Despite pandemic, parts of Southwest Florida’s real estate market are thriving
Laura Layden Naples Daily News – Aug. 17, 2020
Many sectors of Southwest Florida’s real estate market are still cooking, despite the coronavirus pandemic.
That’s one of the biggest trends Randy Thibaut, founder, owner and CEO of LSI Cos. in Fort Myers, finds the most “remarkable” across the industry.
In a tag-team effort, he and his son Justin Thibaut, LSI’s president, shared their insights on residential and commercial market trends in the region during a virtual event late Tuesday afternoon. While it wasn’t all good news, they shared more of it than many might have expected, especially on the residential side of the business.
It’s the first time the annual fact-filled Market Trends event has been held virtually, necessitated by the COVID-19 pandemic. The switch to an online platform drew a larger audience of more than 500 — up from the usual 400.
In his opening statements at the 10th annual event, Randy Thibaut, told his audience to sit down and buckle up for a bumpy ride, simulating the pandemic-crazed time we’re in. He played a creepy scene from the movie Willy Wonka & the Chocolate Factory, in which Gene Wilder navigates a psychedelic boat ride with his Golden Ticket winners aboard singing: “There’s no earthly way of knowing. Which direction we are going. There’s no knowing where we’re rowing. Or which way the river’s flowing.”
“Crazy times, eh? I know we’ve all been feeling it,” Thibaut said. “I’ve seen some people getting pretty freaky out there. Let’s get past the fear and confusion and get to the facts.”
Those facts include: After taking an early hit from the pandemic scare, new single-family home sales quickly rebounded, spiking locally — and nationally — in April, despite the continued spread of the deadly virus and the onset of civil unrest across the country.
Why the rebound? There are many factors behind it, but the most significant ones have to do with the federal government “props we have been receiving,” Thibaut said.
Those props have included a $1.5 billion infusion into Southwest Florida economy from loans granted to local employers through the Paycheck Protection Program, stimulus checks to help struggling households, loan forbearance, eviction moratoriums, unemployment relief — and a drop in mortgage interest rates to 3% or below.
“It all seems like a mirage,” Thibaut said.
As for new home permits in the region, they surged in the first quarter, increasing by 70% over the same months last year, which were a little slow. Then came the spread of COVID-19, the disease caused by the coronavirus, leading to a slowdown.
In the three-county region of Collier, Lee and Charlotte, permits peaked at 18,000 in 2019 before falling to 16,000 last year, primarily due to a few apartment builders who held off on pulling them due to a flood of units hitting the market over the past five years.
Through June, builders in the three counties had pulled nearly 9,000 residential permits. This much is clear: In 2020, they won’t reach last year’s levels, Thibaut said.
“What can we expect for the remainder of 2020 and into 2021, post-election, the decrease of COVID and all the financial props that are coming with it? With these uncertainties, no one can predict with certainty where this ride is taking us, even though there are many who claim to,” Thibaut said.
After the market got a little crazy in February and March, the “vultures flocked in from everywhere, looking for blood and distressed real estate opportunities” in Southwest Florida, but they couldn’t be found, he said.
“There was no roadkill,” Thibaut said. “They probably won’t see much of it unless COVID extends into 2021.”
Builders took caution and reacted quickly to the changing market, putting a temporary hold on land development and slowing the pace of their speculative construction designed to meet future demand so they could ensure they didn’t overbuild. Early on they did everything possible to attract buyers, upping their game with virtual tours and selling — and even offering discounts when necessary.
Those discounts ended in April, when the buyers started showing up, Thibaut said.
“When the going gets tough, the tough get going,” he said. “And that’s what our builders and developers did.”
Stories emerged of new home buyers renting RVs to get down to Southwest Florida to claim their slice of paradise, while still protecting themselves, Thibaut said.
Some big residential builders reported having more sales in May and June than they did in the same months last year.
“Buyers wanting to get out of those urban hot spots to take advantage of low-interest rates and incentives they carried us through and helped us to avoid a disaster,” Thibaut said. “Many of them were planning to purchase their new Florida home in the near future, but COVID accelerated their urgency.”
The market for apartments is one of the most uncertain, due to concerns of over-development before the pandemic hit. It’s one that has lenders, developers and their contractors sitting on “the edge of their seats,” Thibaut said.
Landlords have dropped rental rates to attract more tenants — and to keep their tenants who are struggling to pay their bills, due to income losses tied to the pandemic.
Surprisingly, there were 2,898 permits pulled for apartments in the first half of this year, nearly as many as in all of last year.
“But just because all of those permits were pulled doesn’t necessarily mean all of these projects will get out of the ground in these times,” Thibaut said.
