No two deals are the same. They also seem to be getting more and more complicated and taking longer and longer to close. But that’s not always the case. I recently leased a 9,200 sf warehouse in Boynton Beach, Palm Beach County, Florida. We moved from initial contact to close in less than a week. The decision maker on the tenant side was in England. The landlord was out of Chicago with offices in Boca Raton, and I represented the tenant out of Fort Lauderdale and wrapped up the deal from an AirBNB in Colorado.
I’m realizing that it may be worthwhile to take more vacations! That is the blessing and the curse of technology. I am thankful that I can be connected 24/7 in any state in the country or in any corner of the world. I can still go off the grid by choice. But it’s amazing that through a small device in the palm of my hand, I can be driving though the mountains of Colorado discussing final deal points with both the landlord and the tenant. Via WhatsApp, my client in England sounds like he’s right next door. I can also merge calls or share the spectacular background scenery over WhatsApp, Zoom or Google Meet. I can send a letter of intent to the UK from my rental car via DocuSign and get it countersigned in Boca Raton. Luckily, I am traveling with my wife who can navigate the apps while I navigate the mountainous terrain.
On the other extreme, another client will be opening a new showroom over three years after initial contact. We also still have a couple of months of construction ahead of us. We initially targeted space in Miami’s Wynwood before deciding that a Palm Beach location was more appropriate for their upscale clientele. This was another client from across the pond opening their first US location.
Imperial Plaza in West Palm Beach – New US HQ for SWD Bespoke from UK
It’s a rare treat when the stars align and I can close a deal in a matter of days. But whether a deal takes 3 days or 3 years, my focus is providing the best service to the client and becoming an essential member of their team. Communication is key and I remain connected as much as possible. That is my commitment to my clients.
We all need to take time off to recharge the batteries, but commercial real estate is a 24/7/365 business and that’s ok with me. Wrapping up a deal while driving to our AirBNB in Colorado more than covered the cost of next year’s cruise to Norway. I will certainly be off the grid while hiking the fjords. But if I need to put in a little time to take care of a client while enjoying a beverage on deck in the midnight sun, that’s ok with me. It just may give me a jump start on my vacation plans for 2026.
Working on the midnight sun for 2025. This was a Mediterranean sunset from 2023.
A successful transaction relocating a chiropractic office after 32 years in the same location. Client loves his new space and saved 25% on his rent.
I am a commercial tenant representation specialist. My job is to “Put Businesses in Their Place.” I help find tenants and buyers the best terms on the ideal space for their business. I can represent my clients at any property in the market. My fee is paid by the landlord, so there is zero cost to my clients.
I specialize in Office and Industrial Space in the South Florida Markets of Miami-Dade, Broward and Palm Beach County. I am passionate about helping my clients, I am one of the best in the business and my clients tend to agree.
Why is that and how do I do it? I usually try to explain that in 50 words or less in an initial email. Want to know more?
I thought it would be useful to provide a guide to the tenant representation process. There’s a lot to it. Entire books have been written about it. Each of the following steps can be an entire chapter or blog post. There is an entire tenant representation section on KensTrends. But to put it all in one place, here is an overview in my own words of my personal approach to tenant representation in 2024. My goal is for you to appreciate the value I bring and demonstrate why I should be an essential member of your team.
1. The Requirement – My initial step is to get to know the client and the business. From there we can generate parameters for location, size, budget, layout and timing. Sometimes, it’s as simple as finding a place as close as possible to the client’s home. But we need to consider access to employees and markets, future expansion needs, and overall image for clients and for employee retention. It is also important to consider the reputation and stability of the landlord.
2. The Search – I then search the internet for properties that can meet the requirement. That is what I believe sets me apart. For the first 15 years of my career, I was a research specialist surveying owners and agents of every office and warehouse property in South Florida and tracking market trends. I am intimately familiar with nearly every property in the tri-county market. I can analyze a list of properties more accurately and in a fraction of the time that it would take others. That is why I often take on requrements that my competitors would not. I rely on internet sources like Loopnet/CoStar and CREXI and receive dozens of property emails every day. But things are changing faster than the internet can keep up. I live by my two key reasons for using a tenant rep. By knowing the properties and knowing the players, I can uncover hidden opportunities. I can also rapidly identify the best values in the market for my clients. Owners and agents can be deliberately vague about their rental structure. I make sure my clients understand their total cost of occupancy at the alternative locations. Sometimes, the most difficult part is getting someone to return a phone call, email or text. It is helpful to be well known, liked and respected in the market. Both my clients and those in my industry appreciate working with me because I am professional, knowledgable, responsive and respectful. I can often get answers when other people can’t. My initial search generally yields a list of 20 to 30 properties, but that can vary widely.
3. The Review – This is one of the most important steps in the process. Technology has made it significantly more effective. Using screen sharing via Zoom or Google Meet, I can share my screen to review floorplans, pictures, pricing, maps and aerials in an initial consultation. We can virtually tour a market in 30 to 45 minutes. This helps me to understand what is important to the client while also helping the client to better define their own needs. I also provide my own “color commentary” demonstrating my knowledge and insight about properties, owners and markets to make my clients comfortable that they are working with one of the best in the business. Another new technological innovation is my use of LeaseUp, an interactive platform that allows me collaborate with clients to share property information on a real-time online portal.
Online “Google Meet” review of an office space search for a healthcare company in SW Broward.
Touring Coral Gables 2018
4. The Tour – Yes, technology makes the entire process more efficient, but at some point you need to get out to see and feel the space. I try to keep a tour to 5 or 6 properties, sometimes less. After a few properties, they tend to run together and it can lead to fatigue and confusion. My job is to keep everything well organized and allow the tenant to understand the strengths and weaknesses of each alternative. I always provide a pdf and hard copy of the tour book with plans, pictures and pricing.
There is an art to setting up a tour. We want to do it quickly and efficiently for the client, but it often requires cooperation from 5 or 6 owners and agents. I don’t want to waste my client’s time, I respect my fellow agents’ time and of course I need to manage my own time. It is from years of experience that I can make my tours highly efficient and informative. As this is the first time when the client can truly experience their new space, it is the most exciting step in the process and I try to make it the most enjoyable.
5. The Short List – After the tour, we usually have a good idea of our ideal property. I generally provide a spreadsheet comparing monthly costs for the alternative properties. But even if the client has their heart set on one property, I like to pursue at least two or three. One of my most important objectives is to create competition among the landlords to give us the most leverage in negotiations. I have also had landlords lease a space out from under my client. There may also be unfavorable terms in a landlord’s lease that are dealbreakers. There are a host of other reasons to choose an alternate space. It’s always important to have a plan b and probably a plan c.
Short list for a Boca Raton office requirement. This provides an apples-to-apples comparison of the alternative locations and boils it down to a monthly cost of occupancy. I have developed temaplates to analyze diccounted cash flow analysis, but this works fo 99% of cases.
6. Negotiation – Negotiation is generally initiated via a letter of intent. The letter of intent covers all the business terms of the lease. Square footage, rate, lease term, annual increases, operating expenses, free rent (if any), deposits and tenant improvements are the key points. Additional factors may come into play depending on specific tenant needs. Parking, signage, and personal guaranties are all on the table. Tenant improvements are another crucial area of lease negotiation. Will you be getting a turnkey buildout? If so, what items are included and what are the levels of finish and materials that will be used. Will you get an improvement allowance, and what are the conditions necessary for the landlord to release funds. A letter of intent is always nonbinding, and a lot of people don’t believe it’s worth the paper it’s written on (even if it’s in a pdf). But putting everything in writing provides a firm foundation for negotiating the final lease terms.
