Five Tips for Commercial Real Estate Investors

Whether you are thinking about investing in commercial real estate on the Emerald Coast to diversify your portfolio, create wealth,or provide a passive income stream for retirement, NBI Properties has developed successful strategies and tips to help you be successful. Keep these tips in mind and you will be well on your way to reaping the benefits of your investments.

1. Realize that knowledge of the market is crucial your success. If you are well versed about a specific commercial sector, stay with that sector. On the other hand, if you have no knowledge about a particular sector, obtain the knowledge you need before investing. Even if you’re investing as a landlord, it doesn’t bode well to invest in a restaurant if you don’t know anything about the food service or hospitality industries. This is especially true with the manufacturing sector. It’s wise not to purchase raw land or an industrial strip if you don’t know the best use of the property to maximize cash flow.

2. Be aware of the fact that commercial real estate is valued differently than residential. While residential properties derive their value based on recent comparable sales of similar properties in the area, this does not apply to commercial real estate. The value of commercial property is calculated based on cash flow. Two buildings of the same size and located on the same downtown block may have drastically different asking prices. A single tenant barber shop will have less cash flow than a four-tenant professional building with dentists and pharmacists.

3. In addition to market and sector knowledge, you should make it a point to learn new profit and loss formulas before investing in commercial real estate. These are not difficult to comprehend, but you need to fully understand what each means and how they affect your profitability.

4. Determine the long term impacts before investing. Other than the immediate cash flow, make an effort to understand what is predicted to happen to commercial real estate in the surrounding area in the coming years. For example, if your properties are located in a city where the core infrastructure has been neglected for years, eventually businesses will begin relocating to better areas. Consider the tax base of the community and how major employers are faring. All of these things should be assessed objectively prior to making investments.

5. Stock advisors never recommend putting all of your eggs in one basket, and this advice also applies to commercial real estate. If you’ve experienced success as a residential investor, hang on to some of your holdings in residential. Whether you’re investing in stocks or real estate, savvy investors always aim for a diversified portfolio.

Lower Oil Prices Not Impacting Emerald Coast CRE

Oil prices have been dipping since the end of 2014, and while some industry experts predict the price of oil will never rebound to $100 per barrel again, others believe it will go beyond that figure as early as this summer. Jayme Nabors, co-founder of NBI Properties in Fort Walton Beach, says most of his clients think oil prices will definitely rise again and impact commercial real estate in the process.

“Historically, investors know that oil prices are destined to go up again,” Nabors said. “But currently with oil prices dropping, energy companies are holding off on drilling new shale wells and making investments in long-term projects. This is expected to have an effect on commercial real estate in energy markets.”

Reports show that as much as $150 billion in oil projects are predicted to be deferred in 2015 as energy companies align their spending with current cash flow. Oil-producing markets will be the focus of any negative impact from falling oil prices and would include states such as Texas, Oklahoma, Louisiana, Mississippi and North Dakota.

“These negative impacts could include decreased property values and lower rents in these areas,” adde Nabors. “Luckily, investors don’t have to worry about this here on the Emerald Coast.

Emerald Coast Retail Sector is Red Hot!

Shopping centers, outlet malls, grocery stores, and boutiques that reported sluggish sales during the recession are now making a huge comeback on the Emerald Coast. According to Craig Barrett, real estate broker and co-founder of NBI Properties, investors are snapping up retail space throughout the region.

“The retail sector is red hot right now,” said Barrett. “Transactions have picked up in Destin, Crestview, Santa Rosa Beach and along 30A, but we’re handling more leases in Fort Walton Beach than any other area.”

Like many other regions of the country, Northwest Florida has emerged from the recession with job growth and economic strength. Nationwide, retailers absorbed about 13 million square feet of neighborhood and strip shopping center space in 2014 — double the level of demand of the previous year — and retail vacancies have fallen below 10% for the first time since the recession in 2008.

On the Emerald Coast, Barrett said there is renewed investor interest in local neighborhood shopping centers, small businesses and boutique tenants. He noted that while the retail center segment still has a lot of ground to make up relative to faster-recovering power centers and malls, demand is noticeably picking up.

