The Fort Lauderdale Commerce Center is a prime example. The project just sold for $4,350,000. The sale closed July 27, 2015.
“At $71 per square foot, the 61,149 square foot, 2-building office/ flex project sold for less than replacement value,” said Stigliano.
Reese and Kathy Alberts represented the seller, Commerce Center Development Corp. The property, which is located at 5440-5450 NW 33rd Avenue in Fort Lauderdale, Florida, sits on about 4.9 acres in a well established office park in the Commercial Blv.d / Cypress Creek submarket of Fort Lauderdale.
The buildings were purchased by Meridian Realty Property Warehouse LLP.
During the 2008 -2011 crash, investors were buying property for 10-20 cents on the dollar. Those days are gone for now.
“The new line in the sand,” said Reese, “is to identify real estate that can be purchased for less than replacement value. Today’s warehouses cost close to $100 per square foot to build with office buildings breaking the $200 per square foot threshold.”
Another path to identifying undervalued real estate is to seek property in “high-barrier-to-entry” locations. Areas like Broward County, where vacant land is scarce and land prices are soaring is a great place to look for today’s bargains. High land values significantly increase overall development costs, which curtail speculative development of potentially competing property.
On the flip side, the competition for undervalued real estate is driven by the large pool of investors seeking 1031 tax-free exchange transactions. Thanks to Internal Revenue Code 1031, a properly-structured 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes.
The buyer of the Fort Lauderdale Commerce Center project was in that situation and was able to purchase the property to fulfill his 1031 requirement.
When asked for his advice, Stigliano said, “Understanding construction costs and land values and identifying assets below replacement value is the formula for a successful real estate investment in today’s environment.”