The Dixon Commercial Real Estate Reports

decorative illustration of man walking in shackle with tax inscription

Is your tax bill growing faster than your NOI?

We have had some unprecedented things happen in the real estate market between 2020 and 2022. In January 2020 we hosted the CIASF annual Industrial Market Report and presented data on the state of the industrial sales and leases in 2019. The consensus was purely positive. But then… March rolled around and COVID-19 shutdown the world. A black swan like event that no one would’ve factored in. With the world supply chains grinding to a halt and cities around the globe instituting isolation protocols, no one knew what would become of offices, retail shops and industrial buildings and really the entire range of the economy.

decorative illustration of man walking in shackle with tax inscription
Photo by Monstera on Pexels.com

The Fed swooped in to keep the monetary system moving and added nearly 4.5 trillion dollars to their balance sheet between 2020 and 2022. Pretty much any asset priced in dollars bounced back within a few months. But they kept the printing machine going, and only just this spring began to cut back on the Quantitative Easing, that really began in 2009 but when full force in 2020.

As things opened back up, instead of everything returning to where we were, we had a rapid increase in demand for industrial and housing.

All this easy money and new demand created rapid growth in the stock market between 2020 and 2022. And along with it, so did sales prices of all types of real estate in South Florida.

Now guess what happens when sales prices go up in Florida? The Property Appraiser office hears all about it, and they start taking this all into account when feeding data into their Computer Assisted Mass Appraisal (CAMA) system.

They can put off raises to taxable values only so long, but with the record-breaking headlines hitting The Real Deal and The Miami Business Journal each week and especially so in 2022 (even as the stock market began to falter and drop into bear market territory) it was hard to keep back the raises.

Here we are at tax time, with CPI readings from hitting highs not seen since The 80s and the costs for repairs and materials, insurance, and other unavoidable expenses rising 10-20% per year the last two years.

Expenses outpacing the ability to raise rental rates?

If you found out that on top of these rising costs your real estate bill, typically the single largest expense for a landlord in Florida (we have no income tax to help fund the government) is also going up 20% what would that do to your returns?

Despite the headlines blaming landlords for predatory rents increases across the county, real estate is a balancing act of a business, either the rents increase to cover the increase in costs or cash flows decline so much that the value someone is willing to pay for an asset drops, possibly dragging a much larger chunk of the economy with it.

But not everyone is willing or able to raise rates to keep pace with their in increasing expenses.

Some landlords are locked into long term leases or situations where their ability or desire to continually chase higher rental rates can’t keep up with costs. If you’re in this predicament and your tax bill is out pacing your NOI growth, contact us before September 15th to help.

Dixon Commercial Real Estate has, for over 20 years, provided real estate tax appeal services in Miami-Dade County and knows all the best angles to at least keep your taxable values in line with your property’s ability to provide cash flows. We have saved owners thousands of dollars each year and can do the same for you. We handle all types of property, commercial, residential and vacant land, sign up now before the deadline passes.

You check your current assessed values at the Miami-Dade Property Appraiser website now, and the estimated taxes by clicking the TRIM Notice in the Online Tools section.

Unfortunately, there’s nothing we can to do to lower the cost of your landscaper, repairman, insurance premium or rising borrowing costs.

As companies and institutions acquire real estate assets, either though purchase or defaults, the cost to hold these assets have a dramatic impact on net profits.  These costs include maintenance, insurance, management, utilities and real estate taxes.

Most of these costs can be deferred or controlled.  For example, if a property is vacant the required maintenance is nominal, insurance can be based on revised asset values, management costs are a function of rental income and utilities are based upon occupancy.  The only cost that must be paid but can be reduced is for real estate taxes.

Real estate taxes are a function of the assessed value multiplied by the millage rate.  The assessed value is established by the local government property appraiser, and the millage or tax rate is set by the taxing agency or government.  The millage rate changes each year with government needs.  As an individual, it is extremely difficult to influence the millage rate.  However, the assessed value of real estate can be reduced, resulting in a lower tax bill or a refund.

The Miami-Dade County property appraiser is responsible for the valuation of a very large number of properties.  For example, in Miami-Dade County alone there are more than 880,000 parcels.  This requires that properties are appraised on a mass-appraisal basis.  However, because each property is unique, the application of mass-appraisal techniques can create errors.

Some of these errors or issues can include the condition of the property on January 1st of the tax year, the actual size of the improvements and/or site area, the depreciated cost of the improvements, the assessment for the land, the net operating income and the tax assessment compared to comparable sales.

