Only the safest properties with the most stable occupancy rates are selling in South Florida’s diminished market for retail buildings. Among the few retail properties that are changing hands in bank-financed transactions are single-tenant buildings with minimal vacancy risk and shopping centers with attractive anchor tenants and low turnover.
“We don’t have loans on very many retail centers, and what we’ve come to appreciate is that they vary distinctly one from another,” said Thomas Lumpkin, chairman of the board of Biscayne Bank, a community bank based in Miami.
Among other retail properties Biscayne Bank holds as loan collateral, “we have one center [on Camino Real in Boca Raton] that’s anchored by a CVS pharmacy, and there’s a Chinese restaurant in that particular center that has been there a long period of time,” said Lumpkin. “It’s at a great location. It’s got great car and foot traffic. We’ve looked at them and we don’t see that there’s cause for alarm over that type of tenancy.”
Single-tenant buildings account for a large share of the retail properties changing hands. For example, Miami-area automotive dealer Gus Machado paid $13.6 million this year to acquire a Ford dealership in Kendall. The building was completed in 1968 and occupies seven acres. The 68,225-square-foot auto dealership on Southwest 152nd Street had been known as World Ford of Kendall under its previous owner, Houston, Texas-based Group 1 Automotive Inc. Publicly held Group 1 sold both the Ford franchise and the property. Group 1 used most of the sale proceeds to pay down its mortgage-facility debt by $10.5 million.
A family foundation in Boca Raton recently paid $5.1 million for a 15,120-square-foot retail building near a busy intersection in Delray Beach that houses a Walgreens drug store.
Real estate agent Brian Rosen of commercial brokerage firm Marcus & Millichap said he finally won an opportunity to sell the building for its previous owner, Southern Development of Delray Beach, after repeatedly urging the firm’s president to do so.
“In the world we’re in right now, if you really don’t have to sell, you’re not going to,” Rosen said. “The prices your property once commanded are a lot less, and still, people are still trying to digest that.”
Rising vacancy rates have flattened retail property values in South Florida. Marcus & Millichap reported that the retail vacancy rate in Miami-Dade County increased almost a full percentage point to 7.6 percent from January to September and has forecast that the rate will surpass 8 percent by the close of 2009, “the highest year-end level this decade.”
Avoiding vacancy costs is a top priority among picky investors in shopping centers. Consider the perspective of Ronen Saban, a South Florida manager of Dizengoff Group, an Israel-based company that invests in commodities and real estate. His firm this year paid $8.29 million for a shopping center in Miramar with about 64,000 square feet of rentable space, anchored by supermarket chain Publix. The retail center, sold by a unit of the Prudential Insurance Company of America, was built in 2000 on about eight acres of land.
“Basically, the main motivation [for the purchase] was Publix. Eighty percent of the total rentable square feet is leased by Publix, and they are doing very well,” Saban said.
In addition to ample residential development nearby, “there is about 2 million square feet of office space around the center, which also brings good traffic” to Publix and other tenants, Saban said.
Still, Dizengoff had to make a downpayment equal to more than a third of the purchase price to acquire the property, Saban said, and Israel Discount Bank of New York made a $5.5 million mortgage loan to the investment company that is secured by the property. “That is a 65 percent LTV,” or loan-to-value ratio, he said.
Dominant anchor tenants are also good for their neighbors, Saban said. Besides Publix, which rents most of the space at the Miramar retail center, “all of the other tenants have occupied the place since day one, for around 10 years, with no turnover, which is a good indication for the strength of business in this area.”