The Dixon Commercial Real Estate Reports

By the end of June, I will no longer occupy an office at Madison Circle, 3191 Coral Way.  The first of July, I will set up my new home office at Kings Creek South, near Dadeland.  This same contact information will be valid, since I will receive my mail at the office on Coral Way and the telephone, fax and e-mail address will not change.

What will change however, is that I will no longer be an office mate of Tom Dixon (17 years),  Andrew Dixon (6 years), Gary Sisler (8 years) and Roger Lopez (3 years).  I shall miss the fellowship, camaraderie and synergism of being together on a daily basis.

It is time to reflect past events and remember its lessons, as well as look to the future.  To reflect on my lifetime, I was born 18 months before the stock market crash of October 1929, that led to the Great Depression, grew up in the Northeast during this time.  My recollection of the Depression years is one of  a normal childhood, without financial concerns.  My father worked for a large Wall Street commercial bank, collecting a paycheck each week.  He even bought a new Pontiac for only $285.   I do remember when Pearl Harbor was bombed, (I was playing roller hockey at Victory Field in Queens N.Y.).  I spent the war years of WW II attending high school and attended college and law school at the University of Virginia.  Then served two years in the US Army in the Far East, in the counter intelligence agency (CIC) during the Korean War. With my new bride Dawn we moved to South Florida in September 1955.

My first encounter with a recession was in 1958-59 while working as a young traveling lawyer for a title company.  The recession was caused by the tight money controls imposed on an overheated real estate economy by the Federal Reserve.  The next downturn occurred during in 1966, when I was running the asset side of the balance sheet of the first mortgage real estate investment trust (REIT) in the US, First Mortgage Investors.  We were making construction and development loans in 18 states.  This downturn was moderate to severe, again caused by a restrictive monetary policy by the Federal Reserve to slow down the overbuilding in single family homes.  This caused many defaults and foreclosures in the housing industry.  Up to this point in the US economic history, inflation was not the factor it became in later downturns.

By the early 1970’s, the economy was booming again, with an over-supply of easy money from commercial banks and REIT’s formed by financial intermediaries with little experience in making construction and development loan to unqualified builder/developers in unfeasible locations.  This led to a severe downturn caused by tight money at high costs, inflation and the Watergate scandals of the Nixon administration.  Many REITS failed or were absorbed by their parent banks.  This led to a period of workouts and restructuring of both construction and development loans.

The 1980’s was a period of recovery and prosperity, led by the Savings and Loan Industry fed by jumbo Certificates of Deposit and excess funds to invest in real estate projects that were not feasible.  Also, real estate tax syndications created false values for investment real estate. The excess of this market, plus the Tax Reform Act of 1986, brought the house of cards crashing down in the early 1990’s.  This led to government intervention in the market place by the formation of the Resolution Trust Corporation (RTC), as a vehicle to work out these problems.  Scandals surfaced and several S&L executives went to jail.

By the late 1990’s and the dawn of the new century, things were booming again.  Only this time Wall Street got involved in the real estate finance area with exotic debt and equity vehicles such as Commercial Mortgage Backed Securities (CMBS) and subprime mortgages.     They created credit default swaps  to securitize and protect themselves from the inevitable defaults.  This arrangement not only did not protect the Wall Street house from default, it placed them all in the same boat.  When it sprung a leak by default, they all began to sink.

The event that ushered in the Great Recession was the bankruptcy filing of Lehman Brothers in the fall of 2007.  Other houses (Morgan Stanley, Goldman Sachs, Morgan Chase, Merrill Lynch and etc,  were rescued by mergers engineered by the US Treasury with more solvent commercial banks.  The US congress was convinced to provide stimulus monies to rescue the financial houses, General Motors and Chrysler Motors also received “bailout” loans to save those “too big to fail’.

At the present time we are still feeling the pain of financial excesses, fraud and lack of controls and experience in financial/loan management.  I once had a Texas banker (who we owed over 6 million dollars) say “remember too much ice cream will make you sick”.

