LAKEWOOD RANCH – A difference in philosophy is behind a change in ownership at Lakewood Ranch’s principal shopping and entertainment district.

Casto Lifestyle Properties, a Sarasota company that manages retail developments in three states, has transferred its stake in the 158,000-square-foot, mixed-use project to Schroeder-Manatee Ranch Inc., the developer of the 8,500-acre community.

Faced with a high vacancy rate of 17 percent and a feeble economic recovery, control of the Main Street development will give SMR more flexibility to attract new tenants, company managers said.

“SMR’s control of the ownership and management responsibility underscores its commitment to the project and also enhances our ability to shape the direction of this important component of our rapidly growing community,” said Rex Jensen, SMR’s president.

Anthony Homer, who along with Diane Lawson is now in charge of leasing and sales for the Main Street retail district, said the debate came down to development versus cash flow.

“What you had before was two organizations with different philosophies,” Homer said. “Casto was more cash-flow oriented, while SMR sees Main Street as a development tool. Its success will help SMR sell homes.”

Though Lakewood Ranch’s Main Street has been more successful than most retail developments in attracting tenants in these difficult economic times, its vacancy rate remains high.

The Good Earth Natural Foods store moved into the anchor position vacated by Morton’s gourmet market in March 2008, while an oil and vinegar shop and a Big Olaf ice cream outlet moved into smaller adjacent space.

More recently, entrepreneurs opened a bicycle store and a gift shop that will double as a management office when the Fish Hole miniature golf course opens across the street.

“The addition of new tenants is a move in the right direction,” says Jack McCabe, a Deerfield Beach-based real estate consultant. “Most retail is still going in the opposite direction.”

SMR’s decision to take control of the development also is a good one, McCabe said. “Now they can deploy a retail strategy that will have a positive impact on residential sales.”

It is not the first time that SMR has seized control of its destiny.

It stopped developers Stanley Appel and Gary Moyer from moving ahead with the second phase of their San Marco retail project, and it took control of a failed hockey arena project after developer Sal Diaz-Verson was unable to come up with enough money to complete the building that later became known as “Stonehenge.”

Jensen acknowledged that SMR originally outsourced these projects to outside developers because it lacked the confidence and contacts necessary to bring them to fruition.

“Retail has always been a specialized thing and you need to have a lot of industry contacts,” Jensen said. “We simply didn’t have that. But now we have evolved to a point where we can bring that in house.”

Jensen said he has a lot of respect for Casto, but agreed that the company has a different perspective.

“Almost everything at SMR involves a balancing act,” Jensen said. “Our interests involve a wide variety of opportunities that are all focused on this property. Casto owns interests in a discrete number of projects in a wide variety of locations. We have different approaches based on the different things we do.”

While Casto might view Main Street by the impact on its own bottom line, SMR is be more inclined to use it to entice home buyers and corporate businesses to call Lakewood Ranch home.

“We are now free to do that without reference to a partner with more targeted goals,” Jensen said.

To borrow a biblical expression, it may be easier these days to pass a camel through the eye of a needle than it is to get a commercial real estate loan.

Despite federal bail-out money intended to stimulate lending, loans for investment in office buildings, shopping centers, industrial sites and raw land are increasingly rare, the result of falling values and other factors.

Commercial property owners and mortgage brokers say the lack of capital also stems, in part, from new federal regulations intended to staunch foreclosures and halt the aggressive lending practices of the early 2000s.

“It’s ironic that the federal government put all the stimulus money into banks, while another branch of the government is over-regulating capital reserve requirements on banks,” said Brett Hutchens, chief executive officer of Casto Lifestyle Properties, a Sarasota development firm that owns shopping and lifestyle centers nationwide.

“The same government is providing both the carrot and the stick to lenders,” Hutchens said. “It’s created gridlock and made lending and borrowing very, very difficult.”

“It’s a Catch-22 the government has imposed,” said N.J. Olivieri, president and owner of Sarasota-based Horizon Mortgage Corp. “They tell the banks to make loans but then tell the FDIC to tighten the restrictions on new lending.”

New regulations notwithstanding, lenders say the pullback in available credit is appropriate, given the shaky economy.

“Banks are simply not looking to take extended risk today,” said Charlie Murphy, chief executive of the Bank of Commerce, a Sarasota lender, and a board member of the Florida Bankers Association, a trade group.

“It’s not unusual for banks, in bad economic times, to tighten their lending standards,” Murphy said. “And regulators are not too happy these days about allocating new money to commercial real estate.”

Other forces

Banks have been hurt, as well, by other forces beyond their control.

Most notable has been the exit from the lending market by risk-averse insurers and pension funds, typically a key source for permanent mortgages.

That has crippled commercial real estate owners seeking to refinance or simply shift loans from banks, as is usually done.

That, in turn, has forced banks to keep mortgages on their books, which further limits their ability to cut new loans — especially in the construction and real estate sectors.

The precipitous drop in commercial real estate values — combined with falling rental rates on nearly every property segment — represents the largest factor in the dearth of lending, however.

Retail rental rates have fallen by as much as half, and many tenants remain unable to pay rent at all, part of the fallout from the longest economic recession since the Great Depression.

Vacancies, too, from super-regional malls to neighborhood-anchored strip centers, have risen dramatically.

“In many cases, shopping centers are full, but not all of the tenants are paying rent,” Olivieri said. “Landlords don’t want their space to go dark, so they’re letting them stay put.”