“Vacancies are falling quickly due to the limited amount of new retail construction going on,” he said. “Investors are interested in opening new stores, so the demand is rising.”

Nationally for all retail property, the vacancy rate fell another 20 basis points to 6.3% to close 2014 and net absorption of shopping space totaled 81 million for the year, both are the strongest readings since 2008. Somewhat surprisingly, malls have performed stronger than the overall retail market, with very high-end malls attaining the best sales per square foot and seeing sales productivity rise by 26% over last three years. The recovery among malls remains highly selective, with shoppers flocking to the strongest performers and shunning others.

Emerald Coast Commercial Real Estate Growth Defies Global Outlook

A stabilized U.S. economy is expected to keep commercial real estate demand on the rise for the next several months, although overall growth may be slightly curtailed by overseas weakness, according to the National Association of Realtors® (NAR) quarterly commercial real estate forecast. Analysts based predictions on economic data showing that although conditions have improved domestically, a weakening global economy may impact exports. Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, said that commercial real estate transactions on the Emerald Coast have increased dramatically since the recovery.

“Overall, there’s a feeling of optimism because businesses are hiring again and consumers are enjoying the benefits of lower gasoline prices,” Barrett said. “The demand for leases for defense contractors, professional buildings and retail space is contributing to the economic growth in this area.”

On the national front, office vacancy rates are expected to decrease a slight 0.1 percent over the coming year as improved hiring increases the demand for office space. The vacancy rate for industrial space is predicted to decline 0.4 percent and retail space 0.3 percent as manufacturers boost production for goods and services and consumers accelerate their spending. A plethora of new apartment construction coming onto the market is forecast to lead to an uptick (0.1 percent) in the multifamily vacancy rate.

Barrett noted that foreign investors dissatisfied with the fledgling overseas economy are diversifying portfolios with commercial real estate projects in the states. With GDP estimated at 3 percent this year, investors are snapping up retail, industrial, office and multifamily complexes.

“Overall, this is the busiest we’ve been in the past three years,” said Barrett. “Investors are looking for 8-10 percent cap rates and buying up retail all over town. We’re getting requests from high tech defense contractors, big box tenants, and passive investors who all want to capitalize on the stable commercial real estate market here.”

Passive Commercial Real Estate Investing on the Emerald Coast

Investing in real estate doesn’t have to mean lots of blood, sweat and tears. Today’s busy investors don’t always have time to be “hands-on” with all of their projects, so many choose “passive” investing and leave the heavy lifting to experienced real estate brokers. Craig Barrett of NBI Properties in Fort Walton Beach, Florida, says his firm regularly works with investors on the Emerald Coast and from other parts of the country who have discovered the advantages of passive investing.

“We work with investors who own multiple properties all over the globe, and they simply can’t devote time to day-to-day management tasks,” Barrett said. “While some investors may choose to work with tenants, make repairs, and renovate properties, most high level investors are content to let real estate professionals handle property management and other chores.”

In addition to saving time, Barrett added that passive investing usually results in having access to quality deal flow. In commercial real estate, there are many sectors that offer opportunities for investment, including multi-family apartment buildings, retail shopping centers, self-storage facilities, and office or professional buildings. Unless an investor specializes in one of these areas and has developed good deal sources, Barrett said that it is usually difficult to develop suitable projects.

“We’re able to help a lot of investors who live in other cities or states because we have ties to the community and have strong relationships with local banks,” Barrett noted. “We regularly review the multiple listing services and scout potential opportunities for our clients. When investors are not familiar with the area, they lose out on lucrative deals and cannot capitalize on the best property listings.”

Another advantage of passive investing is avoiding the potential headaches associated with banks and closing issues. Financing on commercial properties is typically slow, complicated and involves mountains of paperwork. In some cases, long lead times are required in order to get approvals from a bank’s investment committee. Barrett said this is one of the top reasons that passive investing appeals to some clients.

“Everyone knows that closing on a deal can be a nightmare,” he said. “Many investors would much rather hand over the reins to a professional real estate company that is familiar with the entire process and knows the property reports the banks will require for closing. For this reason alone, there are many investors who prefer to sit back and let a professional take care of all the details.”