7. Lease Review – Once the letter intent is negotiated and accepted by landlord and tenant, the landlord will draft a lease. Each landlord has his or her own lease template and no 2 leases are the same. Terms can vary widely. It takes a trained professional to review a lease and tenants should never blindly sign a document. Leases should always be reviewed by a real estate attorney. In addition, I have reviewed hundreds of leases. I know what items to look for and will often catch business terms that an attorney may miss. I always tell my clients “You don’t know what you don’t know and what you don’t know can cost you.” But from years of experience, I know. Many leases can contain ticking time bombs that can cost the tenant a lot of money over time. Those include, but are not limited to HVAC repair and replacement, hidden insurance costs which may include windstorm deductibles, and “double dipping” on operating expenses. As stated above, tenant improvements need to be carefully reviewed. If it’s not in the lease, chances are it won’t be in the finished space.
Tromberg, Morris Poulin Law – Deefield Beach. Turnkey buildout over $700K provided by landlord.
8. Move-In – If we’ve gone through steps 1-7, we should have accomplished our number 1 objective for move-in which is “no surprises. ” Move-in day is always stressful. We need to know that all of tenant improvements are finished, that we have phone and internet, we need to make sure we have our general liability insurance approved in order to be issued keys, and we need to have our movers and furniture installers mobilized. As a tenant, you will be establishing a long-term relationship with your new landlord and vice-versa. It is important for both sides to get off on the right foot. When I worked the landlord side, I always said that lease renewal starts on move-in day. The landlord-tenant relationship is adversarial by nature. But it doesn’t have to be. “No surprises” means that both landlord and tenant expectations have been met or exceeded. The landlord benefits financially through cash flow and enhanced property value while gaining an advocate who can draw other quality companies to his or her property. The tenant meanwhile receives a highly functional place of business assuring peak productivity, operational efficiency and high employee retention.
9. Follow Up – You never know when issues may turn up in your lease. Is the landlord living up to their obligations? Did they miss something in a buildout? Are they overcharging for operating expenses? Or are you outgrowing your space and need to expand? Have things changed so you need to downsize? Has you sold your company requiring an assignment of your lease? I am always available for my clients to address their changing needs. I strive to be a valued member of your team years after the initial lease to help you navigate what can be a very challenging commercial real estate market.
One of my favorite topics is Technology in Real Estate, but sometimes I just need to vent.
Deep in the recesses of your email program lies the “Wuhan Lab” of the next pandemic. Relax, it’s no cause for alarm, but I have seen a viral outbreak of the “Reply All” pandemic that is threatening my sanity. Where is Dr. Fauci when we need him?
As a commercial real estate broker, I rely on various distribution lists for property data and industry news. But more importantly, email is my lifeline to deal flow. A missed email could cost me a large commission. As I often receive hundreds of emails per day, I am careful to filter my email to cut through the noise and focus on what is important.
Spam happens. While most of it gets filtered, I still get the occasional request from a Nigerian Prince. But one thing continues to drive me nuts. The unnecessary “Reply All”.
Let’s say the owner of my company emails our 25 employees that we will be closing at 3 PM the Wednesday before Thanksgiving. That’s great news for our hourly workers. So someone decides to reply with a thank you. But they think it looks good that they are thanking the boss, so they “Reply All.” The other employees, not wanting to be left out, also “Reply All.”
I now have 25 unnecessary emails in my already overflowing inbox, increasing the chance I may overlook one that could be worth thousands in commissions. So as a public service, I would like to pass along some helpful guidelines. I did defy one of my previous posts, however, and enlisted the assistance of Perplexity AI. The image to the left was AI generated by Microsoft Copilot. The kitten was “borrowed” from memecreator.org.
Please save my sanity and while you’re at it, also save the kittens. Think twice before using “Reply All.” Below are the AI generated guidelines that were surprisingly useful!
When to Use Reply All
Your response is relevant and adds value to everyone on the thread.
Only use “Reply All” if your response contributes meaningfully to the discussion.
When explicitly asked to “Reply All” by the sender.
To end an email chain for everyone involved. “Reply All “to say you’ll handle something or provide a final answer which can stop unnecessary further replies.
When coordinating schedules or activities with a group. For logistical planning that affects multiple people, “Reply All” keeps everyone informed.
When to Avoid Reply All
Your response is only relevant to the original sender and doesn’t need to be seen by everyone.
For simple acknowledgments like “Thanks” or “Okay”.
When responding to mass company-wide emails. “Replying All” to large distribution lists is generally unnecessary and can clog inboxes.
If confidential or sensitive information is involved.
If in doubt, err on the side of not using “Reply All.”
Best Practices
Review the recipient list before hitting “Reply All.”
Consider trimming the recipient list if only some people need to stay in the loop.
Be mindful of email volume – excessive “Reply All” messages can be disruptive.
Use clear and concise language to respect recipients’ time.
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Success on the internet continues to be determined by how many eyeballs are attracted to your content. My mission is to produce quality original content related to commercial real estate. I try to post my thoughts in cyberspace on a monthly basis. I post them on my blog, distribute them to my social media followers and email them to a list of around 1,000 clients, colleagues and friends.
But what generates clicks on the internet? My most popular post appeared online on April 20, 2020. I gave emphasis to the 4/20 date which seems to have some significance. The article was entitled CBD vs. CBD – A new definition for a key term in Commercial Real Estate. People may be interested in my posts about Sales Tax on Rent, The Top 10 Kens, and Frightening Lease Clauses, but what really gets their attention? CBD. Not Central Business District which was the original use of the abbreviation, but the medicinal ingredient in marijuana.
So are my readers more interested in good weed than a good read? Or are they simply fascinated by articles about the changing meanings of common real estate abbreviations? To find out, I decided to focus on the new meaning of IOS. But I am posting just in time for 4/20.
iOS (lower case i), is the iPhone operating system developed by Apple in 2007 to power the iPhone. IOS (upper case I) is a term I only recently began to see in commercial real estate marketing material.
In South Florida in particular, available industrial sites are becoming harder and harder to find. South Florida is a narrow strip of land wedged between the Atlantic Ocean and the Everglades. You can still buy swampland in Florida, but it’s environmentally protected, so you can’t use it. That’s why we are seeing industrial land selling at $2 million or more per acre. We are even seeing companies specializing in IOS as an investment vehicle.
Outdoor storage can be a cost effective solution compared to constructing a building and is good for weather-resistant items and other products that are too bulky to store inside. It also can generate significant revenue.
To illustrate, let’s say we acquire an IOS site for $2 million per acre, equal to $45.91 per sf. To achieve a reasonable 7-10 percent return, we need to lease it for $3.21 to $ 4.59 per sf. IOS rents are typically in the $3-5 per sf range in South Florida and can go higher.
In addition, while excess land was often a throw-in on warehouse lease deals, owners are now building it into their rental rates. Let’s take a case of a 5,000 sf building on a 1-acre site. We typically see a 1/3 coverage ratio, which would use 15,000 sf of land. So there would be an additional 28,560 sf of IOS. Let’s say the building leased at a market rate of $20 per sf or $100,000 per year. If the land leased for an additional $3.50 per sf, that would be an additional $100,000. So the rent per sf posted online would double to an astounding $40 per sf. That may be hard to swallow for industrial tenants, but it is the reality based on the rising value of IOS.
So IOS is can be major cause of stress for today’s industrial tenants. Just the kind of thing that can send them to their friendly local dispensary for some CBD… But to keep a clear head and find the best deal on your ideal space please call, text (in a little blue iOS message box) or email me!
