Posted on Wednesday, February 10, 2010
A New Decade, a New Opportunity; Florida's New Frontier for Commercial Real Estate in 2010.
It’s no secret that Florida is one of four states that has borne the brunt of the residential real estate bust. As we now move forward into a new decade, a once-in-a-lifetime opportunity is materializing in commercial real estate for qualified investors.
How broad is the scope of opportunity?
Florida banks have experienced a 112% increase in non-performing commercial real estate loans during the past four quarters. Florida commercial REO has increased in every one of the last four quarters, an aggregate 164% increase. Since local and regional banks played a large part in bubble era commercial lending, particular trouble looms for Florida based local and regional banks. Commercial real estate investors are about to see an avalanche in 2010. At last report, Florida based banks held $1,235,618,000 in distressed non-performing commercial loans at 217 banks, a number most agree is notably under-reported.
Among the best commercial real estate opportunities are those in South Florida. All told, South Florida has about $12.4 billion in troubled commercial real estate facing foreclosure, in bankruptcy, bank-owned, in restructuring or the loan is known to be in default, with much of it already headed to lenders.
• Miami-Dade County has $8 billion in troubled commercial real estate assets, ranking it third among national markets; $2.8 billion in development projects, $2.1 billion in hotels, $1.9 billion in apartments and $562 million in retail.
• Palm Beach County’s troubled assets include $814 million in apartments, $555 million in development projects, $458 million in retail and $148 million in hotels.
• In Broward County will find $650 million in apartments, $409 million in development projects, $377 million in retail and $165 million in hotels.
How attractive will trade prices be?
Experts agree 2010 will be the year in which financial institutions begin deciding that they don’t want to hold on to assets and will instead come to terms with the fact that they can no longer ‘extend and pretend’. They’re realizing it makes good sense to move these assets off their balance sheets to create greater ability to originate new and profitable loans moving forward. Hotels stand out as the commercial sector in which lenders are most eager to exit, but the sector many agree is at its bottom.
According to the most recent Jones Lang LaSalle survey, there is a significant increase in the number of lenders who anticipate selling both performing and non-performing loans and are prepared to accept significant discounts, beginning in 2010, to create much needed liquidity and rid themselves of these non-core, problem assets. According to the survey, nationwide, performing notes are typically selling for 70 to 90 cents on the dollar, while sub-performing, or “scratch and dent” loans are being offloaded for below 60 cents on the dollar. Trade prices for Florida assets are predicted to be even less.