Emerald Coast Commercial Real Estate Follows National Trends

Commercial real estate enjoyed strong gains throughout most of the country in 2014 — and local experts on the Emerald Coast are expecting the same momentum over the next 12 months. Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, said that commercial real estate transactions continue to rise as the overall economy improves.

“Lower fuel prices, a strong stock market and a decrease in unemployment are economic indicators that investors like to see,” Barrett said. “In addition, we’re working with more investors this year due to the fact that local banks are increasing their commercial real estate loans. Purse strings were tight during the recession, but thankfully that is no longer the case.”

On a national level, the CRE Finance Council, which monitors commercial real estate investment activity, released a market outlook survey also revealed investor optimism due to stronger economic conditions. On the subject of potentially rising interest rates, most respondents said they believe they will increase, but have confidence that the Federal Reserve will push them up at a moderate level, unlike the spike that took place in 2013. The survey also found that 81 percent of respondents think there will be higher leverage rates, and CMBS lending will rise 10-20 percent from last year’s originations, hitting between $100 billion and $125 billion.

Barrett added that construction has picked up significantly on the Emerald Coast with apartments and condo developments seeing the most activity. In resort areas such as Destin and communities located on Highway 30A, hotels and luxury properties are projected to see the highest rent growth.

The Urban Land Institute (ULI) weighed in with its own predictions for how the year will shape up, predicting that more capital will flow into commercial real estate from foreign and retail outfits. This is expected increase investor willingness to take on risk and enter “secondary” markets, such as Austin, Charlotte, Denver, and Philadelphia.

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New Proposal Seeks More Solar Energy for Florida

Harnessing solar energy in the Sunshine State could be profitable for businesses and property owners if a newly introduced amendment passes. Business owners would be permitted to sell a limited amount of solar energy under a recent ballot initiative rolled out by a coalition uniting free-market conservatives, retailers and alternative-energy supporters. Florida’s power companies are expected to oppose the amendment. Supporters of the initiative claim they’re using the constitutional amendment route because large utilities have repeatedly lobbied the Legislature and the Florida Public Service Commission against expanding solar and other alternative-energy choices.

“Using a constitutional amendment to the ballot is not the best way to make energy policy,” said Stephen A. Smith, executive director of the Southern Alliance for Clean Energy. “But if the system is broken, and we have no other way to actually get good policy in the state and allow such a positive thing as solar power to flourish, then we have to take it straight to the people.”

The initiative, which was filed last month with the Department of State, will require Floridians for Solar Choice to get the signatures of roughly 700,000 voters to get on the November 2016 ballot. Also, the ballot language would have to be approved by the state Supreme Court.

Tory Perfetti, chairman of the coalition dubbed “Floridians for Solar Choice,” said it remains to be seen how the utilities will react to the ballot drive, but he expects they will mount a sizable opposition.

In addition to the Southern Alliance for Clean Energy, the coalition includes the Florida Retail Federation, the Florida Solar Energy Industries Association, the Florida Alliance for Renewable Energy, the Christian Coalition of America, the Libertarian Party of Florida, the Republican Liberty Caucus of Tampa Bay and the Republican Liberty Caucus of Florida.

The amendment, in part, would allow businesses to generate and sell up to two megawatts of power to customers on the same or neighboring properties. Smith said that the coalition might have to raise $8 million to $10 million to counter the anticipated opposition. He also estimated that the two-megawatt total would cover the daily use at a typical Wal-Mart

“If we can get this thing on the ballot, it will pass,” said Alexander Snitker, vice president of the Libertarian Party of Florida. “Who is the opposition? The opposition is the people who are profiting off the current monopoly they have right now.”

Utility officials have argued that the economic advantage of conservation has waned as reliance on natural gas has grown, and that the state’s solar-rebate program has not attracted widespread use.

Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, said more businesses on the Emerald Coast are expressing an interest in solar and renewable energy options.

