Florida Fantastic

Florida Fantastic

COMMERCIAL REAL ESTATE by Mark Gordon | Managing Editor

The Sunshine State can, and will, shine, a commercial real estate executive says. He's betting big that it does.

Seth Werner must be like an angel in the eyes of a Gulf Coast Chamber of Commerce president.

The commercial real estate executive isn't just saying he's bullish on Florida's growth prospects, just as many of his peers worry about pesky potential problems, such as a 2008 recession-like atmosphere in some industries.

Werner's backing up his talk with his wallet, too.

And it's a thick wallet. Werner's company has invested $161 million in three Tampa-area properties over the past year, and more could be forthcoming over the next year.

"We love the Florida story," says Werner, a New York City native who grew up partially in Miami and has lived in the Sunshine State since the 1970s. "This is our backyard."

Werner, 62, is chairman and chief executive officer of Fort Lauderdale-based Cypress Creek Capital, the commercial real estate arm of holding company BFC Financial Corp., also based in Fort Lauderdale. BFC's companies include BankAtlantic, one of the largest banks in Florida and Benihana, the Japanese steakhouse and sushi restaurant chain.

Another BFC subsidiary is Levitt & Sons LLC Corp., the national homebuilder that filed for Chapter 11 bankruptcy protection Nov. 9. Cypress Creek isn't connected to Levitt, other than sharing a parent company.

Cypress Creek has several other business lines, in addition to selling and buying commercial real estate properties. It provides financing and advice on other deals and, most recently, began providing so-called bridge loans to developers, both buyers and sellers, in need of short-term funds due to current market problems.

But Cypress Creek's soul is in doing its own real estate deals.

Werner says Cypress Creek will consider investments in most of Florida, from Jacksonville down to Miami and Naples up to Orlando. The one area he's not fond of, from a potential growth and profit-turning perspective, is the Panhandle, or anything west of Jacksonville and 100 miles north of Tampa.

Cypress Creek currently has about a $350 million portfolio in Florida, in seven properties totaling 1.83 million square feet. Says Werner: "We buy properties that we think have an existing asset and do something with it."

Significant and expensive

Werner's especially optimistic about doing something with properties on the Gulf Coast, and even more so about Tampa and Sarasota. Cypress Creek owns more than one million square feet of property in Greater Tampa.

Those properties include the 501 East Kennedy building in downtown Tampa, which it bought in June in a partnership with a New York City firm for $45.8 million, or $155 per square foot. Cypress Creek has since spent $3.5 million on a refurbishment project for the 300,000-square-foot building, from elevators and stairwells to plumbing and electric work.

The building is already 75% occupied and home to several well-known Gulf Coast businesses, including the law firm Fowler White Boggs Banker. And Werner was drawn to the purchase for another factor: Exclusivity.

"In our estimation," Werner says, "there will not be a new downtown office building in Tampa for months to come."

Cypress Creek made an even more significant, and expensive, investment in the Gulf Coast in February. That's when it bought what was then known as the Koger Office Park in St. Petersburg, near Interstate 75 and Gandy Boulevard, for $94 million. The 35-year-old office park, built by developer Ira Koger, is a series of 15 buildings covering 682,311 square feet, with tenants that include Fifth Third Bank and Texas Instruments.

But while big in space, the center also needs big changes, says Werner. Everything from the cosmetic, such as signs and landscaping, to the meaty, such as recruiting larger tenants, will be looked it. Cypress Creek plans on debuting some of the more cosmetic changes to the center in early 2008 and working up from there.

"Two to three years from now," Werner says, "you'll come back here and say gosh, I don't recognize this place."

One Gulf Coast place Cypress Creek doesn't currently have any properties in is anywhere south of the Sunshine Skyway Bridge, but Werner has been looking into some possibilities in the Sarasota area. It doesn't faze Werner that earlier this month Sarasota County and city voters approved a super majority ballot initiative that makes growth and development even tougher than it already was.

Indeed, says Werner, existing properties could be worth more if growth slows down. Then, he says, "we might look harder at Sarasota for places to buy."

Big deals

Long before Cypress Creek, Werner ran several turns commercial real estate operations with properties and holdings well into the hundreds of millions of dollars. He founded his first company, First Capital Financial Corp., in 1971. He took it public in 1981.

By 1984, the company had $1.5 billion in assets and holdings. Werner sold it to an Atlanta-based real estate investment firm controlled by Sam Zell, the billionaire real estate entrepreneur who recently bought the Tribune Co., owner of the Chicago Cubs and several newspapers, including the Chicago Tribune and the Los Angeles Times. First Capital initially traded for around $6 a share, Werner says, before growing to about $12 a share and ultimately selling for $17 a share in an all-cash deal.

Werner doesn't keep in regular touch with Zell, although the two chatted earlier this year when they ran into each other in Chicago.

A short time after selling First Capital, Werner founded another firm, Werner Capital Corp., which also quickly grew its real estate holdings nationwide. Then, in the early 1990s, Werner liquidated the holdings of the company in one sale and went into retirement.

That turned out to be temporary though, as Werner's restlessness was timed perfectly with the advent of a new major technology: The Internet.

Werner and some partners developed a business that sold software and technology for companies to write mortgages on a laptop computer. The company, appropriately enough, was called mortgage.com and was a hit when Werner and his partners took it public in 1999; at one point, its market share passed $1 billion.

But the stock faded quickly and by 2000 Werner had sold his interest. In 2003, Werner teamed up with some executives of BFC, people he'd known since the 1970s, to start Cypress Creek.

CYPRESS CREEK CAPITAL PORTFOLIO SUMMARY

Property Name Location Square feet

East Tampa (Eastpointe & Lakeview Center) East Tampa, FL 267,951

Baypoint St Petersburg, FL 682,331

Crystal Corporate Center Boca Raton, FL 126,709

Coral Palm Plaza Coral Springs, FL 135,936

Shoppes of Boynton Boynton Beach, FL 151,831

South City Plaza Boca Raton, FL 175,761

501East Kennedy Tampa, FL 295,761

1,836,280

AN ENTRPRENEUR'S HEART

Seth Werner's 35-year commercial real estate career has been defined by big, from running a $1.5 billion business in the 1970s and 1980s to co-founding an Internet mortgage company in 1999 that had a market share of more than $1 billion at its peak.

But big doesn't mean Werner's given up any of his entrepreneurial instincts. In 1984 and 1985, for instance, he taught a class at the University of Miami's graduate business school called "The Psychology of Entrepreneurship." And in 2000, Werner was a Florida finalist for the national Ernst & Young Entrepreneur of the Year Award.

EXECUTIVE TIPS

There are two levels to what constitutes a good commercial real estate deal according to Seth Werner - who's been behind hundreds of deals over the past 35 years.

The first parts are the standard pieces: Price, location, quality of construction and quality of the tenants. Next, says Werner, there are the following tipping points:

• Ability to put good debt financing in place;

• How well the market area around the property is growing;

• The amount of already existing properties in the market;

• How much new competitive property is currently being built or planned for the area;

• Current rents at the property against the other similar properties already in the market.

REVIEW SUMMARY

Business: Cypress Creek Capital, Fort Lauderdale

Industry: Commercial real estate, venture capital

Key: Firm has invested $161 million in Tampa properties over the past year, with more expected in 2008.