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COVER STORY, AUGUST 2007
FLORIDA RETAIL ROUNDTABLE
Developers, brokers and architects from across the state gathered to discuss Florida’s retail market.
Moderated by Randall Shearin & Daniel Beaird
Southeast Real Estate Business recently held a developers’ roundtable in Tampa, Florida, to discuss the retail market in the state. The roundtable was hosted by Holland & Knight LLP at its offices in downtown Tampa. In attendance were: David Sobelman, Calkain Realty Investors; Ricardo Bovero, Marcus & Millichap; John Crossman, Crossman & Company; Betsy D’Jamoos, JED of Southwest Florida; Pat Duffy, Colliers Arnold; Marty Hennessy, Katz & Associates; Kevin Higgins, Katz & Associates; John Joyce, Joyce Development; David Murphy, Sembler; Julia Retting, Atwell-Hicks; Paul Rutledge, CASTO Lifestyle Properties; Janis Schiff, Holland & Knight; and Danny Sharpe, GreenbergFarrow. The roundtable was moderated by Randall Shearin, editor of Shopping Center Business, and Daniel Beaird, associate editor of Southeast Real Estate Business.
SREB: What’s the investment climate like in Florida for purchasing retail assets?
Bovero: I think actually at the moment we’re in a little bit of a minor tailspin because of what’s happened in the last few weeks. The market is now comprised more of real buyers as opposed to people just trying to seal the deal. So, that’s a big side. We see this as a temporary pick-up because the 10-year Treasury rate, I didn’t look at it this morning, but it was about 5.08 yesterday. Obviously our business is completely contingent on what financing is doing. So our investors definitely react to that.
SREB: Who are some of the buyers and sellers in the market?
Bovero: There’s a lot of private money out there. Private REITs and private individuals have been active for a long time. Some of my buyers are private. Marcus & Millichap is geared towards that. We have 1,300 brokers across the country so our database is mostly private clients who have more money than they used to, so we are doing larger deals.
SREB: Does anyone else want to comment on the investment market in Florida?
Sobelman: I would concur with most of what Ricardo is saying. First and foremost, Florida in itself is very demographically driven. There is a tremendous amount of population growth here. The latest statistics are showing about 1,000 people a day net — that includes people who move out and people who die — move to Florida. About 20 percent of that population comes to the Tampa area and unemployment is very low so it’s really a prime market for developers, for investors. They see that there are definite growth trends here. Even though that 10-year Treasury rate is skittish a little bit these days. I think in the long run people definitely see Florida as a growth market.
SREB: Are retailers still looking at Florida as an incredible opportunity? Paul [Rutledge], maybe you want to answer that. You’re working on a lot of lifestyle centers.
Rutledge: There is this trending differential in the age groups. The statistic is the over 85 age group will be the best segment of the population shortly. When you say that, it’s kind of horrifying. But I think that’s one issue along with the lack of growth in the under 25 market. So what happens is you have this growing maturity market and this lack of introductory staffing employment base to go with that. And as these 85-plus and 65-plus boomers move to Florida, they need services, healthcare and support where, instead of do-it-yourself, it’s do-it-for-me kind of programs. You don’t have people coming in to support that, so you have this skewing that’s going on. I think Florida, and maybe some places like the Carolinas, where you see retirement as a low income, lower tax based situation. Those people will then be prepared for what’s going to happen than some of these other places are, like Detroit and Ohio. I think we’re in a good situation. We are already into that funnel of transitional retail, transitional lifestyle, age differentials.
Crossman: I agree with what you said, Paul. I think it’s interesting. Active adults are fascinating. People are now retiring at 60. They’re the wealthiest group to retire. They stay active. They’re learning how to climb mountains. They’re learning how to surf. They’re throwing javelins. It’s a totally, totally different ballgame. Retailers have to think through how they’re going to respond to that. Some of them, like Chico’s, have figured it out. Other retailers do not have that figured out. That is hard because whenever the baby boomers grow up, it seems like everyone is unprepared for it. Now that they’re retiring at 60, living to 90 and staying active, that’s a whole new ballgame.
Rutledge: Look at things like wine sales, which are almost up 50 percent in the last year. There’s all this transitional retail that follows that. People have time to go and eat lunch and have a glass of wine and go to Park Avenue [in Winter Park]. There are three places there to sit and just have a glass of wine. These are people who are over 45, moving into that next level. I think all of us have to address it because they’re going to have time, they will have money. You have to engage them to give them an environment so that they spend that time and money.
