Dixon Commercial Real Estate

Last week Andrew and I pre­sented the 2010 Miami-Dade County Industrial Market Study to over 240 mem­bers of the Commercial Industrial Association of South Florida. This is 15th year we have reported on the indus­trial mar­ket con­di­tions in South Florida.

The Market Trends Section reported a growth in indus­trial space for the year of 2008 of just over 267,000 SF a decline of about 87% from the prior year. This down­ward trend was also evi­dent in the indus­trial employ­ment sec­tor show­ing an employ­ment decline of 7,600 to a total employ­ment of just over 175,000. For the year of 2009 pro­jected total freight at the Port of Miami declined by 8% while freight through Miami International Airport declined by 20%.

The Market Activity Section shows vol­ume of ware­house sales remained the same at 74 build­ings but a decline in the aver­age sale price from $71/SF to $69/SF. The dol­lar amount of the sales decreased by 55% to $108,328,400. The indus­trial con­do­minium mar­ket also slowed with a 25% decline in sales vol­ume in 2009 and an aver­age price decline from $144/SF to $122/SF.

Because of the vari­ety of warehouse/industrial prop­er­ties in var­i­ous loca­tions Miami-Dade County is divided into seven regions based on sim­i­lar types of prop­er­ties in each region. All regions are report­ing an increase in the amount of rental space avail­able, vacancy rates are as high as 18%-20% and rental rates have declined to as low as $3.50/SF in some areas.

Summary:

First year rental rates have declined from the mid $7.00/SF to as low as $3.50/SF. Some indus­trial prop­erty own­ers in larger build­ings are rent­ing for $1.00/SF plus all expenses (NNN) for the first year of a three year lease. Existing ten­ants are request­ing rent rate reduc­tions, abate­ment of rent or other con­ces­sions in exchange for longer term leases. Property man­agers are review­ing these requests on a case by case basis.

Vacancy rates should con­tinue to increase from 13% and could rise to as high as 18% as a result of no new com­pa­nies mov­ing into this mar­ket. Existing com­pa­nies are relo­cat­ing from older less effi­cient build­ings to newer build­ings tak­ing advan­tage of the lower rental rates in newer build­ing with bet­ter access, park­ing and load­ing areas. This is forc­ing prop­er­ties with func­tional prob­lems to become even more rate competitive.

The major issues fac­ing com­mer­cial prop­erty own­ers are the bur­den of addi­tional gov­ern­men­tal reg­u­la­tion and enforce­ment. Property own­ers are being forced to install expen­sive wired fire alarm sys­tems, re-inspection for code com­pli­ance when­ever a ten­ant applies for an occu­pa­tional license.

The encour­ag­ing news in cargo com­pared to other US Customs dis­tricts is that Miami’s decline of 15% in trade from June 2008 to June 2009 was the small­est of all dis­tricts except Norfork/Mobile/Charleston. With the con­struc­tion of two cargo facil­i­ties, the Miami International Airport will have an addi­tional 800,000 SF of cargo space plus a new fumi­ga­tion facil­ity. At the Port of Miami the dredg­ing of the chan­nel to 50’ depth will make Miami only one of three ports on the Eastern Seaboard with this depth which can take advan­tage of the widen­ing of the Panama Canal. These fac­tors will improve Miami’s inter­na­tional trade as the econ­omy recov­ers and secure Miami’s future as a major air and sea port.

If you’d like more infor­ma­tion about the “Commercial Industrial Association of South Florida” send an e-mail to info@ciasf.com or you can view and down­load the entire Market Report.

