An Abundance of Caution - Summer 2016

Commercial real estate prices throughout the U.S. and in Sarasota have gone up and capitalization rates down in large measure because there are few alternatives for generating comparable yield in today’s environment. Most buyers either are eschewing leverage or they are unable to secure it, resulting in many all-cash transactions. 

Sarasota also has been buoyed by an ever-increasing number of tourists and a lack of development, which has boosted occupancy levels for various asset classes. More than 1,500 new rental and condominium units are under construction and will come online by 2018, which will further broaden the market and create new demand for services, goods and experiences. While overall absorption remains unknown, it appears fairly certain that Southwest Florida will not be flooded with bank-owned properties as the region was a decade ago, a phenomenon that depressed prices temporarily (but also led to solid buying opportunities over the past five years).

Still, some ominous signs give us pause. Direct Energy’s plan to consolidate its Sarasota offices from the Plaza at Five Points building downtown to Houston by October will be a blow to office absorption, and result in a loss of more than 100 professional, white-collar jobs. Meanwhile, the sale of an interior lot on Golden Gate Point recently for $2 million -- or $250,000 per entitled unit -- strikes us as excessive, as does the investment of $3.5 million for land at Boulevard of the Arts and Cocoanut Avenue in the Rosemary District for a boutique hotel – at a time when more than 700 new hotel keys are under construction and poised to come online downtown by 2018.