Condo Inventory in Miami Florida

It seems that international buyers and investors have been helping the Condo market in Miami, especially the Brickell Avenue corridor and Downtown Miami. Almost 85% of the excess inventory is gone and new projects are being planned around Brickell Ave and the Biscayne Blvd area. Prices per suqre foot have gone up from $200/sq.ft to about $300.00 to $350.00/sq.ft in some cases and new projects are being priced between $325.00 and $380.00/sq.ft.

Inventory of rental units has also decreased putting pressure on the rental market. Rents have gone up an average of 15% for condo units in this area. Looking at all areas in Miami-Dade and Broward Counties, one can see rental inventories down and rental rates going up, making more attarctive residential rental investments. The expansion on the Panama canal is fueling the local economy creating jobs to expand the Port of Miami, Port Everglades and Fort lauderdale and Miami International Airports. The Canal expansion should be done in 2014 when we may see another possitive growth of our local economy and in the meantime who knows if we approve gambling and the projects that will come with it.A positive outlook for rental properties in our area.

What is the price per square foot?

Most of the time this is a question most investors and buyers ask when considering purchasing commercial real estate. With construction and replacement costs being more and less the same throughout the nation (in most cases cost of materials and labor do not differ that much)and some influence by the local demand and supply, one may think there should not be a great difference from one location to the other. In fact replacement cost has an influence on the cost of an existing building. Furthermore, local demand and supply will put pressure on how much buildings are trading per square foot in a specific area. There are other factors such as environmental conditions and property characteristics and condition or physical obsolescence if present. But in commercial/investment real estate the most important factor to determine the actual value of a building is how much the asset can produce, either in income for an investor or use value for a user. When an investor looks at acquiring income producing properties, an income approach to value will have more weight than any other method such as comparison sales or reproduction cost and appraisers use it all the time. This is why you can see that recently a 15,000 sq ft shopping center in good condition with a large expected economic life sold in Broward County Florida for $3,525,000.00 or $235.00 per square foot and a retail space totalling 15,000 sq ft, in a very similar condition, sold on Broadway, New York City for $136,550,000.00 or $9,103.33 per square foot. Although it is very important to know replacement costs, recent sales, property and location conditions, all comes down to the internal rate of return of the investment over a specific holding period and the question is more how much it produces rather than what is the cost per square foot. One an analysis is performed on a specific real estate investment and the results make sense for the investor, then all other conditions should be analyzed, future growth in the area, future supply, future demand from users of this property type, demographic and market forces, government plans, environmental hazards and property condition to determine when and how much capital improvements will be required and how much reserves for replacements should be put aside. When we blend all these factors into our investment and financial analysis, if we achieve the required return for our investment criteria, we will move and purchase the property, most of the time not paying too much attention to what is the price per square foot.

Property Management Trust Accounts

Misuse of trust accounts is the number one reason why property management companies are audited. That’s why it’s vital that the proper trust fund accounts are established as needed, and used properly.

Improperly using trust accounts that were established to maintain owner funds and tenant security deposits can result in stiff penalties, such as license suspension or revocation. Improper tracking or usage of tenant security deposits can also result in the management company being responsible for the cost of damages incurred while the property was occupied.

Trust accounts are traditionally used as a method to keep tenant deposits and rent payments separate from operating capital. For example, in both California and Arizona, rent payments must be placed into a trust account no later than three business days after the funds have been received.

Funds placed in the trust account can only be withdrawn by the broker or broker-officer whose name the account is established under. Brokers are not allowed to tap into these funds except for trust related items. To complicate matters, many states currently require that security deposits be kept in a trust account, with some state statutes requiring that the deposit be in a separate trust account, while others allow them to be placed with the owner’s trust account. For instance, in Arizona, brokers must maintain a separate account for all tenant security deposits. Note that in most states, security deposits received on broker-owned properties do not have to be deposited into a separate trust account, but it’s always wise to check your own state’s requirement.

In recent years, some states have implemented new laws requiring property managers and owners to specify in the management contract exactly how trust accounts will be used. Even if your state has statutes specific to the use of trust accounts, it’s best to spell out any specifics in the management contract.

