GlobeSt.com SPECIAL: First Quarter Won't be a Barn-Burner but Recovery on Way, Experts Say

"The economy has bottomed," Livingston tells GlobeSt.com in this exclusive article. "Q1 2002 will be positive."

The developer says "the good news is that while Orlando is suffering a real estate recession, the cause is reduced demand rather than oversupply." He says "the slowing U.S. economy was the cause and, of course, the Sept. 11 tragedy drove the cycle deeper."

Livingston, president-elect, Central Florida chapter, National Association of Industrial and Office Properties, says "demand will increase when the economy begins to recover."

When that happens--"most economists predict mid-2002"--Orlando is "positioned to enjoy renewed growth in its real estate sectors." Livingston, whose family has been an Orlando area landowner for four decades, thinks "the recovery likely will be a lazy V-shaped rather than a prolonged U-shape, and the advantage is space."

Other industry watchers, however, aren't that confident. But all feel a major rally will be in the works by year-end.

On the construction side, Central Florida general contractors such as Edwards Construction Services Inc. of Ocala, FL, aren't missing a beat.

"The events of 9-11 and the downturn in the economy have not affected our business," Edwards' executive vice president Ron Smith tells GlobeSt.com. Reason: Like other area generals, Edwards is working on a large backlog of contracts.

"I have seen a dramatic drop in qualified building prospects and we have seen a couple of projects get put on hold until the end of the first quarter to 'see what the market is doing then,' as stated by several of our private development clients," Smith says.

"These were projects in the planning or design phase that were not ready to start construction. By stopping the design, essentially these projects that may have started during the first quarter will not start (now0 until the end of the second quarter, if they move forward at all."

On the financing side, one of the few bright lights for the first quarter is the multifamily market, Todd F. Cohen, vice president, Primary Capital Advisors, tells GlobeSt.com. "This market continues to gain strength as units coming online continue to be absorbed," Cohen says. "Apartment demand over the past six months has outpaced new deliveries, resulting in slight upticks to occupancy."

Long-term rates for apartment financing remain in the 6.5% to 7.5% range, depending on loan to value and debt service coverage. "While many lenders have applied more prudent underwriting, most still expect growth in their apartment portfolios, " Cohen says.

Another mortgage banker, Mark L. Findura, president, R.J. Twitty & Co. II Inc., Orlando, agrees with Cohen that apartment financing will be the product of choice for the lending industry in the first quarter and possibly throughout the rest of the year.

"Multifamily still leads the way regarding lowest cap and interest rates, highest leverage and number of lenders in the market," Findura tells GlobeSt.com. "Long-term interest rates have increased in the last month from a 10-year Treasury low of 4.1% to 5.1% today. However, that still equates to available money at or just below 7%."

David J. Patten, president, Interlachen Financial Group, Winter Park, FL, is optimistic on the first quarter "as far as our permanent lenders being active and looking for good deals." Patten tells GlobeSt.com long-term interest rates should stay in the low 7% range for awhile.

"We would rank property types, as far as lender preference, as apartments, industrial, anchored retail and office, without much interest in the hospitality sector for now."

In office leasing, tenants should be able to cut good deals in the first quarter as the mountain of subleased space tops the half-million-sf mark.

"2002 will be a great market for tenants,"Christopher T. Sproles, first vice president, CB Richard Ellis Inc., Orlando, tells GlobeSt.com. "The best deals will be achieved in the first half of the year."

Sproles says, "Despite a softening market through the first quarter, I am seeing a new increase in activity that I believe will continue throughout the year, eventually absorbing much of the sublease space and shell space currently available in the market."

Sproles' industrial specialist colleague at CBRE, David Murphy, like Realvest Partners' Livingston, expects a solid first quarter.

"While the industrial market did not perform overly well in 2001 (third-quarter vacancies, 9.3% out of 95 million sf) and the events of Sept. 11 only exaggerated a stagnant market sector, pentup demand for space and the anticipated recovery of the economy should bode well as enter the new year," Murphy tells GlobeSt.com.

He says Central Florida "remains an attractive location for businesses to locate and the reduction of planned and under-construction industrial product over the past four quarters should allow the industrial market to recover more rapidly than in past downturns."

On the retail side, grocery stores will continue to expand in the first quarter, fighting for increased market share. Publix, Winn-Dixie and Albertson's are the market's Big Three.

"Kash 'n Karry is currently on hold in Central Florida but should pick up the pace later in 2002," John M. Crossman, senior vice president/retail services director, Trammell Crow Co., tells GlobeSt.com.

Power centers are the big survival question mark in metro Orlando. "Look for at least one major power center tenant to leave the market in early 2002," Crossman says. "The majority of small shop tenants and outparcel users have normal expansion plans for 2002," the Crow executive says.

Another retail industry analyst, David W. Marks, president, Marketplace Advisors Inc., Orlando, sees major big-box national retailers continuing to expand in the first quarter.

Among them: Home Depot Inc., Lowe's Inc., Wal-Mart Stores Inc., SuperTarget, BJs Wholesale Club, Costco, Sam's Club, Publix and Walgreens.