Mark S. Blythe

The Wall street Journal reported on March 21st that the housing market, a notable soft spot in the nation’s weak economy for the past four years, is becoming less of a drag on the recovery.

Reporters Neil Shah and Nick Timiraos went on to say that Real Estate Markets are showing signs of life as falling prices spur buyer demand. According to their report, home sales and new construction have been lifted up from the depressed levels of the past three years. Spring got off to a very hot start with this season being the best housing sales start in the past five years. Existing homes sales in January and February were the highest since 2007.

Meanwhile, Gainesville.com reporting on home sales in Gainesville Florida, authored by Anthony Clark, their Business Editor, reported on March 21st, 2012 that at Wednesday’s meeting of the Gainesville Board of Realtors, the topic was the numbers on pending home sales. Homes under contract that haven’t closed were up 77 percent. February, this year, was showing 243 pending contracts, up from 137 one year ago. At the same time the inventory of listings was showing a decline of 25 percent. Inventory was at 2,303 listings last year and now is paired down to 1,733 listings according to a report from Florida Realtors.

Craig Wilburn, the President of the Gainesville- Alachua County Association of Realtors stated that “ The trend that is happening right now – less homes on the market, more people buying – that shows a shift from a buyer’s market to a seller’s market,”

Things are definitely heating up in the housing market with more buyers and reduced inventory. Real Estate agents and home builders are reporting more activity as buyers take advantage of prices that are down by one third from their peak as well as low interest rates that have made housing more affordable than any other time in the last decade.

It would seem that the market is about to turn nationwide from a Buyer’s Market to a Seller’s market and now is the time to get in to take advantage of the housing prices and the interest rates.

According to a report from McGraw-Hill, publisher of the Engineering News- Record (ENR) the latest forecast predictions for the value of new construction contracts will improve for three of the four ENR Southeast states. The lone negative is North Carolina.

Scott Judy a reporter for ENR Southeast wrote in her article dated January 26th 2012 that the outlook for Florida was “Finally, Upturn Ahead”.

Reviewing the previous year the author noted that last year was not the year for Florida’s recovery and that the pace of new contracts lagged considerably in the beginning of the year. However she notes that the state recorded positive gains in four of the five months of 2011.

According to Scott Judy, the company’s (ENR) economists are predicting that the late 2011 momentum will carry over into this year. They are predicting an overall 9 percent gain in new contracts in the state. According to the article this would result in a total of 24.3 billion in new contracts, which is up from the estimated 22.2 billion in contracts that have moved forward from 2011.

The company’s (ENR) economists go on to say that they expect that both building sectors residential and non residential to improve in 2012. The improvement in housing construction will make it the second year that there has been an expansion in residential construction, a very good sign for the Florida economy. According to the article, residential contracts showed an increase of 10 percent in 2011, which delivered, completed work to the Florida economy of roughly 9.6 billion dollars. McGraw-Hill, publisher of the Engineering News- Record (ENR) stated that they expected to see “another jump” of about 13 percent. This is definitely good news for the Florida Construction and Real Estate Development market.

According to McGraw-Hill, the non-residential market began to re-trench in 2011 and it regained some footing. It was their assessment that the market saw about a 17 percent return overall and that translated into 5.8 billion dollars of non-residential construction and development work. It is their current assessment that in 2012 this sector will see a 22 percent improvement. This is very good news for Florida Construction and for Real Estate Development.

For the non-building category, which covers infrastructure projects, the expected statewide trend will be a decline anticipated to be around 6 percent from 2011. Many of these projects are winding down and were born as the result of the economic stimulus package. The reduction of the markets dependency on this work is clearly a sign of a return to a self-sufficient construction and Real Estate Development economy for Florida.

The article, quoting Peter Dyga, president and CEO of the Florida East Coast Chapter of Associated Builders and Contractors, located in Coconut Creek Florida, on the topic of the trend across the state of Florida stated. “He is seeing significant projects coming out for bids and he added in his e-mail to EGR that “It appears that more of the projects that are being bid are actually starting.” It seems clear that the market is starting to heat up for the South Florida Contractors and Developers.

Peter Dyga commented that the prospect of three multi-billion-dollar casino resorts being added to Miami’s mix of amenities, as has been proposed via a bill before the Florida legislature, is causing some high hopes. But he quickly noted that any bill faces an uphill battle for passage. Still continuing to weigh in on the prospect of the three new Casino construction and development projects in South Florida. He added, you don’t have private firms invest the level of money that has been invested without them believing and having calculated the political and economic realities of the projects. Quoting Peter “Contractors are very optimistic and hopeful about the potential 6 billion dollars in private investment being made.”

Mark Wylie, president and CEO of the Central Florida ABC (Associated Builders and Contractors) said he sees a steady, but improving central Florida construction economy. He noted that for now, the majority of the activity is in schools, health care and multifamily construction with the Hospitality and Entertainment market in Central Florida experiencing a strong recovery.

