The picture isn’t pretty. Manatee County has more than 165 vacant commercial buildings right now. Downtown office space vacancy rates in Bradenton have reached 32 percent. In Sarasota County, the rate is 19 percent and climbing.
“When I started in 2005, vacancy was 3 percent to 5 percent in downtown Sarasota,” remembers Lee DeLieto Jr., a commercial realtor with Michael Saunders & Company and the president of the Sarasota Association of Realtors commercial investment division. DeLieto says it would be wonderful to get back to those healthy 5 percent vacancies, but he’s not holding his breath.
He and other commercial realtors say it will be 2012 before we see any kind of recovery in the commercial market.
“The story this year is the crash of commercial,” says real estate analyst Jack McCabe of Deerfield-based McCabe Research. “There will be a huge wave of foreclosures. Nationally, we’ve got $2 trillion in commercial real estate loans coming due, and properties are only worth 40 percent to 60 percent of what their debt level is.”
Traditionally the commercial sector operates under five-year balloon mortgages, says Ken Clanton of Wagner Realty, who heads up the Manatee Association of Realtors commercial investment committee. That’s why real estate brokers and community bankers know what’s coming. Five years ago was the height of the market in commercial real estate, and bankers had created all sorts of creative products in 2005 that often required very little in down payment money and didn’t require owner occupancy. Now, all those balloon mortgages are coming due, he says.
Janet Robinson, commercial director, Sarasota-Manatee region, of Coldwell Banker Commercial, says commercial realtors are seeing more requests from bankers for broker price opinions (BPOs). BPOs are estimated values on properties so bankers will know the current value of the properties if they need to go into foreclosure—and the potential losses they will incur when that avalanche of foreclosures happens.
Still, DeLieto says not all is grim. He’s working with multimillion-dollar capital firms that are looking for bulk buys in commercial real estate, and he’s also hoping that the new guidelines by the federal government and the FDIC, advising banks to modify loans for borrowers who can make their debt service payments, will mitigate some of the fallout.
The other silver lining? For companies looking to buy a commercial building or lease space, the time is right.
Jag Grewal of Ian Black Real Estate says prices have come way down. IntegraClick, a Sarasota-based high-tech company, recently got a great buy when it purchased 12 acres and two 40,000-square-foot buildings from Burton-Katzman, a Michigan developer that bought during the high-flying era. And now Grewal is the leasing agent for 30,000 square feet in one of the buildings. The lease rate is $12 a square foot triple net in a building that once would have commanded $25 a square foot.
In fact, Grewal says, $12 a square foot seems to be the new going rate. Tenants are the “absolute kings” right now and some are grouping together, asking Grewal and his partner, Michele Fuller, and other commercial real estate agents to renegotiate leases for them. “Businesses can’t survive at $18-$20 a square foot triple net,” Grewal says. “If you have a tenant that’s doing OK you want them to succeed. Do a shorter term lease for two to three years and renew. A little bit of pain right now will go a long way.”
Office Space Vacancies*
Sarasota and Manatee
SOURCES: Real Estate Oversight Committee of the EDC of Sarasota County, December 2009, and Manatee Office Vacancy Exchange, January 2010.