A property asset manager is responsible for producing the maximum net operating income for the property.  To achieve this, it is prudent, for the nominal cost of filing an appeal petition, to appeal the assessment each year.  The appeal presentation before the Special Magistrate can be prepared by the property manager, or an agent specializing in the tax assessment appeals can be retained. 

Typically, agents are compensated with on a percentage of the real estate tax savings.  This percentage ranges with 20% to 50% depending on the size and complexity of the assignment.  If there are no savings, then the cost is the nominal fee of $25 to file the appeal petition. If you would like more information, please feel free to give us a call.

-Thomas J. Dixon

The Real Estate Clock

With our 40 plus years of real estate experience in South Florida, one of the most important lessons we have learned is that real estate values and investments rise and fall just like the hands of time go around this circle.

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As commercial real estate brokers we are always being asked “What do you see for the future of Miami real estate”? Simply put real estate values and prices are a function of supply and demand just like any other product in the market place. As the demand increases and the supply remains constant, prices will rise. If the supply increases with no increase in demand, prices will decline. The real question is “When will the supply outpace the demand?” What we know is that we will see an increase in supply because of new construction. Another possible factor that may increase the supply of real estate for sale will be the exchange rate between foreign currencies and the US dollar.

One major factor impacting the real estate market has been foreign investors purchasing US real estate for reasons of both flight and fright. The flight purchases are made to secure an investment in a secure economic system. Fright purchases are made because the US provides a safe, crime free physical environment to live and raise a family.

Many purchases were made prior to 2010 when the exchange rates for foreign investments was very favorable and prices here in Miami we still relatively low. A Brazilian purchaser in 2010 would need 1.5 Reals to purchase 1 US dollar. Today this same purchaser will need almost 4 Reals to purchase 1 US dollar. A Russian purchaser in 2010 would need 30 Rubles to purchase 1 US dollar and today would need at least 80 Rubles to purchase 1 US dollar.

If these foreign buyers purchased real estate such as land or residences which require annual payments for real estate taxes and maintenance, the cost today to buy the US dollar to make the payments is many times more expense in terms of the local currency. This should decrease the demand by foreign buyers to acquire non-income producing real estate.

However, consider the reverse of the exchange rate. The condo purchased for $100,000 USD in 2010 for 150,000 Reals, if sold today for $100,000 USD could be converted into 400,000 Reals. So even if the price of the condo did not increase the exchange rate would generate a profit of 400%.
The impact of this favorable exchange rate may have the effect of stimulating foreign owners to sell their US investments and exchange US dollars for the local currency. An alternative is for foreign owners to convert their residences or second-homes into rentals, driving up the supply of rentals and impacting rental rates.

While all this makes sense from a numbers perspective, there is another side to every coin. Since the increase in the exchange rates is a reflection of the economic and political conditions and many owners may decide to keep their investments in US dollars and assets, because they currently have no desire to hold their own countries currency. So until such time as foreign countries become more stable expect owners to maintain their US investments.

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 upon the assessment and proposed millage rate.

The assessment (value) 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, divided by the total values of all real property in the County. 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 term millage rate is used to confuse the taxpayer. It would be much clearer if it was expressed as a percentage of value.  As in you’ll be paying about 2% of your properties value in taxes each and every year.

As a taxpayer, you are only obligated to pay your fair share. And if you think you are unfairly assessed there is something you can do about it.

Unfortunately the only part of the real estate tax equation which can be appealed is the assessment.  However you are always welcome to attend the budget hearings to find out more about that process.

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 debate the 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 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.

WE CAN MAKE SURE THAT YOU ARE ONLY PAYING YOUR FAIR SHARE OF REAL ESTATE TAXES.

IS A REAL ESTATE INVESTMENT AS GOOD AS A FINANCIAL BOND?

In the April 9th issue of the Wall Street Journal there is a very thought provoking headline;  “New Era, In Bonds; Zero Yield or Less” Tradeweb shows a  government-bond yield for Switzerland of (-1.0%) …yes negative 1% per year.  This means if you invest $100,000 for five years you will receive back $95,000.  This is in part a result of the ECB  European Central Bank charging commercial banks to keep money on deposit.  Banks and Lenders are unable to invest their deposits at a rate greater than the cost of maintaining deposits.

The intended better result for an investor is to own investment real estate.  Even with a nominal annual income, this investment should over a 5 year period appreciate, not depreciate in value.  For example, consider the purchase of a residential condo unit.  If the purchase price is $200,000 and is financed with a loan of $150,000 at 4% interest for 30 years the annual loan cost is $8,593 or $716 per month.  If the real estate taxes and condo fees are an additional $600 per month the total expenses for a 5 year holding period would be $78,960.  If the apartment is rented for $1,000 per month the net cost will be ($78,960-$72,000 =  -$6,960) over the 5 year period.

