Commercial real estate industry is knocked about by the hurricanes, but still afloat.
Weathering the Storm
Commercial real estate industry is knocked about by the hurricanes, but still afloat.
By Sean Roth
Real Estate Editor
As the latest hurricane moved swiftly through the Gulf of Mexico on a projected path toward Mobile, Ala., local Gulf Coast residents let out a collective sigh of relief. If all goes as expected, insurance agents will soon start writing policies again allowing the commercial real estate industry to return to normalcy. Even so, the four hurricanes and possibility of more have left real estate professionals optimistic but guarded about the market's outlook.
While statisticians point to a similar hurricane season in the '50s and '60s, for all intents and purposes, the plethora of storms in August and September is something that most real estate professionals haven't seen before; it's largely an unknown. Questions remain about the impact three hurricanes in one month's time will have on the local industry. Will it have a lingering effect or is this a drop (really a down pour) in the bucket?
A leading consultant in the Florida real estate development industry, Lewis Goodkin, president and CEO of Goodkin Consulting Corp. in Miami, has experienced many storms, including Andrew, since the '70s.
"There are going to be people that won't come to Florida because of this," Goodkin says. "There are people that don't want to move to California because of all the earthquakes. But I am convinced that thus far (the storms) are not in a category that would keep lots of people from moving here or in any substantial way stem the tide of retirees and second home purchasers. I think the real estate question is very much affected by the magnitude of damage and loss of life."
Following Andrew, where thousands of homes were declared a loss, an entire industry emerged to repair the damages and rebuild the homes, Goodkin says.
Charles Kimball, a real estate writer for the Daily Business Review for Miami-Dade and Palm Beach, who keeps sales statistics, echoes his fellow East Coast resident's comments.
"Overall the real estate market tends to handle storm damage better than damage in the financial industries," Kimball says. "It's really a blip at this point and the market is already coming back."
Pointing to the East Coast, he says statistically Andrew's 1992 punch was far less than the impact of rising interest rates by Federal Reserve Chairman Alan Greenspan. "If a third blip were to occur it might take us a lot longer to recover," he says. "Places that are exposed like Key West may take longer, but they have been hit many times before and prices there have never really fallen."
The real estate insurance industry, however, could see a longer term impact from the storm.
"Insurance is really the most critical thing right now," Goodkin says. "Some of these insurers are likely going to take such losses that they are not going to write policies in Florida. Either that or they could raise their rates, which could be very discouraging."
Joe Hembree, of Hembree & Associates, - both a real estate agent and developer- has more than a passing interest in the continuation of a bullish commercial real estate market.
Hembree is co-developing an office-condominium project north of the McIntosh and Fruitville intersection and a land condominium office park and a 49,000-square-foot Magnolia Green III office building in Lakewood Ranch.
"I think the last week has had a toll on people's thinking," Hembree says. "It's an interesting side effect that the insurance companies won't write insurance within 30 days of a hurricane so you can't do any closings. (Even so) I think that the area is in good shape. Overall vacancy rates are very favorable."
Bob Richardson, a real estate agent with Richardson Kleiber Walter, is less worried about the impact of the hurricanes and more concerned about the future overabundance of office space.
"I think the vacancy rate is lower than it will be (in the office market)," Richardson says. "Businesspeople continue to accelerate development until they overload the market."
Hurricanes aside, Hembree is gung-ho on Lakewood Ranch. He has several projects in the works there. He also foresees growth on Fruitville Road.
"I think with the 2050 plan we are going to see more infill and redevelopment in downtown and the surrounding areas," Hembree says. "There are still a lot of people wanting to put money into their property that's why so many of my properties are for sale."
As for downtown Sarasota, Richardson predicts little change in the near future.
"People keep saying there is too much retail and condo (development) downtown, but don't they realize that historically rich people have gathered around scenic attractions. And we have one of the best scenic attractions in the world in our backyard - Sarasota Bay. Values are going to just go higher and higher."
He predicts the high price of land in north Sarasota County will continue to make south county, especially North Port, one of the area's fastest growing regions.
"Eastern Sarasota County is going to emerge as one of the high-end markets," Richardson says. "It's just one of the requirements of 2050. Twenty-fifty is a growth limiting ordinance that will slow development in north county while the southern portion is going to fill up."
