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First off, my apologies at not updating this blog in weeks but we just completed a move of our physical offices and the infrastructure took some time to get back to working properly.

The Real Estate Research Corporation (RERC) released it’s third quarter Investment Trends report and had some interesting observations about the Southern and Tampa Bay specific markets. A podcast from the CEO of the RERC, Ken Riggs, CCIM observed that on a national level we have not yet seen the market correction in the commercial sector that we are seeing in the residential sector over the past year or two. He also commented that the multifamily and hospitality sectors were the most promising at the present time due to the correction of the housing and sub prime mortgage crisis slowly but surely. He felt the industrial sector is going to stay on a level plane but the retail and office sectors were due for a fall. The retail sector may be hit by a worsening economy and the office sector affected by the increased cost of property owners to lure new tenants to their area, thus lowering the bottom line profits and decreasing values in a sales situation.

The following is a breakdown of the trends in the Tampa Bay Market over the third quarter of 2007 and compared to the previous year:

Office markets saw a rise in both the price per square foot and weighted average cap rates over the last quarter, but the cap rate for the previous year fell overall. The National price per square foot rose by nearly $50 a foot while the Tampa market rose only by nearly $20 a foot respectively over the past year.

Industrial markets rose in price per square foot on both the previous quarter and previous year, but only by a few dollars per square foot as the market remained slow and stable.

Retail markets saw an increase in the price per square foot across both the quarter and the year, while cap rates dropped for both periods. The nation saw a slow and steady increase in retail prices while Tampa saw a sharp fall in prices in early 2007 only to rebound to match national levels by the end of the third quarter.

Apartment markets saw a fall in the price per unit for the year of upwards of $10k per unit for Tampa, while the south region as a whole dropped nearly $15k per unit over the same period. Cap rates for the apartment market finished well above the national rate by almost 2 percent showing the impact the correction of the residential market on the multifamily market.

Mr Riggs also observed that the most likely forces driving the commercial market over the next few years will be risk and available capital. One of the reasons Tampa Bay enjoyed such a frenzied last 5 years was the large availability of capital and the relatively low risk of investing with demand at high levels. Now those same factors are correcting the market as the risk continues to sharply rise for investors that purchased at unrealistic prices. Add to this the drop of available capital and we will see the correction affect the commercial market as well. How much will it be corrected? No one knows for certain but stay tuned into this blog and we will provide the news as it happens to make sure your investments are sound and profitable. We’re looking forward to 2008 to bring about better prices and more favorable investments and you can be confident that we will make sure you have every opportunity to view them first. If you’re not signed up as a user on our site, (it takes less than a minute) then you’re missing out on our direct emails of properties that are available but not yet on the open market. This is just one of the many services we provide our clients and its an important one. Don’t hesitate to contact us with any investment questions regarding investment real estate. It’s our business and our passion.

Peter J. Barnett, CCIM

In a recent article the National Real Estate Investor magazine posted a great article about the multifamily market that I know many of you would enjoy, so I’ve included an exerpt below:

Apartment properties remain one of the strongest investments in the commercial real estate market, says Brian McAuliffe, managing director and chief investment officer with RREEF Alternative Investments.

Demand for multifamily housing has surged as potential homebuyers face tougher mortgage requirements, higher debt payments and declining home values, McAuliffe said at a seminar on capital markets and investment trends at the fall meeting of the Urban Land Institute in Las Vegas. He anticipates more construction of garden apartments nationally because commodity costs for lumber and drywall are coming down with the drop in home construction.

That is the sector we are very bullish on, McAuliffe says. When you look at the demand of the apartment sector, you have to look at two areas ” one is the existing tenants that you have in your community, and the other is the demand for vacant space. Obviously, we feel very confident on the renewal rates,” he says.

“We have already seen signs where it is increasing, and we expect that to continue. That is because the ability to get financing today is much more challenging. You need higher debt. The other factor is the fear factor of being in a position to buy a home today and find out six months or a year from now that its worth less. I think there is going to be a lot more patience by the existing renters.

So this is further good news for the multifamily owners and investors who have been waiting out the market fluctuation here in Florida. The bottom line is: Now is the time to be looking for multifamily properties.