He went on to talk about some “COVID-proof real estate,” including RV pads “just about everywhere.”
He offered up this example of how the demand has grown: River Landings, a motorcoach development off State Road 80 in Hendry County on the Caloosahatchee River, struggled with sales the last few years, but that’s over, with a recent sale of a pad with a motorcoach garage and a small casita on it for $1.1 million.
Despite the pandemic, groundbreakings continued for large-scale new home communities in the first half of the year — and COVID doesn’t seem to have slowed zonings for new home communities.
Luxury high-rise condo sales remain strong in Naples and Bonita Springs, attracting their share of COVID-flee-ers from big cities, such as New York. However, projects haven’t been as quick to come out of the ground in Fort Myers Beach, downtown Fort Myers or Charlotte County.
Briefly touching on land deals, Thibaut said there’s been a significant increase in builders and developers from “all over” signing up new ones to “secure their future runway for new projects.”
“Obviously, closing these deals will be mostly predicated on clear certainty that we’re past COVID and social unrest,” he said.
As for existing home sales — or resales — inventory dropped in the first half of the year in the tri-county area, while demand remained high, driving up prices.
“Good times for sellers,” Thibaut said.
From January to June, there were 18,298 single-family and multi-family resales, down 6.4% from the first half of last year — a small drop, in the midst of a huge pandemic, Thibaut said.
“Overall, the resale market is holding up quite well at all price points and in most locations,” he said. “Ease of lending requirements and super lower interest rates, mixed with enthusiastic COVID-fleeing buyers have been the right ingredients to keep resale momentum high.”
Commercial market feeding off residential factors
The factors at play in the residential market, directly feed into the commercial activity in Southwest Florida, Justin Thibaut noted in his half of the fast-paced Market Trends presentation.
Amid the pandemic, players in commercial real estate need to focus on the three “Rs,” react, rethink and recover, he said.
Retail has experienced yet another shift due to the health crisis, which has spurred more store closings — and a rash of bankruptcy filings by household names such as JCPenney. Neiman Marcus, Pier 1 Imports and Tuesday Morning
Traditional brick-and-mortar retailers have worked hard to adapt to the challenging times by adding curbside pickup and delivery services — and shifting more of their business online. It’s clear some have been more successful than others.
“We’re still waiting to see the fallout from retailers exiting our local area,” Justin Thibaut said. “Generally, for now, occupancy is holding and rents are down. In an attempt to maintain occupancy, landlords are having to accept lower rental rates.”
The initial impacts from COVID-19 have shown how some business concepts that were thought to be “internet resistant,” aren’t “virus-resistant,” he said, such as a fitness chain where customers cram into small workout spaces, not conducive to social distancing.
“We have seen some of these players go from champ to chump,” he said. “Or maybe from prince to peasant.”
The pandemic has left the future unclear for some commercial projects, including a new CMX Cinébistro that was set to replace a former Sears at the Coastland Center mall in Naples. With the cinema’s parent company filing for Chapter 11 bankruptcy protection, Thibaut questions whether it will open with construction nearly complete.
“This was set for a great adaptive reuse of a former Sears space,” he said. “Will they be able to restructure and reemerge or will this become yet another retail shell seeking a tenant.”
While many retailers have struggled in the face of the pandemic, grocers and discount retailers have thrived, rethinking their strategies to meet demand.
More positive news? Retail growth continues to come to Southwest Florida, such as the addition of Trader Joe’s at Pagefield Commons and a new Wawa at the corner of Rattlesnake Hammock Road and U.S. 41.
He described Founders Square, a new 55-acre mixed-use development at the southeast corner of Immokalee Road and Collier Boulevard in Naples, as a “big deal,” as it will bring 400 residences and an additional 270,000 square feet of commercial space to the Immokalee Road corridor.
A new funky Ferrari dealership going up off U.S. 41 in North Naples is proof that Collier County will always be deemed as a “high price point retail sector,” Thibaut said.
“There is a reason they are building here,” he said. “Despite the times, Naples will always be able to flourish in the sale of high-end goods.”
Touching on other aspects of the commercial real estate market, Justin noted that the industrial sector remains an “exponential growth source” for the region, driven by residential growth and an attractive location in the state, with 62% of Florida’s population reachable within a three-hour drive time.
Large-scale and last-mile distribution centers have emerged, helping to bolster the industrial sector in Southwest Florida.
The office sector has re-emerged after years of sluggishness, with a surge in new office space construction.
However, the picture remains cloudy, due to drastic changes in working conditions and demands brought on by the pandemic, which has put a greater focus on workplace safety.
“Is office going away? I think not,” Justin said. “But it’s certainly shifting.”
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