The Dixon Commercial Real Estate Reports

On June 13th, real estate brokers, Tony Puente, Robert Meneses and I presented the first Annual South Florida Office Market Report to over 120 members of the “CIASF” Commercial Industrial Association of South Florida. This report provides a snapshot of the Office Market Conditions for the year. For research purposes Miami-Dade County is divided into 7 regions and information for each region was provided. This information includes a description of the region, office rental rates, example of a typical lease, a typical office building sale and a typical condominium office sale. Included with each example was a complete description of the building and a photo.

Here from the report is the summary of Office Market Conditions for 2008:

· The office leasing and investment sales market is healthy, but there is a yellow (cautionary) flag waving in the wind. Demand/absorption of new space is expected to be flat or negative for 2008 with some tenant growth in legal, accounting and insurance companies, but a significant decline in demand from financial, mortgage and real estate companies.

· With no significant deliveries of office space in 2006 and 2007 up to 4 million SF of office space will be delivered over the next 12-30 month with three large buildings in the Downtown/Brickell corridor and eight in the Doral and surrounding areas. Adding to the rental supply are some condo office buildings reverting to “for lease” buildings creating a hybrid-building ownership situation.

· The leasing market will remain active with up to 20% of leases expiring in the next two years. Also, as rental rates rise to $50/RSF large tenants will seek less expense alternative locations. In addition, the “for sub-lease” market will continue growing and offer alternatives to tenants.

· Demand for office investments by institutions remains strong and will continue. However, price expectation by buyers has changed significantly with higher capitalization rates, difficult debt and finance markets resulting in lower prices.

After the information on transactions in each region was presented, I provided my analysis of the future “Supply and Demand for Office Space” for Miami-Dade. For the current demand analysis I multiplied the number of employees in the Department of Labor categories, information, finance and insurance, real estate, professional services and management by a factor of 325 SF per employee. This represents an indicator of the demand. For future demand I projected a 2,000 per year increase in employee in these categories. For the existing supply analysis I totaled the adjusted area of all office buildings in Miami-Dade over 5,000 SF. This information was from the Public Records available at the office of the Property Appraiser. For future supply I projected an annual increase in office space of 500,000 SF except for 2009 when 3,500,000 SF is expected to be put on the market. The difference between supply and demand is the vacancy rate. This rate is projected to increase above 12% in 2009 and if the assumptions are correct decline in future years to a more typical rate of 8% to 9%.

If you would like to view the entire presentation in a downloadable and printable format you can go to and click on the CIASF Office Market Report in blue at the bottom of the page or you can go directly to the report if you click on this link:

2008 South Florida Office Market Report Link

For information to join the Commercial Industrial Association of South Florida contact Nick Kallergis Executive Director at 305-443-6233.


by Tom Dixon

While this will contain a lot of rhetoric about politics, I will conclude on how this affects our real estate activities.

No question, a current hot button and one destined to worsen, is our energy pickle and the high cost of gas. Unfortunately, it seems only a sharp increase at the pumps jars us into demands of “what is the cause” and “who is to blame.” The con game cranks up with our politicos showcasing public hearings of the oil industry execs. Rep. Maxine Waters from Texas suggested they be nationalized. (I have asked her to send me her proforma cash flow for the first year under government control). Do we ever hear how our elected officials have punted on our being overly dependent on foreign oil ? We now import over 60 % of our demand and rely on such dependable sources as Nigeria and Venezuela!

The con job is the political grandstanding while neglecting to inform of the facts:

# Recent studies indicate that current demand may exceed available oil supplies.

# Our political leaders in the U.S. have discouraged any new oil drilling in the U.S as well as building nuclear plants, which is considered one of the cleanest ways to add new energy capability. (France’s energy is 80% nuclear plants). This makes us scramble to create other sources which is primarily coal– more pollutant than oil.

# We see much political knee jerk to take it out on the oil companies, such as don’t look at their yield on investments but their increasing profits, legislate that they should invest their profits in alternate sources of energy so they cannot do what they do best… for new oil sources. Better yet, take all their profits. Trouble is that is no more than five cents per gallon.

