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.

Investors Flocking to Emerald Coast’s CRE Market

Commercial and residential real estate markets are booming once again due to a surplus of properties, low interest rates, and new Fannie Mae and Freddie Mac programs that make financing easier for buyers. Although properties are selling well in many cities throughout the Sunshine State, some are experiencing exceptional growth. One example is on the Emerald Coast, where Jayme Nabors, co-founder of NBI Properties says that business has picked up even more since the start of the new year.

“For the last few months, we’ve been working with more investors than usual who are attracted to our particular market,” Nabors said. “Their interest has been sparked by new developments and opportunities as well as the growing luxury market and desire for beachfront properties in Destin, Fort Walton Beach and other prime locations.”

Nabors added that NBI Properties is not only working with investors from within the United States, but those from overseas as well. He said that increased interest from do,estimate and foreign buyers has resulted in climbing real estate prices and that some developers are rushing to meet the demand.

In 2013, 23 percent of all home sales in the state of Florida were targeted by international buyers. At this rate, Florida falls second only to California, a state in which 2013 sales to foreign investors hit 17 percent. Today, with Florida being the top foreign investment market for real estate, foreign capital continues to be drawn to the state. Of the overseas investors who are interested in Florida cities, Brazilians and Argentinians are at the top of the list.
Reports show that 90 percent of foreign buyers in Florida paid cash opposed to securing a mortgage loan. In addition to investors from other countries, the state actually attracts a large number of cash buyers overall. In comparing metropolitan cities with a population of 500,000 or more, the Miami/Pompano Beach/Fort Lauderdale area had more than 64 percent of buyers paying cash in the second quarter of this year.

In addition to Miami and the Emerald Coast, there are other areas in Florida that are also considered hot markets for investors willing to pay cash. For instance, during the same quarter referenced above, Orlando/Kissimmee was at 52.2 percent, Lakeland 53 percent, Clearwater/Tampa/St. Petersburg 54.6 percent, Bradenton/Sarasota/Venice at 61.5 percent, and Cape Coral and Fort Myers at 62 percent.

Nabors added that demand within the housing market on the Emerald Coast continues to grow stronger, indicated by brisk sales and increasing prices. With tremendous demand for condominiums, resale activity has also risen and more construction projects are being completed.

Lower Cap Rates Expected in 2015

Recent reports indicate that cap rates for single tenant net lease properties have fallen steadily for several years, consistently hitting new historic lows each quarter as more investors put in bids. Last year, cap rates for retail properties held steady, according to reports by the Boulder Group, a real estate firm located in suburban Chicago. In the fourth quarter, Boulder found that retail rates were 6.5%, the same as the third but still a historic low. Rates for the office sector, however, compressed by nine bps to a new historic low of 7.31%. And net lease industrial cap rates rose slightly to 8.03%. Craig Barrett, co-founder of commercial real estate firm NBI Properties in Fort Walton Beach, Florida, said several factors have contributed to the falling cap rates everywhere.

“The market has stabilized, so most investors are holding on to retail assets in order to get the best returns,” Barrett said. “And investors are asking for additional premiums for long term leases in core markets.”

Research shows that lower rates has a big impact on who purchases these types of properties. In 2014, 60% of retail transactions were completed by private investors, up from 42% the previous year. Many investors are looking for newly-constructed assets with investment-grade tenants. For example, although overall rates held steady, new Walgreens, McDonald’s and 7-Eleven properties saw cap rate declines of 5, 25 and 13 bps respectively in the fourth quarter.

In 2015, Barrett said he expects the net lease market activity to remain brisk on the Emerald Coast with limited movement in valuations. He noted that private buyers continue to dominate the net lease market in the low cap rate environment as institutions cannot typically pay the cap rate premiums due to yield restrictions.

“We expect the majority of active net lease participants to expect cap rates to remain the same or rise this year,” he said.

Luxury Market Heats Up on the Emerald Coast

As interest rates dipped during the last two quarters of 2014, the real estate market made a small push in an effort to equal its growth from last year. No market felt the resurgence more than the luxury home market, and especially with new construction. The demand for upscale residences prompted NBI Properties to hire Dustin Parkman as a luxury marketing specialist to join the company’s team of commercial and residential realtors.

