Commercial Real Estate Lending Improves

A few years ago, some investors were scrambling to find sources of capital as banks and lenders were reluctant to fund projects. Fortunately, a new age of more stringent underwriting by banks and other lenders combined with greater diversity in sources of commercial real estate capital has helped ignite a rush of confidence among CRE executives. The 6th annual Akerman U.S. Real Estate Industry Outlook Survey recently found that nearly 60% of real estate executives are more optimistic about the market this year than they were in 2014.

Nearly half of the executives interviewed predicted that banks will drive commercial property financing over the coming year, and for the first time since 2011 they indicated that insurance companies will also be a main source of real estate financing. Foreign capital, already funneling equity into U.S. property deals, will also be a key driver of growth in the financing space as well.

Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, said the days of searching for alternative sources of financing are over.

“During the recession, we worked with a lot of investors who were frustrated by traditional lenders and banks,” he said. “We had to get creative and look for other sources of capital, but now the tables have finally turned and it’s much easier to obtain funding for developments and projects.”

A surge in institutional capital is leading deal volumes, with an upward trajectory predicted in 2015. However, executives believe that foreign capital will continue to pour into the U.S., and CMBS, private equity, REITs and pension funds will serve as sources of an even greater volume contributed through non-traditional investment vehicles. More than half, or 58%, believe multifamily will continue to lead CRE through the recovery. Seven out of 10 agree apartment development will drive multifamily activity.

Executives also said the single-family homebuilding market will be the second most active real estate sector at 10%, followed by hospitality, retail, industrial and office.

Florida’s CRE Brokers Optimistic on Growth

Optimism is running high in the Florida commercial real estate market among those in the business, at least according to the Survey of Emerging Market Conditions conducted quarterly by the Kelley A. Bergstrom Center for Real Estate Studies at the University of Florida’s (UF) Warrington College of Business Administration. UF’s Commercial Real Estate Sentiment Index, an overview of respondents’ opinions about their own businesses, improved to 7.45 out of 10 – its highest level since the third quarter of 2006. Craig Barrett, co-founder and broker with NBI Properties in Fort Walton Beach, said the future for commercial real estate is especially bright on the Emerald Coast.

“The tourism industry continues to grow by leaps and bounds and we’ve also seen a surge in job growth in the area,” he said. “Interest from investors spiked heavily this spring and shows no signs of slowing down during the summer months.”

The survey found that brokers and practitioners throughout the state expected occupancy and rents across property types to remain stable in the next quarter. Multifamily property occupancy continues to be positive, increasing at a rapid pace over the past few years. However, inventory increases from new construction, along with current capacity units, means this trend may level off soon.

Current capitalization rates have remained stable across most property types, though uncertainty over interest rates remains with certain property types. For now, however, low interest rates continue to drive capital to real estate.

Overall, survey participants felt that despite uncertainties, the state’s economy and its real estate markets continue to improve. UF says that trend should hold true for the near future.

The survey included 97 participants representing 13 urban regions of the state and up to 15 property types. The UF Bergstrom Center for Real Estate Studies supports the UF real estate courses and degree programs housed within the Warrington College of Business Administration.

Destin’s CRE Destiny Debated

What’s Destin’s destiny? Some investors mistakenly think there’s no available land for commercial development, but NBI co-founder Craig Barrett disagreed when he was interviewed recently for an article in The Destin Log.

“It may look like every smidgen of land is already developed, but in actuality there are some prime commercial lots still available,” he said. “The lots are designated as prime because in Destin there’s only one main road and everyone wants to be on Highway 98.”

When he was asked to name the top five most valuable properties on the market in the area right now, Barrett brought up five parcels in the space just around the Okaloosa/ Walton County line. He said he believes this is the next area Destin’s commercial buyers are getting ready to move to.

“The growth is growing into each other. It is growing east from the Destin Commons and growing west from the outlet mall. It is just a matter of time,” he said.

Investors looking for other options beyond Destin are frequently inquiring about available land parcels in areas such as Grayton Beach, Miramar, and Santa Rosa Beach. Barrett added that interest in land and properties on Highway 30A has spiked dramatically during the past few years.

“Destin is far from being played out,” noted Barrett. “But investors are realizing there are lots of other opportunities for development in other cities and towns on the Emerald Coast.”

Citizens Announces Rate Increase for Coastal Property Owners

Life’s a beach until sticker shock from insurance rates kicks in for some property owners. And that’s exactly what will happen when more than half of Citizens Property Insurance customers face rate increases next year, according to a proposal going before the insurer’s Board of Governors this week. The biggest increases are expected to hit coastal policyholders throughout Florida.

“We’ve seen increases for commercial and residential property owners on the Emerald Coast,” said Craig Barrett, co-founder of NBI Properties in Fort Walton Beach. “We’ve spoken with several insurers who have confirmed that rate increases are due to more water loss claims and the fact that some property owners have found adequate coverage with private market insurance companies.”

