The heyday of 2005 is long gone. Certain categories of entitled land are moving slowly, and unentitled land isn’t moving at all, said Gary Tasman and Paul Sands, two of Southwest Florida’s experts on commercial real estate.

“Prices are certainly falling,” said Sands, partner, senior adviser and leader of the Sands Commercial Group at VIP Commercial - TCN Worldwide in Fort Myers. “I feel like Wal-Mart. Prices are falling.”

Tasman, executive director of Cushman & Wakefield in Fort Myers, agreed. “All of the land in Lee County is going through a correctionary phase right now, some of it more severe than others,” he said.

“At the peak of the market, you could not find entitled land,” he explained. Developers often had to focus energy on finding it, and they paid a high premium for the land.

“Where we found ourselves when the market slowed down was we actually had somewhat of an oversupply of entitled land. That premium actually went away,” said Tasman.

With that premium gone, the land market is shifting to buyers, according to Sands. “I think that for users, it’s a good thing. If you’re going to build a facility for your own use, there’s never a better time,” he said. “I think you can make some excellent buys on land.”

Retail holds on, multifamily sinks

Photograph: Paul Sands
Sands said not all land has been forced into correction, just yet. “Retail has kind of held on pretty decently,” he said. “I think there’s some adjustment coming.

“We’re still able to get decent prices for retail land. Still able to get decent prices for office land, again depending on where it is.”

But for multifamily-entitled land, Sands sees a very different picture. “Multifamily land is brutal,” he said. “There’s just not many people looking to build multifamily now.”

Tasman painted a similar portrait, adding that prices for this land are down as much as 50% to 70%. “The most oversupply we have is in multifamily residential land,” he said. “You’re actually seeing some multifamily land valued back to 1998 prices now.

“The faster they went up, the harder they fell.”

Sands said this sharp decline in prices has prompted some developers to reconsider their projects, but finding an agreeable pricepoint has not been easy.

“We get calls every week from different lenders who have developers that are looking to get out of projects,” he said. “I just don’t think they’ve gotten to the price where the buyers are. These guys mean it when they say they’re just not doing any projects.”

Tasman added that he’s seen buyers and sellers starting to find a middle ground after the shock of the 2007 declines. “Sellers couldn’t believe they had that much value erosion…. We couldn’t get buyers and sellers together,” he said. “I’ll tell you that sellers are becoming more realistic, and buyers are seeing a little more realism, too. While buyers are still expecting to be paid for risk, sellers are saying, ‘What’s my options?’”

Those options, Tasman said, are to keep paying interest carried to the banks, give it to the bank because it’s not worth anything or sell it at a deep discount. “More sellers are saying it’s time to sell at deep discount than pay interest carried.”

Distribution moving, flex-based inflexible

Photograph: Gary Tasman

According to C&W’s Tasman, industrial-entitled land has been performing a bit better and has seen the least correction, with prices returning to 2003 levels.

Large-box industrial, especially, has done well, he said, considering the growth of the airport and maturation of the I-75 corridor. “And as a result, we’re doing deals out there,” he said. “There’s a lot of projects that are gaining momentum and showing a lot of interest from users.”

Tasman cited a 2 msf industrial park, the 1.4 msf McGarvey projects and Meridian Center as value generators in the area.

Sands said light industrial space, especially flex product, has not fared so well.

“There’s a hell of a lot of vacant flex space that is just sitting out there that is for sale or lease,” explained Sands. “It’s going to take a couple of years to get that out of the way.”

These smaller industrial spaces became very popular, and an inordinate amount was produced, he said. Much of this product was built for tradespeople in residential construction, and they vacated they area at the end of the cycle.

“A lot of people are sitting there with 80,000 to 100,000 square feet vacant,” Sands pointed out. “So, they have to reconfigure it or incentivize people to go in there and lease it until the values come back.”

Like Tasman, Sands has seen some improvement with leasing of large, dock-high spaces. “A lot of developers in our market have gone out and built some larger industrial space,” he said. “Some of them have had some luck leasing that kind of square feet.”

However, he added, some of it remains vacant near the airport, struggling to lease up.

Entitled to entitlements

Both Tasman and Sands agreed that if there’s one kind of land that isn’t moving at all in Lee County, it’s unentitled land.

“Certainly, unentitled land has a very, very limited market right now,” Tasman said. Part of this, he continued, is due to the challenging political environment that inhibits entitling land. There is a lot of risk in that process.

Sands bluntly agreed. “Forget unentitled land,” he said. “If you buy it where you have no entitlements, you don’t know what you’re going to get.

“Nobody’s even looking at it. They don’t want to even hear about it.”

Buyers and investors have no interest in the land unless it’s fully entitled or on the way there, Sands added. The reality is, he said, that it’s time for owners of large, vacant tracts of land to move forward with entitlements and be ready for the next cycle.

“Then they’ll have a piece that’s better positioned,” he said. “I’m not saying go vertical. Just go ahead with your entitlements.”

Looking ahead

Sands said as the Lee County land market moves forward, he sees certain submarkets helping to add value and lead to recovery.

“I think the South Fort Myers, the Estero area has done very well,” he said. “You’re seeing a lot of infill pieces in South Fort Myers get developed.”

Right now, business is being driven by users moving from one place to another or expanding, and users just entering the market have helped, he said. “We’re busy on the leasing side for office space…but only because the landlords are incentivized,” he added. “They’re dropping the rates dramatically, and they’re offering free rent, new carpet, new paint, fresh signage. Pretty much anything you can think of today is possible in a lease negotiation.”

Sands said he felt the east-west corridor and the widening of US 17 would help move traffic, adding more value to the area.

“We used to be just at the end of the earth down here. It took forever and a day to get here,” he said. Now, Fort Myers feels about three hours from many key locations.

“A lot of the people who were sending their trucks down here to deliver on a weekly basis have made the decision to put a distribution center down here,” Sands added. The airport has helped generate demand, too, with traffic there increasing every month.

For Tasman, it’s the increase of activity along the I-75 corridor that seems most promising. “The I-75 corridor office and industrial market will definitely lead us out of the land and building slowdown that we’ve seen,” he said. “What’s good about it is that it’s not going to cannibalize other trade areas.”

Tasman explained that most businesses moving into that area are from outside the region or even the state.

And like Sands, Tasman feels there is also potential in the area of the airport and the university.

“By the same token, land in the path of growth is around FGCU and the airport - you’re seeing regional and international demand in that area,” he explained. This is adding jobs and is limited in supply, which may already have that submarket in rebound.

What is really going to matter as Southwest Florida moves on is the value of land - that is, what buyers and sellers decide the dirt is worth. Right now, buyers and looking for profit to justify their risks, and a project’s worth is determined not by speculation but by what it’s actually worth when finished, less construction, interest carried and profit, Tasman said.

In other words, the market just isn’t as wild as it used to be.

“In reality, in a lot ways we’re just in a normal market,” Tasman continued. “Normal is measurable by the median of all of the extremes, if you think about it.”

As Tasman sees it, Fort Myers is still in a good position for growth, and the excesses will work out.

“It could be a lot worse. We could be in Indiana or Ohio or Buffalo. And I don’t believe it’s going to get as bad here.”