Low prices on retail centers are attracting investors, although deals now require more effort. Values will stay low until the state's economy improves.
Gulf Coast retail properties may be cheap, but acquiring them isn't easy.
That was one of the primary messages last week from a panel of experts at the International Council of Shopping Centers' West Florida Idea Exchange. More than 500 retail developers and brokers attended the annual event Feb. 25 at the Grand Hyatt Tampa Bay.
With numerous centers in distress and occupancy rates below 90%, investors are seeking opportunities in markets with strong economic fundamentals. But before they buy, they now clamor for every available scrap of information on a particular property.
“We're now looking at several underwriting factors,” said Casey Cummings, CEO of Ram Real Estate, based in Palm Beach Gardens. “It requires a ton of work.”
Because lenders are requiring greater amounts of equity on purchases, with loan-to-value ratios falling as low 60%, many investors are paying all cash for properties, said Jim Michalak, managing partner of Tampa-based Plaza Advisors.
Michalak said grocery-anchored shopping centers appeal most to current buyers, especially those centers anchored by Lakeland-based Publix Super Markets.
In some cases, Publix is even exercising options to buy centers where it leases space. It bought the 80,167-square-foot Madeira Beach Shopping Center from Ram Real Estate in November for just under $8 million, or $99 per square foot, though the 54-year-old center was only 77% occupied at the time.
Fully occupied shopping centers in the Tampa Bay area are also selling at bargain prices. The Palms of Carrollwood, with 168,000 square feet, sold in December for $22.5 million or $134 per square foot. Ten years ago, the center sold for $12.3 million.
Prices are likely to remain low until asking rents increase to previous levels. Rents at the end of 2010 averaged $14.73 per square foot throughout the Bay area, ranging from $9.52 in west Pasco County to $20.86 in southwest Hillsborough County, according to CB Richard Ellis.
“Investors are increasingly interested in purchasing properties where rents can be attractive and reasonable for tenants and cash flow can sustain the property long term,” said Ray Sandelli, CBRE senior managing director in Tampa. “We are moving in the right direction.”
Florida continues to lag slightly behind the nation's retail market because of high unemployment and the slowly recovering housing market, said Justin Greider, vice president of Orlando-based Crossman & Co. He is predicting a return to 90% occupancy levels this year for the first time in nearly two years.
The freefall of retail rents has slowed down, indicating the market may have reached bottom, with increased activity coming from a slowdown in new centers being built, Greider said. “There's still a lot of overvalued product that has to work its way through the system,” he said.