If the value of the apartment appreciates only 2% per year the value in 5 years will be $220,000.  The investment returns 4.6% per year.  If the apartment appreciates at 4% per year the value in 5 years will be $240,000.  The investment will then return 11% per year.

Sale Price in 5 Years $220,000 $240,000
Less: Sales Costs (8%) $  17,600 $19,200
Net Proceeds $202,400 $220,800
Less:  Income loss $    6,960 $    6,960
Less: Mortgage Balance $135,670 $135,670
Profit end of 5 years $  59,770 $ 78,170
     
Purchase Price $200,000 $200,000
Less: Original Mortgage $150,000 $150,000
Cash Investment $  50,000 $  50,000
Profit $   9,770 $  28,170
Yield over 5 years  20%     56%
or Per Year  4.0%   11.2%

 

This return is not without some aggravation and risk.  You will need to rent the apartment and collect rent each month, pay the condo fees, mortgage payments and real estate taxes.  An additional risk you have are increasing expenses and periods of vacancy.

 

But when you consider the alternatives of investing in a savings at rates below ¼ of 1% or less, the risk may justify the effort.  This explains the interest by investors in purchasing condo unit and other types of simple investments.

 

Last week at the Commercial Industrial Association of South Florida presentation on “The rEvolution of the Industrial Market”, the inventory of industrial warehouse space in Miami-Dade was estimated at 200 million square feet. As in my last newsletter, I like to relate this to something I can imagine.

The shipping industry uses a standard shipping container with a length of 40’, a width of 8’, and a height of 9.5’. Therefore, a container would occupy 320 square feet of floor space and has a volume of 3,040 cubic feet. If the South Florida market contains 200,000,000 square feet of floor space with say 20% used for loading and access – then 200,000,000 minus 40,000,000 = 160,000,000 SF. And if each container requires 320 SF of floor space, then the South Florida Industrial Market could store 500,000 cargo containers, if single stacked.

If 500,000 containers were in a line, they would stretch for (500,000 X 40’) = 20,000,000 feet or over 3,700 miles. This is greater than the distance from Miami to Vancouver , Canada. Another way to imagine this many containers is their cubic capacity. A 50” TV can be shipped in a box occupping (5’X1’X3’) or 15 cubic feet. If a 40’ shipping container has a 3,040 cubic foot capacity, each could hold 200 TV’s. Therefore, 500,000 containers could hold 100,000,000 TV’s.

Now I realize that this is over the top, and the net floor space is actually much less, but still – 200,000,000 SF of industrial space can contain a very large quantity of goods for local consumption, trans-shipment or used for local manufacturing.

As real estate brokers, we are always trying to understand the supply and demand for real estate products and its impact on prices. The way we do this is to measure things in a different way.

By Tom Dixon

We use signs and indicators in our daily lives to tell us what to expect. For real estate business decisions, there are some very interesting and also odd indicators that reflect the current business climate that can give indications of future trends.

If you were interested in investing in a restaurant, wouldn’t it be nice to know how well this restaurant and others in the area were doing. My wife and I were having dinner in Coconut Grove and in strolled “The Flower Guy”. Every night, he goes into every restaurant, singing opera songs and selling fresh roses. If you want to know how business is doing, you might just ask “The Flower Guy”.

We have an office in a highrise office building, and every day I see “The UPS Man” delivering packages to our floor. If you what to know general business trends, you could ask the “UPS Man”. He knows by the volume of packages how the economy is doing. In fact, UPS must make decisions on the future of the economy so they have enough trucks and drivers, but not too many.

Many years ago a friend of mine said he could predict the amount of new home construction before anyone. He just had to ask “The Survey Stake Man”. This is the man who cuts the wooden stakes used by surveyors to lay out subdivisions and new homes. The first thing a builder has to do to start building is have the site surveyed and lay out the foundations. As the demand for survey stakes changes, we can expect a change in new home construction.

If you were investing in a hotel or motel, wouldn’t it be great to be able to verify the occupancy for the past several months to see how well this hotel is doing compared to the competition ? Just ask “The Linen Man”. He picks up the soiled linen and delivers the clean linen. He knows exactly how much business his clients are doing each week. Or you could ask “The Bakery Man”. He delivers fresh bread and rolls each day. Hotels are only going to order enough baked goods for their daily guests.

