Opportunity Time

Opportunity Time

Despite the real estate downturn, Ray Sandelli believes strong fundamentals will mean good news for commercial real estate on the Gulf Coast.

COMMERCIAL REAL ESTATE by Dave Szymanski | Tampa Bay Editor

Ray Sandelli has 24 years of commercial real estate experience and a regional vision as the head of the CBRE Richard Ellis operations in the Tampa Bay and Sarasota-Manatee region.

And in that vision he sees opportunity in real estate's downturn.

"We still have, on the west coast of Florida, from Tampa Bay to Fort Myers and Naples, we still have that growth potential," Sandelli, 60, says. "That's very attractive for people that want to participate as owners and developers."

Besides new development, Sandelli sees infill development, bringing growth back to the core of cities.

"Tampa Bay has residential, office and schools downtown," he says. "I think that is very attractive to people looking at the west coast of Florida."

Sandelli, a Navy pilot, began his brokerage career with CB as an office leasing specialist in Seattle. In 1985, he joined the Cincinnati office as sales manager, and in 1987 became managing officer. He joined the Tampa office in 1995.

Prior to joining CBRE, Sandelli was vice president of leasing for The Rainier Fund Inc., a Seattle-based commercial real estate development and management firm.

The Gulf Coast Business Review recently spoke with Sandelli about the state of commercial real estate on the Gulf Coast, as well as related issues that affect real estate in Florida and nationwide. Here is an edited version of that interview.

Has the softness in the economy affected all of the commercial real estate segments equally?

"I think there are variations. All have been affected. It's hard to say which are more or less affected. I think the biggest thing is there's a lot of concern in the market now. The reason for that is that people are uncertain of the scope of the problem."

How does this downturn compare to others you've seen?

"We are a world community today. We have sub-prime mortgages. When it gets that heated, mortgages are sold to international entities. That house, which has a mortgage, becomes part of the fabric of the world community. Look at what foreign travel means to Disney. Because of the value of the dollar, people are coming here and buying. It's all interrelated. The Panama Canal is going through a retrofit. That means bigger ships coming to Florida. Now, west coast U.S. ports are very, very busy. But with the price of fuel, there's no sense to truck it across the USA. Where do we fit globally with our community? That's the difference in the current economy. It goes far beyond the borders of our state...Clients want to go to a service provider. They want someone in London, Beijing or Tampa. If someone is going to outsource, if you know the markets, it works for them."

What lesson does business learn from this?

"We've gone back to fundamentals and it's tougher to get deals done, but it is probably better. There is money out there, but it's a much tighter deal. On the leasing side, it's very good time to strike a good deal for the long term. Things are never all bad and never all good."

What is your estimate on when the commercial real estate market will recover?

"On the residential side, we got way out in front on the supply side because it takes far less time to build residential than commercial. The good thing is, the existing supply is being absorbed. On the commercial side, the barriers are tougher. It takes two years to build. If we're going to see more clarity in 2010 and 2011, that means the supply side needs to start now."

What is your opinion on the developers in the market locally?

"The developers here are pretty astute, like Highwoods, Ryan and Duke. They understand the dynamics and cycles. I think people are committed to the market, study the market and are very careful on the supply side. Commercial development needs to look out two years, that's why you see phased projects. I think people are staging developments."

Are we overbuilt in office or other segments of the market?

"I think we are in a pretty good balance. On the office side, we're looking at development partners who are very careful. On the industrial side, it's a little more affected, especially with any tenants in the construction industry. People are looking to run more efficiently. Office and industrial are in good shape. With retail, there are concerns with confidence in the economy. And people's consumption habits are changing. Value-oriented retailers are doing better. People are consuming less and are judicious with money."

What about apartments?

"In multifamily, a lot of properties converted from apartments to condos. There is some fractured ownership. The apartment market benefited from that. There are people who are renters by design. Or they are leasing by necessity, because of loss of a job or they've had to downscale. The apartment market is pretty strong. For folks that choose to rent, there are health facilities, pools and finishes in apartment communities that are very comparable to condo ownership."

Are the counties and the state handling transportation and other infrastructure challenges adequately? Are impact fees too high or too low?

"I don't think there's any question, mass transit has got to be a part of the state or the community. When oil topped $4 a gallon, the concept was more acceptable. It made sense to get on the bus. There are benefits and challenges to every environment. We are still a state of 17 million plus...We have geographic boundaries. We still need to move people and products. So rail will be needed. It will cost money. All of these things are connected. With the state, county and cities, the biggest challenge is funding. But you can't keep throwing it onto impact fees. It has got to be a public-private partnership. We'll have a better chance for success."

What can we learn from this?

"I think we operate better in times of challenge. When we have to think about how to spend money, we do a better job. I think for all the challenges, there is an opportunity to operate well."

Is Florida Hometown Democracy a legitimate threat to the industry?

"There's been a lot of effort on both sides of this issue. We elected public officials. We have to have trust and have confidence in them. They are honest, trying to do their best. I don't know how you could put those (land use) changes on a ballot, have it understood by voters and have them go to the polls to vote on what's in everyone's best interest. We have poor attendance at the polls. Ballot issues are so poorly written. Based on those things, that's how we'll design our communities? How can someone in Tampa Palms vote on something in Westshore? This is a huge effort, but it's not the way to go. The name sounds great. But when you try to execute it, it is fraught with problems. I hope it doesn't go forward."

Is the green trend here to stay?

"I think there's no question, people become much more attuned to the environment. I think the industry understands there is a responsibility there. We will never see a new government office building that won't be Leed-certified. People feel it's a better environment for employees. Companies are saying, 'We're going to go to that property, because of environmental concerns'. Investors are looking to buy that way."

How will technology change the industry?

"Technology has allowed us to work from anywhere. To a degree, that's true. However, that being said, technology is a tool. Decisions, from my perspective, are a collaboration among people. It's extremely important to use the information in a constructive way. I remember when Blockbuster came out, people were saying it meant the death of the movie theater. It hasn't happened. That's because movies provide social interaction. Eateries are part of the equation. They are a night out. It's a part of social interaction. And that affects real estate. The No. 1 reason people want to live downtown is social interaction."

REVIEW SUMMARY

Company: CB Richard Ellis

Industry: Commercial real estate brokerage

Key: Pay attention to the global economy, looking for ways to better serve clients.