Industrial properties getting snapped up by users, not investors

Miami /
Nov.November 19, 2009 12:45 PM

Sales of South Florida warehouses and other types of industrial property have been small in size and scarce in number in 2009, and the market will remain weak well into next year if industrial vacancy rates keep rising.

Successful bidders for South Florida industrial properties often are companies that intend to occupy the space. Investors hoping to profit from an eventual upturn are having a harder time financing industrial property, sources said.  

“About the only purchaser who can get a loan on a building is a user. If you’re an investor, forget it,” said real estate investor David Paladino, president of National Land Company in Lake Worth.   

One of National Land Company’s biggest property disposals in the last 12 months was the $4.95 million sale of a self-storage building in Riviera Beach. The new owner is the occupant and operator of the 77,800-square-foot building, which had leased the property before deciding to exercise an option to purchase it.

Paladino said many bankers doubt the prospects of investors who want to buy and lease industrial buildings because “if General Motors can go broke, anybody can.”

Market conditions certainly have been better. Real estate services firm Colliers reported Oct. 29 that industrial building vacancy rates surged in South Florida in the third quarter, compared with same period last year, in line with the national trend. The industrial vacancy rate for Miami was 10 percent in the July to September period, up from 7.1 percent in last year’s third quarter. Colliers also found that the third-quarter vacancy rate rose to 10.1 percent this year from 6.6 percent last year in Fort Lauderdale and to 12.1 percent from 8.6 percent in West Palm Beach.  

Rising vacancy rates, combined with scarce credit, now discourage speculative acquisitions of industrial property by investors. If a company that applies for a loan to buy an industrial building intends to occupy the property, “it’s definitely a plus,” said George Bermudez, executive vice president of U.S. Century Bank, based in Doral.  
 
U.S. Century Bank has received fresh capital through the federal government’s Troubled Asset Relief Program, or TARP, and has expanded its lending to businesses. But many lenders have retreated from the market, Bermudez said.  

“Other banks are in crisis mode where they are more preoccupied with taking care of their problem loans instead of growing the portfolio with good, solid customers like we’re doing. They are apprehensive about going forward,” he said.

A veteran investor in South Florida industrial property, Edward Easton usually prefers to make acquisitions during stressful periods in the market. But “right now, the banks are being a little stubborn,” said Easton, founder of Miami-based real estate firm Easton Group.  

Easton said his group has been the buyer or seller of industrial property in several multimillion-dollar transactions during the past year or so, but none exceeded $10 million in value. “There haven’t been any real big sales. It has been very slow,” he said. “It’s an interesting market, but nothing’s transacting.”

Lenders’ preference for financing purchases of owner-occupied industrial property showed in the $9.6 million sale of a 120,000-square-foot warehouse in Deerfield to a pair of Easton-controlled investment entities. The Easton entities simultaneously leased the warehouse back to its seller and occupant, Graebel/South Florida Movers, allowing the business to stay in the warehouse after selling it.

Sale-leaseback transactions involving industrial properties have been rare, however, said Jonathan Horn, president of Horn Capital Realty in Bay Harbor Islands. Horn said one reason is owners’ rejection of purchase bids well below the valuations their properties commanded at the height of this decade’s real estate boom: “There is a big discrepancy between the bid and the asking price.”


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