Decline in Recorded Commercial Deeds Points to Market Slowdown in Southwest Florida
Since the Sarasota Herald-Tribune began running commercial real estate deeds in its business section a year ago, there have been a steady stream of transactions as investors snap up beachfront hotels, apartment complexes, mobile home parks and vacant lots in Southwest Florida.
But in the past two months, the number and size of commercial real estate deals has declined significantly. Only $291 million worth of commercial deeds were recorded at Manatee and Sarasota county offices during the March 27-May 15 period, compared to $476.6 million in the same period a year ago.
Many believe this suggests that the commercial market (mirroring the once-sizzling, now-stagnant South Florida housing market) is in decline.
“We had the best first quarter ever, but as we look out over the horizon, we get a little apprehensive,” said Carl Wise, president of Sarasota-based Preferred Commercial.
Wise specializes in selling and leasing commercial warehouse and office space, and says inventories have started to rise — with prices reaching the point where buyers are given pause. Demand seems to be softening for the purchase of 2,000-square-foot industrial condominiums, one of the hottest segments of the commercial market in recent years.
The biggest change in the market during the past year, however, has been the abrupt halt in the “condo conversion” trend — or the transformation of hotels and apartments into condos.
“Condo conversions aren’t working as well as they were. Our big-time investors are sitting on their hands, waiting to see what’s going to happen,” John Petitti, a condo conversion specialist with Central Park Realty in Sarasota, said.
Matt Kihnke, a Chicago-based investor who spent millions on four apartment complexes in Manatee County for conversion to condos over the past two years, resold one of them in March because of weak sales. Stan Rutstein, a commercial real estate agent with Wagner Realty in Bradenton, believes that raw land prices have also topped out. These two aren’t alone in their assessment.
“The dumb money fueling speculation is gone. The rise in interest rates has put a stop to it,” said John Stephens, a land specialist with North Manatee Realty in Palmetto. “The math hurts. Higher interest rates have curtailed the market.”
Stephens said that when interest rates were around 4 percent, buyers could afford to make interest payments until their properties sold. But that’s changed now that interest rates on home equity lines of credit, which many buyers are using to finance their purchases, are more than 8 percent.
But Realtors say there are still plenty of bright spots. There’s a lot of interest in building hotels to recoup the rooms lost in the condo conversion trend, and apartment complexes are also needed. The market for commercial retail space remains strong due to extremely low vacancy rates and rising population.
As for the region’s affordable housing crunch, Ross Bryans and Petitti of Central Park Realty can’t understand what the fuss is all about.
“We’ve got plenty of affordable housing,” he said.
He’s talking about units at The Sanctuary of Bradenton, a converted 272-unit condo complex on 26th Street West. Prices for one-bedroom units run about $110,000, while 2-3 bedroom units are now on the market for around $130,000. Buyers can get in with relatively little cash.
That’s the some of the least expensive South Florida real estate to be had, and to make units even more enticing, the owners are offering financing and down payment incentives. As Florida home loan rates continue to inch up, it’s worth thinking about getting into the market now!