John Harshman, president and owner of Harshman & Co. Inc., who doesn't foresee any long-term effects from the storms, expects the strong downtown Sarasota market to persist.
"I continue to see record sale prices, and I'm starting to see an uptick in activity in the leasing market," Harshman says. "There have been a few new businesses in the area, but mostly it's been from business moving around."
The downtown office market is also seeing higher sales prices, Harshman says. Four years ago, sales in the downtown core ranged from $125 to $150 a square foot. Now the average is about $260 to $270 a square foot and goes as high as $300 a square foot.
"We have seen an increase in office leasing activity," Harshman says. "Traditionally it has not been tremendously steady, though. There were horrible vacancies in the '80s and the late '90s. But office vacancies were 3% to 5% for three or four years in '90s. Now we are seeing vacancies in the 8% to 11% range. It's a pretty good barometer that we have finally come out of the recession we were in."
Scott Sosso, president of Prudential Palms Realty, hopes to see more national retailers in downtown in the next three to five years.
"It really is a sellers' market, and they are demanding a higher rate of return," Sosso says. "The biggest trend is the number of people wanting to own their property. Rents have been growing, and the only way to control your property is to own the land."
The next hottest commercial properties are income producers.
"Instead of appreciation, with commercial property people are looking for a consistent return," Sosso says.
As for hurricane related problems, Sosso expect baby boomers' demand for retirement housing to be so great in Florida that it would likely mitigate any long-term effects of storm damage.
Barry Seidel, president of American Property Group of Sarasota Inc., says hurricane threats have affected his real estate business.
"I get an average of 70 phone calls a day," Seidel says. "When Ivan was projected to hit the Gulf Coast my calls were down by about 70%. People are not thinking about real estate today; they are thinking about survival."
In addition, Seidel has had the additional cost of hiring people to remove and later repost 218 realty signs in two counties.
"I tend to think of it as an insurance policy," Seidel says. "If I take them down I know (Ivan) won't hit here."
Looking past the weather turmoil, Seidel expects Osprey, where he owns property, and the rest of South Sarasota County to be the next frontier of commercial development.
"A couple of thousand or more homes are being built in these areas," he says. "Along with this you are going to get the retail and the office. Add to that Wal-Mart is going (into Osprey), and Henry Rodriguez is building 600 homes and a retail store there. I don't think Osprey is going to last long, and then they are going to move onto Nokomis."
Seidel views northern Manatee County, primarily Palmetto and Ellenton, in a similar light. He says the availability of land and a friendlier development review process make the area attractive.
Lee DeLieto, a Realtor with The Commercial Group at Michael Saunders & Co., says the space constraints of the damaged properties have placed extra demands on surrounding areas, such as the cities of Punta Gorda and North Port, from the ravaged Port Charlotte region.
DeLieto is waiting to see what the city of Longboat Key creates for a referendum on commercial zoning and density.
"They are trying to determine if they are over commercialized," DeLieto says. "(With the results of the referendum) they could end up taking steps to reduce the number of commercial properties or commercially designated areas. It's relatively unique (among the barrier islands)."
John Swart, president Lakewood Ranch Realty, says that while the impact of a hurricane certainly should not be discounted given the devastation in Port Charlotte, he thinks it would only slow the region's growth temporarily.
Following the passage of the 2050 plan, Sarasota County has cleared the way for Schroeder-Manatee Ranch Inc. to develop about 5,000 homes in a village concept on the south side of University next to SMR's Corporate Park development. The plans also include supporting retail and restaurants.
"We are probably three years out from construction," Swart says. At the same time, the Corporate Park, early in its development, appears to be red hot. The first million square feet of an anticipated five million square feet of office and flex space, has a vacancy rate of about 4%.
On the north side of University Parkway, the far from sleepy Lakewood Ranch Town Center has a large number of new developments planned or underway. The new 180,000-square-foot Main Street project developed by Casto Southeast and SMR is set for completion in October of 2005. The Main Street project will feature 120,000 square feet of retail space, 60,000 square feet of office space and a supporting residential component.
"We are getting a huge number of calls from restaurants wanting to go into Main Street," Swart says.
The San Marco Plaza, a 65,000-square-foot theater, retail and arts development, being produced by S.S. Appel & Co. Inc., is scheduled to start in the first quart of 2005.
Completion of the complex, which features two theaters, several restaurants, retail and office space, an outdoor amphitheater and a bell/clock tower, is planned for 2006.