By Tom Dixon

As the Great Recession of 2008–2009 con­tin­ues, its effects are felt in the com­mer­cial real estate mar­ket and sub­mar­kets of South Florida in the form of increased vacan­cies, lower rents, reduced income and cash flow to land­lords and own­ers of invest­ment prop­er­ties.  If land­lords, own­ers and their leas­ing agents are not agile enough or will­ing to bend, blend and extend exist­ing lease agree­ments, then we will see this seg­ment of the mar­ket go through what has hap­pened in the hous­ing mar­kets.  However, no mat­ter what action own­er­ship takes the com­bi­na­tion of short term loans com­ing due, the new rules of higher equity require­ments, increased cap­i­tal­iza­tion rates and appraisal val­ues might still tilt the bal­ance down­ward.  But no mat­ter, the mort­gage debt side of the equa­tion is a sub­ject of a later newslet­ter.  We will dis­cuss here the own­er­ship side.

What is a land­lord and it’s rep­re­sen­ta­tive to do when approached by a large major ten­ant with sev­eral years remain­ing on their lease term, to reduce rent and/or give up space back to the land­lord?  There are var­i­ous con­ces­sions and amend­ments that can be offered and con­sid­ered.  The main ele­ment has to be to save the ten­ant and keep them from vacat­ing the space and mov­ing to another loca­tion.  Other ques­tions are:  How much space do they occupy? How long have they been a ten­ant?  What is their track record in rent pay­ments?  Also are they will­ing to give the land­lord finan­cial records of the past 12 to 18 months and a pro­jec­tion of their income for the next 12 to 18 months?  Will their request to give back seri­ously affect the cash flow of the prop­erty?  And lastly, what is the future of their busi­ness?  And most impor­tant are they going to survive?

Answers to these ques­tions and the will­ing­ness to dis­close their present and future finan­cial con­di­tion will greatly affect the landlord’s abil­ity to bend, blend and extend.   Help can take var­i­ous forms:  rent abate­ment (free rent) for short peri­ods to give them breath­ing room, rent defer­rals with accrued defer­rals repaid at a future date with inter­est, reduced or elim­i­nated rent esca­la­tions to pro­vide “breath­ing room” for a period, give back of space with or with­out a future take back, updat­ing of base year for oper­at­ing expense pass-thru to a cur­rent year or elim­i­nate it entirely.  More help can take the form of paint and new car­pet to “refresh” their space in return for extended lease term, say two or three years remain­ing extended to five to ten years.

Finally, a rent per square foot reduc­tion and some park­ing rate con­ces­sion for a short term (12 to 18 months) can go a long way to help a ten­ant sur­vive these rough eco­nomic times.  The key is, will you as the land­lord or his rep­re­sen­ta­tive be able to make the value judg­ment: “Will the ten­ant sur­vive?”  If you have strong doubts, do not play the bend, blend and extend game.  Let the space go vacant and find a ten­ant to occupy the space at a rate where you as the land­lord can survive!

CALL US, WE KNOW HOW TO BEND, BLEND AND EXTEND.  WE ALSO KNOW HOW TO SURVIVE!

by Steve Magenheimer

Click the Photo to the left to view the full gallery of photos.

This archi­tec­tural award win­ning build­ing on Calle Ocho and 22nd Ave is now avail­able for purchase.

2147 SW 8th St, Miami, cur­rently used as a stu­dio for cre­at­ing archi­tec­tural mod­els, it would be per­fect for a work­ing art gallery and stu­dio, or pri­vate museum.

The space fea­tures 3 main offices, and a large open floor space with ample light­ing for detailed work , as well as a loft over­look­ing the main floor with a kitch­enette and room for din­ing.  The build­ing also fea­tures small high secu­rity win­dows on the ground floor, which could be light con­trolled to cre­ate dra­matic light­ing efects for dis­play pur­poses.  High ceil­ings with exposed  duct work cre­ate a mod­ern indus­trial NY loft feel.  In addi­tion to the main areas the build­ing also includes an air-conditioned art stu­dio in back for more intense work and a sep­a­rate 2 bed­room and 1 bath apart­ment on the sec­ond floor.   Also enjoys 11 gated park­ing spaces for added secu­rity and exclusivity.

If you have an inter­est in this very unique oppor­tu­nity please don’t hes­i­tate to con­tact either Tom or Andrew Dixon at 305–443-4966 to sched­ule a tour.