Crossman: Retailers have to look differently at how they address demographics and spending patterns. If they’re retirees, their income doesn’t show up like it used to. You have to completely change how you employ demographics and how retailers are deciding if this is going to be a good site.
Rutledge: I’ll tell you the funny thing. I was just reading this thing on the IRS. There is a questionnaire they sent out and they asked how many people have unreported sales or income that is not on your tax return. And this was a survey of 1,000 people. Eighteen percent of people said they had unreported sales or unreported income that they weren’t showing on their tax return. So the argument is, there’s all this other money. When you look at demographics you need to be careful to make sure you look at how much of that is private business people who don’t necessarily have the same income reporting structure as everyone else.
Rettig: Another factor to consider is that our Port of Tampa is thriving. We’ve got trade partners in Latin America and the Caribbean. The expansion of the Panama Canal opens up opportunities for this region particularly. IKEA is coming to Tampa. That bodes well for this community. You question why IKEA would pick the location they picked because they only come into the market at a certain time. We are positioned well for that new emerging generation of demographic increasing in Florida.
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D’Jamoos, Rutledge and Bovero
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D’Jamoos: We do development in southwest Florida. We are based in Naples, but our developments are all in Collier County. I’ve been with my company for about 6 years. When I got there, the median age was in the mid to high 70s. Retail was based on people coming primarily to visit, with retailers not really being at all concerned about people like me who are living in the area full time and trying to raise a family. What’s happened in the last 6 years is the average age has decreased to the mid to late 40s. There has been a significant change in what the needs are for all kinds of services as it relates to that shift in demographics. But the retail news has been a tremendous shift. We have people coming into the market now like Whole Foods and West Elm.
SREB: People sitting in their offices in other parts of the country may think of ‘oh, yeah, my parents retired to Florida’ but that’s not really who the market is down here anymore. Who is the market?
Schiff: If you look at some of the most recent issues of local business magazines, the highlights are high tech and education. We have a lot more students coming to the Florida universities and Florida schools and seeing this as the next market for growth and opportunity. Look around Orlando, you see healthcare and some of the businesses that will support. We see a lot of businesses following that growth. It’s a very different market. A lot of people thought some of the Florida markets were sort of hamburger and hot dog markets as opposed to steak but they don’t realize that some of the pensioners who are coming to Florida in their 40s and 50s have a second job. They have this hidden base of a pension whether it be a government pension or an education pension. They’re taking on a second job here as a consultant or something in education and they really have a double income. What used to be the husband and wife income only is now sometimes each spouse has double income and no children. We see a lot of the retailers responding to that. I represented CVS in this market, which has seen a tremendous boom in the last 5 or 6 years. They’re starting to respond with their Minute Clinic. Now, it’s not just aging, but it’s not aging 70 and 80, it’s aging 50 and 60. Younger families are moving here because of business so you see a lot more younger family services. Gymboree and those types of users, like children’s clothing, are coming more.
Rutledge: Burnham [Institute for Medical Research] is a prototypical statement as for Orlando. UCF Medical School and Burnham; in Tampa, you have Moffitt Cancer Center and all the companies that support them. You see these universities and you see these medical uses and the shifting age groups, you start to have some kind of matrix. You get the responses from companies like CVS. You can look and see all of these having an impact.
Rettig: The university expansion has two bases. One is biotech; everybody’s on the biotech wagon. Every university president is pushing that agenda. The Scripps relocation is huge for that market as well. [Editor’s note: The Scripps Research Institute has located a biomedical research institute in Jupiter, which will open in 2009.]
Schiff: For northerners, that has a tremendous impact. Scripps and the other healthcare here now are viewed as much more sophisticated. I think a lot of younger people in that 25 age group are going to see opportunity. This millennium generation wants a balanced life. They don’t want New York. When you look at law students coming out of law school, the bulk of the people are coming down to Holland & Knight in part because they want to have the opportunity in Florida and they want to have a balanced life.