Governor Rick Scott approved the 1.3 billion dollar construction of Sun Rail (the new commuter rail project for Central Florida) during the summer of 2011. With this decision made it has already started Real Estate Development activity. Several Real Estate Developers and Real Estate Development firms have expressed interest in the project such as Rida Development Corp. which has expressed its commitment to a roughly $200-million transit-oriented real estate development project in downtown Orlando. Also, Adventist Health Systems has committed itself to a roughly $800-million “health village” consisting of retail, medical offices, commercial space and housing related to the construction of the new Sun Rail project.

Real Estate Development and Construction is definitely starting to heat up in Florida with Commercial Construction expected to climb by 22 percent and Non-Residential construction to grow by 13 percent over 2011. With South Florida leading the charge and the Sun Rail project starting the Florida economy is looking up.

I firmly believe that the Real Estate Development and Construction market has started its next business cycle and that now is the time to act. Real Estate developers who have been thinking about starting a project need to act immediately to catch the next wave of economic growth.

As this business cycle expands, the Florida market will become more costly and the opportunities to take advantage of lower costs to acquire property and to construct inexpensively, will vanish as soon as people realize the trend. Many projects are underway and more are starting, with many more yet to be seen currently on the drawing board. I hear too many people talking about “uncertainty” these days. What I can tell you from experience is uncertainty is the father of opportunity. Once things are “certain” there will be no opportunities because everyone will know the outcome. Act now, get ahead of the wave of recovery, and ride it all the way through the next business cycle.

Will a new sales tax reduce property taxes for Florida? In an interview with Staff Writer Derek Catron of the Daytona Beach News Journal on Friday, January 6th, 2012, State Representative Fred Costello offered up his new ideas to stimulate growth and development in Florida.

Costello, who is a Republican from Ormond Beach Florida, responded to Dereck Catron’s question to “Tell us about the bill you filed that would add 3 percent to Florida’s sales tax in return for repealing property taxes collected to fund local education”.

Costello commented that “if in fact the state of Florida’s economy is based on agriculture, tourism and growth/development .. ag is doing reasonably well. Tourism is holding its own. But growth and development are shut down. That’s where our people are out of work. That’s where people are leaving the state of Florida. Our craftsmen, our skilled workers, many of them are leaving. If we do in fact want to stimulate that market … to put Floridians back to work … then we need to do something significant. Think about what would happen if the headlines (across the country) were, ‘Florida cuts property tax 35 to 40 percent.’ Just think about that headline…”

Costello is aiming at replacing a fixed-asset tax with a variable consumption tax that in essence is voluntary because you choose to pay that tax when you choose to buy something. He identified the School Property Tax because this is the tax that the State of Florida calculates and not a tax that the local counties can manipulate individually. The State of Florida calculates the discretionary tax and the capital tax for schools in 67 counties in Florida.

Is this a regressive tax, will it unfairly burden the poorer residents of the state? Costello answers, “If we do not have an exemption for food and medicine, I would say it’s very regressive.”

When asked if his bill’s language actually creates new taxes by applying the 3 percent surcharge to Internet sales and to bottled water sales Costello answered. “I’m not married to one tax or another. I am married to revenue neutrality. It’s built into the bill that it ratchets down from 3 percent to 2 ¾ and 2 ¼ percent to maintain revenue neutrality.”

Costello addressing the proliferation of Internet café’s stated, “I think they are illegal … We don’t’ need those kind of things. I have co-sponsored a bill to outlaw all Internet cafes.”

When asked to comment on the proposals to allow Casino gambling in Florida, Costello specifically addressed the question about Casinos in Miami, “I can’t say it would hurt Miami. I can only say that from what I understand it didn’t help Atlantic City. Las Vegas has the highest foreclosure rate in the nation, the highest unemployment rate in the nation. I don’t want to follow Las Vegas. That’s not the model I think we should be emphasizing in Florida.” The State Representative from Ormond Beach Florida concluded by saying, “right or wrong, that’s my belief.”

On Governor Rick Scott’s new budget proposal released last month Costello gave it high marks, “I thought it was excellent. … I spoke with the governor … (and) I told him we’ve got to have more money to fund education. ….. What his budget essentially does is try to replace the education funding that’s lost from the lack of the (federal) stimulus dollars. … With limited revenue, education is by far the most important area where we’ve got to invest.”

Commenting on the proposed 4.5 million dollar grant to Embry-Riddle located in Daytona Beach Florida. Costello indicated that he supported it, adding “I would support that if it was in Tampa or Pensacola.” The grant is for the development of Embry-Riddle’s aerospace research and Technology Park. He added the grant to develop NextGen (a new satellite-based system for air traffic control) is both an infrastructure project and an economic development project for Florida. He emphasized that he would support the NextGen project no matter where it was located but that having it in Daytona Beach Florida was huge plus.

State Representative Costello has a new idea on how to quickly stimulate growth and develop jobs in Florida. His approach does not rely on the development of Casinos in Florida. Costello’s approach to significantly reducing property taxes would shift some of the revenue burden for education from residents to tourists and would most certainly benefit anyone owning property in Florida. It will be interesting to see what the final bill will look like if it makes it’s way into Florida law.