Peter J Barnett, CCIM with contributions from NREI magazine and Buck Wargo.

This week Florida lawmakers agreed upon a revision to our current tax structure which you may have been following. While it makes most of the provisions for homesteaded properties and focuses on “Portability” of the exemptions for these properties, the commercial market got a small bit of good news.Â

Under the new law, properties recognized as non-homestead and income producing will have an annual cap of 10% on the increase in taxable value of their property. This will go into effect on the 2009 year tax roll, using 2008 as the baseline year to put the 10% cap into effect. So if your property has an assessed value of $1,000,000 in the 2008 year tax roll, then in 2009 the value can not increase above $1,100,000 and your taxes can not increase above 10% accordingly. This provision will be in effect for 10 years and then the voters will be responsible for keeping going after that time.

 These changes will go to a final vote in January at which time many are expecting the changes to the law to pass with flying colors. We will continue to keep you up to date with legislation changes for tax and insurance problems that affect commercial property owners in Florida.

Peter J. Barnett, CCIM

On a bit of an inside note:

 I just spoke to my friend who works for Chase Bank in their loan department, and they were recently instructed that their programs for first time home buyers will no longer be offered… That’s pretty important news for apartment building owners. Why? With more and more lenders requiring past ownership for homebuyers to qualify for new home loans, the large percentage of first time buyers have little other choice but to remain in their apartment housing until the mortgage & housing market improves locally.

 This means more demand for apartment building owners and longer average tenancy, both solid recipes to success in any apartment portfolio. If you’d like to broaden your multifamily ownership, browse our current inventory on www.jabarnettrealty.com or contact us to let us know what type of investment you are looking for. We also can analyze your needs and return requirements to let you know which property type and size would best benefit your situation.

Peter J. Barnett, CCIM

Tampa Bay is fast becoming known as a great center of technology through both the universities and the new businesses being attracted to the area. Check out the website at http://www.visitthecorridor.com for more information. It has some great info that helps shine light on this previously overlooked sector of Central Florida.

 This means good things for any office building and multifamily owners as the demand for jobs and housing for students is steadily increasing. And since most students live on off campus housing, many investors could consider finding multifamily housing near a university and rely on a steady influx of renters.

In a bit of bad news for our property tax issues, a judge ruled that the language on the property tax reform ballot was misleading, but that doesnt mean the issue is dead… The article below was posted by the Florida Association of Realtors yesterday:

A Leon County circuit judge ruled yesterday that the Florida Legislature’s proposed property tax constitutional amendment is misleading, and he removed it from the Jan. 29 ballot. Weston Mayor Eric Hersh had challenged the amendment.

The Florida Association of Realtors, lawmakers and Gov. Charlie Crist are now reviewing their options: Appeal, revise the amendment wording, or both.

Revise the wording

Circuit Judge Charles A. Francis of Tallahassee ruled that the ballot language was misleading, and the Florida Legislature has a special session scheduled for Oct. 3. Under Florida law, a proposed change to the constitution must be created at least 90 days before the election in which it is to appear, so this could be accomplished without changing the special session dates.

The amendment “came together very fast in June’s special session, so I don’t think it’ll hurt for them to make it a little more understandable,” says John Sebree, FAR vice president of public policy. According to Sebree, the court ruling may not be a setback – it may be an opportunity since it could give lawmakers a chance to make the amendment even stronger.

In its decision, the court ruled that that ballot summary read by voters calls for “preserving application of Save-Our-Homes provisions until an irrevocable election is made.” Francis called that misleading, saying the amendment would actually phase out the existing property tax. Under the change, homeowners could opt to keep their Save-Our-Homes tax savings as long as they live in the same homesteaded property, losing it if they move – just as they do under current law. However, they could not choose Save-Our-Homes tax savings in the future should the amendment pass.

Appeal

Lawmakers could also appeal Francis’ ruling and hope that a higher court will return the question to the ballot. At this point, that appears to be the tactic favored by the Florida Senate. Late this morning, Senate President Ken Pruitt announced that the Senate would rather defend Senate actions in court than change the ballot language.