Back in May 2023, I posted an article on the Florida state sales tax on commercial rent. Florida is a unique state in many ways. But one lesser-known fact is that we are the only state that charges sales tax on rents for commercial real estate. But as of March 31, 2024, it is official. The State Unemployment Compensation Fund has exceeded the pre-pandemic level of $4.07 Billion which triggers a reduction in the State sales tax on rents from 4.5 percent to 2 percent effective June 1, 2024. In Miami-Dade, Broward and Palm Beach Counties, where I work, there is a 1 percent surcharge, so my clients will see their sales tax reduced from 5.5 percent to 3 percent.
Adding in the one percent reduction that took place in December 2023, that is a 3.5 percent reduction over a 6-month period. As a commercial tenant representation specialist, I work hard to negotiate the best rates on the ideal space for my clients. I can’t take credit for this reduction, but I am happy to spread the word, and my little blog seems to be scooping the news media. Now I know how Oprah feels – you get a 2.5% reduction…you get a 2.5% reduction.
This all goes back to April 2021, with the passage of Senate Bill 50 on taxation. A key provision in the bill was that the sales tax reduction on rents would be effective on the first day of the second full month after the Florida Unemployment Compensation Trust Fund exceeded the pre-COVID level of $4.07 Billion.
Since I wrote my article, which was number 7 on the CRE-Sources most read stories of 2023, I have been in touch with my contact at the Florida Legislature Office of Economic and Demographic Research. At that time, the forecast was for the fund to cross the threshold in May 2024, triggering the reduction in August. But earlier this year, I saw that the forecast had changed to March, indicating a reduction in June.
I was told to check the fund balance in the first couple of days of April, which would make the reduction official. I got the confirmation from the State and Federal Government on April 2. (I generally don’t trust anything I read on April 1.) As of March 31, the balance was $4,120,323,937.99, which means that all Florida businesses leasing commercial space will have their sales tax reduced in June.
Note month end balance – Source: US Treasury
So, what does this mean for your business? For an average office tenant paying $36 per square foot, the 2.5% reduction saves them $0.90 per sf. That’s $2,700 per year for a 3,000 square foot tenant. But for a company looking to relocate from New York and lease 100,000 square feet for 10 years, that is nearly $1 million in savings. That incentive is the reason behind the reduction. Florida is also one of eight states with no state income tax. So, employees relocating to Florida can save an additional 4 % to 10.9% percent off of their taxes.
That is more good news for the Florida economy and our commercial real estate market. While we are seeing commercial markets soften in other parts of the country, South Florida continues to buck the trend.
Finding the best deals on the ideal space for your business in South Florida takes experience, market knowledge and strong connections. You need someone on your team with a wikipedic (used to be encyclopedic) knowledge of the market, the buildings, the players, and the process.
While I may be a part-time Oprah and award-winning blogger, I am a full-time tenant representation specialist. I am happy to discuss your commercial real estate needs and have been “Putting Businesses in Their Place” for over 30 years in South Florida.
I asked Microsoft Copilot, their AI app, to generate an image of a computer falling on a person.
As we head into 2024, we are being bombarded with stories on the benefits and dangers of artificial intelligence. OK, I fully intend to give in and embrace AI in the coming year. But not before I let you know how AI is pissing me off. First is the relatively harmless, but highly annoying use of AI in property descriptions. Later, I will show where it can get dangerous.
I am both a producer and a consumer of property descriptions. Whether I am reviewing properties for the tenants I represent, or marketing properties to end-users and brokers, I look for concise and informative property descriptions. I wrote up an example in 24 words:
“A 2,000 square foot Class-A office in Downtown Miami 2 miles from I-95 with 5 windowed offices and an open area in move-in condition.”
I’ve been experimenting with Chat GPT and asked it to write a property description of the same space. I got 381 words. I am seeing this more and more online. Here are the highlights shortened to “only” 177 words:I can easily identify a Chat GPT property description. It uses a lot of words that say nothing useful. Even when I can’t tell, I know the brokers and I know they don’t write that well. So AI may be helping the broker, but most of us don’t have the time to read 381 words to find out what we can know in 23.
A picture worth 381 words? This is an AI generated image based on my description.
But Chat GPT is not only making your local broker sound like a Madison Avenue copy editor, it is doing the same for internet scam artists. We’ve all seen the poorly written appeals to help transfer the assets of a Nigerian Prince into a US Bank account. But here is part of a response I recently received to an online listing:
“Thanks for your response. Having reviewed the property extensively, I have weighed the price and I am willing to pay the listing price. The purchase would be a cash buy and I would make a reasonable deposit immediately through my investment broker. I will like to settle all the upfront full payment via a lawyer that you will refer to your company trust account where funds will be held.”
The email was eloquently worded and looked completely professional. But it raised a couple of immediate questions, and I wasn’t about to provide any banking details.
First, there are a lot of contingencies on this deal. No one is going to make a full-price offer without asking a lot of questions. Secondly, the offer came through a platform that has produced other questionable inquiries. I won’t name names. But when I forwarded it to my account manager, she let me know that this user had been removed from the platform for suspicious activity.
Obviously, the online marketing platforms need to be more careful about allowing access. But there is nothing to stop this hacker from signing on with a different email in the future. What is most alarming about the email is that it was likely aided by AI. That is only the tip of the iceberg as far as the potential dark side of AI that we are all being warned about. I am not saying that the world is about to be overtaken by AI generated robots, but we need to keep our guards up against unscrupulous uses of the new technology.
But just as I am venting about AI, I sat in on a webinar last month about AI and commercial real estate. There is no doubt that AI can help me in prospecting for new business, creating web content and images (no, this post is really me) and facilitating communication.
Looking for 30,000 sf of Cold Storage in South Florida? Click the AI generated image above.
Just like the computer itself, AI is a valuable tool can be used as an extension of myself to make me more productive and provide better service to my clients. And while AI may not write the best property descriptions, we must keep reminding ourselves that AI today is the worst it will ever be and it will continue to improve on a daily basis.
So yes, AI is pissing me off. But I have been at the cutting edge of technology in Commercial Real Estate for over 3 decades. I understand that embracing and applying new technology is a key component of what sets me apart in my business. I have included my first attempt at using AI in my business. This is for an email blast on a cold storage space I am leasing in South Florida. Thanks for reading and wishing you the best for 2024!
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Landlords have devised what I believe to be one of the scariest lease clauses for the tenants I represent. Like a skeleton, they bury it deep within the operating expense section of their lease. It’s a ticking time bomb that may never ignite. But if and when it does, tenants may see a frightening bill for roughly four months of rent. This clause can be a deal breaker, and in two recent cases, my clients have walked away from a deal in favor of a landlord with a more tenant-friendly lease.
The clause makes insurance deductibles part of a building’s operating expenses. It may look fairly innocuous. It may be as simple as adding the word “deductibles” into the operating expense section of their lease. But here in Florida, where every summer brings the potential for a catastrophic storm, those deductibles can cripple a small business.
My first experience with this practice began in 2005. I stood in front of my home in Boca Raton as the eye of Category 3 Hurricane Wilma passed overhead. I’ll never forget the sight of the sun shining through the round outline of the eye. I have lived in South Florida for over 50 years and thankfully, it is the only time I have experienced the eye of a hurricane.
Eye of Hurricane Dorian, 2019
At the time, I worked for a landlord with 1 million square feet of office and warehouse properties in South Florida. Our portfolio came out of the storm pretty well. Our biggest biggest expense was landscape cleanup, removing downed trees and branches from our parking areas. That was clearly an operating expense. But Hurricane Wilma cost insurance companies $9.2 billion in claims, resulting in unprecedented increases in property insurance rates.
In order to control rates, carriers responded by adding windstorm deductibles, which eliminated smaller claims and limited exposure. A 5% windstorm deductible is now fairly common. Based on the experience with Wilma, my former company made a key change to our lease. We added that insurance deductibles would be passed through to the tenants as an operating expense. We were one of the first to implement this change and other landlords followed suit. In five of the last seven leases I’ve negotiated, the landlord has included a clause making deductibles an operating expense paid by the tenant.
