Commercial Real Estate Developers Urge Caution as Uncertain Year Lies Ahead

For commercial real estate developers in Florida, a yellow light is flashing.

Blame it on a nationwide housing slump that slowed the pace of migration to the Sunshine State, an overbuilt Florida condo market and the other usual suspects:

1. The shifting property tax burden and the inability to find a clear solution
2. The ongoing wind insurance crisis in the wake of the 2005 hurricane season
3. The fact that Florida mortgage costs have priced many out of the market

Several top real estate executives and experts said today’s choppy seas present a good time for retail developers to keep their powder dry.

Don’t take on risky deals. Don’t build too far ahead of the market. Closely monitor demand for existing homes and home builders who have already cut back housing starts.

There’s still plenty of demand for shopping centers and other developments. Retailers are clamoring for space. The vacancy rate in the Tampa Bay area is less than 5 percent.

Investors remain eager to pour huge amounts of cash into buying healthy land in places with big population growth potential such as Florida. The population of the Tampa Bay metro area is forecast to increase by 220,000 to 2.87-million in five years.

Part of the pinch, however, is skyrocketing development costs. They’ve been soaring faster than rents which, on the average, rose 11.4 percent to $13.46 a square foot in 2006.

Meantime, the prices retail developers pay for vacant land, construction and interest in Florida doubled since 2000. Impact fees to government, bills for property insurance premiums more than tripled, according to an analysis compiled by North American Properties Inc.

Some deals have been squelched because insurance was unavailable.

Retail real estate typically follows housing, and we all know how that is going after a year that saw Florida home loan demand flatten. A cloud of caution permeates what is otherwise a bullish forecast for 2007.

“We had similar concerns at this time a year ago, but the second half turned out strong.” said Justin Greider, financial analyst for Staubauch Capital Markets.

“That could well happen again in 2007, but we think some caution probably would be a good thing until we see more rationality in the market.”

The property tax burden and insurance crisis are hitting not only shopping center developers in the pocketbook. They also put a damper on the market for second homes and Florida residents’ willingness to move.

Some forecast that retail development will slow down a bit in once-torrid home-building havens such as east Pasco County and Naples-Fort Myers.

“I’m from Flint, Mich.,” said Charlene Greenblatt, a leasing executive with Investment Properties Inc., a Naples real estate company. “So when I hear we might get back to normal growth in Florida that sounds pretty robust to me.”