Revise wording and appeal

Lawmakers could try for some balance. It’s not clear how long a court appeal could take, and whether or not it would happen early enough to make the 90-day waiting deadline for getting amendments onto the January ballot. Lawmakers could choose to hedge their bets by appealing and, simultaneously, tinkering with the amendment. However, it’s unclear right now how that would work.

It’s also possible, though unlikely, that the Legislature could defer the matter to the Taxation and Budget Reform Commission, which has the power to put amendments directly before voters. While powerful, the Commission seemed willing to take a backseat to the Legislature’s efforts, at least until now. In addition, the commission would not be able to place anything on the ballot by January, postponing a general vote until at least November 2008, with changes to Florida property tax laws occurring no earlier than 2009. FAR President Nancy Riley serves on the commission.

FAR’s John Sebree says that the Tallahassee team and FAR leadership will continue to lobby for passage of the January amendment, and his team’s planned sessions visiting local boards will continue as scheduled.

Following the judge’s ruling, legislative leaders quickly voiced their support for property tax relief and promised to continue their work. House Speaker Marco Rubio (R-West Miami) said: “One way or another, we will give Florida taxpayers the relief they deserve.”

© 2007 FLORIDA ASSOCIATION OF REALTORS®

A consultant met with Gov Crist and the Florida cabinet on Wednesday regarding the legislation that was passed in January expanding the reinsurance market for companies in Florida. This was intended to give insurers more options and lower cost reinsurance (which is the coverage insurers purchase for themselves and the main factor behind insurance increases in recent years) and to pass on the savings to Florida property owners.

But the savings have not been as expected so far…

A previous estimate of 24 percent represented the average insurance rate reduction property owners should be realizing, so far it is only half of that. A major contributing factor is the fact that some companies are simply increasing their profit margin, not cutting their policy costs to their policy holders. It seems to be the smaller companies and Florida based companies who are complying while the larger national companies are reluctant to. Some of the large companies claim they are locked into contracts themselves and cannot negotiate better deals for reinsurance. This is puzzling however because they usually purchase their reinsurance from their own subsidiaries. So are they saying they cant negotiate with themselves???

The consultant said that the insurance industry as a whole can easily cut their rates as over the last three years companies have enjoyed profits of $150 billion, or roughly $525 for every man, woman and child in America. And all this was accomplished after paying billions in hurricane claims.

The true test will be seen after September 30th, the date when insurance companies are required to submit filings regarding their compliance with the new laws. At this point with only 10 days left to the deadline only about 90 of some 300 companies have filed.

This is certainly an issue that we as investors and property owners need to stay informed on. Have your policies dropped by the 24 percent estimates? I encourage all to leave a comment on this topic to let others know if your rates have dropped.

Peter J Barnett

With contributions from an Associated Press report.

In a move that is sure to help the commercial real estate market, the central bank policymakers slashed the target federal funds rate from 5.25% to 4.75%. Amid worries of a weakening economy, and increasing credit problems the move was made to not only improve confidence in the economy but give a little relief to the subprime mortgage crisis.

That’s great news for us in Florida as our rising tax and insurance costs have been making many properties out of reach for the traditional investor to purchase. What does this mean to your overall bottom line? For example if you were considering purchase of a $1,500,000 commercial building through a local bank or funding source at a 6.75% rate amortized over 25 years your monthly debt service would have been roughly $10,363 per month. Now thanks to the rate cut you can most likely get the same loan for .5 basis points less at 6.25% lowering your monthly debt service to $9,895. This puts approximately $468 in your pocket each month for reserves, repairs, etc.

Its nice to see a bit of good news for a change.

For the past two years now investors have slowly backed away from the Florida commercial real estate market. Why is that? Much negative news regarding Florida leads many to opine that it is a risky market. Reports come in that foreclosures in Florida are at an all time high, which is true. However the Florida rates of foreclosures are just now reaching the national level, so why all the publicity? For so many years in a row we experienced such rapid appreciation and demand for not only housing but investment real estate coupled with historically low interest rates that foreclosures in Florida were an uncommon thing. After the rates started to rise and so many got locked into adjustable rate mortgages, trouble was seen on the horizon. The cold facts were that by the end of 2005 nearly 1/3 of all homes in Central Florida including Tampa Bay and the greater Orlando area were owned by investors, and when rates started to rise all these homes were dumped on the open market at once amid worries of rising debt service. Thats alot of inventory to hit all at one time and it changed the market overnight.

