Observations on South Florida business
Real estate folks are generally an upbeat bunch.
But it’s hard to argue with the positive assessment of the U.S. economy by two real estate economists: Lawrence Yun, chief economist and senior vice president of research for the National Association of Realtors, and KC Conway, CCIM Institute chief economist.
The two economists reassured a packed hotel ballroom at the CCIM Commercial Real Estate Outlook Conference in Bonita Springs on Feb. 11. They ticked off reasons the U.S. and Florida likely will avoid a recession in 2019:
•Record job openings, low jobless claims;
•No oversupply of new homes;
•Conservative residential lending;
•No oil-price spikes;
•Fewer interest-rate hikes forecast this year;
•Relatively high consumer confidence;
•Rising home values;
But Yun and Conway highlighted some of the challenges the economy may face this year, though they’re probably not enough to tip the country into a recession in 2019:
•High U.S. debt relative to gross domestic product;
•Relatively high commercial real estate values as indicated by low rates of capitalization;
•Slowing commercial real estate investment sales;
•Fading impact of tax cuts;
•Labor shortages and rising construction costs;
•New accounting rules that will require companies to report real estate leases on their balance sheets;
•Trade wars that could hamper growth and affect business optimism;
•Low corporate spending.
Taken together, the outlook is positive for the nation, according to Yun and Conway. Florida is in an even position to benefit because of population growth, weather, investment in ports and intermodal distribution centers in areas such as Lakeland. What do you think? Leave your comments below.
How much money does it take to launch private passenger rail in Florida and California?
The answer is more than half a billion dollars.
More specifically, Miami-based Virgin Trains has proposed raising as much as $538 million in an initial public offering of stock to acquire, build and operate several passenger-train lines, including the Miami-Orlando-Tampa line formerly known as Brightline and another line linking Los Angeles with Las Vegas.
The latest IPO documents filed with the Securities and Exchange Commission by Virgin Trains offer fascinating glimpses into the Florida train operations and how they might work. To be sure, it will be one of Florida’s biggest public-stock offerings. Finance geeks can read the offering here.
Brightline launched its Miami-Fort Lauderdale-West Palm Beach line last year and it is now building the leg to Orlando, with plans to expand that to Tampa thereafter. The company says it will take three years to ramp up the ridership.
The IPO reveals how costly this will be. Virgin Trains reported $87 million in expenses in the first nine months of 2018 while revenues for that period totaled $5.2 million. When accounting for interest expense, the company lost $87 million in the first nine months of 2018.
But by late 2023, Virgin Trains estimates it will carry 3.1 million passengers on the Florida line from Miami to Fort Lauderdale and West Palm Beach. The Orlando station will boost ridership to 6.6 million and the Tampa extension will carry an extra 2.9 million passengers.
Virgin Trains is banking on several trends. These include attracting commuters from congested roadways, the development of new rideshare services such as Lyft and Uber that can carry passengers to and from stations and the growing dependence on mobile devices for personal and work activities.
Plus, the company can leverage the Virgin brand. The airline Virgin Atlantic carries more than 1 million passengers between Florida and the United Kingdom annually. Meanwhile, Virgin Voyages will be launching cruises from Miami starting in 2020. A station at Disney World in Orlando would ferry passengers to and from Miami in about 3 hours, 15 minutes.
In fact, the Miami-to-Orlando train line satisfies a niche in the transportation market: too far to drive but too close to fly. Still, getting people out of their cars and planes will be a tough marketing challenge. But if anyone can get everyone all aboard, it’s the branding geniuses at Virgin.
Can you function without a car in Florida?
A decade ago, most of us would have answered no. But some people think it may now be possible in densely populated areas of South Florida, thanks to new and improved modes of transportation plus technology. In fact, some condo towers in downtown Miami offer no parking for their residents.
Consider a recent trip from the Brickell Financial District in Miami to a technology conference at the Broward County Convention Center in Fort Lauderdale.
The trip took only an hour, avoiding perpetually congested Interstate 95. From Brickell City Centre, a rider can hop on the Metromover, a 4.4-mile electrically powered automated people mover to the Brightline train station in downtown Miami. The elevated Metromover is free and runs loops around Brickell and downtown Miami.
The Brightline train is the newly launched hourly train service that connects Miami with Fort Lauderdale and West Palm Beach. The stations are brightly lit, there’s free Wi-Fi and well-stocked snack bars. Cost to ride to Fort Lauderdale: $15 to $20 for a one-way ticket.
The train whisks you to Fort Lauderdale from Miami in less than 30 minutes, enough time to check email using the free Wi-Fi onboard. From the Fort Lauderdale station to the Broward County Convention Center is a 10-minute ride with ride-sharing apps Lyft or Uber.
The return trip is just as easy and speedy. Bonus: you can change your train ticket if your meetings in Fort Lauderdale end early.
Is this enough to give up your car? Perhaps. There are still many reasons to keep driving, from grocery shopping to shuttling kids to and from school and events. Another obstacle may be cost: The round-trip travel to Fort Lauderdale from Miami using the train and ride-sharing cost about $50, double what it might cost in gas and parking.