D’Jamoos: It changes the environment for retail owners. We own shopping centers. One of the things that folks struggle with in Southwest Florida is who is going to work in these retailers. They are used to being in other markets where there’s a steady supply of young folks versus older retired folks. In Southwest Florida, we have the older folks who are retired but are transient. We have a real struggle in keeping our shopping centers active during the off-season. Keeping people in business is difficult. Florida Gulf University is down there and I believe their numbers are about 8,000 students. Their short term plan is to go up to 20,000 students. They are situated between two major shopping malls. So what that does to the community is you can maintain those kids during the summer to have that lifestyle that you’re looking for. It helps grow the whole situation.
Sobelman: What retailers, in recent years, are becoming more attracted to Florida? We talked about Whole Foods, we talked about CVS. What other new retailers are seeing the trends here?
Higgins: We brought Cost Plus in from California in 2002. They have opened many stores in the last 5 years. They sell a lot of wine and that drives a lot of their business. Linens ’N Things also has opened. We also represent Nordstrom Rack. They are just starting a push into the state. The density is here and the sales volumes are here; it tends to be one of the strongest markets in the country for the retailers represented.
Duffy: In the active lifestyle side, we’ve seen Dick’s come to town with a fury and the reaction from Sports Authority has been to guard their home territory. This goes back to what are the seniors doing? There’s a whole lot of sports activities involved in that. On the restaurant side, there’s a lot of activity. There are 25 new restaurant concepts locating in Florida. A lot are niche stuff, the pan-Asian, the Mexican, the Mediterranean. The other restaurants that have been here are changing or dying. Target has been on the table for the last 4 or 5 years. They are booked up through the end of 2009 and 2010. You look at what Sweet Bay has done in re-branding Kash n Karry. They’re staking themselves out between Publix and Fresh Market in terms of the market niche that they’re trying to attract and doubling and tripling the sales per square foot in the exact same location that Kash n Karry was operating in before. That speaks to this new demographic and what everybody’s looking for. I think my wife is a fairly typical 40-something-year-old consumer. They are looking for fresh, strong and clean and they are willing to spend a little more. She drives right now, temporarily, 2.5 miles out of her way to go get it. I think that’s what’s happening to the shopper in Florida.
SREB: A lot of grocery stores have come in and raised the bar for a lot of people in different markets. Who’s going to work in these stores? Do you have any concerns from the retailers? Do you hear any feedback from them?
Rutledge: I can tell you we specifically lost two restaurant deals in Sarasota to a downtown project because they said they couldn’t get staff. That means not the location, not the rent. They said they couldn’t hire employees out there to staff the restaurants.
Higgins: The head of real estate for a national retailer told me their average employee stays on for 4 months in Florida. In the Northeast, where they’re based, they’ve had employees for 15 years. In Southeast Florida, 4 to 6 months is the average tenure. If you look at The Villages, there is obviously an older population up there since it is 55 and older. One of the goals is to create loyal shoppers with retailers who fit their whole lifestyle. These people have pent up demand. Someone did a great job up there. Now John [Crossman] has a great project up there. It’s pretty interesting. You would think it is an old fuddy-duddy type of place, but most of the retailers have record openings at The Villages.
Murphy: The Villages speaks to a couple of comments that people have had about the active adult. You may be retired and live in an older community, but there are over 1,000 clubs inside the Villages that people are actually involved with, anything from sports to bridge. We had a category of retailers and we called all four tiers in the category to gauge their interest. Every single one of them said ‘No.’ I was meeting with a group of residents and I told them that. A resident on their own called me and asked to start a petition for that category. I said sure. A week later I had an 1,100-signature petition on my desk. I Fed-Exed it to all four retailers. One already had a deal someplace else, but the other three now are looking at our center and we’re having to pick just one. So they went from ‘no’s’ to active interest and it was about that resident. Related to Florida, you’ve got low unemployment. As long as the sunshine continues to shine in Florida people are going to come here. The low unemployment is going to bring younger people. The adults are active — they say 60 is the new 40 — and I think that’s going to be the case continuing. I’m reading now about the bounce-backs; when folks really get old, they’re moving back to where they came from to be near family, to be taken care of and what not. The prospects for retailers and business in Florida are great. Florida may be ahead of other states in figuring out this aging baby boomer trend because they’ve had to deal with it from really the beginning of the entire growth period.