Citizens is proposing an average rate increase of 3.2 percent for personal lines policyholders. However, the actual amount will vary depending on location and home. The proposal includes an average increase of 8.6 percent on coastal multi-peril homeowner policies and Citizens says the rates reflect the higher risks associated with living along the coast.

For inland policyholders, the news is a bit better with a 1 percent drop proposed in multi-peril rates. Of the approximately 573,000 personal lines customers now with Citizens, about 255,000 are expected to see lower rates.

NBI Celebrates 10 Years of Progress on the Emerald Coast

When Jayme Nabors and Craig Barrett founded NBI Properties in Fort Walton Beach 10 years ago, everyone told them the timing was perfect for commercial real estate. As Barrett recalls, in 2005 just about every property imaginable was selling during a historic real estate bubble and everyone was cashing in. Unfortunately, business started off slowly when the region was paralyzed by several hurricanes that brought operations to a halt with no electricity or phone service.

“It definitely wasn’t the grand opening we had envisioned,” said Barrett. “Instead of showing properties and negotiating contracts, we were spending more time talking investors out of buying anything because the timing wasn’t right. We knew when the real estate bubble ended, a lot of people would get hurt if they gambled on the wrong deals.”

Because Barrett and Nabors are sixth generation residents of the Emerald Coast, they didn’t allow a few hurricanes and the end of the real estate heyday to discourage them. Instead, they built a reputation for giving good advice and steering investors and business owners to opportunities with less risk. The strategy paid off, and today NBI Properties is celebrating its tenth anniversary as one of the most highly regarded commercial real estate brokerages in the Southeast.

“All of the people who listened to us during the recession are some of our best clients now,” Barrett noted. “The market has improved considerably over the last two years and we’re working with numerous clients interested in retail, industrial, and professional office space. In fact, we’ve leased millions of square feet of office space since we started the business.”

Barrett added that NBI’s property management division has grown substantially in recent years with the firm currently managing more than 3,000 properties on the Emerald Coast. He said the luxury market is also heating up in the area and cited the Highway 30A corridor as an example of residential and commercial properties appealing to affluent homeowners and business owners.

As both Barrett and Nabors have witnessed continual growth throughout the region, they have made it a priority to give back to the communities they serve. They have sponsored and participated in events such as the annual Billy Bowlegs festival, PAWS Animal Rescue, the YOLO Board Relay Race Series, and the New Year’s Eve celebration for families in Fort Walton Beach. Last year the City of Fort Walton Beach also selected NBI Properties as the city’s Real Estate Broker of Record.

“We’ve been blessed and feel privileged to have been able to work with so many people tha last 10 years,” Barrett said. “The Emerald Coast has the best of everything, so we’re looking forward to seeing what the next decade brings!”

Flood Insurance Required for Some Commercial Properties

With hurricane season fast approaching, there are always plenty of news reports about how homeowners can be prepared for storms, damage and flooding. Business owners and commercial properties are often lost in the shuffle and need to take precautions as well, including insuring buildings in high risk areas. According to Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, Florida, some business owners are not aware of how to protect their valuables or the amount of insurance needed to cover a catastrophe.

“We’ve seen more than a few business owners on the Emerald Coast who had to learn the hard way that insurance policies vary and don’t always cover everything,” he said. “We know people who had minimum insurance coverage during hurricane season and ended up paying thousands of dollars out-of-pocket after storms or flooding ruined the property.”

Insurance premiums vary according to whether a commercial property is located in a high-risk or a moderate-to-low-risk area. Moderate-to-low-risk buildings usually qualify for coverage at a lower, preferred rate and premiums are offered for buildings and contents for one low price. Owners can also choose to insure only the contents if they do not wish to have coverage for the structure. For those who don’t qualify for a preferred rate policy, standard rate policies are usually the norm.

“What some people don’t realize is that although flood insurance isn’t federally required, any business can be financially vulnerable to floods and hurricanes,” Barrett said. “In the last few years in this area, we’ve seen that you don’t have to live in a high risk area to sustain damage and that nearly 25 percent of all claims came from businesses and residents living outside the high risk zones.”

Barrett noted that if a commercial property is located in a high-risk flood area and has a mortgage from a federally regulated or insured lender, the owner is required to purchase a flood insurance policy.
“We tell our clients to check around for the best insurance policies and make sure they understand the fine print,” said Barrett. “It’s impossible to predict the weather, but business owners can rest easier if they have the right insurance policy in case disaster strikes.”

Investors Look Beyond Apartments for Higher Yields

Investors seem to finally be withdrawing from the apartment complex craze that enjoyed steady returns for the past several years. Several real estate studies and surveys show that as apartment rents and occupancy growth tapered off in the face of new supply, owners of multifamily properties considered selling assets or diversifying portfolios with other property types. Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, Florida, said that investors on the Emerald Coast are looking for higher yields and occupancy stability.

“We’re not seeing investors getting out of the apartment and condo market entirely as much as they are interested in other options,” Barrett said. “The market has remained strong even with the challenges of new supply and a wave of new construction. “

Barrett added that office, retail and professional buildings are a few types of properties that investors are calling him about, in addition to premium waterfront properties in the area. He noted there is a lot more opportunity in terms of pricing, occupancy and rent upside in some of the other property types such as office and retail space where investors still have the ability to potentially pursue development and value-add deals and some core deals as well.