Call us for more infor­ma­tion — 305–443-4966

Call us for more infor­ma­tion — 305–443-4966

If you live in Florida and own prop­erty, you will receive a TRIM (Truth in Millage) notice in the next 4 to 6 weeks. This notice will give you an esti­mate of the real estate taxes that the prop­erty must pay, based on the assess­ment and mill­age rate. The assess­ment is estab­lished each year by the County Property Appraiser using mass appraisal tech­niques. The mill­age rate is based on funds the city and county gov­ern­ment need to oper­ate. The real estate taxes for a prop­erty is then cal­cu­lated by mul­ti­ply­ing the assess­ment — say $100,000 times the mill­age rate of say 19 mills, which is really 1.9% or .019. This equals a tax of $1,900. I some­times think that the use of the term mill­age rate is to con­fuse the tax­payer. It would be much clearer if it was expressed as a per­cent­age of value.

As a tax­payer, you are only oblig­ated to pay your fair share and the only part of the real estate tax equa­tion which can be appealed is the assess­ment. With the decline in the mar­ket val­ues of both res­i­den­tial and com­mer­cial prop­er­ties from January 2008 to January 2009 the new assess­ment should be lower of the year of 2009 com­pared to the year of 2008.

However, because of the con­tin­u­ing need of the gov­ern­ment for rev­enues it is pos­si­ble that the mill­age rate will increase for the tax year of 2009. If the assess­ment for prop­erty declines by say 10% and the mill­age rate increases by 10% the final tax bill and rev­enues col­lected by gov­ern­ment will be the same.

If you have prop­erty which has been enjoy­ing the ben­e­fits of home­stead exemp­tion, your tax­able or home­stead exempt value may remain the same but with an increase in the mill­age rate you will have an increase in your taxes.

The TRIM notice you will receive at the end of August is an esti­mate of the taxes you will pay based on the gov­ern­ment receiv­ing the same amount of rev­enues in 2009 as in 2008. After you receive the TRIM notice, there is usu­ally a period of 25 days to file an appeal peti­tion if you wish to protest the assess­ment. Then, some­time in the next 12 months there will be a hear­ing before a Special Magistrate to protest the assessment.

If you object to the real estate taxes there are two proac­tive things you can do. One, attend the bud­get hear­ing at the City and County Commission meet­ings and tell gov­ern­ment to stop spend­ing so much money. Two, appeal your assessment.

As a prop­erty owner, you can file the appeal and present your argu­ments before the Special Magistrate. However, many prop­erty own­ers have found that using a pro­fes­sional is much more effec­tive. With our 30 plus years of com­bined knowl­edge of South Florida real estate val­u­a­tions as real estate bro­kers, pro­fes­sional appraiser, teacher and eco­nomic ana­lysts, we are well equipped to rep­re­sent prop­erty own­ers in the suc­cess­ful appeal of real estate tax assessments.

CALL US WE KNOW THE APPEAL PROCESS

Tom Dixon 305–443-4966

After you receive your 2009 assess­ment visit our Tax Appeal Page and fill out the form at the bot­tom if you want us to review your assessment.

Last Friday, I attended with 130 other pro­fes­sion­als the pre­sen­ta­tion of the Official 2009 Annual Miami Office Market Report by the Commercial Industrial Association of South Florida, (CIASF).  Data for the report was based on infor­ma­tion from Black’s Office Guide.  The report was pre­pared and pre­sented by my two able office mates, Tom and Andrew Dixon.  There was also a panel of office leas­ing pro­fes­sion­als shar­ing their views of the office mar­ket and pre­sent­ing esti­mates for the remain­der of 2009 and 2010.

As an office leas­ing pro­fes­sional in South Florida for over 30 years act­ing as both a ten­ant and land­lord pro­fes­sional bro­ker rep­re­sen­ta­tive, to me the glass is always half full.  This mar­ket for the fore­see­able future will be soft and stag­nant, with higher vacan­cies, lower rents and greater con­ces­sions by land­lords to keep exist­ing ten­ants and attract new ones, par­tic­u­larly in the Downtown and Brickell Districts.

