Sales of commercial real estate have fallen sharply in the past year. Just like the residential market, investors aren't finding the bargains they expect given the economy, yet sellers aren't ready to cut prices.
It's a ''stalemate,'' said Stephen Bittel, chairman of Miami Beach-based real estate services and investment firm Terranova.
During the six months ending in April, $1.8 billion of industrial, office and retail property closed -- down 59 percent from the same period a year ago, reports Real Capital Analytics.
Broward sales of retail property fell the most, down 85 percent during the six months ending in April, compared to the previous year. In Miami-Dade, sales of retail property were cut nearly in half. Office sales were down by 61 percent in Miami-Dade and by 14 percent in Broward. Industrial property sales in Miami-Dade were down 48 percent, but up by 96 percent in Broward.
Trends affecting each sector:
Office: Investors are looking ahead to the 1.8 million square feet of new office space planned for Miami-Dade and wondering how much rent will grow over the next few years.
Retail: Miami-Dade is boosted by international tourism -- South Beach stores are hot -- but generally consumers are spending less, and major retailers are halting expansion plans.
Industrial: People in Latin America and the Caribbean are buying more goods that come from South Florida's warehouses and distribution centers, but companies that stored material for the local construction industry have less need for space.
FLIGHT TO QUALITY
Meanwhile, the national credit crunch has driven many buyers out of the market. Wall Street and even many banks have stopped lending for real estate acquisitions. The lenders that are still active have much stricter requirements than they did two years ago.
Buyers who once could have borrowed 80 percent or more of a building's value may now have to put down 50 percent.
The need for more cash has put small buyers largely out of the market, leaving institutional buyers and foreign investors, often from Europe, Latin America, Asia and even Dubai. They are looking for trophy properties: Class A buildings with high occupancy in core locations.
''There's a flight to quality,'' said Jay M. Caplin, executive director of the Capital Markets Group for Cushman & Wakefield of Florida. The differences between buyers and sellers, he believes, ``should work themselves through the system maybe towards the end of this year.''
But Bittel thinks the market has not hit bottom. ``You can't look out six months or a year and feel particularly good about the economy.''
CAP RATE
Not everyone agrees there is a stalemate. John Bell, a real estate broker who is managing director of the Miami office of DTZ Rockwood, said buyers and sellers had both adjusted their expectations by the last quarter of 2007.
For buildings with good occupancy and locations, he added, capitalization rates -- the ratio of a property's annual operating income to its sale price -- are similar to those of a year ago. The ''cap rate'' gives a rough estimate of return on investment. When buyers see more risk in a market -- for instance, they fear rents or occupancy will drop -- they'll demand even higher cap rates to compensate them for that risk.
Bargain hunters are closely watching South Florida for opportunities. These are value investors, who improve properties so they can hike rents or lure more tenants, and distress investors, who look for desperate sellers.
''We get several calls a week from groups with $300 million to $500 million that want to invest in distressed real property in Florida or South Florida,'' said real estate lawyer John C. Sumberg of Bilzin Sumberg Baena Price & Axelrod.
Some value investors already have snapped up buildings. Keystone Properties Group in February paid $41.2 million for a 30-year-old office property in the Kendall area. It plans to spend another $20 million upgrading the renamed Dadeland Office Center, said Adam Silverman, Keystone's assistant vice president of acquisitions. In March, Keystone closed an $11.4 million deal on a vacant 144,000-square-foot former Bank of America check-cashing and training center in Miami Lakes.
The company is looking for other properties in South Florida and throughout the state, and Silverman figures there are at least two years of down cycle during which he'll find opportunities.
STILL LOOKING
But Seth Werner hasn't found what he's looking for, at the right price. His Fort Lauderdale-based real estate investment company Cypress Creek Capital (a subsidiary of BFC Financial) has bid but lost to other buyers.
One market Werner has scrutinized is downtown Fort Lauderdale, where CB Richard Ellis reported that vacancies reached 14.9 percent in first quarter 2008. ''We're not confident that we can achieve the increased occupancy any time soon. There's just too much space down there,'' Werner said. ``We think it's going to get worse before it gets better.''
AMATEURS BEWARE
Werner points out that other sub-markets -- for instance, Plantation and Coral Gables -- remain tight, and prices for buildings there are high. It's not enough of a value play for his fund. But he'll keep looking, and occasionally bidding.
''It's not a time for the amateur,'' he said. ``You'd better really know what you're doing.''