D’Jamoos: There’s definitely an active interest from retailers in Florida. Colliers Arnold represents us in several of our projects. They had meetings scheduled at ICSC every 20 to 30 minutes the entire time they were there. All of them were splitting up to deal with those retailers that were interested in the market. A lot of those meetings were meetings they’ve never been able to secure in the past.
Schiff: Another point to add is this year at ICSC a lot more of the townships, or communities, counties and economic development authorities sent people to Las Vegas. A lot were actively looking for retail. So I think there’s a slightly different synergy there.
SREB: Are developers seeing any economic incentives from any of the cities? Maybe some lesser known markets? [‘No’s’ and ‘None’s’ from several people].
Rettig: Back to the labor comment and retailers adapting to a lack of labor, IKEA is different in their position. They bring in about 350 jobs when they open up a store. They give full benefits to their part-time employees, which is very good, and competitive wages. Additionally, they have public relations, IT departments and communications departments, so it’s like a little regional corporate headquarters. When they open, they open big so it’s a little more attractive to the labor pool here.
Duffy: The other niche that is definitely active and has been for a while is the vanity market. Lipo dissolve, Ideal Image, the laser hair removal — I mean everybody wants to be younger when they’re 70 than they were when they were 50 or younger looking anyway. The medical community is another area. It amazes me — 10 years ago when we got a call from any kind of medical user they wanted to talk to our office brokers. Now it’s 100 percent talking to the retail guys. Whether it’s a surgery center that we’re doing or one of these lipo places, all the way down to the tanning salons and the day spas. I mean, the entire vanity market really got super heated up when the Botox thing hit about 12 years ago. That’s what launched it.
SREB: Are there still markets in Florida that are hidden? Where are you looking? Are you looking in smaller markets, looking in major metros; where’s the golden opportunity?
Joyce: There’s not a blade of grass in the state that hasn’t been looked at by a developer. It’s just a question of timing. It’s always going to be that. If you are at the corner when it’s time to develop it and you happen to be there then you’re the lucky guy. Expanding a little bit about Pat’s comments, I think because Florida had the perception of being very casual — which aligns with the thought of not having great wealth — what we are seeing in the state manifested in a large way is the number of what I’ll call ‘signature restaurants.’ They are beginning to come into Florida, and come in with big numbers. They’re all doing five and six stores. These are $100 a plate environments. That is a barometer for the Talbots and the other high-end retailers because if you just looked at what was walking around you’d say ‘how can my stores survive?’ But if you walk into a restaurant that’s doing $10 million a year that is only open for dinner you say, ‘there’s my customer.’ Before, it was hard to put a handle on them. Now, we’re seeing higher end product. These mixed-use projects are beginning to evolve into communities and areas where we didn’t think they could be supported in the past. Granted, the larger metropolitan markets have always drawn that kind of appeal. We’re seeing small towns, like DeLand, trying to create mixed-use centers. Winter Haven’s trying to do one. These are areas where you never would have thought there was enough juice in the market to support those environments, but there is. We’re discovering, as a developer, that the value of the product the buyer, the tenant as well as the patron, is all rising economically at a much faster rate than the demographics are showing. It’s that hidden money, it’s that hidden wealth, that has really been buttressing the process. The Targets, Best Buys, Sports Authoritys, and Dick’s are all great and they’re all a lot of fun to have around but look at the number of boutique higher-end projects. We’re not seeing those fail. We’re seeing those doing very well. When we looked around and said ‘how did that decision get made?’ or ‘why didn’t I see that 2 years ago?’ From a development standpoint, I just think it still going to be pretty solid.
Sharpe: From the consulting side, how are you guys reacting to the fact that when you try to go into these newer communities — like Pasco County and the other areas that are really booming — and you’re ready to get your tenants there but you run into the entitlement side? I’m finding that it’s very difficult to get into some of these places. For one, the communities might not be sophisticated enough to handle that new growth. It’s usually new people that have come in to try to reinvent this community and they’re just not stable yet. They’re still implementing their new processes. A lot of the developers we work with are ready to get these things going. These are areas around the state that just can’t get there because the process is not stable enough yet. The financing goes right along with it. These developers are ready depending on what the money’s like at the time. Are you finding out that’s it’s taking too long? It’s taken me 2 years to get through.