# No question but that we should be pulling out all stops in search for alternate sources – wind, etc. What is needed is a Manhattan type project, investing a lot more money to attract the private sector to pull out all stops to come up with quicker solutions.

# Congress just passed one of the worst farm bills. Buried in the bill was how we are protecting to 2010 corn ethanol, now recognized as a scam.(1) Not only has our underwriting of corn ethanol been one of the largest contributors to increased food costs in the world, but, it is raising havoc with many combustible engines, particularly marine, and, it prevents the importation of sugar cane based ethanol from Brazil, which would love to supply the US with as much as it wants. The big problem: – to protect our corn farmers, the farm bill places an import tariff of 54 cents per gallon.

We have allowed ourselves to be conned by our political leadership. By refusing to take prudent action we now face a near term future with no logic with little hope things will get better. We are going to be buffeted with an unpredictable market for crude oil and some real tough political decisions, which hopefully will be based on prudent logic instead of political scape-goating.

What does this mean to our livelihood in real estate? As it is likely that we will see increased gas prices, the market will react and be very sensitive to drive times. Existing housing and any new projects in the urban west area will suffer. Many will want to move to reduce their drive times. Nearness to metro rail stations as well downtown areas with easy walking to amenities will be in demand. And, we can’t wait for reliable, battery autos! So, buckle your seats, the con job will get worse, as, heaven forbid, our political leaders refuse to admit they have been asleep at the switch.

By: Gary Sisler

Couple of good source reading: Gusher of Lies: The Dangerous Delusions of Energy Independence. Lou Frey Report (1) Gusher of Lies

Sure, a gallon of gasoline at almost $4.00 a gallon seems painful, particularly in my case since I drive a vintage Mercedes Benz 300 Diesel.  Indeed, a gallon of this less processed fuel is $4.25.

Economic times are tough, for sure, for those in the residential/condo market.  The office market on the other hand, is strong and robust.  A recent report tells us that South Florida has the second lowest vacancy rate in the US for suburban offices.

So, how bad are things?  At this stage of life, there is much room for growth for me, I’m at this is fourth or fifth “adjustment” or “correction” or “downturn” experienced.  (Notice I did not use the “R” word).  All of these periods ran their course, and the passage of time will cure almost anything.  The US economy is strong in most sectors, except residential real estate and financing, and if the dollar strengthens, our balance of payment improves and we , tone down the cost of the war in Iraq and Afghanistan, the recovery will occur that much faster.

How do these times compare to the past?  When I was in college and law school, gas was $.39/gallon.  I had a Studebaker auto that got 22 to 24 miles per gallon.  A dollar, maybe two for gas in the tank on Friday night would get me on two dates and a trip to the beach on Sunday.  Since I worked as a construction worker on the road crew at Levittown, Long Island, it would also get me to work and back the rest of the week.

On the road crew, we worked a six day week, 10 hours a day for $1.25 per hour, straight time, no unions.  A new two bedroom, one bath house with an unfinished dormer or attic, sold for $6,880!  No garage, two concrete ribbons to park your car.  The big sales gimmick was a six inch television set installed in the panels covering the staircase to the second floor.

Bill Levitt sold hundreds of houses, as fast as he could put them up.  Over the three summers I worked there, we poured sidewalks for over 2,500 houses.  Remember this was post World War II, the late forties and early fifties.  A ten year depression and a five year war for the US, had starved consumers.  There was a long period to catch up.  The first “correction” occurred in the mid-fifties, a mild one, and a more serious downturn in the mid sixties.  After that, every seven to eight years we have had a recession (there I used the “R” word).  This time we have had a longer period of growth than usual , fueled by easy and cheap money, modest inflation and the advance of a global economy, especially in China and India.