A quick way to check up on the operation of an office building or shopping center is to track the number of cars in the parking lots. If the lot is empty, it could mean a shortage of tenants or customers. On the other hand, if the parking lot is full, it might suggest this is a good place to help tenants relocate to larger spaces. Or you could ask “The Parking Attendant”, he can tell you if the number of visitors has changed and also the occupancy level in the parking garage.

If you want to know the status of real estate sales activity, just ask the “Sign Man”. As the economy cools down, real estate prices don’t generally decline, but the amount of sales activities do decline, with a resulting decrease in the demand for new “For Sale” signs. Although I asked my “Sign Man” if there was a change in the number of signs he painted, he said that the number of signs was the same but oftentimes, signs were for the same companies. This is a indication of companies merging with others.

These and other indicators can help you make real estate and business decisions based on very direct local market indicators.

Call us – we know how to read the signs and indicators of the real estate market.

ALL YOU NEED IS THE ENGLISH LANGUAGE AND A DEBIT CARD
If you enjoy traveling and speak the English language, the world is yours. We have traveled to many countries including Spain, Italy and most recently – Greece. Everywhere we traveled, English is the universal language. Our son Andrew went on his honeymoon to South Korea and Japan and again, English speakers were everywhere.

Another traveling concern is obtaining cash. The travel books suggest going to the country and get local currency at an ATM machine. But somehow, this always makes me nervous – what if my card is rejected, stolen or damaged. After making sure the card company knows where I will be using the card and by taking a different card as a precaution, we had no trouble getting Euros at an ATM on our last trip. Contrast this to 15 years ago before ATM machines when each European country had a different currency which made understanding the value of the currency very difficult.

This started me thinking how lucky we are to speak the universal language. But why is English the universal language? Could it be because so many Hollywood movies are in English? Maybe it’s because of computers; most computer programs are written first for English language users. When we English speakers have trouble understanding how to use a computer, just imagine how hard it is if you don’t speak the language. Then there is Google, Wikipedia and all the other information sources for which we use English as the base language. Not just what you can see, the code (HTML) behind it uses English words as a base.

While we were on a small cruise ship in Greece, it was interesting that some of the crew were from Greece and spoke Greek and English and other crew were from Ukraine and spoke Ukrainian and English but not Greek. Because of this communication among the crew was English to English, again English being the common language.
Now of course, English is not the perfect language and can be confusing and there are certain words that are clearer in other languages. For example, in English “hot” can mean it will burn you and also that it is hot on the tongue “spicy”. Whereas, Spanish has two words for hot: “caliente” for when it will burn you, but “picante” if it’s hot and spicy in the mouth.

So although English may be the universal language, it’s very helpful to know other languages both because they can clarify your meaning and add spice to your world.

Call us if you would like to add spice to your real estate investments.

By Tom Dixon

3660 William AveLast week I sold a home in Coconut Grove which is unlike any other: it is the first certified Fortified Construction and Energy Star home built in Miami-Dade County. The developers and sellers, Rochester Builders Inc., set out to build an affordable product with a construction standard that goes far beyond what is called for in Florida. They wanted to make the home energy efficient as well. They achieved their goal and I found them a lucky buyer.

The Insurance Institute For Business & Home Safety, or IBHS, is the independent, non-profit organization that designates the Fortified Home certificates. There are three levels of designation: Bronze, Silver and Gold. Gold represents the highest standard for disaster protection, which the developers received. The methods and materials employed in the construction of the home ensure the utmost protection from hurricanes and other potential disasters. The Environmental Protection Agency designated the property a high Energy Star rating due to its energy-efficient appliances, lighting, heating, cooling, and ventilation systems. These ratings are not just accolades; they also translate into thousands of dollars in savings for the homeowner due to lower home insurance and utility costs.

Selling the house involved a three-month process from the day I got the listing to the day it closed.  I used various methods and tools including listing it on the MLS, advertising it on our website, speaking with the pastor of the neighborhood church to get the word out to the community, as well as doing a mass mail-out through the Postal Service. The challenge was to inform the public of a unique product that had not been available before in this market. And that is exactly what I did.

As my broker, Tom Dixon, says “being a real estate agent is about problem solving”, it is about finding unique solutions to unique issues. The combination of our various methods prompted a lot of activity and interest in the house and it came down to choosing the right buyer.

So if you have a unique real estate problem or simply need representation in the sale or purchase of a property, give us a call and we will find you a solution.

Roger Lopez
Dixon Commercial Real Estate
[email protected]
305.443.4966