Byline: KEVIN TURNER
Although downtown office leasing and condominium vacancies have risen from 15 to 20 percent since 2007 and landmark downtown buildings are for sale, commercial real estate professionals say lower sales prices are starting to attract investors.
However, those investors aren't yet in a mad rush to buy those buildings, because while the majority of those buildings are completely sound, they're at least 50 years old and several need millions of dollars in renovations to bring them to modern standards and code requirements. Many also lack nearby parking.
"They can be bought cheap, but the renovation cost is expansive," said Bob Knight, broker associate with Addison Commercial Real Estate Inc. "Many people are bottom fishing, looking for distressed properties with potential."
Knight said one group of out-of-town investors has a contract on the gutted 1926 Barnett National Bank building at West Adams and North Laura streets and the "Laura Street Trio" across the street. The trio, also gutted, is being sold as one unit and consists of three buildings - the Florida National Bank building, the Bisbee Building and the Florida Life building, all of which are at least 97 years old.
"I'm sure their intention is to renovate the buildings," Knight said of the investors, but he declined to disclose the buyers or details of the pending deal. The contract is the second one this year; another contract fell through, he said.
The 18-story Barnett building is on the market for $5 million, the same price tag as the three buildings in the trio. If all four buildings are sold, the total cost would be about $10 million - less than the $11.35 million Orlando developer Cameron Kuhn paid for them in 2005 and 2007 before defaulting on their mortgages in 2008, which returned them to the market.
Some of downtown's most visible historic landmarks listed for sale are generating more investor interest than others, Knight said.
"I've shown Barnett and the trio a lot. But there are other listings downtown that haven't had the attention," he said.
Knight said overall, downtown sales are still slow, mirroring a downturn in occupancy in downtown's offices for lease or sale as condominiums.
CB Richard Ellis measured downtown's vacancy rate in the second quarter at 20 percent and expects it to be 19.7 percent in the third. The firm said the vacancy rate downtown was 18.8 percent in the fourth quarter of 2008 and 17.2 percent in the third quarter of last year. In the third quarter of 2007, vacancy was 15.3 percent.
At least one commercial real estate specialist said he doesn't expect it to get much worse.
"We're all cautiously optimistic we've hit the bottom of tenants moving out, businesses contracting and just basically going away," said Buddy Register, senior director of commercial real estate consultant Cushman & Wakefield Florida. "We're at the bottom of the trough and seeing a few signs of movement and interest."
Many downtown lessees are hanging on but have empty space themselves, Knight said.
"A lot of businesses have contracted during the recession, so there's a lot of sublease space that's on the market as well. Most of the primary leases are still intact. As for occupancy, it clearly hasn't clicked up. It's been going down."
Some say there may be more commercial building bargains in the future if foreclosures further pummel commercial real estate as they have residential real estate in recent months.
Jim O'Donnell of Watson Commercial Realty Inc. said more commercial buildings could be forced onto the market in coming years. Balloon payments coming due at the end of this year, the end of 2010 and the end of 2011 could throw more owners into default, landing foreclosed commercial buildings on the market.
"There's cause for concern," O'Donnell said.
Distressed sales have driven down prices in residential real estate in recent years, and commercial prices could drop, too, if they follow the same trend. …