News of many hurricanes have also soured many on investing in Florida but the real facts on this are eye opening as well. Only six hurricanes of category 3 or stronger have touched Florida mainland from 1950 to 2003, though 8 made landfall in 2004 and 2005 the chances of that happening again are extremely remote and so far this hurricane season has been nothing of consequence. Economists predict that the housing market will get rapidly stronger beginning in early 2008 and will be booming again by 2010 once investors realize just how unique the Florida market is.

Many investors have also been hit hard by recent tax and insurance increases and it’s not surprising this is affecting everyone’s bottom line. But change is on the horizon, as record breaking legislatures for tax cuts and insurance reform have already been instituted and we are just beginning to see the effects of these cuts which should be in full swing for the 2008-2009 year.

So why should investors pay attention to the housing market? As the number of people migrating to Florida increases each year the cost and availability of housing does much to influence new development and commercial trends. For example, if 2000 new families moved into a metropolitan area this would have great affects on each facet of the commercial market. Right now the multifamily market is booming as home costs are still out of reach for many and these new families would need places to live that are more cost affordable. Many of these new families as well bring with them new businesses which need office space both corporate and class B and C. Several hundred of these new Floridians also work in the industrial sector thus increasing the demand for industrial space. And finally all of these new families need various forms of retail shopping, groceries, auto repair etc which increses retail demand.

The bottom line is now is a great time to invest in Florida as savvy investors know that a down turn can be one of the best times to make money as building owners who are not informed are trying to get out now since they dont understand the economic inpact of housing on commercial investment real estate. Taking into consideration the above, it is imperative that investors work with qualified real estate professionals who not only have local market knowledge but are educated in market research and analysis to be able to reasonably forecast the coming years to help make a succesful investment. Contact us today for an analysis of your investment needs and to match you with the best property type and investment to minimize risk and maximize your returns.

Peter J. Barnett, CCIM

No you’re not seeing things, I said “Deconversion”, which is just my non fancy word for a condo conversion that is being back converted into apartments. The first major deconversion has taken place in St. Petersburg Florida showing signs that the market is trying to stabilize itself as the high demand for all levels of apartment housing is remaining strong.

The Laramar Group has acquired a 272-unit apartment property in Pinellas County, Fla. for an undisclosed price. The Snell Isle property was previously a condominium conversion project. But it will now be renovated into high-end waterfront apartment units. Laramar, a private apartment investment firm, acquired the property through a bank foreclosure.

€œLaramar plans extensive renovations and the addition of resort-like amenities to the Snell Isle Luxury Apartments, which will greatly enhance this property and maximize its outstanding setting and waterfront location,€ says Ron Roan, vice president of acquisitions for Laramar€™s regional office in Palm Beach Gardens, Fla. €œThe Snell Isle Luxury Apartments offer a high quality living environment in a beautiful and well located area.€

Chicago-based Laramar has been an active buyer in Pinellas County. In late August, for example, Laramar bought a 228-unit apartment property in Clearwater. This was also a failed condominium conversion project that will instead be redeveloped into Class-A rental units.

Laramar expects to spend roughly $11 million on a complete renovation of the Clearwater property, which is located near St. Petersburg. The property has an excellent setting with approximately 1,500 linear feet of water frontage, and a new seawall on Smacks Bayou that leads into Tampa Bay.

Though there are several other condo conversion in Tampa Bay still attempting to sell their units, this was the first major acquisition through foreclosure that the are has seen. Now is the time to get into the multifamily market as demand remains high and the cost of owning a home forces thousands to seek rental housing. Contact us at J.A. Barnett Realty Group today to find a property that works for your budget and investment expectations.

Peter J. Barnett, CCIM

With contributions from NREI Newsline.