on defense trying to keep our deals alive and keep going and keep moving forward.”

Whatever happens next one thing is certain. People are still coming to Florida and that’s not likely to change anytime soon. When they get here, they’re going to need a place to live, a place to shop, a place to work, a place for kids to go to school and someone to bring them their packages.

And the one thing needed to make each and every those a reality is land to build on.

Louis Llovio is the commercial real estate editor at the Business Observer. Before going to work at the Observer, the longtime business writer worked at the Richmond Times-Dispatch, Maryland Daily Record and for the Baltimore Sun Media Group. He lives in Tampa.

See All Articles by Louis

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