Destination Unknown: Tampa Bay Commercial Real Estate Outlook 2009 (Maddux Business Report)

By Bob Andelman
April 2009
Maddux Business Report

The most remarkable characteristic of commercial real estate professionals in today’s market is that they’re not jumping out of any of those tall, empty office buildings’ windows.

Or maybe it’s just that since the Great Depression, they don’t make windows like they once did and they’re harder to get open.

Either way, commercial real estate is a tough, tough business to be in these days.

“My first question,” says Bill Eshenbaugh of Eshenbaugh Land Co. in Tampa, “is, is there an outlook?”

We’ll ask the questions here, if you don’t mind.

“This is a year of some real reckoning in terms of seeing it get worse,” Eshenbaugh says. “Retail developers are probably an oxymoron. How are you in retail and development these days?

“I had a bumper sticker the last time that said, ‘Lord, give me one more cycle and I promise I won’t piss it away like I did the last one.’ This last cycle had a 15-year run. We thought the parade was going on for a while. Look at how many homes were sold! We were down to 3 or 4 percent unemployment. You’ll find very few who made it to the sidelines safely because it was so much fun.”

You know it’s true. And so does Bruce Erhardt, executive director of Cushman & Wakefield in Tampa.

“I get guys who call me and say, ‘I got this land for 30 cents on the dollar!’” he says. “And I say, ‘Oh, you paid market?’ And there’s silence on the line. They don’t want to hear that.”

That said, there is still no reason to have hope according to seasoned professionals such as Erhardt, Eshenbaugh, Lee Arnold, Larry Richey, Robin Bishop and Dan Woodward. They’re all doing exactly the opposite of giving up.

Of course, they’re doing it while trimming staff and overhead, expanding their leasing and property management operations… and crossing fingers that they’re not overly optimistic.

“There are only three land buyers today: investors, land users and the government,” says Erhardt. “Developers are not in the market, for two reasons. Reason one: financing. Reason two: there is no need to deliver new product to the market today – retail, industrial, office or hotels. Maybe apartments, but those other products don’t need to be built.”

That said, there will be land deals done in ‘09 that are bank deals. There are some deals that have legs, Erhardt says–from education, medical and government and users. “We know of two federal government deals in the market right now that have a good chance of closing this year and I know of an education deal. But if you think somebody is going to buy office or suburban retail, that’s on the edge. Remember years ago when Publix went to Van Dyke at Dale Mabry, far out on what was the edge? We’re not seeing retailers take that risk now.”

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Table Talk: Six Pros Talk Commercial Real Estate (Maddux Business Report)

(The following is an expanded transcription – edited only for clarity and grammar – of the 2007 Real Estate Roundtable printed in our December 2007 issue.)

Maddux Business Report
Real Estate Roundtable
December 2007
Moderated by Bob Andelman
bob@andelman.com

Let’s talk commercial real estate.

This roundtable is an anticipated annual feature in this magazine, a chance to talk about all things real estate. It’s an obvious read for those in the field. But for those not, the savvy executive or business owner has come to know that trends in real estate often are reliable predictors and/or reflections of the general business climate.

This year we brought together six folks from the commercial side, representing a cross-section of professions and locations. We met at The Centre Club in the Westshore Wyndham Hotel in Tampa for two hours of provocative conversation and debate.

The panelists:

• Greg Brown – Chief operation officer/director of development, Feltrim Development,
  www.feltrim.com.

• Brenda Dohring Hicks – Owner, The Dohring Group. www.dohringgroup.com.

• Brian Kennelly – Executive vice president, Lakewood Ranch Commercial Realty.
  www.lakewoodranchcommercialrealty.com.

• Ray Sandelli – Senior managing director, CB Richard Ellis Tampa Bay. www.cbre.com.

• Nancy Surak – Land consultant, Eshenbaugh Land Company. www.thedirtdog.com.

• Ron Weaver – real estate attorney, senior shareholder, Stearns/Weaver/Miller/
  Weissler/Alhadeff & Sitterson PA. www.stearnsweaver.com.

Moderator of the panel is Bob Andelman, a regular contributor to this magazine, author of nine books and originator of the Mr. Media website.

MADDUX BUSINESS REPORT: Ron, tell us a little bit about how the past year affected you and in your role with the real estate.

RON WEAVER: It's been much better than we expected, worse in regard to residential, of course, than probably anyone would have expected two or three years ago. There are troubles with respect to most every kind of residential product, with the possible exception of apartments, which are enjoying a little bit of rebound from people being unable to afford a house, a yard, a mortgage, its increasing rate. But retail, we see as strong, but not likely to last strong for another 18 months. We'll have to pay the price of less housetops. Maybe not that much, when you get right down to it, because the dynamic of retail doesn't necessarily follow the slowdown in housetops.

And thirdly, offices enjoyed a pleasant rebound, which industrial has been strong, so we've seen a pretty good year, better than we thought we would.

RAY SANDELLI: I’ll answer that in the context of how we currently see the commercial markets. I think the positive aspect right now is that, fundamentally, the markets are sound in terms of supply, demand and value. That’s why I probably don’t have some of the angst that perhaps others may be experiencing.

It’s when we get away from the fundamentals that we see serious consequences of our actions. Go back to the days of the “new economy,” when they were trying to change the very basic economics of a business model. I remember when they said Warren Buffett just didn’t get “it”. Of course, the new economy ultimately crashed and burned and Mr. Buffett’s fundamental and studied approach continues to drive ever increasing, sound returns.

In the capital markets right now the focus is, “Do we understand the true market fundamentals? How do we underwrite with sound data and prudent assumptions? How do we assess and manage risk?” Sustainable value is built on a foundation of solid fundamentals and an educated approach in decisions going forward.

We've had so much new housing built in the last couple of years and so many people have come into the area, I question this theory that retail's going to slow down because housing structures have slowed down. It seems like we've had so many new people come in and build the base of previous demand for retail. Should we really be expecting retail or retail construction to slow down?

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