Pain Management

Hold your breath.
Commercial property owners who financed acquisitions of buildings with easy Wall Street money through this decade are going to find out if lenders will let them live through the next decade.
Nationally, $250 billion to $300 billion of commercial real estate loans will come due in the commercial mortgage-backed securities market each year until 2015, according to PricewaterhouseCoopers. While exact numbers aren't available, it's fair to say billions of dollars of commercial loans are at stake in Florida.
Buyers know this and they're waiting for opportunities that could arise as owners are forced to sell in a down market.
“There's no one trading because of that issue,” says Thomas Hoban, managing partner with Kitson & Partners. Kitson teamed up with Chicago-based private equity firm Evergreen Real Estate Partners over a year ago to invest $750 million in residential and retail properties in Florida.
This isn't the time to be selling real estate. Demand for office, warehouse and shopping space has dropped significantly in the past year since companies have cut nearly 100,000 jobs from Tampa to Naples.
For example, in the Tampa area, overall vacancy rates in office buildings topped 19% in the third quarter, up from 15% in the third quarter of 2008. In hard-hit areas like Fort Myers, vacancies in top-quality buildings reached 30%, according to Cushman & Wakefield.
“It pushes values down if they start liquidating assets in declining markets and net operating income goes down and they can't find the capital to do tenant improvements,” says Lee Arnold, chairman and chief executive officer of Colliers Arnold in Clearwater.
“When all these buildings go back to the banks, then the leasing war will start,” says Jeffrey Feeley, a Clearwater commercial broker Rubin Real Estate who represents tenants. Feeley says he's advising tenant clients who can to wait for better deals.
“It's the ugly part of the cycle,” says Gary Tasman, executive director of Commercial Property Southwest Florida in Fort Myers. Rents have already fallen by 50% since the peak and sublease space on the market is now renting for half again.
Rent declines and rising vacancies are reflected in falling property values. David Farmer, managing principal of Keystone Development Advisors in Naples, says he paid $100 a square foot for his office in May 2008. Recently, a client bought an office in the same complex for $50 a square foot.
Deals have slowed considerably as owners and sellers remain far apart. In the Tampa Bay area, for example, the number of commercial real estate transactions has dropped 59% to 16 deals in the first three quarters of 2009 compared with the same period in 2008. In that same period, dollar volume of commercial real estate transactions fell 69% to $277 million, according to Real Capital Analytics.