Stress grows on Tampa commercial properties
Wake up and good morning: Overshadowed by attention given the powerful downdraft of the residential housing market, commercial properties are now a growing economic concern. As reported today in the New York Times, vacancy rates in office buildings exceed 10 percent in virtually every major city in the country and are rising rapidly, a sign of economic distress that could lead to yet another wave of problems for troubled lenders. From the story:
"There is no relief in sight for (California's) Orange County, where subprime lenders and title companies once dominated the market but are now shedding space because their business has dried up, and big banks are now shrinking because of a wave of mergers. The vacancy rate has soared from 7 percent at the end of 2006 to 18 percent, a rate that the Tampa area should match this month, local real estate brokers say."
More empty space is expected from New York to Chicago to Los Angeles in the coming year. The Urban Land Institute predicts 2009 will be the worst year for the commercial real estate market “since the wrenching 1991-1992 industry depression.” Here are the Urban Land Institute report highlights which project losses of 15 percent to 20 percent in real estate values from the mid-2007 peak.
Banks will become more vulnerable as building owners struggle with more vacancies and less rental income and need to refinance commercial mortgages this year. Big banks hold tens of billions of dollars in commercial real estate securities and also invested directly in properties. And regional banks may be an even bigger concern because their lending is even more concentrated in commercial real estate.
There are signs of trouble in slices of the Tampa Bay commercial property market. The Tampa Bay Business Journal reports that several Westshore projects are struggling, or worse. One example: A Bank of America loan for $962.5-million is secured by the Westshore Yacht Club, plus numerous other properties. It isn’t in foreclosure, but developer WCI Communities, one of Florida’s largest homebuilder, has sought bankruptcy court protection while it reorganizes.
Another example cited by TBBJ: A St. Petersburg-based unit of Sembler Investments called Ballast Point Group, whose CEO is M. Steven Sembler (pictured in photo, courtesy of Sembler Investments), tried redeveloping a South Westshore apartment complex. But last month Ballast's Westshore Cove Acquisition Group sought Chapter 11 bankruptcy protection.The group listed assets and debts between $50-million and $100-million. It owns The Cove, a 52-building apartment complex at 4001 S. Westshore Blvd., Tampa.
As reported by the Washington Post, some of the country's biggest commercial real estate players are asking the government for help, as their $6-trillion industry of hotels, office buildings and shopping malls faces a record amount of debt coming due in the next few years. Given the current credit crunch, refinancing on such a large scale looks problematic.
-- Robert Trigaux, Times Business Columnist