D’Jamoos: Those are deal-killers for folks that want to come into the market whether it’s restaurants that aren’t in Southwest Florida and now they’re looking at it, or retailers. We can’t tell them when they can open the store. All these folks do this day in and day out and are very sophisticated. It’s tough. When we do our development and we are scheduling our timeline the development team looks at me like a deer in the headlights because they don’t know how to allocate it. It could take 3 months to get through this part of the county and then you add the utilities folks and then you add all these processes. In Southwest Florida we actually have some local quasi-government agencies that we have to get through too. It doesn’t help you to be a good neighbor in a community that just went broke.
Schiff: It’s also going to get worse with the Hometown Democracy Amendment. If that gets put on the ballot in ’08 it means that every land use plan amendment would have to be approved by the voters in that town. The whole NIMBY theory — people who’ve lived there for years and didn’t want this growth — will block it. The people in that town get to vote whether or not a project is developed and it becomes almost like a blackmail. How much are you willing to pay these people? You’re starting a whole cycle that’s even worse than the current cycle. I will tell you for what it’s worth, putting more sophisticated efforts into these plans didn’t work up north, so I’m hoping that they don’t try to do some of these planning commissions and planning boards.
Sharpe: You are going to have more quasi-committees that you have to get through these days. Every community wants to show their own little flair and have their little power groups.
Joyce: Five, 10 years ago development was concurrent. You could go for multiple efforts at one time. Depending on staff and how much effort you concentrated to it, you could get it done within a year. Now it’s become sequential and you have to finish one step before you move on to the next step. In the blink of an eye, you’ve added a year. If you take a contract today on a piece of dirt — unless you want to spend a great deal of money — you’re talking 3 years from the time you contract something to the time you open the doors for that retailer. That’s a long time. That’s without an issue. That’s a land-use approved, permitted, entitled property will take 3 years. If you have to go through the land-use process then you add another year on top of that.
Rutledge: The question is really the timing and will retailers wait for it. If you have a great tenant, you work with them and you’ve delivered before in tough situations, they’ll hang with you. That’s the difference today between the old days where you tied up a piece of dirt, scrambled around to get a tenant who says they’re going to go and you run through the process and you build value. I think today you’ve got to be a pretty strong ox under that yoke to carry it all the way through similar areas. Nobody has an easy process. Forget about what kind of underlying issues are related to the city because they’re all different. You name it and I think we’re all at risk for that and you don’t know that until you sit at their desk.
Hennessy: From a retail standpoint, 3 years out is okay with us in a lot of these smaller markets now. It has pushed us to a lot of markets we would have never looked at because you know you’ve got to do it now to be there 3 years from now. We’re doing deals with major developers.
Joyce: But think of that. You’re committing 3 years down the road. That’s great for us. But you’re almost having to do it. In Florida, you know the population is going to double in 25 years. From a retailer’s perspective, it’s no longer an issue of I want it out next year and I’m going to put out five stores in 2008 and six stores in 2009. You’re now looking at 2010. If we go back a decade, that didn’t happen!
Murphy: I think the toughest issues facing developers right now, certainly on big projects, are traffic and concurrency. The cities and counties do not have the money to pay for the roads. The cost to build a road has more than doubled in the last couple of years. Now they’re looking at the developers with proportionate share, fair share, impact fees, whatever they want to call it. That burden is going to stop a lot of projects from inching past the county. Some of the proportions shared that are being thrown around are astronomical and not feasible. I don’t know how projects will get done out there, but it’s going to take time and things will have to change. Then you throw in the Hometown Democracy Initiative. There are definitely some things at work right now. I hate to say it but it’s not just about the retailers, but if you can’t produce a project that pencils out, then there’s no point in getting started today on something that is going to deliver 3 years from now when you don’t have the economics put together. We have a lot of projects going forward and they’re great projects, but we joke around the office that some of the best projects we’ve done recently are the ones we did not do. Developers are going to have to be very cautious about what they take on because if it is a 3-year process, there are so many twists and turns that could take. Ultimately communities are looking at the developer to come up with the money to pay for the roads.
Rettig: Now, not only do you have to arm yourself with a good land-use attorney and the best engineer, but you also have to have a great lobbyist and a great public relations firm at your side from the inception of the deal. It seems like those two disciplines are very popular now. I haven’t seen a major developer without a great PR firm.