Recently, SMR filed plans for a new Publix Supermarket-anchored 65,000-square-foot retail shopping center. The development would also feature four outparcels, for an additional 20,000 square feet. With the planned rezone of the property and permit approval, construction will likely start toward the end of next year.
The $65-million Lakewood Ranch private arena, developed by a joint partnership of DVA Sports LLC and SMR, is underway and set for completion in September or October. Swart says there is some retail development planned for the surrounding area, but it's too soon to publicly talk about it.
Most importantly, with all the new development in Lakewood Ranch, vacancies remain reasonable. Development wide, office space is currently running at about a 10% vacancy, which includes the empty 101,312-square-foot, former ADT building.
"Our retail is 100% leased out or at least substantially leased," Swart says. "I have been doing this for 30 years and this is the best development I have worked with."
In Manatee County, Carl Wise, president of Preferred Commercial Inc., says he has seen a great deal of demand for T.J. Richardson and Webb Carter's Centre Park Industrial Park, in the 7200 block of 21st St. E.
"In the last 12 months, with 61 lots for sale in phase 1 at Centre Park, I have one remaining developer-owned lot," Wise says. "I only have 15 lots in phase two that are owned by the developer. And for good reason, vacant industrial land is really scarce in Sarasota County. Secondly, almost all of the zoned industrial property in Manatee County has central water and sewer. It's also closer to workforce."
Further, Wise says Tower Industrial Park, Interstate Lakes and Sarasota International Trade Center are all near or completely built out.
"There is property on Clark Road that is properly zoned, but it's cost prohibitive," Wise says. "It just further enhances the available locations. We've already got some resales. I've resold one and another five are available for resale."
The downtown Bradenton area appears to be in the midst of resurgence. With the Mainstreet at Bradenton apartments completed and leased and the first phase of condominiums going in at the Riverwalk area, more than 700 people should be living in that location within a year.
That will be followed by a second and third condominium development adding another 450 people to the downtown core.
The supporting retail planned by Bradenton Riverfront Partners can't be too far off, given those numbers. In addition, developers David Band and Ron Allen, former state senate president John McKay and Chip McCarthy plan to develop a mixed-use project on the former city hall site. There is also residential development planned on Point Pleasant.
"Things are going great," says Jan Smith, president of Jan Smith and Co. and one of the developers behind the condominiums called The Promenade at Riverwalk. "We are doing the pilings right now. As soon as we get concrete we can go vertical. The key to the emergence of downtown is building the residential down here. Now, we may be ready for a grocery, a nice restaurant, a hotel or more commercial."
However, it's concrete and other construction materials that Smith says will be the significant lingering impact on the real estate industry from these hurricanes.
"This may increase the prices, only because you have the situation where the cost of concrete and steel has gone up a bunch," Smith says. "But it also could increase the price of existing (commercial) buildings that are in good shape afterward."
Outside of the downtown core, the more exciting areas of West Bradenton includes the about $55 million expansion and renovation of Blake Medical Center and the redevelopment of RMC Property Group's Beachway Plaza, at 7208 Manatee Ave. W., which will include a Publix Supermarket.
Loyd Robbins, vice president of Harry Robbins Associates Inc., says the hottest market in industrial is running along the I-75 corridor.
"On State Road 64 we have a few projects on the west side," Robbins says. "We also have four projects at Fruitville (Road) and I-75. We have projects on (U.S.) 301 and Whitfield (Avenue) and others in Triple Diamond and at Laurel Road and I-75. Knock on wood. There doesn't seem to be by any weakness."
Jay Heagerty, a commercial broker for Wagner Realty, noticed such a tremendous amount of activity in Ellenton that he is partnering with Joe Harrison to rezone 15 acres at U.S. 301 west of Erie Road to create a residential and commercial development.
"There is still available land out there," Heagerty says. "There are a lot of young families moving out there. Plus there is the close proximity to Tampa and Sarasota."
One of the more interesting deals that Heagerty is watching is the transition of SouthTrust Banks following its merger with Wachovia.
"It will be interesting to see what branches close," Heagerty says. "No one really knows what exactly will be the final outcome."
