Fort Lauderdale's skyline shaper Terry Stiles thinks the commercial real estate market won't be back until at least 2010. And while, he had to lay off employees, he sees enough of a silver lining to plan downtown's tallest tower.
From his office atop his own Fort Lauderdale office tower, developer and contractor Terry Stiles surveys his hometown skyline — a skyline he had a major hand in building — with an insider’s eye. Valuations, he said, definitely have peaked. “Good example,” he says, gesturing at two gleaming towers across the way. “We used to own those. We sold them for $320” million three years ago. “I think the last guy paid $520. Now they’re back on the market at $460.”
It’s chamber of commerce weather outside, but Stiles sees plenty of clouds in Fort Lauderdale and throughout Florida.
“Good deals can’t get financed today,” he says. Lenders still willing to cut deals are demanding that commercial developers put up hefty personal guarantees, letters of credit in the tens of millions of dollars and as much as 40% equity. Three years ago, 20% and pledging the real estate sufficed. He runs through a list of projects he knows that are having trouble getting financing, and his doleful outlook extends to underlying economic activity. “Until we start creating jobs again, we’re in big trouble,” he says.
Stiles took over leadership of his father’s small residential construction company in 1971, transformed it and saw it boom along with Florida. Since 1990, he has built 2 million square feet in downtown Fort Lauderdale alone. Stiles added full-service real estate and property management services, became one of Fort Lauderdale’s power brokers, a go-to business leader for civic and philanthropic causes and a former president of the National Association of Industrial and Office Properties.
All told, he’s developed 37 million square feet of office towers, corporate parks, shopping centers and government buildings in Miami, Tampa, Orlando, Fort Myers and Jacksonville. In 2007, he set a record of $398 million in revenue. This year, he expects revenue to drop to $220 million. In 2009, he expects to see revenue fall further, to $180 million to $200 million.
Stiles largely avoided the condo boom. Though he built for others, his only development project was the 163-unit 350 Las Olas condo tower. He’s grateful that two more projects he had on paper didn’t pan out. “We would have been right in the middle of this mess,” Stiles says. Meanwhile, condo mania priced him out of the market for downtown land, with condo developers driving the price per square foot above $300, well above the $55 per square foot he paid in 1998.
Stiles stuck with commercial projects and building, but the toll that residential real estate took on credit markets has spilled into the other real estate sectors. Two construction jobs totaling $200 million that Stiles had landed have now stopped. The company let 35 employees go in October. Layoffs are rare at the 320- employee firm, but there’s not much in the works to replace two major projects he’s now finishing, including constructing the 24-story Trump International in Fort Lauderdale. “This is getting to be fairly critical,” he says.
All real estate companies will have to cut expenses and focus on basics such as tenant care, Stiles says. Valuations are down. He doesn’t expect the market to turn until 2010 or 2011. Stiles’ view squares with that of his peers nationally. Nine of 10 real estate executives describe themselves as bearish, and eight of 10 don’t expect a recovery until at least 2010, according to a September industry survey by legal services firm DLA Piper.
When the market recovers, it will function differently, Stiles says. Time was, buyers could put down what would now be seen as a small amount of equity, then leverage that investment, run a building well and expect a 20% return. That return target will be harder to hit, with lenders requiring 35% to 40% equity. Experienced operators are at a loss as to what a building they buy today will be able to be sold for or refinanced for in a year. “It’s a big crapshoot now,” Stiles says.
Against that uncertainty, Stiles is developing a Publix center in Hernando County, and the nation’s largest Lexus dealership in North Miami for dealer Craig Zinn and is planning a large-scale retail project for an undisclosed urban, infill site. In October, Stiles signed Fort Lauderdale-based AutoNation, the nation’s largest vehicle dealer and owner of the Maroone, Autoway, Courtesy and Mike Shad brands in Florida, to a lease for five floors in Stiles’ newest building, the 17-story 200 Las Olas Circle building.
With downtown land prices two-thirds of what they were in the condo boom, Stiles wants to tie up a site for a new office tower and reclaim primacy in the city skyline by building downtown’s tallest building. “I’m fairly optimistic because there’s money to be made with opportunities today,” Stiles says.
Downtown Fort Lauderdale has an 18% vacancy rate, higher than the rest of Broward, says Tere Blanca, senior managing director for Cushman & Wakefield in south Florida, but she says it’s a good time to start work on a building to come in three or four years, especially given Stiles’ resources. “He has relationships that are very strong in the marketplace,” says Blanca, enabling Stiles to land tenants such as AutoNation. In commercial real estate, “we all have tremendous regard for him and want to do business with him. He’s definitely the architect of downtown Fort Lauderdale and southwest Broward in terms of Class A office product.”
The dominos will eventually fall back in Florida’s favor, Stiles says. Retirees will come, creating demand for housing and support jobs. Employers will locate here, especially as the nation grows its knowledge-based economy. That gives the advantage to places with good climate and ambience. Downtown condos have fallen steeply in price, making them more affordable to working couples, fueling demand for restaurants and residential services, a 24-hour living city and a labor pool for employers to feed and draw from.
“You can’t ever discount it’s a great place to live,” Stiles says. “People are still coming here. People still love it when they get here.”
source: floridatrend.com
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http://www.floridatrend.com/article.asp?page=2&aID=50133
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Rory Vanucchi
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