Every month there seems to be more and more negative reports about commercial real estate. The downturn brings out doom and gloom forecasts from every direction. But with so much information available investors are ignoring important facts and assets of my home state of Florida. If ever there were a time of opportunity to take advantage of market conditions; it is now. As the national press reports “with vacancy growing and rents falling, commercial property values are in the midst of the biggest drop since the Great Depression”. I couldn’t agree more – thus the opportunity! But how and where you ask?
Stop grousing about the value of your property and what could have been in 2006 and get in the game. That was then, this is now. You have two choices. Either liquidate a few properties for less than what you paid and reinvest in properties that have suffered a greater loss than your or hang on tight to your existing properties and pay very close attention to operations while the cash flows build once again. Tenant retention is the key – even if you have to reduce their rent or make a few concessions to get them to renew a lease. Be proactive and HELP your precious tenants stay in business so they can help you hang on to your properties. And yes, you might have to toss in a few bucks and lower the loan amount to convince your lender to hang in there with you.
“The U.S. economy appears to be awakening from its doldrums with numerous indicators pointing toward positive growth going forward. However, commercial real estate market fundamentals are likely to be weak through at least 2010, or until jobs grow at a healthy pace”, projects Prudential Real Estate Investors.
I agree that job growth is absolutely critical to a recovery so consider the following as you try to determine where to geographically position your investments.
The state of Florida has so much to offer:
· Florida’s Quality of life – Orlando, Tampa and Miami consistently rank toward the top of Pew’s Research “Most desirable places to live”. Many Florida cities consistently make the top 100 lists of other agencies as well.
· Florida Is Business and Entrepreneur Friendly -CEO magazine ranked Florida as number 3 as best places for job and business growth. In 5 indexes Florida ranks in the top 10 for overall business growth.
· Florida’s Education system - K-12 ranked 10th in the country by Education Week. US News & World Report named 8 Florida colleges in its list of “Best Universities”.
· Florida Has Economic Strength and Diversity – no longer just tourism, sand, surf and South Beach fashion, the state is attracting international attention in the biotech area as numerous research institutes like Scripps, Burnham and Torrey Pines give clusters of other innovators rise.
· Florida Has A Deep Talent Base – culturally diverse, well educated and 4th largest in the US, 11th among states for workers with advanced degrees and Florida’s base of talented retirees is the envy of other states
· Florida’s International Trade – geographical position and vibrant activity enabled the state to record the highest trade surplus among U.S. states. The completion of the Panama Canal will increase business in every single Florida port.
· Florida’s Alternative Energy Industry – Number 2 in number of new branches, 3rd in employment and 5th in number of new startups in this exciting field
Kent Engelke, chief economic strategist at Capitol Market Securities, said that “although the commercial real estate situation appears dire, banks have been through this kind of crisis before. While I do believe commercial real estate is an issue I don’t think it will become the event many fear… Moreover once banks become more confident about the recovery, banks will begin lending hence adding further support to commercial real estate.”
It is easy to become overwhelmed by the negative press. The economy has always had peaks and valleys. Of course this one is a bit different(very high and now very low) but look beyond the negative press and consider more than just the chatter of the day. Position your portfolio in a state that will be one of the first and strongest as the economy recovers. Real estate is and always has been a local business. Look closely at what is behind driving the all important job growth factor. The next 12-18 months is going to be an exciting and vibrant time of shifting of wealth in commercial real estate. Positioned in the right geographic location and proactively managed you can be on the plus side of the shift.
Visit www.floridatrend.com/biz_florida.asp for more details on my comments above and visit www.svnflorida.com when you need a commercial real estate advisor to assist you in your strategy.
Visit the SVN Florida Blog for regular blogs about the Florida commercial real estate market.