So, the way we were is a function of how many times we commit the same dumb mistakes or subprime mortgages (forgetting loan to value standards and credit underwriting), create structured investment vehicles (SIV’s), that contain a pool of mortgages that are presented as a bond, given a credit rating by a rating agency that has no idea what they are doing.  Sure, it hurts but time will correct the ills and we will swing back to a period of growth.  This time however, we need to really start to change our dependence on foreign oil and fossil fuels.  Tell me though, has your life style really changed because you are paying $4.00 a gallon for gas?


by Steve Magenheimer

When I was in high school my favorite movies were horror flicks.  At FSU, I participated in a lot of film projects for both the Communication School (News) and the more artsy Film School.  I came to realize that as a goal, what I really wanted to do was edit a horror flick because no other genre elicits the primal reaction from the audience.  Sure – comedies are fun, but the laughs aren’t created by the medium, they’re written.  Romance: same thing – those stories can be told equally well on stage or in books.  But there is something more powerful and unique in scaring people with the juxtaposing of frightening moving images.

Why am I writing about this now?  Simply to point out that we have become a nation that loves to be scared.  I’ll try not to let this become political, but doesn’t anyone see a slight problem with the fact that our fears led us into the War on Terror?  (Can a war on an emotion ever be won?)  And who helped feed these fears more than our U.S. News Media?

Granted, the news isn’t always doom and gloom.  In fact, I remember about two years ago reading about a tattoo artist with a high school education who made an easy 200k in one year just flipping houses.  And while this is wonderful for the tattoo guy, when the media starts getting overzealous about such stories, as they tend to do, it begins to amplify what was a semi-isolated event into an unrealistic expectation too irresistible for a lot of dreamers out there to handle.  Soon, stories about that friend of a friend of a friend who just sold his house for double what he paid three years ago starts to resonate with what you’re hearing about out in, say,  the Las Vegas suburbs and before you know it, fantasy seems to merge with reality.

Some of us understood the real estate boom was bound to come to an end, but as long as the news was good, who cared?!   Rapid appreciation soon came to a halt when someone finally asked, “Wait a minute!  What is this actually worth?”  vs. what they could maybe sell it for.  And suddenly poof! no more incredible stories on the news about real estate entrepreneurs.  The media goes back to showing war images, because those got high ratings and were relatively easy to cover.

Fast forward to last august.  From that point to the present, all we’ve been hearing about in the news is a constant slew of gloomy news about our economy, and/or maybe the Democratic Primaries (isn’t there anything out there worth actually investigating anymore?)  Now those same people who told us how easy it was to make money are telling us its worth less and less every day, without much explanation as to why.  As if they themselves had nothing to do with the rampant real estate speculation and subsequent decline.  It’s a bad situation when we find that our economy is dictated by consumer confidence while at the same time, we’re basing of confidence on information gathered from a source that prospers by scaring people into staying at home watching the latest news reports.  I’m not saying things aren’t scary in the financial world.  In fact, I think they may get worse.  But that’s in part because we have multiple TV news channels broadcasting around the world 24/7, featuring wannabe actors and models speculating non-stop these days about whether or not we are in a recession.  And when those are 90% of the stories we hear – those become 90% of the stories we tell, and soon enough our fears become self-fulfilling prophecies.

A little bit of fear, caution and skepticism isn’t being unrealistic, (in fact a little more of those the last couple years  might have helped)  The key is to not let your imagination run wild with those fears, and try to understand that what you see is grounded in a larger context that cannot be contained with the camera’s frame.   And please, when the talking heads with their ticker symbols and random shocking headlines are flashing across your screen, take them with a grain of salt and remember that they get paid to keep you glued to the screen, and not go out and find out for yourself why these things are happening, lest they too get the boot.

As some old dead guy once said, “The only thing we have to fear is fear itself.”   That seems like pretty relevant advice right about now, doesn’t it?

by Andrew Dixon

The answer to the question “How did the US get into the present housing crisis” goes back to a real estate class examination question I missed in 1964.  While I was a student at the University of Florida studying real estate, I could not answer an exam question, which I remember to this day.  The question was, discuss the meaning of the phrase, ” Housing is the handmaiden of the GDP”.  At the time I knew “GDP” stood for the gross domestic  product or the amount of goods and services produced in a country over a given time period.  I had no idea what was meant by the term “handmaiden”.  The answer is that housing activity can bring the economy or GDP up and housing can bring the economy down.  Because housing is labor intensive, it consumes domestic products and can be rapidly built, it will quickly move the economy.

