The employment report released by the U.S. Department of Labor showed that job losses are slowing down. Only 11,000 jobs were lost in November 2009, 115,000 less than forecast. In contrast, 597,000 jobs were lost in November 2008, and 700,000 at the beginning of the year. In the prior three months job losses had averaged 135,000 per month.
The consensus is that these are signals that the multi-year economic, and associated real estate, decline is slowing down. This train has to stop sometime, somewhere, and it seems that now it is coasting to a more manageable speed. There’s guarded confidence that, as more jobs become available, people will start spending, creating demand and oiling the economic gears that would stimulate a recovery.
In Miami Beach, particularly, it’s hard to warm up to these predictions because, even as layoffs are slowing in the country as a whole, our tourist driven city still has an unemployment rate of over 11% at the latest count, according to Florida’s Agency for Workforce Innovation. Loans for businesses and commercial real estate are also difficult to obtain, keeping our economic growth at a virtually zero.
Miami Beach hotels, whose income shrank by 23 percent in 2009 and is expected to fall another six percent next year, dropped in value as a result of the lower returns. Operators, unable to meet their debt obligations, have been forced to sell at distressed prices, some have gone into bankruptcy, and deals abound for the visionary investor. The most notable case is that of the Fontainebleau Miami Beach, South Florida’s biggest resort, which after $650 million in renovations and a $5 million reopening party, is now battling creditors.
In addition to tourism, Miami Beach’s economy also depends on small businesses, financial and other professional services, health care, and construction. Only an active credit engine will produce real signs of life in these areas and then we will see housing sales speed up enough to absorb the available inventory and housing prices stabilize. The availability of credit is also the motor that will invigorate demand for commercial properties over time, as the cash on cash returns needed to spur demand depends on the availability of long-term financing.
A few of the latest key commercial real estate market debt statistics to keep in mind as we approach 2010:
- Commercial- mortgage delinquencies rose 0.43% from October to 4.29%
- Hotel delinquency rates jumped to 8.07% from 6.81%
- Multifamily delinquencies rose to 7.02% from 6%
- Industrial segment rose to 3.2% from 3.09%
The key to future commercial market stabilization, and eventual growth, will be the ability to refinance in the coming year.
Statistical Source: Fitch Ratings
Miami Commercial Real Estate Blog 
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