Naples-Fort Myers Area Expansion
Fuels Commercial Property Boom

The cooling residential market is curbing condo conversions in the Fort Myers-Naples area, but the population boom in that southwest Florida region is driving strong retail, office and apartment-rental sectors.

Stretched along Florida's west coast on the Gulf of Mexico, the once-sleepy vacation and retirement destination is teeming with new residents and development. Two new malls are under way, Southwest Florida International Airport in Fort Myers opened a new $438 million terminal last year and development is pushing inland and blurring the boundaries of the once-distinct areas that grew up around the cities of Naples and Fort Myers. Ave Maria University, billed as the country's first major new Catholic University in 40 years, is rising about 17 miles east of Naples.

"When we started looking at the area back in 1992, Fort Myers was up there and Naples was down there and hardly anything was in between," says Thomas Schneider, executive vice president of development for Simon Property Group Inc. of Indianapolis. "Now there's very little undeveloped land." Simon is building a shopping complex called Coconut Point in southern Lee County, between the two cities, that will include 1.2 million square feet of retail space, 400 residential condominiums, 125 hotel rooms and office space.

The region's growth is rivaling that of Las Vegas, albeit on a smaller scale. Population in the Fort Myers metro area comprising Lee County rose 11.6% to 492,000 in 2003 from 2000, while the Naples area to the south, in Collier County, saw its population rise 14% to 287,000. Las Vegas was the only large metro area with a higher growth rate than the Naples area during the period, with a 14.6% rise to 1.6 million in 2003, according to the U.S. Census Bureau.

The growth has helped bolster the local economy and the commercial real-estate market. Its slower-paced quality of life has prompted former seasonal "snowbirds" to put down roots. Unemployment in both the Fort Myers and Naples metro areas stood at 2.2% in March, below the national rate of 4.8%, according to the Bureau of Labor Statistics. Meanwhile, demand drove average rents for office, retail and rental apartments higher at year-end 2005 from 2004 and all but retail vacancies tightened, according to CB Richard Ellis, Fort Myers-Naples.

By contrast, the once white-hot residential market is slowing. Although median prices for existing condominiums were still rising in March from the year-earlier month, sales of existing units fell 47% in the first quarter to 1,482 from 2,810, according to the Florida Association of Realtors.

That has left investors leery of buying apartment complexes for conversion purposes. William Friedman, chief executive of Tarragon Corp., a New York high-density housing developer, said he is no longer looking to buy apartments in the Fort Myers-Naples region. Tarragon paid about $64 million for a 360-unit complex in Fort Myers that the company originally planned to convert to condominiums. Mr. Friedman says the slower market has prompted the company to retain the property as rentals instead.

Condo converters were largely responsible for last year's surge in the total volume of apartment properties purchased in Lee, Collier and nearby Sarasota counties to more than $1.3 billion from $568 million in 2004, according to CB Richard Ellis.

Since the fall of 2005, the market for multiunit complexes has softened, brokers say. It hasn't been unheard of for some investors to walk away from condo-conversion deals, even if they have to leave money on the table, says Jonathan Richards, a multihousing specialist with CB Richard Ellis. He expects apartment-building sales volume to decline about 20% in 2006. Says Mr. Richards: "The tsunami just blew through here and now it's gone."

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