When the new office build­ings hit the mar­ket in 2010, the Miami-Dade office mar­ket will have a total close to sixty mil­lion square feet of rentable space.  Where are these ten­ants going to come from?  The CIASF report shows that the num­ber of busi­nesses with more than 100 employ­ees have shrunk to less than 300.  Landlord/Developers build­ing high-rise struc­tures with large floor plates will find that users are few and far between for their space.  Only larger ten­ants can effi­ciently use large floor plans.

The econ­omy of South Florida is based on three struc­tures hold­ing up our com­mu­ni­ties; tourism, finance/trade and con­struc­tion.  Construction will not be a fac­tor in the near term and tourism does not cre­ate a sig­nif­i­cant office demand.  A major­ity of the office space I have leased is in Coral Gables, home to multi-national ten­ants based here to ser­vice their Latin American busi­nesses.  They are not large users of office space.  Typically, they will occupy 1,500 to 2,500 SF.  Some land­lords are aware of this require­ment and have tai­lored their mar­ket­ing pro­grams in this direc­tion.  Other land­lords, many on Brickell Avenue and Downtown are still look­ing for full floor ten­ants.  Most of these will be large regional law firms that con­tinue to see oppor­tu­ni­ties to locate to Miami/Coral Gables to ser­vice their inter­na­tional clients in Latin America.

So, where are we and where are we going, and bet­ter yet, how do we get there?  First, with few excep­tions, new ten­ants to the mar­ket are going to be few and far between.  Landlords will have to offer huge con­ces­sions to attract them.  These will take the form of free rent, mov­ing allowances and gen­er­ous ten­ant improve­ment bud­gets.  A bit of his­tory here, as the landlord’s rep­re­sen­ta­tive in the Texaco Latin America-West Africa divi­sion lease for 72,000 SF in Coral Gables twenty five years ago, the lease pro­vided an 18 month rental abate­ment on a ten year lease.  Plus, turnkey ten­ant improve­ments and free park­ing!  The effec­tive rate was in the mid $20’s/SF and the face rate was in the low $30/SF.

Other that new ten­ants, land­lords have to react to exist­ing ten­ant needs to retain them.  Reduced rents, mov­ing base year oper­at­ing expenses pass-thrus and rent abate­ment will be the order of the day.  Otherwise we will see a mas­sive game of “musi­cal chairs” through­out the mar­ket.  With ten­ants mov­ing from one build­ing to the next for lower rents.

We will get “there” by hav­ing leas­ing pro­fes­sion­als, land­lord and ten­ant rep­re­sen­ta­tives edu­cate and inform land­lords on the mar­ket con­di­tions that will require them to be recep­tive, cre­ative and real­is­tic to the cur­rent mar­ket cir­cum­stances.  Those that do, will enjoy rea­son­ably full build­ings, oth­ers will suf­fer vacan­cies of up to 50%! Remember, those in the busi­ness of office leas­ing have to believe the glass is half full and will stay that way.

CALL US: WE KNOW HOW TO KEEP THE GLASS HALF FULL

To view the 2009 Office Market Report go to www.dixoncommercialre.com click on 2009 Office Report

By: Steve Magenheimer

THE UNDERWEAR FACTOR

Now that the sum­mer rains have started in South Florida it reminds me that there are cycles to the weather, life, finan­cial mar­kets and it seems every­thing around us.   Three months ago we were com­ment­ing about the cool weather and when would it be warm enough to go swim­ming.  Now the water is warm and we won­der will the weather ever become cool again.

As hard as it is to believe the finan­cial strug­gles we are going through will pass and the clock of finan­cial mar­kets will turn and the eco­nomic cycle will go from bad to worse and then start to get bet­ter.  My expla­na­tion for this is the “Underwear Factor.”  It could be called the bed-sheet fac­tor, towel –fac­tor or auto­mo­bile tire fac­tor.  Things will need to be replaced and no mat­ter how long we wait to replace them they will even­tu­ally wear out.