Typical deductibles clause in operating expenses section of a recent lease
When I was representing landlords, that was a great thing. We had zero exposure in the event of storm damage. It was 100% covered by insurance and by the tenants. Today, as I specialize in representing tenants, I am vehemently opposed to the practice. We are in a full blown (pun intended) property insurance crisis in Florida. Whether or not you believe in climate change doesn’t matter. The insurance companies are expecting more climate related losses. Even if you still believe the earth is flat, your insurance rates are going up.
What amazes me is that few if any of the brokers I have spoken to are aware of the practice and there must be hundreds or even thousands of tenants who are in the dark. Many attorneys don’t pick it up, but as a Tenant Representation broker, it is one of the items I look for. Whether a tenant will accept the risk is up to them, but in many cases, they will not.
You can review the math below, but based on my calculations, a 5% windstorm deducible will cost the tenant approximately 4 months of rent. Because rent is tied to building value, the 4 months will remain fairly constant across building types and classes. The question I ask my clients is “are you willing to write a check for four months of rent if a storm hits?”
The Math
Let’s look at a typical tenant and see what happens in the event of storm damage. Let’s take an average office tenant of 3,000 square feet. They are paying an average rate of $24 net plus $12 in expenses which is $9,000 per month. Based on a conservative 7% return to investors, a building at a net rental rate of $24 per sf is worth $343 per square foot ($24/0.07). If the building were to be destroyed by a storm, we’d only have to replace the building and not the land. So allocating a customary 30% of the value to the land, the building will be insured for $240 per square foot (70% of $343). Therefore, with a 5% deducible, the exposure for the tenant in the event of storm is $240 x 5% or $12 per square foot. With the deductibles clause, the tenant covers the first $12 per square foot in damage. For 3,000 square feet that is $36,000, equivalent to four months of rent. So whether the damage is $12 per sf or $120 per square foot, the tenant pays up to $12 per sf for any damage.
Most leases, whether net of modified gross make the tenant responsible for all expenses or increases in expenses for a property. But I believe the deducible clause crosses a line. The tenant, as part of their operating expense, is paying for the landlord’s cost for insurance that covers 95% of the property. But they are also effectively acting as the landlord’s insurance company for the other 5%. The landlord is 100% protected against storm damage. I just can’t accept that it is fair for the tenant to be the landlord’s insurance company. And even if the tenant pays for the deductible, shouldn’t it be a capital expense that is spread across several years? Even worse, what if you have 3 months left on your lease and you are hit with a storm that costs you 4 months of rent?
It’s good to be king, but sometimes the king needs to be overthrown. That is my point. How do we do that? I have three possible solutions:
Frankly, I believe the practice should be illegal. We should have some legislation, but the insurance companies and property owners have significantly more resources to fight it. In addition, this is a problem that is below the radar. Most people are unaware of the issue and it may not come to light until another major storm hits South Florida.
Windstorm deductibles have been increasing in order to control skyrocketing insurance premiums. Landlords would have to pay significantly higher premiums in order to eliminate the deductibles. That cost would have to be passed to the tenants in the form of higher operating expenses resulting in higher rents. But would a tenant prefer to pay a higher monthly rent rather than taking on the risk of a bill for up to 4 months of rent? As a tenant, I would consider paying more rent or buying supplemental insurance to cover the deductibles. That could possibly be added to the tenant’s general liability policy that all landlords require. The problem is that there is no insurance product on the market to cover the tenant’s share of deductibles. (are you listening AFLAC?) Until enough demand is created, no insurance company is going to create a product and the insurance companies are in no hurry to take on any additional storm-related risk.
Good old American free enterprise. The way I have been handling the situation is for my clients to vote with their wallets. So far, I have had two clients refuse to sign leases with deductible clauses and lease at other properties. On other deals, we have negotiated to eliminate the clause or to a cap the potential liability. A new wrinkle I just experienced is a case where an institutionally owned property is under a national blanket policy with no windstorm deducible, so the tenant responsibility is negligible. But this has barely put a dent in the landlord’s pocket. If I don’t lease the space, another tenant is either willing to take the risk or more likely is unaware that the risk exists. If enough tenants refuse to sign leases with deducible clauses, then market pressure will eliminate the practice. Landlord’s who do not include deductible clauses can use it as a marketing attribute and further shed light on the problem.
The first step is identify a problem that few people are aware of. One of the most important things I can do as a Tenant Representative is to help my clients avoid costly surprises. This is only one way that I accomplish just that. As a tenant representative, I (1) help you find the ideal space for your business, (2) negotiate the best deal on that space and (3) protect you from unforeseen expenses. You don’t know what you don’t know and what you don’t know can hurt you. I would be happy to discuss your company’s real estate needs and help you to negotiate the best terms on your ideal space.
I anticipte this being a highly controversial post. I welcome your comments at ks@kenstrends.com.
Well, if you’re going to call yourself KensTrends you’d better be good with your Trends and you should also be good with your Kens. I think my last post showed that I’m pretty good with my Kens. But what about the Trends?
As part of my Top 10 Kens List, I predicted that the Barbie Movie would be the runaway hit of the summer. Now, $1.3 billion later and as one of the top 20 top grossing movies of all time, that one seems to be on track. Eat that Oppenheimer! I will also admit that after writing the article I had to see the movie. I was thoroughly entertained and it gets two thumbs up from KensTrends.
The crystal ball graphic above is taken from the cover photo of my 2018 Propmodo article which anticpated Miami’s emergernce as an office hotspot.
Now let’s go back to 2019 when I asked “Can Pro Soccer be Successful in South Florida?” At that time I pointed out that MLS Cup Championship seats in Seattle sold out in 20 minutes and the worst seats in the Stadium were selling for $345 on Stub Hub. At that time, I stated that if InterMiami could field a winning team, then pro soccer in South Florida will finally be a success. I never thought they would go out and sign the best player in the world, but when I checked Stub Hub I couldn’t find a ticket to see Lionel Messi play in Fort Lauderdale for less than $150. Game day seats for Inter Miami’s August 26, 2023 game in New York started at $450 and prime sideline locations sold for over $11,000. That’s $367 per minute for the 30 minutes Messi played. Anyway, I take that as a win for KensTrends.
Turning to Commercial Real Estate, in June 2022 I pointed out that the world had turned upside down and that warehouses were selling for more than Class-A trophy office towers. This week I am working with a buyer looking at warehouses in Miami priced at over $400 per sf. So the demand is still out there. A few months earlier I spotted ind-flation, where rental rates on industrial property had risen by 50 to 100% in South Florida in the preceding 12 to 18 months. At that time, I said “Growth will eventually slow, but strong demand and limited supply indicate continued growth in industrial rents and property values.” Now 18 months later, we are first beginning to see rates flatten and even ease in the industrial market, but there is no bubble about to burst.
The warehouse in Dania Beach was on the market at a higher price per sf than Miami’s CitiCorp Center.
You know your’re in trouble when the Weather Channel’s Jim Cantore is in your town wearing a baseball helmet.
So whether you are going to the movies or a game, talking about the weather or buying or leasing commercial property, KensTrends has its finger on the pulse of South Florida. As always, I strive to be original, borderline entertaining, and hopfully accurate. As you can see, my crystal ball seems to be working pretty well.
When you are looking for a location for your business, you want someone on your team who understands the market, where it’s been and where it’s going. With over 30 years as a market analyst, investment advisor and tenant advocate, I have always helped my clients make the best real estate decisions to benefit their companies in the long and short term. Whether you are looking to lease, to buy, to sell or to invest, I am ready to help.
