Real estate developers are looking at new ways to generate such as property management and development for a fee, and are offering deep discounts to survive the building slump as it slides into 1991.
Yet most remain optimistic on the long-term outlook for the real estate industry in South Florida.“The outlook for real estate is as difficult this year as it was last year,“ said Ernest M. Miller, president and chief operating officer of South Florida`s second-largest home builder, Arvida/JMB Partners in Boca Raton. “We saw the downturn begin a year and a half ago. We saw the erosion of consumer confidence.“
It`s certainly not an official economic indicator, yet Miller thinks he has found a sure way to gauge consumer confidence.
“We watch how many times someone will come to look at the same property. They`re looking at it five or six times before considering a purchase, not once or twice like they used to,“ he said.
Nearly 75 percent of all major developers surveyed by the University of California`s Center forFinance and Real Estate said they will turn to property management and development-for-fee. At least 71 percent of those surveyed in a study released last month said they do not plan to get into new types of development.
“We can expect the number of developers to shrink substantially and those who weather the storm will be more sophisticated in finance, marketing and management expertise,“ said Phillip R. Nicholson, an attorney who helped conduct the UCLA survey.
“Although real estate has experienced down cycles in the past, this one is creating a fundamental change in the industry,“ Nicholson said. “Yesterday`s overbuilding coupled with today`s severe credit crunch are driving some developers out of business. Others, in order to survive, are diversifying.“
Deep discounting has been standard for a while among South Florida commercial real estate developers, who lure new tenants with up to a year of free office space. Many home builders are doing their own form of price cutting.
Hovnanian Enterprises is leading the pack by offering discounts
of 15 percent to 25 percent at Pine Ridge in Delray Beach. Next month, the New Jersey company`s Florida division in West Palm Beach will start a series of auctions of its remaining condominiums in Palm Beach County and St. Lucie County.
Real estate in South Florida is undergoing restructuring, Miller and other experts said at a recent Peat Martwick conference.
New office construction, hotels and other commercial buildings are expected to be the weakest components of construction. Manufacturing plants, home improvements and office refurbishing projects are expected to be the strongest, as well as activity in the public sector for new hospitals, schools and government buildings.
Major public-sector projects include the new Palm Beach County Courthouse going up in West Palm Beach and Broward County Convention Center in Fort Lauderdale.
But private-sector projects are staying smaller scale, such as construction by Sunbeam Properties, developers of the Miramar Park of Commerce in southwest Broward County, of a speculative 120,000-square-foot industrial/ manufacturing center at the park. Or Boca Raton-based Crocker & Co.`s venture into redevelopment of existing office parks such as The Arbors in Delray Beach.
A shortage of financing, an oversupply of unsold and unleased properties and lessening demand for new commercial and residential units were all reaching heightened proportions even before the recession and Persian Gulf war put the final skids on developers.
And consensus among industry experts is that real estate in the 1990s in many ways was paying for the excesses of the 1980s.
“The you-can`t-lose mentality is over. The old assumption of higher real estate value no matter what is over,“ said Jeffrey W. Tucker, president of Tucker Communications, a public affairs and marketing company.
“What we`re saying to (developer) clients is: rethink your position, expect a lot fewer deals and look at more property management, partnerships and build-to-suit.“
Several developers and commercial real estate broker companies such as Lehrer & Co. in Fort Lauderdale are setting up property management divisions to oversee and manage office parks and buildings, many of which may be foreclosed properties taken back by the lenders.
The federal Resolution Trust Corp. has taken over more than 10,000 properties in the southeast region of the country from failed thrifts.
In addition to managing, some developers are turning to renovating older office parks.
“Redevelopment is a trend that`s about to sweep the south Palm Beach County and north Broward market,“ said Drew Cunningham, manager of Crocker & Co.`s The Arbors Office Park in Delray Beach. “Giving tenants updated space at a much lower cost than new construction.“