The wear-out cycle for cars used to be three years, for copiers five years, for com­put­ers four years.  A good copier sales­man would con­tact an office and ask “how old is the office copier.”  If the answer was two years he would set a reminder to con­tact the office in three years.  If the copier was more than five years old he had a good prospect for a new copier.

The result of this nat­ural cycle is that some things are replaced because the tech­nol­ogy has changed, other are replaced because they have worn-out and oth­ers because fash­ion and styles have changed.  Think about the things you use every day.  Eventually, they will need to be replaced.  As much as we hold off on buy­ing new things even­tu­ally we must.  The “we must” starts the cycle over again and goods are pro­duced to meet this demand.

For an exam­ple con­sider the auto­mo­bile indus­try.  They pro­duced cars with a life cycle of three to five years.  At the end of this period the paint failed, the body rusted out and mechan­i­cal parts need replac­ing. Of course, also the styles changed and we all wanted to stay in fash­ion.  The result was a con­tin­u­ing demand for new cars.  Then there was a change, car man­u­fac­tur­ers started pro­duc­ing bet­ter cars than last six-seven or even ten years before they need to be replaced.  This reduced the demand for cars by 50% but I guess the man­u­fac­tur­ers never fig­ured this out.

Now let’s look at the cur­rent eco­nomic cycle.  Beginning in the sum­mer of 2007 the over­built and over financed real estate mar­ket began to col­lapse.  This meant that home­own­ers had less equity to obtain loans, employ­ment declined, con­sumer spend­ing declined and the “Economic Clock” started to wind down.  Hopefully, the “Clock” will start to rewind when the “Underwear Factor” comes into play and con­sumers will need to buy more goods.  The decline in home prices will end and with lower prices more buy­ers will move into the mar­ket.  It will be a slow process because of the excesses of the past sev­eral years, but it will happen.

How long will it take to rewind the “Clock”?  I’m reminded of the state­ment of my real estate pro­fes­sor in col­lege, “hous­ing is the hand maiden of the GNP.”  The real estate and hous­ing mar­ket has brought the econ­omy down and it needs to recover before it can bring the econ­omy up.

WE WILL LET YOU KNOW WHAT TIME IT IS ON THE ECONOMIC CLOCK

By Tom Dixon

As an active real estate bro­ker in South Florida the changes I have seen in the mar­ket for real estate are both upset­ting and beneficial.

The upset­ting part began in 2005 and 2006 when money was so plen­ti­ful that almost any bor­rower could qual­ify for a loan.  These bor­row­ers real­ized that if they could pur­chase prop­erty with 100% financ­ing and the value of the prop­erty went up they made an infi­nite return on their “invest­ment.”  In fact, this looked so good that many buyers-speculators pur­chased mul­ti­ple prop­er­ties solely with the intent of reselling them at a profit.  This led to groups of indi­vid­u­als buy­ing and sell­ing to them­selves at ever increas­ing prices.  Using these sys­tems con­do­mini­ums appeared to be dou­bling in value in less than a month.  As the prices increased this drew more and more spec­u­la­tors into the market.

How was all this pos­si­ble?   Easy money based on loans with­out income ver­i­fi­ca­tions, credit reports or proof of abil­ity to repay.  Some of these loans were called “NINJA” loans (No Income No Job or Assets).  Who pro­vided these loans?  Mortgage bro­kers wrote these loans, they were sold to a whole­saler, who sold them to an invest­ment bank.  The invest­ment bank pack­aged them and resold them to investors.  Everyone made a profit and hoped that they could resell the loan before the bor­rower missed a pay­ment.  The prob­lems started when the “NINJA” bor­rower stopped mak­ing the pay­ment because he could not flip or resell and did not have the income to make the payment.

Jump to mid-2006, the impact of this spec­u­la­tion and false demand was res­i­den­tial con­struc­tion and spec­u­la­tive build­ing not seen since the early 1970’s.  All of this buy­ing and sell­ing at ever increas­ing prices cre­ated an appar­ent wealth from real estate ownership.

