2010-05-13 / Business News

Commercial real estate discounts abound

BY EVAN WILLIAMS ewilliams@floridaweekly.com

If unforgiving capitalism’s Great Recession could be viewed partly as a metaphorical wildfire — clearing out the underbrush of inflated appraisals or, sadly, failed businesses, and making room for new growth — then Kirk DeVries is a fresh sapling in a charred landscape. It was only five years ago in real time, but seemingly a lot longer in hard living-recessionary years, when his business, The Backyard Bird Company, was suffering a conflict of interests.

The national economy was peaking, and Mr. DeVries’s company had grown. But his 1998 venture selling birdhouses online and shipping them out of his garage in Punta Gorda (while he worked full time at the post office), had put a strain on domestic life with his wife and two young daughters. What he needed was commercial space — space that he couldn’t afford. He dreamed of owning a warehouse and office of his own, but at 2005 prices it just wasn’t possible.

Commercial space is available at bargain prices throughout Southwest Florida. Commercial space is available at bargain prices throughout Southwest Florida. All that changed for him earlier this year when, with the help of a loan, he bought 1,980 square feet of flex space near Interstate 75 and U.S. 41 in south Charlotte County. From his new warehouse, with a small, air-conditioned office, he can see a lake and birds roosting from the window. The new digs cost him less than half of the $225,000 to $240,000 he had been quoted five years ago on smaller spaces.

“I had a growing business, but I couldn’t afford to move out of the house,” said Mr. Devries, 47. “And then, once everything tanked, I was able to look into it. I couldn’t have done it unless this market crashed.” He laughs. “That’s the truth right there. I wouldn’t be where I am.”

Southwest Florida for sale or rent

TASMAN TASMAN There are many deals out there for budding businessmen like Mr. DeVries, and have been for at least a year, but interest has been slow to build. At industrial warehouses and office buildings from Fifth Avenue in Naples to Metro Parkway in Fort Myers, and at strip malls from Tamiami Trail in Port Charlotte to Immokalee Road in Collier County, there is a glut of empty commercial property. New commercial construction is at a crawl in Southwest Florida. Streetside signage offering low prices abound. As in the residential housing market, many properties can be bought for less than the replacement costs.

For some business owners looking to invest in property the oversupply signals long-term opportunity.

“There are opportunities in business right now that will not present themselves again for a long time, especially reasonable prices for buying the building, or renting (it),” said Collier County Commissioner Jim Coletta.

COLETTA COLETTA A report provided by Gary Tasman of Cushman & Wakefield in Fort Myers shows the amount of vacant commercial real estate — including retail, industrial and office space — has more than doubled in Southwest Florida since the economy

tipped into recession in December 2007. At the end of the first quarter this year, nearly 13 percent of the commercial real estate built in the region — a total of 19,549,942 square feet — was for sale or rent. Three years ago that number was just under 6 percent.

Real estate brokers say landlords are also more willing to make concessions on leases, especially in the short term. While prices vary widely depending on where and what kind of commercial property is being negotiated on and where, buyers and tenants can negotiate lower price points. That’s true “carte blanche across the board,” says Jim Boback of Boback Commercial Group in Fort Myers. “It’s a great time to be a buyer and great time to be a tenant and certainly not as good a time on the other side of the fence.”

“As compared to three years ago, prices are easily 50 percent below where they were,” he said. “Further, we have started to see a regular inflow of distressed and foreclosed (commercial) properties, which adds further pressure on the market, much like what we have seen and are still experiencing in the residential market.”

The low prices have induced a certain amount of lateral rental movements among office leasers who are trading Class C or B office space for Class A locations.

“More than seeing space absorbed we’re going to see people shifting to properties that are a better fit, maybe moving up a bit,” said Shelton Weeks, Lucas professor of real estate at Florida Gulf Coast University. “If you were running a retail operation in a small strip center, you’re able to command a better rent, or move to another location and end up in a newer, nicer space.”

Landlords are offering better prices on leases, but usually only for the shortterm.

“People are beginning to trade up,” said George Vukobratovich, president of Welsh Companies based in Naples and Fort Myers. “I equate it to musical chairs, and there are more chairs becoming vacant.”

More than one-fifth of Class A office space is for rent or sale in Lee, Charlotte and Collier counties. In Cape Coral, 46 percent of Class A office space is vacant, Mr. Tasman says. That number is even higher in Charlotte County (52.7 percent), Lehigh Acres (63.1 percent) and Outlying Collier County (53.1 percent).

“Anywhere in that Summerlin and College corridor, I’m seeing some of the lowest rental rates I’ve seen in a long time,” Mr. Vukobratovich said. “Industrial parks in both South Fort Myers and Naples — there are some of the lowest rates that I’ve ever seen.”

Struggling to grow

Vacancy rates need to reach 8 or 10 percent before commercial builders show a wide interest in new construction projects, Mr. Tasman said. And that will be driven by a rise in employment, which is following tradition by lagging behind in recovery.

Even if good deals are to be had because of the market’s oversupply, business owners like Mr. Devries may still have to wait for their investments in new space to pay off. Consumer spending has started to increase again, but only by a trickle. The GDP rose by a modest 3.2 percent last quarter.

“It’s hard to imagine a lot of just across the board absorption until our economy recovers,” Professor Weeks said. “And I would suspect we’ll have to have a national recovery before we have a significant recovery in Southwest Florida.”

The Backyard Bird Company is struggling this year to bloom into the full potential of its unit at Old Town Business Center in Punta Gorda. The company’s profit margin might even take a step backward this year, Mr. DeVries admitted, by a few percentage points. But now he can sustain his family from the company alone. He quit the post office job in 2006 after 21 years. And he’s keeping his home life at a better distance from his birdhouses, an industry that, like the commercial real estate market or any other, is priced to sell.

“You would think last year would have been tougher,” Mr. DeVries said. “Actually, right now this year’s tougher for me. But who’s to say? It could be my competition. It’s not necessarily the economy. Everybody’s out there price shopping.”
.. in the know
>> Percent of vacant commercial real estate
and average rates per square foot, first quarter
of 2010
Office
>> Lee: 16.1 percent; $15
>> Collier: 16.3 percent; $21.36
>> Charlotte: 15.5 percent; $15.52
Industrial
>> Lee: 16.7 percent; $5.49
>> Collier: 10.8 percent; $8.14
>> Charlotte: 11.4 percent; $6.9
Retail
>> Lee: 11.7 percent; $13.82
>> Collier: 9.5 percent; $18.43
>> Charlotte: 6 percent; $13.97
— Source: Gary Tasman, Cushman & Wakefield

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