Have a great Labor Day. I am heading out on vacation and you never know what blog content may come out of the trip. The last vacation blog I did back in 2018 on buffalo leasing is a personal favorite.
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As the Ken behind KensTrends, I had an idea a few years ago for a list of the Top Ten Kens. My family members insisted that I am a serious blogger and shouldn’t go there. But with the upcoming release of what is certain to be the runaway movie hit of the summer of 2023, my wife (whose name is not Barbie, thanks for asking) gave me the ok, and my kids agreed. So, in honor of the July 21, 2023 release of The Barbie Movie, here is the KensTrends list of the Top Ten Kens. Before you totally write it off, Ryan Gosling, who plays Ken, says it’s the best script he has ever read, and it is written and directed by Academy Award nominee Greta Gerwig. So I am curious to see it, but I will not be registering for a week at the Barbie Dreamhouse currently available on Airbnb.
It’s my blog, so my rules and my picks. So here are the rules. First, our Kens can be actual or fictional. I am a Kenneth, more often a Ken, and sometimes a Kenny. Kens, Kenneths and Kennys are all eligible. My apologies to Kendall Roy, who has had a tough year and to Kendall Jenner, although I try to be inclusive. For cases with a Ken Jr. and a Ken Sr. and even a Ken III or Trey, we will count them as one.
So Here We Go (In Barbie Pink)
The KensTrends List of The Top Ten Kens
10. Kenny Loggins
Whether with his partner Jim Messina or on his own, Kenny Loggins was one of the top soft rock artists in the 70s and 80s. Later, he wrote and performed some iconic hits for blockbuster movies. His “Danger Zone” was brought back for the top summer movie of 2022, Top Gun Maverick. Here is a spoiler, another Ken will be involved in the top summer movie of 2023. Loggins also wrote and performed the title song for “Footloose”, and “I’m Alright” for Caddyshack. He has won two Grammy Awards and sold over 25 million albums. Only one of his songs “Angry Eyes” is on my Spotify favorites playlist. That is one more than Kenny Rogers and Kenny G who ranked higher on this list.
Kenny Loggins “Danger Zone” from Top Gun Maverick
9. Kenny G
Kenneth Bruce Gorelick, better known as Kenny G, is an American smooth jazz saxophonist, composer and producer whose music can be heard in elevators everywhere. One of his songs, “Songbird” somehow made it onto my wedding video (but not my Spotify playlist). Kenny’s brand of smooth “pop” jazz has received a lot of criticism from more serious jazz musicians envious of his commercial success. His 75 million albums sold are the most ever by any instrumental artist, but he only ranks second for albums sold by a Ken. I’ve actually referred to myself as Kenny S on occasion.
8. Ken Norton and Ken Norton Jr.
Yes, this is one of two cases where we get two or even three Kens for the price of one. Ken Norton took up boxing in the Marines and is best known for his three fights with Muhammad Ali. In the first fight, he broke Ali’s jaw and won a split decision, earning him the World Heavyweight Championship. He lost two subsequent fights to Ali in close and controversial decisions. If you can beat ”The Greatest”, that makes you pretty great yourself. Norton was ranked the 22nd best heavyweight of all time which certainly qualifies him for a spot in the top ten Kens.
But, there’s more. One of his four children, Ken Norton Jr. was a Pro Bowl linebacker who was the first to play on three consecutive Super Bowl winners and is now a succesful coach. He scored a touchdown in Super Bowl XXVII and celebrated by going into a boxing stance and throwing punches into the goalpost in honor of his father. Norton Jr. also has three children including Ken Norton III, now an assistant coach with the Chicago Bears.
The Ken that broke Ali’s jaw – AP Photo Jeff Robbins
7. Kenny McCormick: Kenny McCormick may not be a household name, he hasn’t sold 25 million records or hit 630 home runs, but Kenny gets recognition for dying 126 times on South Park. For those of you scoring at home, that is the equivalent of 14 cats. “Oh my God, they killed Kenny!” became a popular catch phrase on South Park, now in its 26th season on Comedy Central. Killing Kenny was a running gag on the animated comedy. For the first six years of the series, Kenny would suffer an excruciating death in nearly every episode, only to return in the next show like nothing happened. Creators Trey Parker and Matt Stone got tired of killing Kenny and killed him only occasionally after season 6. But 126 deaths clearly wins a spot on the Top Ten Kens.
Kenny in one of his livelier moments – By Comedy Central Press
6. Ken Stabler I have a love-hate relationship with Hall of Fame quarterback Ken “The Snake” Stabler who was named AFC player of the year in 1974 and 1976 and led the Oakland Raiders to a Super Bowl championship in 1977. I personally took on the nickname of “the Snake” as the left handed quarterback of the Georgetown MBA intramural football team years ago. I am also the proud owner of an autographed Stabler jersey.
But the one thing that stands out to me about Stabler is one play in 1974. My Miami Dolphins had gone undefeated in 1972 and won another Super Bowl after the 1973 season. In 1974, three of their top players defected to the short-lived World Football League. Still, the Dolphins led their playoff game with the Raiders 26-21. With 24 seconds left. Stabler threw a desperation pass into a “Sea of Hands” in the end zone that was somehow caught by Clarence Davis, breaking the hearts of Dolphins fans who would continue to have their hearts broken for the next 50 years.
Hey! That’s Ken from KensTrends showing off his autographed Stabler Jersey.
5. Ken Griffey Sr. and Ken Griffey Jr. Ken Griffey Sr. was a very good major league baseball player. He hit nearly .300 over 19 years, was a three-time all-star and was a key cog in the “Big Red Machine” Cincinnati Reds team that won World Championships in 1975 and 1976. But that’s not nearly enough to make the list of Top Ten Kens. A total of 88 Kens have made the major leagues and Griffey Sr. was a disappointing twelfth out of that group according to Ainsworth Sports.
Only one Ken has made baseball’s Hall of Fame. His son, Ken Griffey Jr. who hit 630 home runs, fifth most of all time. In 1990, The Griffey’s became the first father and son ever to play on the same team. Together, it’s a no-brainer. Like the Nortons, there is a third generation Griffey, Trey Griffey (Ken III) who was a star receiver at the University of Arizona. He made it to the practice squad on 3 NFL teams but never made an active roster. Still, I like baseball more than boxing, so I’m listing the Griffeys ahead or the Nortons.
The Griffeys – (Bill Chan / The Associated Press)
4. Ken Burns Ken Burns is probably best known for the Ken Burns film effect, a technique to add action to still photographs by slowly zooming and panning. Steve Jobs actually asked Burns for permission to use the term “Ken Burns Effect” in his Apple iMovie software. Oh, he is also known as one of the top documentary film makers of all time with two Oscar nominations, two Grammy Awards and 15 Emmy Awards for his work. His 1994 “Baseball”, a nine-part series on America’s pastime is probably his best known. That is why he edges out the Griffeys as the top Ken associated with Baseball.
