Florida state sales tax on commercial leases is 6 percent, plus a local surcharge option of 1 percent. In Miami-Dade, it’s 7 percent.
The Florida sales tax on commercial leases represents approximately $1.2 billion a year or more in revenue statewide. This issue has been a priority to the Florida Association of Realtors. The group had drafted legislation to cut the tax rate in one percentage point increments each year until it was eliminated.
The Florida Association of Realtors continues to talk to legislators and the governor about making it a priority next year.
Q: What happened to industrial real estate in South Florida in the downturn and how is the sector doing today?
The industrial real-estate market in Miami-Dade started going south in mid-2007. Companies occupying industrial space started to consolidate or totally vacate their space, or they were purchased and absorbed into their competitors’ space, or went out of business.
As the months and years went by, rental rates and sale prices for industrial buildings declined — in some instances by 25 percent or more. Vacancy rates doubled in some submarkets. In the Liberty City and East Hialeah industrial submarkets, vacancy rates climbed to 15 to 17 percent, which is three times a normal vacancy rate.
During 2012, the industrial market bottomed out. The overhang of available space started to be absorbed, and rental rates and sale prices started to rebound.
During the first half of 2013, rental rates and sale prices have increased about 10 percent from the year-earlier period. Rental rates for new speculative industrial product in the Airport West market, traditionally the most expensive, are quoting $9.25 to $9.50 [per square foot of gross industrial space per year.] That is just about where the rental rates there peaked in 2007.
The industrial market in Miami–Dade is one of the most active in the country. Several million square feet of speculative industrial buildings are under construction and are being pre–leased before completion.
As MIA and the Port of Miami complete their improvements, all indications are that the demand for millions of square feet of industrial space shall continue.
Q: How is the scarcity of land in South Florida shaping industrial real-estate development?
A majority of industrial developers look first at the Airport West and Medley areas for new industrial development and find out that most industrial-zoned properties within those submarkets are already built out, leaving a scarcity of vacant industrial dirt for development.
At the market peak in mid-2007, industrial-zoned land in the Airport West market was fetching $20 to 23 per square foot. These figures were some of the highest in the nation for land to build warehouse and distribution-type buildings.
As the market cratered in 2007, the demand to purchase land to build industrial buildings ceased for several years. When the industrial market bottomed out in 2012, several of the major industrial developers purchased some of the few remaining industrial-zoned parcels in the 20-acre to 30-acre size in the $9 to 12 per-square-foot range. That was half the price at the market’s peak in 2007.
Now, the remaining vacant industrial land in the Airport West market is asking in the $17-per-square-foot range. That is almost back to the peak of 2007.
Q: Is financing becoming more available for industrial real-estate developers? What are banks looking for in industrial projects?
Financing for industrial development is still difficult in today’s market. Lenders are looking for strong developers. Developers also have to come in with substantial equity. Lenders like to see pre-leasing and/or a strong anchor tenant, depending on the size of a project.
The larger industrial developers in some instances will do all equity to acquire the land and build the project.
Once the project is half or fully leased, the developer will put debt on the project and remove their equity — or they may sell the project. Most of the larger industrial REITs will use their own funds and/or raise equity through stock.
Many industrial developers have long-standing relationships with equity partners to do developments, or they will use their assets around the United States to fund a development. Industrial developers can also utilize their revolving lines of credit to do a project.
In today’s market, these industrial developers most likely will be interested in vacant land for immediate construction with all entitlements in place.