The Department of Real Estate in each state has its own set of established rules and regulations governing the proper and improper usage of trust accounts, and it’s wise to get yourself up to speed on these regulations.

While your state’s department of real estate will continue to perform audits, if your management company has followed the statutes, and maintained ‘good accounting practices,’ you should be able to sail through any audit that your property management company may be subjected to. (Source propertymanagement.com)

New Accounting Rules Affecting Tenants & Landlords

The Financial Accounting Standards Board and International Accounting Standards Board have been working on a project to modify how leases are reported by tenants. Currently the standards require that tenants evaluate leases to determine if they are capital or operating leases. Capital leases are recorded as Assets and related Liabilities on the company's Balance Sheet. Operating leases are expensed as the lease term passes and future lease obligations are disclosed in the footnotes to the financial statements. Most real estate leases are recorded as operating leases. The new rules will require that all leases are recorded as a right to use Asset and lease related liability, calculated using the present value of all lease payments. These "Assets" will be amortized over the life of the lease and lease obligations will be reduced as lease payments are made with an interest component to take into account time value of money. We see many possible implications of this new rule. No question these new rules will affect the company's Debt/Equity ratio, maybe forcing a company to shorten the length of its leases to meet its covenants. A shorter lease will require only a fraction of the debt to be recognized in the balance sheet. Under the rule renewal options must be included if it is likely the option the option will be exercised. Landlords also have to change the way they report leases. For leases with significant risk and benefits associated with, they will have to record a liability for the obligation to provide space and an asset for the rents to be received. For all other leases landlords will have to use the derecognition approach, meaning they will have to record a lease receivable for the future rents and a residual asset representing the lessor's right to the underlying asset at the end of the lease term. Like with the case of a tenant, the term of the lease would require auditor's judgement and must be re-evaluated at each reporting date. These new rules will affect, landlord's and tenant's, leasing decisions in the future. Commercial real estate entities must contact their accountant and business advisors regarding these changes. It is our opinion that the proposed standard will create an incentive for shorter leases, creating more volatility and affecting property values. It may also create situations where tenants may be better off purchasing rather than leasing space. All these changes and their possible effects must be discussed with a Certified Public Accountant before making any decisions.

Retailers and Lower Rents

The United States Retail Sector showed signs of stability during the third quarter of 2010, according to information from REIS Inc. and notes from the Journal of Property Management of IREM. With a 10.9% vacancy rate at neighborhood and community centers and a positive net absorption of 300,000 square feet, the market still have opportunities for certain retailers who want to take advantage of lower rents and vacancies resulting from the recession by opening new stores and extending leases at favorable terms, according to data collected by CoStar Group. Mall have shown losses of 13.6% in rent while lifestyle centers showed 12.1%, according also to data collected by CoStar Group. These centers are most likely to be after those retailers businesses, looking for dcicounted rates. Kohls is one of the retailers taking advantage of lower rents to opoen new stores. It opened 30 stores in 2010 (21 in the third quarter) and plans to open 40 new stores in 2011. Many of the new stores will take over vacated space by Lowes and Wal-Mart. Electronic retailer HHGREGG also plans to take advanatage of market conditions opening new stores and his presence and expansion in South Florida is already a reality. Pittsburg based, Dick's Sporting Goods Inc. has similar plans.

The Flexibility of leasing office space

For many firms, renting office space might work out better than purchasing an office condominium unit. Thus, a company that is growing rapidly may require additional space every few years. This type of company might do better with short term leases or with a long term lease containing options to acquire additional space in the building at specified future dates. A condominium office building can be expected to have infrequent turnovers, and obtaining additional space may be difficult, although some condominiums use a right of first refusal requiring unit owners selling or leasing units to offer them to the other unit owners. An office tenant can move out at the end of the lease without worrying about disposing of the leased premises. The key is flexibility when you expect growth. In the Medical field, doctors and dentists do not usually experience the kind of growth that requires the same flexibility so in these cases an office condominium may work better, taking some advantages of ownership. The same is true for other professionals. Therefore the success of some professional office condominium projects. For these doctors or professionals owning may have better financial and/or tax advantages, making it a lot more attractive than leasing.