It would be nice if I could make this zoom in. Library of Congress Life, CC0, via Wikimedia Commons
3. Kenny Rogers We lost Kenny Rogers in 2020 and he was certainly one of the most influential Kens of all time, selling over 120 million albums and spending over 200 weeks at the top of the US country and pop album charts. In my rules, the Kens can be either living or dead and as we have seen, some Kens have died more than once. Rogers is best known for his song “The Gambler.” I am not a huge country music fan, but I was a huge fan of Kenny Rogers Roasters, his rotisserie chicken chain that was once headquartered right here in Fort Lauderdale. Unfortunately for Roasters, he sold more albums than chickens. The chain, which once had over 400 locations, declared bankruptcy in 1998, but was sold and still operates in Asia. So even if Kenny Rogers hasn’t come back from the dead, Kenny Rogers Roasters has. 2. Ken Jennings
Now we get to number 2 who is actually number 1 if we limited the eligibility to actual people. I may be biased as a huge Jeopardy fan, but to me, 74 straight wins on Jeopardy is more impressive than 630 Home Runs, breaking Ali’s jaw, or selling 125 million records and even more chicken. Ken Jennings amassed $2.5 million in winnings during his streak and an additional $2 million in subsequent tournaments. He won the Greatest of All Time Tournament in 2020 and along with Mayim Bialik has taken over hosting duties following the passing of Alex Trebek. After a shaky start, Jennings has settled into his new role and won over fans with his knowledge and humor. Fans seem to prefer Ken so much that there is even a twitter account @iskenhosting. I will still watch Mayim – she’s good but she’s just not a Ken.
1. Kenneth Sean Carson I never knew he had a last name much less a middle. He is a character created in 1961 by Elliott Handler who along with his wife Ruth were the founders of the Mattel Toy Company. He is better known as the boyfriend of Barbie who was introduced two years earlier. Barbie and Ken were coincidentally the names of Ruth and Elliott’s kids. The dolls were named after the kids and not the other way around.
Photo: Mattel, Inc.
Let’s face it. When you hear the name Ken, you don’t think of unprecedented success on Jeopardy, you don’t think about the guy who broke Ali’s jaw, you don’t think of one of the sweetest swings in baseball, you don’t think about documentaries, you don’t think about “The Gambler” and you certainly don’t think about rotisserie chicken. The name is most frequently associated with a doll who was pretty much an afterthought. Ryan Gosling who plays Ken in the upcoming movie puts it best “If you ever really cared about Ken, you would know that nobody cared about Ken. “This is why his story must be told.” As a Ken myself, that is exactly why I had to tell the story of the Top Ten Kens.
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If you were hiring an instructor for a course on lease negotiation, chances are you would not choose fictional car racer Ricky Bobby from the movie Talladega Nights. But in commercial real estate and particularly in my specialty, tenant representation, Ricky is spot on:
“If you ain’t first, you’re last.”
In commercial real estate, there is only one winner who gets the deal. There is no silver medal and everybody knows what you can do with participation trophies. So if you’re not first, you’re last. As Ricky says: “second place is first loser.”
In my career, I have represented both the Landlord/Seller side and the Tenant/Buyer side. I’ve won some big ones and also lost my share. On the landlord side, there were times I would send a tenant an aggressive proposal to relocate to my building, which they used as leverage to negotiate a renewal at their current location. I saved tenants a lot of money, not to mention time and effort. I actually thought I could start charging for that service. That would be preferable to a shelf full of silver medals and participation trophies.
These days, I spend most of my time on the Tenant/Buyer side. On a recent assignment, after touring 5 properties, I let a landlord’s representative know that he was our second choice. The prices and locations were comparable, but his space would take longer to build out, it had less natural light than the first choice, and it was lacking a kitchenette.
His response, as expected, was “what can I do to get into first place?” That is exacly what I want to hear. One of the most important aspects of tenant representation is to create competition, so landlords are bidding on my clients’ business.
Is the landlord going to cut some more windows in the exterior of the building to create more natural light?
Seriously doubt it.
Will he spend the money to add a kitchenette to his space?
Possibly.
Will he drop his rate by a dollar or two per square foot, or possibly offer some free rent?
Probably.
Does my client want to lease in his building?
Highly unlikely.
Can I go back to my first choice and tell him that the competition has dropped his rate by a dollar and offered two months free?
Absolutely.
So landlords and sellers fully understand the Ricky Bobby principle: If you’re not first, you’re last. And just like Ricky, they will drive the deal much more aggressively to get there.
As a tenant representative, one of the biggest values I bring is to create competition, ensuring my clients get the best deal on the ideal space for their business – because landlords know, “if you ain’t first, you’re last.”
If you asked me what makes Florida unique, I would probably say our reputation for strange and unusual news stories. But today, I’d like to focus on something completely different affecting business in our State. Florida is also unique as the only state charging sales tax on commercial leases. It should also be noted that we are one of only eight states with no state income tax. But the sales tax does put Florida at a competitive disadvantage when it comes to attracting corporate relocations.
That is about to change. Two years ago, on April 19, 2021 our governor signed Senate Bill 50. The bill expanded sales tax on online purchases, but also plotted a path to reduce the state sales tax on rent from the current 5.5 percent to 2 percent. (plus a 1% surtax in Miami-Dade, Broward and Palm Beach counties) That is projected to save Florida businesses approximately $1 billion per year.
Just as I was about to post this article, it changed again. On May 5, 2023 the State House and Senate unanimously passed House Bill 7063, which upon approval from the Governor, will reduce the tax from 5.5% to 4.5% effective in December 2023.
But the $1 billion question remains: When will the full reduction to 2% take effect? As a commercial tenant representation specialist, I am very interested in anything that will save my clients money. But after an extensive search, I couldn’t find an answer. So, as a former market research guru, I rolled out my yoga mat and did the investigation myself.
Source: @Tax Foundation @BusinessInsider
The reduction in SB50 is tied to the Florida Unemployment Compensation Trust Fund. As of March 2020, the state had $4.07 billion in the Fund. But unemployment benefits due to COVID drained the fund to a low of $623 million in April 2021. Senate Bill 50 stipulates that the sales tax reduction will commence 2 months after the fund balance exceeds the pre-COVID level of $4,071,519,600 .
Are we there yet? Not quite, but according to my research, in addition to the 1 percent reduction this December, Florida commercial tenants will see an additional 2.5% reduction on their rent bills around August of 2024.
Upon passage of Senate Bill 50, the State began to apply funds from the online sales tax to the Fund. I spoke to the economist in charge of fund projections at the Florida Legislature, Office of Economic and Demographic Research. She referred me to the results of the State’s Consensus Estimating Conferences which are posted online. The most recent forecast was published on March 2, 2023. It showed that the fund balance had increased to $2.56 million and that the State will be allocating $90 million to the fund every month. According to the March forecast, the balance will cross the $4.07 billion mark in May 2024, which means that the reduction would take effect in August. Last week, I called my contact in Tallahassee and confirmed that my interpretation was correct.
Figures in millions (000,000)
But is that projection accurate? At the moment, there are more jobs than applicants in Florida indicating that the state should not be paying out a lot of unemployment claims. While no one could have predicted COVID and there is the potential for an economic downturn or even a natural disaster, it would take some unforeseen event to significantly alter the state’s projections. I also confirmed that the projected December tax reduction will not affect the projections from March 2nd.
When I first started researching this topic back in January, the latest forecast was from August 2022. The August forecast projected a balance in March 2023 of $2.52 billion and showed it crossing the $4.07 billion threshold in May 2024 with a balance of $4.2 billion. The state economist told me to watch for the upcoming March 2023 forecast (above) which I recently downloaded and reviewed.
As of March 2023, the balance was at $2.56 Billion, 1.02% higher than the August 2022 forecast. More importantly, it showed that my friends at the State were highly accurate with their projections. I am therefore reasonably confident in the March forecast, which projects that the 2% state sales tax on commercial rents will take effect in August 2024.
So hats off to the Office of Economic and Demographic Research, and a thank you to our governor, whether you love him or hate him. All signs point toward a sales tax reduction in 2024, providing corporations additional incentive to bring high-paying jobs to Florida. Now if we can only get our residents to stop throwing alligators into drive-thru windows or breaking into their neighbor’s house to pet their cat.
The Spectrum Office Building is owned by one of our best clients. It’s our building, but the logo on the bottom right makes it CoStar’s Picture.