Now let’s go back to the year 2000, the tech bubble is bursting and you are Alan Greenspan in charge of the economy.  If he paid attention in my real estate class he would remember that “Housing is the handmaiden of the GDP” and to stimulate the economy he would pour money into housing by making mortgage money available on very liberal terms.  Looking back this is exactly what happened.

Fast forward to 2008, the housing bubble that this created is about to burst like the tech bubble did in 2000.  But now there is a problem, the old formula of using housing to stimulate the economy will not work.  We already have an excess supply of housing, which is too expensive for most buyers.

One way to stimulate the economy is to increase manufacturing and with the decline in the value of the dollar, more products are being exported.  But with higher productivity, fewer workers are needed to produce more goods.  What to do, what to do?

I believe that in order to stimulate the economy the government will create a “Works” program to build and rebuild our roads, bridges, transportation systems and yes even stimulate alternative energy development.  Everyone uses these public facilities, the money is being spent locally and we cannot continue down the path of continued oil use.

In the meantime, prepare for a period of declining employment, declining sales and difficulty in borrowing money, and inflationary pressure brought on by government spending on public works projects.  Hopefully, there will not be created the “stagflation” of President Carter’s administration when the economy was stagnant, but inflationary pressure ran wild.  If the administration is successful this will be just another economic cycle of ups and downs which seems to occur every ten years and should be over by 2010.

With the beginning of the New Year it is time to look back at what has happened in the real estate market and to project what to expect for the coming year. The “Industrial Association of Dade County” (IADC) has become the “Commercial Industrial Association of South Florida” (CIASF) with an emphasis on all aspects of commercial real estate including office buildings, shopping centers and industrial/warehouses. This year’s Industrial Market Report contains the same emphasis as prior years. For reporting purposes, Miami-Dade The following is a summary of the information in that report. County is divided into seven areas based on typical properties in each area.

Supply of Industrial Space: For the year 2006 industrial space increased by 2,174,000 SF as compared to the prior year of 1,783,000 SF. This represents a moderate increase in the annual supply of new industrial space.The area of Northwest/Medley had the greatest growth 599,000 SF.

Industrial Employment: 2007 industrial employment in manufacturing, trucking/warehousing and wholesale trading increased to 185,100 from 182,500 in 2006. This increase was primarily in wholesale trading.

Total Freight: Cargo movement through the Port of Miami decreased to 7,835,131 tons down from 8,654,000 while cargo at the Airport increased to 2,038,000 up from 1,662,000 tons.

Demand/Supply for Industrial Space: Based on industrial properties available for lease vacancies rates ranged from a low of 2% to a high of 10% in the seven regions described in our report. This variation is the result of additional supply and changes in demand. The highest vacancy rate was 10% in Hialeah.

Rental Rates/Sales Prices: With over 419 properties having a total of 11,316,000 SF for lease, rental rates ranged from $8.50/SF to $11.25/SF. This variation results from the variety of product type from large older, street level warehouses to 100% AC flex space with office and warehouse areas.

Sales for the year of 2007 through November for buildings over 10,000 SF totaled 144 with a total of 5,711,900 SF. Sales prices ranged from $72/SF to $106/SF; again, the wide variation results from the different property types.

Summary: As in years past our industrial market report provides a snapshot of conditions and influences for 2008:  Tenants are “right-sizing”, this is a trend to examine realistic needs and consolidate their operations into smaller spaces. Although the number of businesses in the area remains constant, they are consuming less square footage.  One effect of Miami’s increase in traffic congestion is the need for distribution companies to have distribution hubs in Miami. State government has not been able to reduce real estate taxes or insurance. These continue to discourage companies to relocate to South Florida. As a result of the downturn in local and national economies, rental rates for properties have stabilized and are trending downward. With stable rental rates, property values in the coming year will be based more on rental income rather than resale value at a future date.

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 the entire Market Report on our website