Income-producing property sales have long been a mainstay of real estate investors in southwest Florida, and recent market activity reveals an increasing trend toward income-producing real estate. This property type is a hot commodity that is in extremely high demand with all types of investors. The combined influences of economic recession, the tech bust, an unstable stock market and low interest rates have generated a significant rise in interest in income-producing real estate.

Even though there are strong indications of economic recovery, investors are leaning toward steadier and more attractive returns and away from higher risk investments such as speculative land properties and the stock market. As interest rates begin to rise, so does the cost to finance real estate, and investors are not waiting for that to happen.

The return on investment of income-producing properties is attractive for investors who are currently seeking low risk investments. Unlike a couple of years ago, investors are now snapping up properties with relatively low cap rates (income of the property divided by the sales price). Their new "cautiously optimistic" approach to investing is seeing a boom in safe bets, such as long-term net lease properties, which may offer a return of 8 to 10 percent.

The Safest Bet: Single Tenant, Net Lease

Single-tenant, net-lease properties are gaining the most attention from investors who are not interested in property management. Eckerd, Walgreens, Federal Express, 7-Eleven and Vision Works are hot commodities. Most important to investors is the fact that properties are leased to high-quality tenants with long-term leases. Also, the tenant handles variables such as real estate taxes, insurance and maintenance.

Examples of strong demand for income-producing real estate in the southwest Florida market include the sales of two Vision Works, one in Fort Myers and one in Naples, which sold for $1.02 million and $1.69 million respectively. Other recent sales include a 12,800-square-foot Midas Automotive Center in Naples for $1.5 million, a 13,000-square-foot building occupied by a CPA firm in Fort Myers for $1.925 million, a 14,000-square-foot restaurant under long-term lease with Pork Bellies BBQ and a Tuffy Auto Service Center for $650,000.

Middle Ground: Anchored Centers

Also favored are anchored centers that are reasonably new. Unlike single-tenant, net-lease properties, they are more likely to carry the burden of vacancies and unstable tenants. However, with a strong anchor and attractive faïade, they can offer long-term stability.

Anchored centers do not hold the potential for high yield that speculative properties do, but they do offer flexible, shorter-term leases. There is potential for rents to increase, giving owners the opportunity to secure a better yield.

Recent anchored-center sales include the $6.7 million sale of the 53,275-square-foot Bonita Bay Plaza shopping center, which is located in Bonita Springs and anchored by Target and Albertsons. An Ohio investor purchased the property.

Impact on the Market

Income-producing real estate has always been a sought-after commodity in southwest Florida. Current economic conditions and future projections point to continued interest in this market segment through 2003 and beyond.

"There are a lot more people looking for space, and there is actually some absorption taking place," notes Byers. He adds that with the success that the central part of Alabama has had in attracting the three auto manufacturers -- Mercedes-Benz, Hyundai Motor Company and Honda -- and the fair amount of activity associated with this success, the future for Birmingham is extremely bright.

Roanoke

The Roanoke Valley is a hotbed of industrial activity, with everything from Virginia Tech, which has a corporate research center that has spun off some very successful startups, to being one of the top locales for the automotive and truck supply industry.

The area has always been one of the big furniture manufacturer locales in the country, but a lot of that industry has headed to countries that can produce it much cheaper, according to Bob Copty of Copty & Company, a commercial and industrial firm in Roanoke.

The region was also very strong in the clothing business, but because it is such a labor-intensive process, that business has moved to markets like Mexico, China and Taiwan.

"So on the negative side, we're seeing a lot of loss of that employee base," Copty says. "We have a good number of facilities that are in the second and third generation use that used to be the sewing and furniture operations. Martinsville, which is a community about 50 miles south of us, in particular, was hit very hard."

Will Davis, state manager at American Electric Power, and formerly in economic development with the State of Virginia, knows all the players in the state.

"As compared to other areas, you're not going to see the mega announcements, but what you are seeing are good solid industrial announcements," says Davis. "We've got several Japanese companies here -- Dynax, Koyo, Yokohama Rubber -- that supply to the automotive market."

Most of the announcements in the Roanoke Valley are relatively new companies that have been so successful in their first announcement that they have already gone into expansions. For example, Maple Leaf Bakery, which located to the area in 1997, just announced a 50,000-square-foot expansion to the tune of about $11 million.

Altec, which manufactures equipment for the utility industry, announced a 187,000-square-foot facility for 150 people -- a $12.5 million investment. And The Roanoke Times just announced a brand new facility; the paper will be located in downtown Roanoke in a 60,000-square-foot facility for $31.6 million.

With so much activity now, what does the future look like for Roanoke?

"I think we're going to see a changing market," says Copty. "The nature of the industrial world in the United States is changing, and we are going to see employment per produced unit continue to decrease and find fewer people in plants. If you have an expensive employment base, and the product can be produced cheaper some other place, it is just a matter of time until that industry is either going to become efficient by automating and reducing employee numbers, or move on. I think we are going to continue to see that happen here and nationally."

David Stevens, CCIM, is a commercial advisor with Grubb&Ellis|IPC in Naples, Florida, and Tom Woodyard is a commercial advisor with Grubb & Ellis|VIP-D'Alessandro in Fort Myers, Florida.

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