Florida Commercial Real Estate: Where Is the Recovery for South Florida Commercial Land Development?

by Rosa Eckstein Schechter
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Recovery in the real estate industry in recent years has been craved like water in the desert by many developers, brokers, investors, agents, and the like: particularly here in South Florida, we've been hit hard in this economic downturn.

So reading and learning and hearing rumors of new deals being made and reading reports of the housing industry on the upswing is very, very good news to everyone involved in any aspect of the Florida real estate industry.

However, most of what we are reading about involves residential properties.  Homes, condos, townhouses, time-shares, apartments: these are the kinds of deals that are being made more and more according to most of the sources out there.

So, what about the Florida commercial real estate market?  What's happening in the development of commercial properties here in South Florida?

Expert opinions are out there regarding Florida commercial development.  For example, the president and CEO of Atlanta's Jones Lang LaSalle Retail, Tim Maloney, was recently quoted as finding that retailers are not coming to real estate developers to discuss their upcoming needs and get things moving toward new retail real estate projects.  From his perspective, this means that commercial real estate is still in the valley and Maloney is predicting that across the country, we won't see a recovery in retail commercial land development for another couple of years -- Maloney thinks that new deals aren't going to start getting planned, created, and built until the current plethora of existing vacant storefronts and closed retail properties are resolved.

Should we listen to Tim Maloney?  Maybe, yes.  After all, he's the head honcho of an international real estate financing company that bills itself as managing "the third largest retail portfolio in the United States."

From their latest report, there is the following analysis:

Multifamily, in particular, has shown increasingly solid growth, with sales of an estimated $20.7 billion*** during the first half of 2011 more than double that during the same period in 2010,. Investors have been eager to participate in this drastic shift of capital and the sector continues to have one of the strongest performances on record.

“We’ve seen a massive uptick in purchases from REITs and other institutional investors in the multifamily sector,” said Jubeen Vaghefi, Managing Director and leader of the firm’s Multifamily Investment Sales practice. “Much of this stems from the fact that financing for apartments is available through not only traditional portfolio and CMBS lenders, but also through Fannie Mae and Freddie Mac.”

To read the Jones Lang Lasalles Mid Year 2012 Report, go here.  You may find other online reports provided by JLL of interest as well, such as their Mid Year Report for Panama

Meanwhile, things are happening here in Florida that bode well for a prosperous commercial development future.  Along with projects like All Aboard Florida, there are regional plans like those over in Orlando, where the airport is being expanded, and the Lee County (Naples area) plans surrounding the Southwest Florida International Airport, where various business incentives and infrastructure projects are already underway.

And then there is St. Joe -- a company that may provide the biggest clue to what is happening in Florida commercial land development.  From its website: "The St. Joe Company is one of Florida's largest real estate development companies and Northwest Florida's largest private landowner with approximately 571,000 acres of land, concentrated primarily between Tallahassee and Destin." 

St. Joe reported a net loss in the first quarter of 2012, which is big news since this company is considered a power player in Florida real estate.  Its second quarter results weren't great, either.  However, St. Joe is moving forward - from their press release accompanying the release of the Second Quarter results, Park Brady, St. Joe's Chief Executive Officer, explained:

"Our second quarter results reflect our efforts to stabilize the company. I'm encouraged by the trends in our residential, timber and resorts businesses. With $170 million in cash we're in a position to either hold or opportunistically reposition our assets to create additional shareholder value. We plan to continue to invest in those projects that we believe meet our risk-adjusted return criteria such as our holdings in Venture Crossings at the Airport, the Port of St. Joe, Breakfast Point, our primary home community in Northwest Florida, and Rivertown, our primary home community in Northeast Florida. We're continuing to study our other real estate assets and markets for growth opportunities."

Result?  Yesterday, Zacks slapped St. Joe down from a rating of "outperform" to "neutral" because, according to latest report from the stock analyst firm, "... St. Joe is currently in a defensive mode and continues to reduce capital expenditures through stringent cost-cutting measures and reduction in operating expenses. St. Joe is one of the largest real estate developers in Florida. The company is presently focusing on developing the adjacent area of the Panama-City Bay County Airport, which was opened in late 2010, to increase the future value of its holdings. However, St. Joe’s business is primarily concentrated in Florida, which was one of the hardest hit states in the recession and had adversely affected its bottom line in the recent past, thereby undermining the future growth potential to some extent. “  (Read the Zacks take on things here.)

So, St. Joe is getting dissed in part simply because of location, location, location:  apparently, Florida is a somewhat scary word to some analysts these days.  Still. 

In sum, there is a spark here in South Florida Commercial Land Development.  There's still something there, smoldering deep in the ashes of the Great Rescession and for this we are all both excited and grateful.  However, the commercial projects aren't burning as bright as the residential ones right now and 2012 will not be the year of Florida's big recovery in commercial land development.  2013?  Next year may be a different story.

 

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Rosa Eckstein Schechter
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