Sarasota County Office buildings
July 1, 2004 Vacancy and Availability ReportAbsorption By Year (Net Gain by Year)
Existing BuildingsTotal SFVacant SFPercent20002001200220032004
University Parkway Area 721,994 16,180 2.24% 55,871 362,850 105,834 73,833 74,370
Downtown Sarasota2,151,859 156,146 7.26% (45,140) 55,555 (23,433) 66,331 (3,030)
I-75 Gateway South To Clark1,139,121 97,803 8.59% 64,362 45,579 29,205 78,751 29,148
South County 400,905 76,558 19.1% 14,800 23,800 43,228 17,849 -
Other Suburban 318,406 49,009 15.39%20,000 7,090 80,000 (24,780) (512)
Total 4,732,285 395,696 8.36% 109,893494,874234,834211,98499,976
Source: Sarasota Association of Realtors Commercial Investment Division
Manatee County Office Buildings
August 1, 2004 Vacancy and Availability Report
Existing BuildingsTotal SFVacant SFPercent200220032004-YTD
University Parkway - LWR478,619119,32024.93%-1,724(48,400)44,244
University Parkway - Other90,0007,8008.67%15,00010,0000
Source: Manatee County Chamber of Commerce
Retail is plagued by seasonality. Hotel to condominium conversions are likely to continue. Bradenton Beach City Council is moving toward restricting development. Longboat Key is examining its commercial growth. The islands are still dominated by residential development. Land prices are up. Arvida's Perico Island development languishes because of legal challenges. A new owner plans to convert The Summerhouse Restaurant on Siesta Key into an upscale condominium development.
Plaza at Five Points, Courthouse Centre, Sarasota Herald Tribune building and One Hundred Central/Whole Foods Market Centre are all under construction for completion next year. Main Street rents are up; Realtors say there is strong interest from national retailers for the space. Developers have broken ground on the San Marco (a condominium, retail and office development) and the Broadway Promenade (a Publix Supermarket, restaurant, office and condominium) both of which are near U.S. 41. Upscale condominium boom persists.
Patrick Kelly's Sarasota Harbourplace project on the current Sarasota Quay site is still on the drawing board while the city plans a roundabout. Retail and office developments are planned for the north side of Fruitville because of additional zoned land uses following the downtown master plan.
Eastern Sarasota County
The Gateway development finished its third office building and is growing additional retail. Clark Road retail and office infill continues. County's 2050 plan allows Schroeder-Manatee Ranch Inc. to build 5,000-home village including ancillary commercial, but the project is still years off. Ranch's Corporate Park is still growing. Sarasota International Trade Center near buildout. The owners are listing the former Arthur Andersen buildings.
Benderson Development Co. plans a large-scale town center development on the south side of University Parkway. Construction work continues on The Founders Club, a 700-acre golf-course community.
South Sarasota County
The new Wal-Mart Supercenter in Osprey is approved; a new urbanist town center (retail and housing) is planned next door. North Port remains the area's fastest growing city. Overall, heavy residential growth. Palmer Ranch is expanding. Land is cheaper here than in other areas in the county.
Eastern Manatee County/Lakewood Ranch
Lake Erie College of Osteopathic Medicine branch campus has been completed and vacancy rates for office, retail and flex remain low. Osprey Management is realigning the former 101,312-square-foot ADT building for lease. The new 180,000-square-foot Main Street project and a $65-million Lakewood Ranch private arena are both under construction. S.S. Appel & Co. Inc. will start construction on the San Marco Plaza, a 65,000-square-foot theater, retail and arts development, in 2005. SMR is rezoning land to build a 85,000-square-foot Publix-anchored strip retail center. Other private developers are building a cluster of mainly retail and office buildings on the west side of I-75, plus a new Wingate Inn on State Road 70.
An area of renewed interest. The Promenade at Riverwalk condominium is under construction on the former Sandpile property. Bradenton Riverfront Partner plans to develop several retail and office components. David Band, Ron Allen, John McKay and Chip McCarthy plan to develop a mixed-use project on the former city hall site. Fourteenth Street, north of Cortez, is still depressed.
North Manatee County
Attention is high because of the availability of land and lower prices. Several new large residential developments proposed. Corvus International LLC plans to build the Bel Mare at Riviera Dunes, to include 172 condominium units in three towers with supporting boardwalk retail and four U.S. 41 frontage retail outparcels. Gevity HR's relocation to Palmetto is not likely following several missteps at the city council stage. The $5 million Riverside Plaza retail complex in Palmetto was completed earlier this year.
- Sean Roth