Many pundits and forecasters predict it will be several more years until the housing and commercial markets correct themselves.  If that proves true, it will be 2015 or 2018 before a return to “normal” is evident.  Next time around let us hope we have more wisdom and experience at the financial controls of our recovery.

Belonging to that elite group of males know as Octogenarians , I celebrate the naming of Jack McKeon (age 80) as the new skipper of the Florida Marlins.  He will right the team and may instill the magic of the 2003 team which won the World Series.

Call me, I still function as a commercial real estate broker.

STEVE MAGENHEIMER – (305) 445-0916

Did anyone notice that in November 2010 they received a real estate tax bill that showed that they were being assessed for less but being taxed for more?  What’s up with that?

Example 1 – Using North Bay Village Actual Millage Rates
2009 Market Value $500,000 x Millage Rate .0209155 = Taxes $10,458
2010 Market Value $475,000 x Millage Rate .0231724 = Taxes $11,007

What’s up; is that your tax bill conveniently excludes the real problem THE COUNTY BUDGET.  What happened in this case is while your property values have decreased by $25,000 the county’s budget did not, or at least did not decrease by the same amount.  So in order to collect the taxes needed to pay for the government, some of us were greeted with a MILLAGE RATE (TAX RATE) increase greater than our property value decrease.  A problem which is only further exasperated by Florida’s overcomplicated and misguided real estate policies. [Link to Law]

Example 2 – Property with Homestead Exemption Benefit – Using North Bay Village Actual Millage Rates
2009 Market Value    $500,000
2009 Assessed Value $330,000 x Millage Rate .0209155 = Taxes $6,902
2010 Assessed Value $339,900 x Millage Rate .0231724 = Taxes $7,786

Policies proposed and supported by people who seem to forget that every real estate transaction includes both a buyer and seller.  And these policies only marginally encourage buyers but heavily discourage sellers.  Some relief for this unequal reward/punishment system for homeowners was achieved with enacting of the homestead portability laws [Link to Law]  But what did this ultimately achieve?

We now have a system that requires an enormous database (880,000+ individual folios in Miami-Dade County alone) for each county that not only needs to properly assess each property (Market Value), but in addition it must track and calculate each properties Assessable Values, as well as the $25,000 Homestead Exemption for the School Board portion and $50,000 exemption for the City/County/Region portions of the tax bill and now must track the amount that must be transferred upon the sale of the property and how much needs to be applied to the new property.  (Good luck figuring out the formula used to calculate this amount.)  But evidentily did nothing to spur real estate sales or price recovery, so now in 2011 they have a new plan.

With the equalization effect of the portability laws, the incentive of buying has been neutralized, our wonderful politicians have proposed new laws to once again encourage buying and discourage selling.  [Link to Law)  (Did we not learn anything the last go around?)  This new law will on one side lower the assessment increases of ALL properties residential and commercial regardless of ownership to a maximum of 3%, thus creating the exact same disparity that caused the uproar and subsequent creation of the above portability law, but this time every piece of property will be affected instead of just homesteaded homes.  In addition it will give buyers who have had no had a homestead exemption in the last 3 years a 50% reduction in their property assessment (up to $200,000) that decreases by 20% each year until it disappears in 5 years.  After which they will still retain the 3% increase cap and $25k/$50k homestead exemption.  So go ahead and add those new elements to the data that needs to be properly tracked for each property in the State of Florida to the database described above, that will likely need to be completely recreated to handle the calculations.  And in case you aren’t aware a database this complex is not cheap to create or maintain.  And the cost will be passed directly on to the tax base through high millage rates and or fee’s that won’t be based on value.

On the surface these changes may sound good, but again what will they actually achieve?  Will potentially lower taxes for 5 years truly inspire people to start buying like crazy again?  Or is it the extremely high un-employment, still declining home prices, or near impossible borrowing standards that are discouraging home buyers.  Take your pick, all though for some reason I think the property taxes are a bit low on the list of reasons NOT to buy a home right now.