Real estate developers and construction contractors should follow the progress on this bill with a high level of interest. I for one am pleased to see a new idea emerge and believe this approach would be stimulative to the the real estate and construction industries.

McGraw Hill Construction, a well-known statistical reporting firm, is reporting October residential construction rose to $105.75 million; showing a thirty three percent increase in contracts. At the same time Commercial Construction contracts rose to 124.56 million up by only four percent. For the year, non-residential was unchanged, at $1.49 billion, while residential was up 37 percent, to $1.33 billion.

For this index, Residential Construction includes the construction of single-family homes, duplexes, triplexes, quads, condominiums and apartments.

Commercial Construction includes Industrial, manufacturing, education, religious, hotel, motel, dormitories and office buildings.

While South Florida is showing a good recovery, the remainder of the state is still recovering at a slower rate. The state in general showed more weakness than South Florida, with residential only up a cumulative 9 percent and non-residential down 18 percent.

Overall nationally the value of new construction starts is showing an advance of twelve percent as of October. Noteworthy in the national non-residential category was the inclusion of a project in West Virginia to covert coal into gasoline carrying a price tag of 3 billion dollars.

The trend continues to be upward for new residential construction, Commercial Construction, which is the source of a significant number of well paying jobs in Florida, could benefit from a new market player.

After last February’s debacle of Governor Rick Scott rejecting $2.4 billion in federal funds to construct a rapid rail system from Orlando to Tampa, the possibility of new Casino Resorts and developments remain the most significant possibility for a strong construction stimulus in the state. Let’s hope the Governor has his head in the right place this time around. While the debate continues, investors and construction firms are keeping a close eye on the trend.

The Palm Beach Post reported Monday, January 2nd, 2012 that a new catch all bill addressing all types of gambling in the state of Florida sponsored by Senator Ellyn Bogdanoff has been presented.

The original bill SB 710 creates a statewide gambling commission and allows up to three casinos, which would spend at least 2 billion each over five years on construction and real estate development.

Now the senator has a new plan, which requires voters to approve new gambling of any type in their county. It bars any new racetracks or Jai-alai frontons from opening after this July and it closes the door on over 1,000 Internet “gaming” cafes.

Bogdanoff wants to redirect all the gambling revenues in Florida toward the Casino industry. Speaking about unregulated gaming, pari mutuel gambling, and lottery tickets, “I said we were going to stop the expansion. We’re going to redirect it, but we’re going to substantially reduce the number of gambling locations in the state of Florida. We’re going to do everything we can in our power to reduce gaming, and I’m going to do everything I can to limit the lottery.” Bogdanoff believes the state lottery and other gaming businesses unfairly target low income residents for revenue whereas the new casinos would target wealthy tourists.

If Bogdanoff is successful, two of the three casinos will be in her district and the huge shift in gaming revenue will be concentrated and redirected toward the new casinos in south Florida. The thrust of this new bill is to regulate, control, and limit gambling to a few key operators in the state. The location of the casinos will have a huge impact on the economy of the immediate communities where the casinos are located; but limiting the licenses to three mega-casinos seems more politically than economically motivated.

For real estate developers and investors awaiting a renewed commercial real estate market, this bill and the discussion which is sure to follow, represents a significant development. The bill in its current form may not be the catalyst investors are seeking to kick start Florida’s construction and tourism economy.

If Casino gambling is allowed to grow and develop facilities in several Florida markets it will certainly restart Florida Commercial construction, which is beginning to show slow signs of recovery.

As a commercial investment, the face of Real Estate in Florida is about to change. Casinos are eying Florida as a new market and the recession has increased the likelihood that both residents, business, and government are going to give them their chance. Similar to the 1980′s when timeshare marketing brought a wave of investment capital to Florida allowing many distressed properties to be completely renovated, the Casino business will generate a wave of revitalization of coastal and resort properties.

Casino gambling will bring in a new class of tourism and capital investment needed to revitalize many of the distressed hotel properties. The influx of capital will create new construction jobs and fuel growth in support services as well as create permanent employment in the hotel and casino industry. In addition to the demand for high end lodging, the sophisticated class of clientele will create demand for luxury shopping, dining, and entertainment. As the industry grows it should also spur demand for executive residential property and exclusive estates.

While most of the attention for casino development is focused on south Florida’s gold coast, Daytona Beach is ripe for casino development. The world famous beach is a obvious draw and the hotel business is in need of new capital to upgrade the properties. In the current state of tourism, the seasonal NASCAR fans, college students, and summer vacationing families are not bringing sufficient spending power to justify the major capital investments needed to keep Daytona Beach hotel properties looking attractive. Even condominium properties are showing some distress as owners hold down the maintenance fees. Casino gambling and championship golf courses would be a natural addition to the nearby tourist attractions which include the beach, the Daytona Speedway, Disney World, Sea World, historic St. Augustine, and the Kennedy Space Center.

While the debate is certainly underway, it is clear that if casinos are developed, the face of Florida real estate investing will change forever.