But trains and ride-sharing save the aggravation and lost time sitting in traffic on I-95 and arterial roads. Plus, in about two years, the Brightline train line (to be renamed Virgin Trains after an investment by Richard Branson) will be extended to Orlando. Tampa is next.
More reasons to ditch the car? It’s now possible, at least for some destinations.
At a recent business event in Miami, Brazilian developer Marcelo Kingston asked his audience to guess the nationality of the first buyer at 57 Ocean, the ultra-luxury condo tower under construction in Miami Beach.
This is an important question if you’re involved in real estate in South Florida. Kingston is managing partner of Brazil-based Multiplan Real Estate Asset Management and 57 Ocean is one of the region’s most high-profile luxury residential projects.
Developers such as Kingston face a challenge selling luxury condos now that the wave of South American buyers has ebbed, stung by struggling economies at home and the strength of the U.S. dollar. The greenback’s strength relative to other currencies has spooked Europeans and Canadians, too.
But any entrepreneur can draw lessons here. Fact is, your customers may change over time, whether you’re selling clothes or technical services. Finding them in times of economic stress will help you manage any downturn.
The audience attending the South Florida Business & Wealth event in Miami recently shouted their answers while Kingston shook his head. Brazil? No. Colombia? No. Russia? No. None of the usual suspects.
Then Kingston revealed the nationality of his first buyer: Romanian.
Kingston’s guessing game with his audience illustrated his point that it’s going to be a lot harder to find customers for luxury residences in South Florida. But there’s hope that they’re out there — and they may come from unexpected places such as Romania.
There’s an article making the rounds in economic-development circles that’s a familiar story for anyone who’s lived in Florida for a time.
The Stateline article is titled “Population Growth Doesn’t Equal Wage Growth in These Cities” and you can read it by clicking here.
It’s true that low-wage jobs have vexed government and economic-development folks in the Sunshine State for decades. The article accurately points out that some cities in Florida have experienced significant population growth without accompanying wage gains.
But let’s keep a few things in perspective before we accept the statement by a Federal Reserve analyst that parts of Florida are growing poorer even as their populations rise.
•Florida’s population grows significantly during economic expansions. This means Florida cities will post big gains relative to other U.S. cities, making the eye-popping numbers good fodder for people who write stories about Census data. Longtime observers of Florida’s economy know some version of this story has appeared during every economic expansion in Florida.
•Wages are a lagging indicator. Wage earners are usually among the last to feel an economic expansion as labor markets must first tighten. Fact is, population gains and wage increases don’t usually rise in tandem.
•The wage gains in the chart accompanying the story are adjusted for inflation gains of 41.66%. While this may be appropriate, the adjustment makes the wage gains appear insignificant relative to population growth.
•Tourism drives Florida. Yes, there are plenty of low-wage jobs in the tourism business, but the fact is that the industry drives the rest of the economy and that ultimately leads to higher wages for Floridians. People vacation in Florida and they buy homes here. Once they realize the positive quality of life, they move their businesses, their skills and their wealth here. While the proportion of low-wage and high-wage jobs may still be skewed to the lower end, it’s safe to say there are more higher-paying jobs in Florida today than, say, 10 years ago.
So let’s be wary of conclusions that fast-growing Florida cities are poorer. Population growth is nothing to fear.
Go ahead and pull out your phone to type Allapattah.
That’s what more than a few people did at a real estate conference organized by The Real Deal recently when developers mentioned they were exploring Allapattah.
You’ll be forgiven if you searched Allapattah on Google. No way you spelled it right the first time, either. And it’s not exactly a destination, unless you have business with the manufacturers or distributors in the largely industrial area.
The Miami neighborhood is named after the Seminole word for alligator. The map shows the area lies to the west of white-hot Wynwood, the arts district that’s seen an explosion of real estate speculation in recent years.
Speaking to hundreds of real estate professionals at The Real Deal event, developer Moishe Mana says he’s talking to investors about Allapattah, where he’s planning to build a significant number of residences and commercial space.
For now, though, the multifamily residential real estate market has softened and developers are hesitating to build new condos. Investors from South America have slowed their purchases of U.S. real estate, especially in Miami.
Still, Mana and others are undeterred by forecasts of a slowdown, so keep your eye on this overlooked area. It may be worth more than a glance the next time you’re driving by.
Has Miami Beach lost its mojo?
That was the headline in a recent article in the Miami Herald.
Longtime observers of Florida real estate will recognize the familiar boom-and-bust pattern. Neighborhoods, cities and sometimes even the entire state become so hot that speculators, developers and financiers stampede in and snap up properties without regard for sound economics.
Then, when the economy cools and other areas compete for business with lower costs, cities such as Miami Beach suffer the inevitable consequences.
“At one point, I was purchasing property on South Collins for up to $1,800 a square foot for big-box clients. Now I get $700 because the retailers can’t bring in enough people to make those numbers work,” Drew Kristol, vice president at Marcus & Millichap tells the Herald.