Office rents have also fallen, in Southwest Florida and nationwide — by 20 percent to 30 percent in some cases.

“In some submarkets, there is an even greater devaluation of rents,” said John Harshman, president of Harshman & Co., a Sarasota commercial real estate brokerage firm.

The lack of income, and decrease in values, has forced many property owners to come up with new equity on loans to satisfy lenders’ re-appraisals, investors say, even on performing mortgages.

Regulators, too, are calling on banks to beef up reserves and loan coverages by thinning loan-to-value ratios.

Restrictions

Meanwhile, the few commercial real estate loans that are available come with excessive restrictions, including onerous equity requirements and repayment schedules, which are also the result of new federal regulations.

In many cases, lenders that once required investors to put down 20 percent or 30 percent equity are demanding twice those percentages — and borrowers’ personal guarantees — before they will consider loaning money.

“We’ve gone from having an unsecured line of credit, on a performing loan, to getting a commitment for just one-year from the bank, and the terms are complex,” said Andy Dorr, a senior vice president with Githler Development Co., a Sarasota real estate investment and development firm.

As a result, Horizon and others have begun lining up equity partners for developers or investors, Olivieri said.

At the same time, Dorr said, the costs associated with commercial real estate borrowing — appraisals, origination fees, legal expenses and environmental analysis — have increased in many cases.

The hiked fees and the lack of new capital are both tied, investors and lenders say, to the fear that a commercial real estate meltdown is in the offing. Already, development giants such as mall owner General Growth Properties have defaulted on commercial real estate loans — a signal to some analysts that another wave of foreclosures is ahead. Next year alone, hundreds of billions of commercial real estate loans, many of which were cut during the real estate boom and required interest-only payments, will mature or come due nationwide. When that occurs, many predict, defaults will spike.

“Everyone keeps saying that commercial real estate is the next shoe to drop,” Hutchens said. “Well, I have to agree: It’s about to drop.”

The answer, industry experts say, can be summed up in a single word: Jobs.

“We have to stimulate the economy with more jobs and small business,” Murphy said. “When we have jobs, then businesses expand and the economy cycles upward. The opposite is also true, and it creates a vicious, self-fulfilling prophecy.”

“People have to go back to work,” Olivieri said. “Specifically, in construction.

“Construction has always led the way out of recession; it’s key. It starts the employment cycle, and then retailers hire and the cycle returns to supply and demand. But if you don’t have a job, if you don’t know where your next dollar is coming from, then you don’t spend,” Olivieri said.

Unfortunately, for Florida, that job growth may be a long time in coming.

Unemployment in Southwest Florida stands at 12.7 percent, slightly above the 11.5 percent statewide average, which is at the highest level since October 1975. Nationally, unemployment is just under 10 percent.

Even more dire are some economists’ predictions that Florida’s unemployment rate will not fall to 6 percent — within the range of a moderately healthy economy — until 2018.

If that proves true, experts believe commercial real estate will remain depressed well into the future.

“The 12 percent unemployment rate in Sarasota and Manatee counties, and the 10 percent rate nationally, will create more commercial real estate vacancies,” Harshman said. “And more vacancies will, in turn, further drive down commercial real estate values.”

This story appeared in print on page D6

Hit hard by the housing downturn, Florida is one of two states that realized gains of more than 4 percent in home prices, according to a quarterly housing valuation analysis by IHS Global Insight.

In South Florida, prices started to inch up in the third quarter.

In the Miami metropolitan area, prices increased to an average of $191,200 from $182,900 in the previous quarter. However, they remain down significantly from the third quarter of 2007, when the average price was $312,600.

The Fort Lauderdale metropolitan area saw a slight improvement, with an average price in the third quarter of $148,000, up from $147,700 in the previous quarter, but still down from $248,600 in the third quarter of 2007.

The West Palm Beach metropolitan area saw the average home price inch up to $164,400 in the third quarter from $163,600 in the previous quarter. In the third quarter of 2007, the average home price was $262,000.

Nationwide, in year-over-year terms, house prices increased during the third quarter by 0.9 percent, according to the Federal Housing Finance Agency, the first since the second quarter of 2007, when the national housing market began its slide. From its peak in 2007, the U.S. housing market is now down 10.7 percent, on average, the IHS noted.

For the first time since the IHS study began in 2005, no metropolitan areas were extremely overvalued. There were 52 in 2005.

Homes in Miami-Dade County were deemed fairly valued, while those in Broward and Palm Beach counties were considered undervalued.

For the nation as a whole, the housing market is now slightly undervalued – 8.6 percent when weighted by market value and 10.1 percent when weighted by housing units, according to IHS.

“While the rate of decline has decreased throughout the year as the market began to stabilize,” said James Diffley, group managing director of IHS Global Insight’s Regional Services Group, in a news release. “It’s not at all clear that the market is on a recovery path.”

Hollywood-based TOUSA has been working through a Chapter 11 bankruptcy since January 2008. Its Florida projects were mostly under the Engle Homes brand.

According to bidding procedures proposed in a bankruptcy court motion, the Starwood bid serves as the floor bid for an auction to be held at 10 a.m., Jan. 22, at TOUSA’s bankruptcy law firm, Berger Singerman, in Miami.

Lazard Freres, a financial advisory and asset management firm, is handling the auction.

Full Story here