The Real Deal Miami

Pace of sales for Palm Beach commercial property slows

By Dan Weil | August 25, 2008 02:21PM

For the Palm Beach County commercial real estate market, is the glass half empty or half full?

On the bright side, at least five buildings have changed hands for more than $15 million each this summer. But on the dark side, prices of buildings have dropped since the peak of commercial real estate in mid-2007, as has the volume of sales and rental commitments.

Jonathan Satter, a principal at West Palm Beach-based commercial real estate brokerage Compass Realty, said prices for buildings have dropped about 15 percent from the peak.

“There have been a few transactions, but it has slowed significantly from the pace of the last four-six years, primarily due to the lack of financing,” Satter said. Beleaguered banks have become very stingy about advancing credit to any real estate customers.

Still, signs of life do exist. TA Associates of Boston paid nearly $60 million to JP Morgan Investment Management for three West Palm Beach properties in the six weeks through Aug. 18. That included one building for $25 million, another for $18 million and a third for $16 million.

Crimson Capital of New Jersey gave Menin Development of Palm Beach Gardens $41 million in August for a 197,000-square foot strip mall in Jupiter.

And Equity One of North Miami beach announced Aug. 20 that it purchased three commercial properties for $53 million in Boca Raton, Plantation and Margate.

“There are always folks interested in South Florida, because of the demographics” and the attractiveness of living there, Satter points out. “The critical difference for those used to buying from 2002 to 2006 is that now they have to put more money down,” he said.

In addition, many sellers harbor unrealistic notions of what their properties are worth. “There is still a gap between buyers and sellers,” Satter says. “That’s driven primarily by lenders who don’t want to give credit for vacancies and short-term leases.”

In May, West Palm Beach saw the opening of its first Class A office building in 19 years. The 18-story, $110 million CityPlace Tower is 75 percent full. Its tenants include financial service, private equity and law firms.

“The market has slowed for everyone in terms of the number of deals,” said Jon Blunk, senior vice president of Crocker Partners, which manages and co-owns the building. “There is pent-up demand for Class A office space, but there is then a big drop-off for B space.”

That’s because the Class B office space in Palm Beach County housed a lot of smaller professional firms that were making their money off the real estate boom, Blunk said.