Although the residential housing market is starting to show signs of recovery, South Florida’s commercial real estate is still in crisis. Bludgeoned by empty storefronts, diminishing rent prices and difficult to obtain credit, a sizable number of South Florida commercial property owners face default on their bank loans. Many fear that this could trigger another round of bank failures and further impede the economic recovery of the region.
Over the years, South Florida’s community banks have invested in commercial properties such as hotels, shopping centers and office space. According to analysis conducted for the Miami Herald, Florida financial institutions have twice as many commercial loans in their portfolios as out-of-state banks.
A recent example of the commercial real estate crisis is the seizure of Chicago-based Corus Bank by federal regulators. Corus was a major player in South Florida’s commercial real estate market and was undone by heavy lending in construction and commercial real estate.
From Fort Lauderdale to Boca Raton, there are more and more “For Rent” and “For Lease” signs appearing on commercial properties. Many highly desired commercial locations are now sporting vacancies. Local development projects are also under distress and face either cancellation or foreclosure such as the former Grand Bay Hotel in Coconut Grove.
The health of a commercial real estate market often provides a good look at the viability of a local economy. With South Florida employers continuing to lay off workers, more office space goes unused. This causes less people to have less purchasing power, causing retailers to have difficulty just hanging on, let alone opening new stores.
The negative impact of this crisis on South Florida’s overall economy is substantial. Real estate development, both commercial and residential, is one of Florida’s leading industries. This multibillion-dollar industry also supports many residual businesses, including construction, property management, interior design, furniture sales and property appraisers.
Adding to this dilemma is the fact that financing has dried up and few banks in South Florida are willing to refinance maturing bank loans. In the past, Wall Street would provide a significant portion of money for commercial properties by bundling these loans into securities. Due to previous problems in our financial institutions, this is no longer a viable option. One ray of hope in this crisis is that the Treasury Department is trying to boost the mortgage packaging market by encouraging investors to buy new securities by offering attractive new loans.
Only time will tell if this strategy can jump-start South Florida’s floundering commercial real estate market.
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