What is the scariest thing you’ve ever seen? For me, it may the sight of The Weather Channel’s Jim Cantore in Florida during Hurricane Season. But if you’re in Commercial Real Estate Tech, that may rank a close second to the dreaded CoStar watermark. That little white star logo in the corner of their copyrighted photos has launched billions of dollars in lawsuits.
If you’re in Commercial Real Estate, you know CoStar. Others may know their more public-facing division, LoopNet, which they acquired in 2011. I pay around $4,000 per year for my subscription to CoStar’s comprehensive database of commercial properties and frankly I can’t survive without it. As a tenant representative, the first thing I do when I get a new client requirement is search for potential locations on CoStar and generate a market survey for my client.
Jim in Fort Myers with his latest innovation – the batting helmet
CoStar/LoopNet commands over 80 percent of the commercial real estate search volume online and has a virtual lock on the top Google position on any commercial real estate search. Google your office address and you’ll see what I mean. There are competitors, and my apologies to CREXI, Yardi/Commercial Café, VTS, Moody’s and my own partners at TenantBase. But even now, 12 years after I wrote my first blog post on the subject, no one even comes close to CoStar for commercial real estate information.
It’s no surprise that when I Google my company’s office address, Loopnet has the first two results.
Why is that? CoStar isn’t perfect, but they are still the best in the industry. They work hard to protect that position, which includes leveraging the legal resources of a $31 billion company. The best known case was Xceligent, a company created as part of the FTC’s agreement to allow CoStar to acquire Loopnet. CoStar wound up suing Xceligent for $500 million in 2016 for using copyrighted photos with that terrifying Costar watermark. Xceligent filed for bankruptcy shortly thereafter.
Which leads us to the most recent case. CREXI is one of the newer competitors attempting to chip away at CoStar’s dominance. They have an impressive platform with a growing customer base. I am seeing more and more inquiries from them. But I track marketing for my company and we still get around 8 to 10 LoopNet inquiries for every one off CREXI.
But CoStar still sees CREXI as a threat. In December 2022, CoStar sued CREXI for using 50,395 of its copyrighted images, which they value at $50,000 per image, so the suit would be in the $2.5 billion range. CREXI fired back with counterclaims alleging CoStar was engaging in anti-competitive activity, but those counterclaims were dismissed.
The suit, which is scheduled to go to trial in March 2024, alleges that CREXI hired a group in India to collect property images to post to their platform, of which at least 50,395 were copyrighted by CoStar. I could be wrong, but I am highly skeptical.
CoStar actively sources their data with their staff photographers shooting over a million original and proprietary photos per year and with its researchers making over 24,000 phone calls annually to brokers and owners. CREXI, in contrast, is primarily crowd-sourced. My fellow brokers and our marketing teams upload our own photos to the CREXI platform. My regional director for CREXI verified that at least on a local level, CREXI does not actively upload pictures. My guess is that any CoStar watermarks showing up on CREXI come from brokers who downloaded photos from CoStar or Loopnet and then re-uploaded them to CREXI, unaware that they were doing something illegal. CoStar’s Terms of Service (does anyone ever read them?) allows brokers to use CoStar images in their marketing but striclty forbids thier use on competitive website.
I don’t understand why CREXI would employ a back-office in India to upload pictures. CREXI is well aware of the sad tale of Xceligent and wouldn’t repeat the same mistakes. I personally worked for a real estate tech startup where we had a company policy to check our uploaded photos every week to make sure we didn’t have any with the CoStar watermark.
Back then, the little white star was a source of fear. Today, as a tenant representative, it doesn’t scare me at all. Frankly, I welcome CoStar’s litigious nature. I stated earlier that CoStar isn’t perfect, they are far from it. As a tenant rep, I have two rules when it comes to finding space for my clients.
Someday, there may be a fully accurate online listing of available office, warehouse, and retail space. But it will take a major disruptor to effect this change. CoStar is doing its best to make sure this never happens. And even if it did, there are still off-market properties, pocket listings and distressed tenants that are not readily accessible to the public. About half of the spaces I’ve found for tenants over the past 12 months were not on CoStar or CREXI. Local market knowledge and local market relationships are as important as online listings when it comes to finding space. So the need for tenants and buyers to have professional representation isn’t going away very soon. And finding space is only the beginning when it comes to professional tenant representation. I help my clients to negotiate the best terms while avoiding hidden pitfalls that may cost them in the long term. I also help on design and space planning, work with government agencies and direct my clients to preferred vendors to simplify the relocation process.
So I will continue to follow the battle between CoStar and CREXI. But the competitive landscape in Commercial Real Estate data has not changed much since CoStar acquired LoopNet in 2011, and I don’t expect any major changes in the near term.
So to recap, I am a proud customer of both CoStar and CREXI, I don’t fear the watermark, I provide a great service to my tenant representation clients and let’s hope Jim Cantore is nowhere near South Florida in 2023.
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It’s holiday time in South Florida. While we will never have a white Christmas, South Florida has its own holiday traditions. In Miami, we have Art Basel and the Orange Bowl Festival. Fort Lauderdale has its Winterfest Boat Parade. Meanwhile Boca Raton has its own tradition dating all the way back to 2014. No, it’s not a star-studded salute to the early bird special at the Olive Garden, it’s the annual Roofclaim.com Boca Raton Bowl at Boca’s Florida Atlantic University Stadium.
In a watered-down schedule of 43 college football bowl games, 86 teams now get a coveted invitation to the postseason. The 2022 Boca Raton Bowl featured an epic matchup of #77 Toledo vs. #82 Liberty. I make it a point to record ESPN’s National Telecast of the Boca Raton Bowl every year. But just like the Super Bowl, I pay special attention to the commercials.
I always fast forward to the annual ad produced by the Boca Raton Office of Economic Development and Innovation. While the game may have some importance to the alumni and students of the participating universities as well as the few degenerates wagering on it, this really is a kind of Super Bowl for Boca Raton.
It’s a chance for the city to get a moment in the national spotlight. If one billionaire CEO or hedge fund manager stops to watch the ad while flipping through ESPN, it just may trigger a corporate relocation that can benefit our entire region.
Fort Lauderdale Winterfest 2022
This year’s theme was “You Can Have It All”, highlighting our beaches, our colleges, our lifestyle, our sunshine and our 12 million square feet of office space. As someone who leases those 12 million square feet, I don’t have strong feelings for Toledo or Liberty. But I am a huge fan of Boca Raton and I am rooting hard for those CEOs to bring high paying jobs to our community and lease lots of office and warehouse space.
For what it’s worth, the Toledo defeated Liberty 21-19, and may well have secured themselves a national ranking in the top sixty or seventy. But the real winner is Boca Raton and South Florida (and maybe Olive Garden) for the chance to promote our community to a national audience. In the 30 seconds of the game that I watched, I also heard the announcer refer to a directional sign at Florida Atlantic Stadium showing it was 1.8 miles to the beach. Another win for Boca! But was anybody really watching? We’ll see.
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Like most of you, I generally start my day checking my email. I see what I need to do to push my deals forward and check for any new properties that can meet a client’s requirement. I was excited to see an email alert for a warehouse in Dania Beach. It is a clean, modern facility in a great location and looked perfect for one of my clients. But I nearly knocked over my coffee when I saw the $9.2 million price tag which was $369 per square foot.
This type of property was selling for under $100 per foot a couple of years ago. I sold one at the end of 2021 for $156 per foot and we are now seeing warehouse properties trade in the low $200s. But $369 per square foot was the highest I’d ever seen. At least until I scrolled to another one in Boynton Beach at $426.
