An office building in a prime, Southwest Florida location sold for the second time in 18 months. And at a price that was 10% higher than the first time around.
Alico Center, a 25,531-square-foot, two-story office building just off Interstate 75 and Daniels Parkway, closed Dec. 29 for $6.5 million. It previously sold for $5.8 million in April 2020, just as the COVID-19 pandemic began shutting down offices worldwide.
That’s a price increase of 10.64%.
Adam Palmer, a broker with LandQwest, sold the building both times. Sunset and Whitney Holdings LLC bought it this time, from Kingdom Development Fort Myers LLC.
“Both transactions were investor-driven,” Palmer said. “The original purchase from 2020 was closed right at the beginning of the pandemic. It was a very interesting sale, because that buyer had the opportunity to pull their money out. But decided to stick with it. There are a lot of national tenants there. They were willing to take the risk of the unknown pandemic at the time.”
Fast forward 18 months, and the seller’s market looked too good to pass for the previous buyer, Palmer said. “Anything producing in the market these days is so competitive. You’ve got a ton of 1031 money out there.”
Palmer explained parts of the 1031 tax codes. They have factored into a surge of investment activity in the realm of office real estate.
“There’s a tax program called a 1031 exchange,” Palmer said. “Let’s say you were a client of mine and you purchased a building for a million dollars. Two years later, you sold it for two million dollars. Your capital gains tax would be $1 million. That’s your gain. The capital gains program is like an immediate loan from Uncle Sam. You can defer your tax bill. You can just keep it rolling for as long as you want through this program. The 1031 program is very popular.”
Phil Fischler, founder of Fort Myers brokerage Fischler Property Company, expanded upon the 1031 explanation.
“The incentive is to encourage investors to continue to reinvest money into the market,” Fischler said. “Instead of selling a building and taking the money and doing something else with it … the 1031 exchange laws encourage the sellers to take the proceeds from one property and invest it into another.
“It creates economic development. It creates jobs.”
Fischler, who was not involved in this particular office deal, broke down the current market.
“One metric on how to measure the health of an office market is looking up the vacancy rate,” Fischler said. “The percentage of a building that’s vacant as opposed to what’s leased. A 5% vacancy rate is considered a healthy market.”
The national vacancy rate is 12%. In Florida, it’s 9%. In Fort Myers, it’s 5%. In Estero and downtown Fort Myers, it’s 3%, Fischler said.
“It’s very low vacancy,” he said. “Which means the demand is very strong for office. That’s a story that’s not very widely told right now.”
The Alico Center has Alico Corporation, Northwest Mutual and Capital Shield as tenants.
“Those tenants are very attractive for investors,” Fischler said. “They’re well-established, strong companies.”
