Commercial real estate is suffering in Florida thanks to the credit crunch. This is putting an increasing strain on Florida banks as a growing number of commercial property owners are forced to default on their loan payments. Driven by declining rental income, empty storefronts and a general lack of available funds to keep their investments afloat in dire times many investors of commercial property are now costing banks millions putting them at risk of failing in return.
Attorney Lee D. Mackson said: “What we’re seeing so far in commercial real-estate [foreclosures] is just the tip of the iceberg. There’s going to be a lot more.”
The first signs of trouble were seen on Friday, as federal regulators seized Chicago-based Corus Bank, which to date was one of South Florida’s biggest lenders. Brought down by heavy lending in commercial real estate and construction, the bank had to admit defeat in the end.Sean Snaith, an economist and director of the Institute for Economic Competitiveness at the University of Central Florida said: “It’s another pretty heavy hit to an already hard-hit banking sector,” says. Commercial real-estate problems could prolong the credit crisis and make it difficult for all sorts of borrowers to get the loans they need — consumers, homeowners and small businesses.”
An analysis made by Charlottesville, Va.-based SNL shows that more than 53 cents of every dollar loaned by Florida-based banks fund commercial real estate, compared with 24 cents per dollar among other U.S. banks.
Ken Thomas, a Miami bank analyst has seen the direct impact of this first hand: “We not only see ‘For Sale’ and ‘Foreclosure’ signs in our neighbourhoods, but ‘For Lease’ and ‘Vacancy’ signs along Dixie Highway.”
“Prime corner and other retail locations in the best shopping areas from Dadeland to Aventura to Boca are now vacant.”
Many prime developments are now in danger of foreclosure due to a lack of funding and many other local projects are in financial distress. This includes the former Grand Bay Hotel in Coconut Grove It is now facing Florida foreclosure.Many South Florida employers have laid off workers and therefore the last thing they need is more office space. The same goes for retailers who suffer from a lack of sales and business; they too are not in need of more floor space and this directly affects the commercial market.
According to CB Richare Ellis, prices on commercial properties, including those in South Florida, have plunged 30 percent or more nationwide since the 2007 peak. Rentals are way off and occupancy rates have gone downhill.
Many landlords are forced to lower their rents to keep attracting rental clients. This is certainly another blow to the already defeated US housing market and as with any industry, the domino effect will wreck more havoc in future months.
Photo credits: Colin via Flickr