Are they worth it? It wouldn’t surprise me if someone pays it, and I assume there is data to support those numbers. Would I recommend these deals to a client? No, not unless they had some unusual compelling need to purchase.
I have no problem with sellers trying to push the envelope, but with over 30 years in the business and the first 15 of those as a market analyst, I think I know when they are pushing too far. I wondered what else you could buy for $369 per square foot. I quickly pulled up the largest recent office sales in South Florida on CoStar and came up with 2 sales in Miami from June 2021 that support my point.
Warehouse on Market for $369 per sf
Image 1 of 12
The 692.000 square foot One Biscayne Tower sold for $225 million which is $325 per square foot while the 822,000 sf Citigroup Center, sold for $270 million or $368 per square foot. These are two iconic South Florida properties. One Biscayne was Miami’s tallest building when it was completed in 1972. It features spectacular views of Biscayne Bay and has been continuously renovated and updated to maintain its Class-A status. Citigroup Center with its distinctive marble exterior and adjacent Intercontinental Hotel is another of Miami’s premier addresses. I remember seeing Ronald Reagan speak there back in 1986. With one notable recent exception, a venue for a presidential address tends to be a prestigious property.
So why spend more on a warehouse than a trophy Class-A office tower? First, we are talking about a $9.2 million warehouse rather than a $200 million office building. There is certainly more demand at $9.2 million then there is at $200 million. And it costs more and requires more labor to operate a Class-A office tower than it does a warehouse. In addition, the South Florida industrial market is significantly stronger with vacancies in the 3 percent range while office is in the mid-teens. And while industrial demand is soaring, office demand is still suffering from a post-COVID hangover.
My opinion is that the industrial market is peaking, while office is just beginning to recover. While there is much concern about recent economic news, it hasn’t impacted the flow of new residents into our market and demand for space remains strong. That being said, I can’t justify paying $369 per square foot for a warehouse. I would rather take my chances on an office building. But there has been a noticeable shift in the market. It seems the world has turned upside down and it’s no longer unusual for a big concrete box to be more valuable than a gleaming marble tower.
Whether it’s a gallon of gas, a quart of milk or a dozen eggs. we are seeing prices rise all around us. But what is rising even faster? The cost of leasing industrial space, and more specifically, small bay warehouse in South Florida – what I call ”ind-flation”.
Click to enlarge – Source CoStar
Commercial Edge recently reported a 4.4 percent annual increase on in-place industrial rents while CoStar reported a 10.6 percent year over year increase nationally as of April 2022. This outpaced inflation which hit a 40-year high of 8.5 percent.
Amazon’s 800,000 SF Miami fulfillment center in Opa-Locka
Endangered species? A rare vacant 2,000 sf warehouse bay in South Florida.
But that doesn’t tell the whole story. South Florida industrial vacancies are running about 3% with the e-commerce giants dominating the market. But for the smaller tenants from 5,000 to 20,000 square feet that are the backbone of the local economy, vacancy is even lower. I believe it is significantly overstated by CoStar due to the “virtual property sign,” a trend I identified last year.
I have been working with these smaller entrepreneurial tenants for many years and I have never seen the market tighter. The rent increases I am seeing are unprecedented. In my early years as a market analyst, I reported on macro trends looking down from 30,000 feet. Today, as a tenant representation specialist, I see the market from the ground up.
While I am not always pleased with the accuracy of the information provided by CoStar, the leading provider of commercial real estate data, they do provide an excellent historical record of asking rental rates. And that data is supported by proposals I have negotiated with some of the top industrial landlords in the US.
At the top of the page is a listing for one of the largest industrial parks in Miami. A 5,000 square foot space that leased for $11.95 per sf in February 2021 is now at $18.95. That’s a 59 percent increase on the gross rent which includes operating expense. On a net basis, which determines the return to investors and the overall value of the property, the increase was closer to 75 percent. Can they really achieve those rates? According to my calculations, the 3 million square feet in that park is 99.7 percent leased, so they shouldn’t have a problem.
Just wanted to add that the date 4/20 marks the second anniversary of my most popular blog post ever. Just in case you missed it.
Moving to Pompano Beach in Broward County, a space in a similar industrial park that rented for $11.40 net in February 2021 is up to $17, up 49 percent in one year. Below that is one in Palm Beach County which leased for $8.75 plus expenses less than 2 years ago. It is now shown at $12 and I was just quoted $14 on that space. Rents are rising so quickly that online listings can’t keep up. These are not isolated cases; this is what we are seeing across the market.
So where do we go from here? It’s a great time to own industrial property in South Florida. It’s a scary time to be a tenant. Space is leasing faster than we can build it and we are very quickly running out of land to build it on. Our population continues to surge which means more products to be consumed and more demand for warehousing. While I don’t foresee rent increases like we have in the past year, demand continues to exceed supply, particularly in the small bay space. Rents will continue to rise as long as businesses are able pay them. As real estate only accounts for 5-10 percent of a company’s expenses, tenants will have to pass some of this cost to consumers, but higher rents should be sustainable for most companies. There has been some sticker shock at renewal time, but we have seen no reduction in demand as prices have risen.
Boynton – Rates rising faster than they can be posted online
While many are waiting for the bubble to burst, I don’t see it happening any time soon. Growth will eventually slow, but strong demand and limited supply indicate continued growth in industrial rents and property values. As a tenant representative it is getting increasingly more difficult to find the right space for my clients. But with the market changing faster than online listings can keep up, it is important to have someone on your side who tracks the market from the ground up every day. I will continue to stay on top of the market on a daily basis, not just to help my clients find space, but also to identify the increasingly elusive concept of value.
In KensTrends, I generally try to identify the trends that I see shaping the South Florida commercial real estate market. But it’s even better to be the one setting the trend. This recent 2-part transaction clearly indicates the state of South Florida’s industrial market. We saw the value of this property increase by over 20 percent in the six months we had it under contact. I was also able to lease the property at a gross rent approximately 60 percent higher than a compatible lease I had completed 15 months earlier. My advice to tenants and buyers: act now – rental rates and sale prices are rising at an unprecedented pace.
It’s always great to put a deal together, but Ken Silberling of Levy Realty Advisors doubled down by not only selling the property, but also negotiating a long-term lease. Silberling represented the buyer SPMG Holdings, LLC in the $4.08 million acquisition of the 27,000 square foot former Craig Electronics headquarters at 1160 NW 163rd Drive in Miami Gardens. He then represented the new owner in leasing the building to The Taverna Collection. The building features approximately 8,000 square feet of office and 19,000 square feet of warehouse space on 1.3 acres. It is located in Sunshine State Industrial Park at the Golden Glades Interchange.
“We agreed on the contract over the summer, but the seller wanted to hold on through the expiration of the Craig Electronics lease at the end of 2021,” said Silberling. “We then marketed the property for lease, which we completed in January. At $151 per square foot, it was high for Miami Gardens, but below prices for comparable Broward properties.”
Silberling spoke to many owners and brokers in the market but found that no one could explain why Miami-Dade properties sold and leased for less than those in Broward. “That gap is now closing” he said.
“We had offers to flip the contract at a significant profit, but with diminishing supply, a steady flow of relocations from the northeast and minimal new construction targeting smaller users, we believe the value will continue to grow.”
Ken Silberling is Vice President of Brokerage and Tenant Representation for Levy Realty Advisors. He works with tenants and buyers to uncover opportunities throughout Miami-Dade, Broward and Palm Beach Counties. He is also the author of kenstrends.com a monthly blog on commercial real estate in South Florida and is Regional Partner for TenantBase, an online tenant representation platform. Levy Realty Advisors, established in 1977, guides private equity investors in acquisition, asset management and leasing, overseeing a portfolio of over 3.5 million square feet of commercial property in South Florida.