“We are seeing more businesses and property owners using eco-friendly building materials and exploring the use of solar energy,” he said. “We believe that demand for solar energy will increase even more in the next few years, so we’re interested in seeing if the new amendment will pass.”

Florida May Dodge Oil Drilling Plans

Several lawmakers are supporting a proposal that would keep the waters off Florida’s coast free from oil drilling for at least five more years. U.S. Sen. Bill Nelson (D-FL), part of a contingent of lawmakers pushing to ban oil drilling off Florida’s coasts, called the plan a huge victory.

“They left us alone for the last five years, and it looks like they’re going to leave us alone for the next five years,” Nelson remarked in a recent statement.

In 2006, Nelson and then-Sen. Mel Martinez successfully brokered a deal to ban drilling off Florida’s Gulf coast through the year 2022. While Florida’s waters would remain off-limits according to the current proposal, some U.S. senators are upset that the plan could open up other areas in the Atlantic Ocean to drilling, notably off the coasts of Maryland and South Carolina. Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, said most Emerald Coast residents would not welcome oil rigs back to the region again.

“The BP oil crisis in the Gulf hasn’t faded from anyone’s memory here,” he said. “We have the most beautiful beaches in the country and don’t need to invite oil companies back to screw up our coastline again.”

Senator Nelson also cited other reasons for an oil rig ban off Florida’s coasts, such as the state’s tourism-driven economy that relies on clean beaches, military training areas off Florida’s shore and the launch activities at the Kennedy Space Center and Cape Canaveral Air Force Station.

Recovery Sparks Real Estate Investments in Northwest Florida

Florida is gaining economic ground that was lost during the recession – and particularly in key sectors such as jobs, tourism, housing, and manufacturing. Experts attribute the gains to a plethora of factors, including the surging stock market, lower mortgage rates and falling fuel prices. Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, said that Northwest Florida is attracting many affluent investors and retirees who have enjoyed the benefits of a bullish stock market.

“We’ve seen an influx of investors and retirees here on the Emerald Coast,” Barrett said. “They’ve been able to invest in new businesses, purchase new homes, and some are cashing out their assets to retire.”

The state added a net total of 712 new residents per day or 260,000 overall last year, according to University of Florida Bureau of Economic and Business Research director Chris McCarty. Low mortgage rates have fueled new development on the Emerald Coast and enabled homeowners in the Rust Belt to sell their homes and move to the Sunshine State. While areas like Destin have seen an increase in residential development, gains have been reported in suburban areas throughout the region as well.

Barrett said that transactions have increased for commercial properties in the area as well as residential. He noted that with military and defense contracts remaining steady, demand for office space increasing and retail getting stronger, his company has been inundated for several months.

“It didn’t even slow down for us during the holidays,” he said. “Our message to everyone is that the economic climate has improved everywhere, but nowhere better than Florida and especially here on the Emerald Coast!”

To view recent transactions handled by NBI Properties, click on this link

Investors Take Advantage of Florida’s Tax Breaks

The Internal Revenue Service started accepting tax returns for 2014 on January 15, so many real estate investors are scrambling to gather documents and determine their tax liabilities. While investors are quick to complain about high taxes in some states, Craig Barrett with NBI Properties in Fort Walton Beach says he advises many clients to move to Florida to save on taxes.

“We tell them there’s a million good reasons to move here such as the great weather, recreation opportunities and beautiful beaches,” Barrett said. “But one of the best reasons investors love to consider is that Florida has no state income tax. That’s music to their ears if they are from places that impose high state income taxes because it can save thousands of dollars.”

One issue investors can encounter is continued income tax assessments from their former state even after they’ve moved away. To avoid this, it’s important for people who relocating to Florida to take steps to establish they have changed their domicile. To accomplish this, experts agree that individuals should spend sufficient time in their new “home” state, register to vote, become involved in a local church or community activities, and change their address.

“We work with some people who have several residences in different states,” said Barrett. “But legally you can maintain as many residence as you wish, but you can only have one domicile.”

Barrett added that in addition to investors taking advantage of having no state taxes in Florida, the state has remained popular with retirees who rave about the fact that Florida also has no estate taxes as well.