“Buyers are using their ability to finance at lower rates to improve their residences with newer, larger, and more expensive homes,” said Parkman, who focuses on the Emerald Coast’s 30A corridor, including Destin, Santa Rosa Beach, and Panama City. “We’re working with high net worth clients from all over the country who are interested in coastal properties with premium upgrades.”

In other major metropolitan areas, especially in those where space is at a premium, buyers are flocking to areas where good school districts are located and that feature amenities such as restaurants and parks close by. As the luxury market has heated up, it has left a void in other markets, specifically those that need updating and renovations. For example, in Dallas, because of numerous new developments, very good bargains are available with properties that are not updated.

“As the luxury new home market continues to heat up and becomes more competitive, those who pick up homes in desirable areas that need a few updates could be positioned well in the coming years,” said Parkman. “There’s also plenty of interest in properties on the Emerald Coast in luxury homes priced at $400,000 and up.”

Forecasts Show CRE Rise in 2015

Forecasts continue to show that commercial real estate is on the rise and should continue to improve in 2015. Heavily influenced by core transactions is the value-weighted index that advanced 1.9 percent in September, and 3.3 percent for the third quarter 2014.
In looking at the pre-recession high, this index is now 2.8 percent higher, while continuing to make impressive gains. Influenced by smaller non-core deals is the equal-weighted US Composite Index that jumped 1.3 percent in September and 4.2 percent for the third quarter of 2014.

“There was a notable jump in sales activity in the third and fourth quarter,” said Jayme Nabors, co-founder of NBI Properties in Fort Walton Beach, Florida. “According to recent forecasts and economic indicators, this trend should continue throughout 2015.”

The areas experiencing the most growth include property sales expansion, retail, and the multifamily index. With property sales expansion, year-to-date through third quarter 2014 is composite pair volume of $67.3 billion. From the same period last year, this is an impressive 23 percent increase. For repeat sales of distressed asset transactions in September, the numbers dropped to single digits. For the three primary segments of commercial real estate — office, industrial, and retail — numbers in September of this year hit 21.2 percent, 14.4 percent, and 11.4 percent respectively compared to earlier highs. The fastest recovering sector is multi-family, hitting at 1 percent above its previous peak.

“The most encouraging factor of all is that there were price gains for all property types,” said Nabors. “This is proof that commercial real estate is experiencing a positive recovery.”

The strongest annual gains in 2014 were in retail, which over the 12-month period ending September 2014 saw a 15 percent rise in the US Retail Index. Although the Prime Retail Metros Index grew by 8.2 percent in the same period, the overall index outperformed significantly, even as risk tolerance increased for investors and secondary markets were priced out of prime markets.

The market has also been witnessing an increased demand for industrial properties. Triggered by strong fundamentals within most markets coupled with asset qualities, the US Industrial Index continued to grow. For this particular property type, average quarterly growth was 3.4 percent higher than the 12-month period ending in September 2014.

Specific to the Multifamily Index, it surpassed its earlier pre-recession peak in the third quarter of this year. Currently the index is hitting 1 percent higher than its peak in 2007. During the third quarter in 2014, pricing for multifamily grew 4.5 percent. At 14.6 percent above levels in 2007 is the Prime Multifamily Metros Index, surpassing the prior March 2013 peak.

Also predicting growth for commercial real estate is a report recently released by Real Capital Analytics and Moody’s stating that prices peak-to-peak has come full circle in less than seven years, primarily because of easy money that prompted investors to struggle for a commercial lending boom coupled with higher-yield assets.

Court Case May Change Fannie and Freddie Investor Sweep

Many investors were recently surprised to learn that Continental Western Insurance Co., a Des Moines-based regional insurer that owns shares in Fannie Mae and Freddie Mac, recently sued the U.S. Government in federal court. The lawsuit alleges the U.S. Treasury claimed all of Fannie Mae and Freddie Mac’s profits, denying shareholders their share of earned dividends.

“The lawsuit is raising eyebrows because individuals from all over the country are invested in the fate of these companies,” said Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, Florida. “We’ve had several people calling us bout this, including some who are concerned about their retirement and mutual funds because those are some of the largest investors in Fannie Mae and Freddie Mac stocks.”

