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South Florida Commercial Real Estate: Market Commentary

March 17, 2010

By Ken Morris, SIOR & Principal Morris Southeast Group/CORFAC International

Ft. Lauderdale, FL -- You know the South Florida real estate market has a long way to go to escape the woods when the Ft. Lauderdale Trump International Hotel is hit with foreclosure actions, as it was in mid-March 2010. The 298-unit beachfront project, which has yet to open, has also been the target of lawsuits filed by disgruntled buyers seeking refunds. One of those lawsuits alleges they were misled about Donald Trump’s involvement. Although he licensed his name to the hotel, he is not among the developers.

The ambitious condo-hotel project is one of the latest fatalities of the economic downturn, yet it is hardly alone. A recent search in the South Florida Business Journal revealed that seven of 10 most recently posted stories on real estate had the word "foreclosure" in the headline. BankUnited wants to seize two stalled residential projects in southern Miami-Dade County, for example, while Woolbright Development has been hit with its fourth and fifth foreclosure lawsuits as KeyBank seeks to repossess its Shops of Boca Grove and its Publix-anchored Sunshine Square in Boynton Beach.

The list goes on and it is feeling more and more like 1993, when institutions throughout the U.S. reluctantly took back millions of square feet of commercial real estate from investors and developers who could not support the debt on their building assets. In the property recession of the late 1980s and early 1990s, the market declined for nearly three years and was followed by another two or three years of "work out" real estate activity.

The pattern in this recessionary cycle bears strong resemblance to the early 1990s and thus, it is worth remembering that by the third or fourth quarter of 1995, the market had stabilized and set the stage for growth – which is exactly what occurred. From 1996 up until the bust of 2001 (with the exception of the 1998 hick up in the economy caused by the Asian Flu and Longterm Capital Management’s financial problems), the U.S. economy roared and South Florida real estate property values shot upward by 20-40 percent in that cycle. Look for the second half of 2011 to be the period of stabilization in this cycle for Ft. Lauderdale office space, commercial real estate Broward County and commercial real estate Miami. Until then, property owners need to focus on tenant retention while tenants in the market who are lucky enough to have their leases coming due in the next 12 months will find opportunity on every street corner.