Housing became so expen­sive most of the res­i­dents in South Florida did not have an income to cover the cost of hous­ing. Of course this also led to higher taxes and insur­ance pre­mi­ums because of the appar­ent increase in val­ues.  The chain started to break in mid-2007 when fore­clo­sures increased, con­struc­tion spend­ing declined and unem­ploy­ment started to rise.

The ben­e­fi­cial part of this cycle is that the cost of hous­ing has declined and more fam­i­lies should qual­ify to obtain home loans, real estate tax assess­ments will decline and insur­ance pre­mi­ums should decline because of lower insur­able val­ues.  As the real estate mar­ket sta­bi­lizes and the exist­ing inven­tory is occu­pied the mar­ket will recover.  If his­tory is a guide we have had sim­i­lar real estate booms and busts every 10 years.  The first real estate bust I expe­ri­enced was in the early 1970’s and they repeated on a ten-year cycle.

When all of the new pro­posed finan­cial stim­u­lus pack­ages are funded I pre­dict a new round of infla­tion. It may take two to three years but the tril­lions of dol­lars being funded by the gov­ern­ment will bailout the econ­omy and bring on a new round of infla­tion. This in turn will help the banks with increases in the safety and the value of real estate loans. This infla­tion will raise the price of every­thing includ­ing fixed assets such as real estate.  My rec­om­men­da­tion is that if we have a new round of infla­tion then the best invest­ment you can make is to buy fixed assets such as real estate with a long-term, low inter­est rate loan which can be repaid with inflated dollars.

Call us we have been through the Cycles

By Tom Dixon

Last week Andrew and I pre­sented the 2009 Miami-Dade County Industrial Market Study to over 240 mem­bers of the Commercial Industrial Association of South Florida.  This is 14^th year we have reported on the indus­trial mar­ket con­di­tions in South Florida.

The Market Trends Section reported a growth in indus­trial space for the year of 2007 of just over 2,000,000 SF a decline of about 10% from the prior year.  This down­ward trend was also evi­dent in the indus­trial employ­ment sec­tor show­ing an employ­ment decline of 2,500 to a total employ­ment of just over 182,600.  For the year of 2008 pro­jected total freight at the Port of Miami declined by 6% while freight through Miami International Airport remained the same.

The Market Activity Section shows a decrease in the vol­ume of ware­house sales from 144 in 2007 to 74 in 2008 and a decline in the aver­age sale price from $85/SF to $71/SF.  The indus­trial con­do­minium mar­ket also slowed with a vol­ume of 349 in 2007 to 167 in 2008 and an aver­age price decline from $149/SF to $144/SF.

Because of the vari­ety of warehouse/industrial prop­er­ties in var­i­ous loca­tions Miami-Dade County is divided into seven regions based on sim­i­lar types of prop­er­ties in each region.  All regions are report­ing an increase in the amount of rental space avail­able, an increase in the vacancy rate of 2% to 5% and rental rate declines of $2.00 to $4.00/SF.

Summary

• Landlords are accept­ing lower rents and are offer­ing short term leases, free rent and prop­erty renovations.
• Operating expenses are sta­ble with declines in insur­ance pre­mi­ums off­set by increases in real estate taxes.
• Sales prices will depend more on income poten­tial with sales prices declin­ing from 20% to 25% in some areas from the peak in 2005–2007.
• On the pos­i­tive side the weak US dol­lar has encour­aged the expan­sion of inter­na­tional trade increas­ing the demand for ware­house space.  In addi­tion, land which was to be used for res­i­den­tial devel­op­ment is becom­ing avail­able for future indus­trial devel­op­ment.  However, due to the decline in rental rates and dif­fi­culty of obtain­ing financ­ing new con­struc­tion will decline for the next sev­eral years.

If you’d like more infor­ma­tion about the “Commercial Industrial Association of South Florida” send an e-mail to iadc@bellsouth.net or you can view and down­load the entire Market Report on our web­site www.dixoncommercialre.com

By Tom Dixon