“We believe the demand for apartments will remain steady because demand is still high,” he added. “But there’s so much new apartment supply right now that’s causing vacancies to go up. With office space, it’s a lot more difficult to obtain financing for office construction. However, with office jobs increasing, vacancy compression and less construction, the office sector seems like a safer haven for many investors.”

Sales of Vacation Homes Reach Record Highs

Sales of vacation homes reached record-highs in 2014 while investment purchases fell for the fourth straight year, according to an annual survey of residential homebuyers released by the National Association of Realtors® (NAR). NAR’s 2015 Investment and Vacation Home Buyers Survey, covering existing- and new-home transactions in 2014, revealed vacation-home sales catapulted to an estimated 1.13 million last year, the highest amount since NAR began the survey in 2003. Vacation sales were up 57.4 percent from 717,000 in 2013. Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, Florida, said that sales of vacation homes remain steady on the Emerald Coast.

“There’s always been a great deal of interest in vacation homes in this area and a lot of it stems from tourism,” he said. “People travel to this area for vacation and end up wanting to move here, either year-around or just during the winter season. Whether it’s a vacation home for personal use or investors interested in rentals, it’s thriving here.”

Investment-home sales in 2014 declined 7.4 percent to an estimated 1.02 million in 2014 from 1.10 million in 2013. Owner-occupied purchases fell 12.8 percent to 3.23 million last year from 3.70 million in 2013. The sales estimates are based on responses from nearly 2,000 U.S. adults who purchased a residential property in 2014, and exclude institutional investment activity. Vacation-home sales accounted for 21 percent of all transactions in 2014, their highest market share since the survey was first conducted. The portion of investment sales fell to 19 percent (20 percent in 2013); owner-occupied purchases declined to 60 percent (67 percent in 2013).

“As the economy continues to improve, there continues to be a strong demand for vacation homes and vacation rentals,” Barrett added. “The rise in home prices are giving buyers the assurance that vacation homes are a lucrative long-term investment. Baby boomers are also getting closer to retirement age and considering buying vacation homes with the intent of converting them into a primary residence in several years.”

The median sales price of both vacation and investment homes declined in 2014. The median vacation home price was $150,000, down 11.1 percent from $168,700 in 2013. The median investment-home sales price was $125,000, down 3.8 percent from $130,000 a year ago.

Crestview Clears the Way for Affordable Senior Housing

Crestview is joining other cities on the Emerald Coast in addressing the aging Baby Boomer market by offering more affordable housing opportunities. The Crestview City Council recently approved an agreement with the Florida Department of Economic Opportunity that ensures senior rental housing for at least the next 40 years. The DEO reportedly granted $1 million so that Katie Manor Ltd., will contract with the city to buy property for a facility that it will build and operate. Grant funding is allocated to cover the property purchase and an additional $6.4 million in Florida Housing Finance Corporation tax credits will help fund construction, according to public documents. As stipulated in the agreement, the property must be purchased before June 15 and the facility’s construction must begin within six months after that.
Craig Barrett, co-founder of NBI Properties in Fort Walton Beach, Florida, said Crestview is joining other cities such as Fort Walton Beach and Destin to ramp up more affordable housing options for seniors to meet demand in the years ahead.
“We’re dealing with investors who are interested in affordable housing projects and other property types for seniors such as assisted living facilities,” he said. “We are also talking to investors who are interested in healthcare options for seniors, including hospice, cancer treatment centers, and other professional and medical buildings.”
In Crestview, Katie Manor, a limited liability company in Florida, plans to build a three-story, 108-unit building with 55 one-bedroom and 53 two-bedroom units. The senior housing is expected to be available in 2016 or 2017.

Nation’s CEOs Choose Florida as Top State to do Business

The nation’s CEOs once again selected Florida the second-best state in the U.S. to do business, according to results from a new report released by Chief Executive magazine. Southeast states, with their ocean ports and transportation options, dominated the top five rankings.Texas was ranked No. 1 for the second year in a row, followed by Florida. North Carolina, Tennessee and Georgia rounding out the top five.

The magazine surveyed 511 CEOs on states with which they were familiar, rating each one on taxes and regulations, quality of the workforce and living environment. CEOs surveyed favored pro-growth, low-tax states in ranking states as “best” for doing business. Craig Barrett, founder of NBI Properties, said that the many investors he deals with would say Florida ranks first as the best state for business.

“CEOs and investors know that Florida is pro-business,” he said. “Here on the Emerald Coast, we see that many businesses and industrial development are helping to diversify the economy. The investors we work with are well aware that Florida is not just about tourism anymore.”

For the 10th year in a row, California was ranked the “worst state for business” with CEOs commenting that the state is “anti-business” and has an unfriendly regulatory and tax environment. State governments use the annual survey findings to help determine how to improve their regulatory environment to attract new businesses, while corporations use the data to determine where to build offices and other operations.