In Florida, it’s all so predictable.
You could easily substitute formerly hot areas of Tampa or Orlando for Miami Beach. It’s a sure bet that today’s popular areas of Miami such as Brickell and Wynwood will one day lose their shine too when developers realize businesses refuse to pay exorbitant rents.
You can’t forecast real estate cycles with precision, but charging $1,800 a square foot is surely a sign that speculation is rampant. How is it that Lincoln Road is the fifth most-expensive shopping street in the U.S., according to Business Insider?
If you’re an investor, it pays to understand Florida’s boom-and-bust pattern. This is how you make money in Florida real estate.
Most people would rather forget 2008.
That was the year the U.S. financial crisis took a turn for the worse and Florida’s real estate market crashed.
But it was also the year that Florida taxpayers approved a constitutional amendment that made several changes to how municipalities tax commercial property, rental property and other non-homesteaded property.
One of the provisions of the 2008 amendment to the Florida Constitution was the approval of a 10% cap on the growth of non-homesteaded assessed value. This was a victory for owners of commercial property as well as those who own vacation homes in Florida or second homes here.
That’s because non-homestead property owners bore the brunt of increases in tax assessments prior to 2008 while homesteaded owners of residential property were shielded by an assessment cap thanks to Save Our Homes and its champion, Lee County Property Appraiser Kenneth Wilkinson.
But there was a hitch to the 2008 amendment: the 10% cap wasn’t meant to be permanent and it was given a 10-year life before expiring. Now the cap is scheduled to be repealed on Jan. 1 unless voters approve a new amendment on the ballot in November.
Who is against Amendment 2? It’s not clear there is any opposition, even from municipalities that stand to benefit. Perhaps the biggest challenge is voter fatigue and some worry that Floridians may vote “no” on every amendment by default. It needs the approval of 60% of voters to pass.
Florida TaxWatch calculated that failure to pass Amendment 2 could mean a tax increase of more than $700 million, especially on businesses in the state. The organization has a good primer on why Amendment 2 is so important. Take the time to read it over here here and pass it on to friends.
Have you wondered how Gartner built such a big presence in Fort Myers?
You may have read the news in the Business Observer recently that the technology research firm intends to significantly grow its presence in Southwest Florida — again. Gartner already has 1,600 employees in four buildings in the Gateway area of Fort Myers.
If you live in Fort Myers, there’s a good chance you know someone who works for Gartner and raves about this generous employer. It’s the kind of company Lee County has strived to recruit to diversify its economy from housing and tourism.
Still, Southwest Florida isn’t exactly a technology hub, so you’ve got to wonder what brought Gartner to Fort Myers in the first place. The publicly traded company (symbol: IT; recent price: $134) is headquartered in Stamford, Conn., and reported $3.3 billion in revenues in 2017. A member of the S&P 500 listed on the New York Stock Exchange, Gartner is the kind of clean tech company every community would love to attract.
Chalk it up to shrewd “who-you-know” economic development.
Turns out, Manny Fernandez, the former president and CEO, purchased a vacation home on Sanibel, the barrier island near Fort Myers in 1996. He loved the area so much that in 1997 the company relocated its accounting department from Connecticut to Southwest Florida.
That initial move was the start of a 20-year relationship that has turned Gartner into one of the biggest private employers in Southwest Florida. The personal connection with the CEO helped plant the seed for this economic development success story.
Of course, just because Fernandez had a vacation home here didn’t guarantee Gartner jobs. The company considered other factors for expansion such as cost of doing business, quality of life and even friendliness, Fernandez told the Business Observer in 2011.
But you can’t deny that the CEO’s presence in Lee County gave Southwest Florida a shot. And it’s not unreasonable to think that Gartner will one day consider Fort Myers to relocate its corporate headquarters.
Because where would you rather live and work: Southwest Florida or Connecticut?
You know the answer.
If you judge Southwest Florida’s economic health by the traffic on the roads, you’d be right to say conditions are positive.
Fortunately, the Regional Economic Research Institute at Florida Gulf Coast University can provide the data to back up your anecdotal evidence. Led by Christopher Westley, an economics professor at the university’s Lutgert College of Business, the institute confirms what you’ve noticed on the highways.
Once a month, Westley publishes the Southwest Florida Regional Economic Indicators Report, a useful gauge of the economic wellbeing of the region. We’re fortunate: Not many areas of the country have their own economist gathering and analyzing these kinds of numbers.
Check out the March 2018 report . Westley singles out growth in airport-passenger activity, single-family building permits and tourist-tax revenues. These indicators are part of the virtuous cycle in Florida: tourists visit the region, they spend money at hotels and restaurants and they eventually buy a house.
Consider subscribing to the institute’s emails, which alert you to useful reports on the region’s economic wellbeing. It’ll help you make better decisions that affect your business.
If you live in Lee County, be sure to check out the institute’s quarterly Lee County Business Climate Survey. It provides insights about what your business peers are thinking and planning.
Visit the RERI website by clicking here.
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