I say potentially above because this new law says absolute ZERO about reigning in County Budgets or Millage Rates!  So regardless of how much of a discount you think you might get from these assessment discounts, the county will still need to collect the same amount of money (or more) and will just raise the Millage Rate in order to collect it.  Furthermore we will have created a system that no longer taxes owners based on the values of their properties on a yearly basis, so why not just simplify the system instead of making it more complex and just dissolve the Property Appraiser’s office and base all Real Estate Taxes on the price paid at purchase and standard yearly increase for the CPI.

Maybe in our political climate this is impossibly straight forward, but it sure makes things a lot simpler for all involved and would be a starting point for a taxation system that would be predictable, manageable and easy to understand.

If you have the opportunity to alter this new law to actually address the real problem of endlessly millage rates and county budgets, and not the assessed values, please take these into consideration.

For more help navigating the murky world of Florida’s Real Estate tax system, call us.  Or maybe not, this s..t is really confusing and makes my brain hurt.
Andrew Dixon

*My apologies to those in the PA’s office that would lose their jobs, but in fairness so would we.

In today’s office market in South Florida vacancy rates for most submarkets average 20% and over.  This is especially true in “C” Class Buildings or below.  Class “A” buildings are enjoying lower vacancies and less willingness by landlords to give excessive concessions to lure tenants.  Concessions can take several forms; free rent, free parking, generous tenant improvement allowances, moving allowances and the like.  Also there is less flexibility in the published rental rate and the actual effective rent finally agreed to by the landlord and tenant.

The classification of “B” buildings, plus or minus (B+ or B-) is often in the eyes of the beholder/owner/landlords/leasing agents.  Most landlords will want the newer buildings, less than ten years old, to remain in the “A” class category.  These landlords or lender/receivers want their properties to remain  Class “B” when they are by reason of financial condition, deferred maintenance, poor leasing and marketing efforts, are clearly about to fall into the dreaded “C” category.

The classification of “A”, “B” or “C” buildings should be determined by the age, location, leasing/marketing efforts by the leasing agent and maintenance of the property.  Because there is no industry wide criteria established, the classifications float, the “B” buildings tend to be the most flexible.  The plus (+) classification may include some buildings fallen from the “A” by reason of age and maintenance/condition.  The minus (-) classification in this category will include some properties that are clearly headed to become “C”.

In today’s recession period, several building have fallen into the “sour” category.  This is by reason of the negative factors set out above, they are about to fall into a lower category.  This is particularly true of “B” properties about to become “C” quality.  Many of these properties are “fractured” condominium offices which were good solid “B” building when they were leased.  After they were purchased at an inflated price by a condo converter, over financed by a unknowledgeable lender and failed after selling only a small fraction of the office units.  After foreclosure and judicial sale, tenants in these buildings are quick to recognize the changes in the maintenance, functioning of elevators/AC/ and poor marketing/leasing efforts by the owner.  Using the services of a tenant representative/broker, tenants can find out quickly what other properties in the submarket are offering.  They may discover they can improve their surroundings, lower their rent and gain the advantage of new quarters at an improved economic level.

“Sour” buildings tend to have this new designation spread faster through the market.  “Good” buildings and the office brokers representing tenants determine rapidly that new opportunities have presented themselves and they are quick to take advantage of the situation.  “Sour” buildings usually get worse before they get better, ultimately falling into the hands of a rogue buyer, who has purchased the building at a steep discount.  This buyer or his next in line can now afford to reposition the property and enter into a new leasing program which will ultimately create a healthy Net Operating Income (NOI) and a sale at a substantial gain the owner.