U.S. District Judge Robert Pratt for the Southern District of Iowa will be ruling on Continental Western’s legal standing and his decision could have a direct impact. According its most recent financial report published last week, the Iowa Public Employee Retirement System has more than $1 billion invested in Fannie Mae and Freddie Mac. The lawsuit stems from the federal government’s decision to place Fannie Mae and Freddie Mac under conservatorship of the Federal Housing Finance Agency (FHFA). As the FHFA’s own website explains this role: “A Conservator is the person or entity appointed to oversee the affairs of a Company for the purpose of bringing the Company back to financial health.” How the government has run the enterprises as conservator is precisely what has precipitated the legal action by the plaintiffs, who represent investors in both Fannie and Freddie.

” We’re interested in the outcome of this ruling because it will determine whether the government’s seizure of Fannie Mae and Freddie Mac’s profits is legal,” noted Barrett.

Property Management Recommended for New Investors

In times like these when the stock market is topsy turvy, NBI Properties hears from many people who are interested in diversifying their portfolios by investing in real estate. Viewed by some as a safer, less risky investment because it is not subject to the volatility of stocks, the right real estate investment can produce a steady income stream and reap attractive returns. However, because there are so many options available, investors often need help figuring out how much risk they should assume and if they have time to adequately manage their properties.

According to Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, his firm works with investors from all parts of the country. He said that most are content to invest in rental properties and hire NBI for property management services

“We have clients in lots of different states, and they don’t have the time or inclination to be hands-on property owners ” Barrett said. “We do everything for them, including screening tenants, collecting rents, and ordering repairs. New investors who make the mistake of thinking they can manage properties from afar are usually unaware of the time consuming responsibilities they will face as property owners.”

As one of the largest commercial real estate and property management firms on the Emerald Coast, NBI Properties provides valuable services to investors by handling work order requests, ordering inspections, hiring cleaning services, and responding to emergencies. Overall, Barrett said he steers investors toward properties that require few renovations or maintenance while offering a dependable source of cash flow.

“We recommend that investors choose properties in need of few repairs instead of trying to improve a rundown house or business,” he said. “Not everyone has the skills required to flip properties and turn a profit, so we advise clients to invest in properties for the long term.”

Hurricane Tax Nixed for Floridians

Florida-owned Citizens Property Insurance Corporation recently announced that policyholders will not be socked with an additional “hurricane tax” even if the state is hit by a “once-in-a-century” storm. As Florida’s “insurer of last resort,” Citizens must levy assessments on all Florida property and casualty policyholders if it depletes its surplus and cannot pay claims after a catastrophic hurricane. However, company executives said they expect they will have enough surplus and reinsurance coverage to protect it’s current customer base and avoid the tax.

The news marked a dramatic turnaround for Citizens, as the insurer faced the prospect of an $11.6 billion assessment only three years ago. However, since then, the company’s customer base plummeted from a high of nearly 1.5 million in 2012 to 727,000 with additional policy decreases expected in 2015. Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, said the announcement was welcome news for all Emerald Coast property owners.

“The possibility of having to pay extra hurricane taxes has been a question mark for area residents for far too long,” Barrett noted. “It’s the last thing business owners and homeowners should be concerned with in additional to their regular insurance coverage.”

Citizens will begin 2015 with the lowest policy count since 2005 after depopulation efforts, including a takeout program that transferred more than 300,000 of its policies to private companies this year. However, during the past three years, Citizens and other insurers have benefited from calmer hurricane seasons and a global reinsurance market more willing to offer cost-effective coverage to the Florida market.

NBI Properties Sponsors New Year’s Celebration at The Landing

After the hustle and bustle of the holidays dies down, NBI Properties would like to invite all of our beloved family, friends, and clients to ring in the New Year with us at The Landing in downtown Fort Walton Beach! NBI is a proud sponsor of this family-fun event, which begins on December 31 at 6 The Landing. Presented by the City of Fort Walton Beach, Apex Broadcasting and other local sponsors, the event promises plenty of fun for all ages.
The party kicks off with a 5K run at 6 p.m. and deejays from B-Boy Productions will be spinning your favorite tunes from 7 p.m. until 1 a.m.! In addition, you can hear the band Continuum performing live from 8 to midnight and then stay for the grand finale – a spectacular fireworks display when the clock strikes twelve to ring in 2015!
Free shuttle service is available if you indulge in a little too much champagne, so we encourage you to put this on your calendar and be a part of this special New Year’s Celebration. See you there!
Happy Holidays!
Jayme Nabors and Craig Barrett
NBI Properties