The big, yellow “Closing” banner caught Greg Allen’s attention. “I decided to see if there are any deals,” the Home Depot flooring salesman said. “It is surprising because Sound Advice has been around for a long time.”
Allen was among a steady flow of bargain hunters streaming into the Sound Advice on Federal Highway in Fort Lauderdale on Nov. 17. It had been little more than a week since the beleaguered stereo and electronics retailer announced the closing of 94 stores nationwide, including all in South Florida.
“They say we are in a recession, so I might as well save money as much as I can on something that I need,” said Ariel Umana, a photo specialists at a nearby Walgreen’s. He was on the hunt for a CD player.
Sound Advice, rocked by competition and declining sales, is hardly the only retailer sinking in these stormy economic seas.
Linens ’n Things, Floral Supply Mart, OfficeMax and The Rag Shop have also closed stores. The closures have given rise to a swell of empty big-box spaces in an environment where few are lining up to lease space.
“From this point forward, we are estimating 14,000 retail doors will close,” said Richard L. Kaye, executive VP of the Hilco Organization, an asset disposition, appraisal and acquisition firm. The Northbrook, Ill.-based firm is handling the liquidation of bankrupt Linens ’n Things.
The combined store closings will flood the retail real estate market with about 75 million square feet of vacant space by the middle of next year, Kaye said.
“Frankly, it is going to be a very challenging environment for retail space in general,” he said.
The cracks are already starting to form in South Florida’s once-Teflon retail sector.
Third quarter vacancy rates were at a five-year high, according to Reis research. In response, third quarter rents dipped lower across South Florida.
Many retail real estate experts are bracing for vacancy rates to spike several percentage points by early next year, as sluggish holiday sales are likely to wipe out more retailers.
“I think everyone imagines that January of 2009 will not be a pretty picture,” said Stephen Bittel, chairman Terranova Corp., which owns and manages 3 million square feet of shopping centers in South Florida. “Christmas was always critical, but this year, Christmas assumes unusual importance.”
Bittel said home goods, apparel, and restaurants are the most vulnerable.
The downturn, however, could create opportunities for some retailers to grab prime spots at discounted rents.
Dollar Tree is looking to open as many as 20 new stores across South Florida, said Bill Rotella, president of Fort Lauderdale-based Rotella Group, which is representing the discounter. The chain’s stores range from 10,000 to 20,000 square feet.
“Landlords are aggressively trying to get their boxes re-tenanted and are being as flexible as they can,” Rotella said. READ MORE!
Loan default, distressed sales and foreclosures of office, retail and warehouse properties in South Florida could be the next economic shoe to drop, according real estate experts. Whether this sector hits the wall with a thud or a scrape depends on whom you ask.
But, the binge buying, overpaying and loose underwriting of the real estate boom is poised to leave many property owners owing more than their buildings and land are worth in today’s declining market.
Negative equity, paired with frozen financial markets and maturing short-term loans, is creating the potential for a commercial bust, some experts say.
“There is no replacement financing anywhere in America,” said Angelo Bianco, senior VP of Crocker Partners in Boca Raton. “If you have a loan coming due in the next 12 months, you have a problem.”
Many of the most aggressive, highest leverage loans were written between 2004 and 2006 with lenient terms, including high loan-to-value leverage and interest-only payments. Loan terms ranged from five to 10 years.
The sum of all maturing commercial mortgages are expected to jump from about $40 billion this year to $70 billion next year and peak at $90 billion 2010, according to data from AEW Capital Management, a Boston-based real estate investment and management firm.
Bianco and other market watchers estimated commercial values have fallen 15 percent to 20 percent, putting many landlords upside down in buildings. If they have maturing loans, this could force them to come up with cash to cover lost value, default when balloon payments come due, sell for less than is owed or face foreclosure.
These are the distress scenarios Crocker and other opportunistic buyers with cash on the sidelines are waiting for. Crocker has raised about $250 million to buy when the financing house of cards collapses.
The tough, new reality has the phone ringing in the office of Stephen Wechsler, VP of the finance group at Colliers Abood Wood-Fay. The Coral Gables-based firm recently launched a Distressed Property Services Group to handle financial workouts, recapitalization, foreclosure dispositions and management of distressed assets.
“Forty percent of the lending market was Wall Street – and they’re gone,” Wechsler said.
By most accounts, the failure of investment banks such as Lehman Bros., the evaporation of commercial mortgage-backed securities and risk avoidance by conventional lenders has largely smothered liquidity for refinancing, acquisition and development.READ MORE!
Despite record fuel prices and the economic squeeze, Fort Lauderdale-Hollywood International Airport (FLL) and Miami International Airport (MIA) both gained passengers through the first nine months of this year. But, it may not be long before they join Palm Beach International Airport (PBIA) in negative territory.
Comparing January through September 2008 to the same period last year, FLL and MIA saw 2.7 percent and 1.3 percent gains, respectively. PBIA, however, dropped 5.8 percent.
Bruce Pelly, PBIA’s director, said the downturn means a loss of discretionary income for potential domestic travelers, and also scaled-back business travel. Discretionary domestic travelers have historically accounted for the bulk of PBIA’s passengers, but business travelers now comprise about 60 percent of the mix, Pelly noted.
Capacity cuts by airlines that retrenched at the more heavily traveled Fort Lauderdale and Miami airports hurt PBIA, too, Pelly said. One example is United Airlines, which left PBIA (and FLL, too) in September, but continues to service MIA.
“Our biggest hit has been mostly the reduction Delta has done,” Pelly said. Delta was PBIA’s No. 1 carrier, but Jet Blue holds that distinction during tourist season, he noted.
Pelly predicted PBIA’s passenger numbers will be down through the first six months of 2009, but may stabilize thereafter if the economy settles. .READ MORE!