“Good” buildings usually get better and “Sour” buildings worse.  Office brokers know the territory.  If you are in a “Sour” building, hire a good office broker, he can negotiate good terms for you in a “Sweeter” building.  Remember the tenant representative is paid by the new landlord, so essentially you receive the services of this trusted, experienced and established professional at no cost to you or your company.

By:  Office Broker and Tenant Representative Steve Magenheimer -305-445-0916



The official CIASF 2011 Industrial Market Report as presented by Tom Dixon for CIASF on Jan 14th at the Sofitel Hotel in Miami.

In Florida this is the time of year when property owners are notified of the amount of the real estate taxes to expect on the tax bill which will be sent the first of November.  This notice know as a TRIM or “Truth in Millage” notice.   In some cases, for the year of 2010 it is showing an increase in the real estate taxes, even though values have declined.

This increase is because of one of two possibilities.  Although the Market Value may have declined the “Assessed Value” (the amount used to calculate your taxes) increased because of the provisions Florida’s “Save or Homes” or Homestead Exemption legislation.  Homestead Exemption provides that the assessment for residential properties, with Homestead Exemption, cannot increase by more than 3% or the Cost of Living, whichever is less.  For the year of 2010 the Cost of Living increase is calculated at 2.7%.  Therefore, for residential “Homestead Exempt” properties the assessment increased by 2.7%, This can happen up until the Assessed Values and Market Values meet.  But under no circumstances can your Assessed Value exceed your Market Value.

The other possibility is that the Millage Rate increased more than the property’s value decreased.  Real estate taxes are calculated by multiplying the “Assessed Value” by the “Millage Rate”. The “Millage Rate” is based on the amount of money local government needs from real estate assessments divided by the total “Assessed Values.”  For example, if government needs $1,000,000 to operate and the total “Assessed Value” is $50,000,000 the millage rate is 20 mills or more simply 2.0% of “Assessed Value”.  If government needs $1,000,000 and the total “Assessed Value” declines to $45,000,000 then the Millage rate will increase to 22 mills or 2.2%.  Therefore, when “Assessed Values” decline and government needs remain the same the Millage rate will increase.  For properties in the City of Miami, the Millage rate from 2009 to 2010 increased by 14.27%.

For example, if your property is in the City of Miami, unless the “Assessed Value” decreased from 2009 to 2010 by more than 14.27% your real estate taxes will be the same or higher.  This increase in taxes is a result of the millage rate increase because of the decline in “Total Assessed Values” without a equal decline in the Governments budget for the year.

Although the “Millage Rate” for all classes and types of properties in a government area are the same, the limitation on the increase in assessments under “Homestead Exemption” does not apply to non-homestead properties, for those properties there is now a 10% increase cap for the portions of your tax bill that are paid to the City/County/Region, but the cap does not apply to the School Board portion of which for the Assessed Value always equals Market Value, and is taxed on that amount.

In reviewing the assessment for commercial properties of our tax appeal clients, we have found moderate increases in the assessments but with the increase in the millage rates the real estate taxes have increased.  For example, if your property is in the County and the “Assessed Value” remained the same, the increase in the “Millage Rate” of 8.6% means your real estate taxes are 8.6% greater.

What can you do to make sure you are only paying your fair share of real estate taxes?  If you believe your assessment is too high you can file an appeal petition or have us appeal on your behalf.  If you believe the millage rate is too high you should attend the City and County Budget Hearing Meeting to express your feelings and demand a reduction in government spending.  One solution I have suggested is that every government expenditure, every payment and every expense should be easily available for public review online.  Our government needs to be held accountable for how they spend our tax dollars.

By Tom Dixon

by Tom Dixon

Hopefully, now that we have passed through the dark time of not knowing what the financial future holds for us, it is time to consider how things can be better in the future. It seems to me that not too many years ago the belief was that if you have more, spend more and live in a bigger house you will be happier. Maybe it is now time to re-think what all this “more” has created.

My guess is that this came about because we were not content with what we had and thought more would be better. In terms of houses, this was financially possible but had a hidden trap. If you could buy a home for $100,000 with a down payment of $10,000 and a loan of $90,000 and the price of the home increased by only 10% then it would have a value of $110,000. With a $90,000 mortgage you had made $20,000, a 100% return on your $10,000 investment. If you can keep refinancing your home loan at 90% of its value will continue to double your money. Why not? The why not or risk is that if the value of your home declines then your equity is wiped out. Yes it was fun while it lasted but eventually more homes and condos were built than there were people able to afford to purchase without fraud or even to live in them. Prices declined and equity was wiped out.

The second problem became the cost for mortgage payments, upkeep, insurance, and real estate taxes. As long as values were going up it made sense. But when home prices stopped rising couples with no children began to question their need for 8,000 SF 6 bedroom 6 bath home with real estate tax bills of $4,000 to $6,000 per month. An excessive home is like a Hummer, yes to looks cool and seemed like a good idea, but do we really need to live in a monster home and drive around in such a massive vehicle.

How did all this happen? The combination of a belief that good times will continue, incomes will rise, home prices will never decline and more and more and bigger and bigger are better. This is not to say that there may be reasons for big homes and big cars, but just because we can borrow money to buy them is not a good reason.

So how do we overcome the “Hummer Dilemma”? A realization that perhaps the answer is in these quotes :

“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” -Will Smith

“Wealth consists not in having great possessions but in having few wants.” -Epicurus

Or this great truism my wife Linda gave us when we moved to our new office. “The best things in life are not things”.

On Thursday June 17,th we presented the 2010 South Florida Office Market Report.  If you missed the presentation or want a copy of the printed report you can find it and all the previous report under the CIASF tab of our website.

For those of us involved in real estate for over 20 years, we have experienced cycles which seldom took more than 3-4 years to work out. This one is much different with few experts able to forecast a time to return to normalcy.  It has been much more personal than the past because all of us have heard of the economic impacts on members of our families, neighbors and close friends.  Those involved in real estate seem to be particularly hard hit. Architects, title insurance firms, engineers and developers have suffered mortal blows. It is understandable why the government administration grasps at green shoots in order to show improvement with our dire economy.  Let’s dissect some of the most influential elements:

Here in Florida we have historically depended upon increasing population to feed our growth and real estate activity. That in turn fuels our construction employment. This growth has not occurred for the past two years and this year will show more outflow than inflow. This is causing havoc with local government budgets.

With our housing bubble resulting in serious overbuilding for single family and condos, we are still wallowing around trying to figure out when residential housing will return to normalcy. No question that bargain basement prices are assisting the sale of houses. But, this is with unusual amounts of government support such as the $8,000 credit for new home buyers and the fact that 90% of the residential financing has government backing. What will happen without this government support?

The unemployment numbers are downright scary. The present average unemployment level and length of time unemployed is the greatest since 1948. Paul Krugman, economist and writer for New York Times, says US household’s net worth has declined by $14 trillion. A large segment of our population, fearful of our burgeoning debt and feeling the need to increase reserves, is saving more and curtailing their consumer spending. Of course, this adversely impacts real estate investments.

We have yet to feel the full sledge hammer impact of commercial foreclosures, the result of commercial real estate having a 35-40 % reduction in market value. Locally and in the rest of Florida, we have a large amount of our commercial loans coming due in 5-10 years posing a tremendous challenge to both borrowers and lenders.

No rational answers have been forthcoming for these challenging elements. Against the backdrop of these daunting challenges giving advice to active investors is difficult. There will be a large group of investors who have been active in the area for years, throwing up their hands and electing not to play the game. Offsetting this will be some new players, bringing to the market large chunks of cash, attracted to buying well below replacement costs.

The great investor, Warren Buffett has several observations to remember:

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”

And “In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.”

By: Gary Sisler

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.


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 [email protected] or you can view and download the entire Market Report.

By Tom Dixon