Schiff: The lobbyist piece is becoming more important. We know this from our own planning with our Tallahassee group. It’s attracting someone from economic development, it’s bringing them in, getting them past all of these things, and getting the incentives you need up front. It’s interesting from the other side. Part of our business plan is seeing that and knowing that. We did something called the Tallahassee roadshow. We brought our people around and took them to different jurisdictions, inviting clients there to meet some of our heavy hitters in Tallahassee and said this is what we’ve got and these are the kind of incentives that we can come help you get. That’s not something that we typically did proactively, but we’re doing more of that. That has been done historically in many jurisdictions, TIF financing is being done in most major cities and they realize that you can increase the tax base. That’ll come here maybe 5 or 10 years from now. If you want to redevelop or develop an area that’s got no tax base, the jurisdiction’s going to realize this is a good idea. You’ve got to convince them that this is how to work it. The proactivity is very important.
Rettig: We just hired an ex-state legislator at our firm, too. If you’re going to hire us for your engineering, we’re going to help you get through the process.
D’Jamoos: There is a sophistication developers have to gather through consultants like public relations. I totally agree that has changed our business, by hiring a strong public relations firm. I’ve found in my business not only do I have to understand what’s happening in the market, but all these other pieces. How do we get to do the government’s job and some of our consultants’ jobs, how do we spearhead these conversations? This project ended up getting unanimously approved in less than an hour. Our public relations company and our consultants had to do their work for them. That’s how we’re finding we have to keep business. We can’t just decide the highest and best use for the land.
Joyce: I also see the projects evolving that way. You’re getting smaller, under the radar environments that people want actually and they’ve been planned for, they’ve been entitled and so you just go execute. They don’t cause concurrency problems because it was already addressed. You have the larger projects that make the front page. You are going to have to fight for those and they take years.
Rutledge: It’s sophistication. ICSC has this alliance program, in which city staff people talk to the development firms that are trying to integrate, so they can understand our situation and we can really understand theirs. The truth is, you really do have to help them figure it out. They may not be opposed to it, but their statutes all say you can’t have signs unless they’re under the sidewalk and all this stuff. You’ve got to figure out how to solve that for them and then you find that they’re in agreement somewhat. That’s the other challenge: you’ve got to be creative enough to figure out your side and their side.
Sharpe: You have to get all players on a team together much earlier these days. The big players are willing to commit to that and go for the long run. They’re doing 20 different versions of the pro-forma. Those are the guys that are doing it and you have to have all the players involved from the very beginning because if you don’t have that understanding across the board, if you’re missing this one little piece over here…it’s hard enough to get your schedule on track, you’ve got to get them all working.
SREB: At our Carolinas roundtable, participants said they were seeing a lot of interest from people from Florida because they can’t pay their insurance in the state. Let’s talk about this for a few minutes. Is it true? Kevin, can you talk about that from the retail perspective?
Higgins: You’re right. We met with a bunch of REITs out in Las Vegas and a lot of them are able to bring in their numbers because they deal with a national insurance policy. There’s a significant difference in what they can charge for insurance versus a developer who is based in Miami and his insurance has gone from $1 per square foot to $6 per square foot in 1 year. There have been 1,100 percent increases in insurance in some areas in 18 months; especially if you’re in Miami or Broward County, the numbers are crazy. If you pile all that on top of the CAM charges in general, they are just going crazy. Marty [Hennessy] and I were on the phone last week with a major national developer negotiating a deal and they were quoting extra charges of $9 per square foot for a big box. At the end of the day, those extra CAM charges will kill the deal because the sales don’t support it. Land costs, insurance costs and building costs are driving up the rent cost. If you add those parts together it makes it a very tricky equation. We do a lot of deals with Sembler and they do a great job. They usually reach a happy medium, but it’s gotten pretty tough.
Murphy: I think Kevin hit the nail on the head. It’s the rent plus the charges and the sale so it always comes down to sales. Retailers have their models. We have to come to a happy medium. It’s got to be really tough on the local shop space. We did a little Publix project and we sold the project. The next owner’s cap rates went down and they sold it. Then, we had four hurricanes and the property tax went up fairly substantially because of the two sales, cap rates went down. Because of the hurricanes and the insurance costs, all of a sudden those local tenants were being charged $14 a foot in CAM charges. They banded together and they sued the current owner of the shopping center. That’s just a dramatic example of how tough it is with insurance. I don’t think any of the changes or new regulations passed last week or 2 weeks ago are really going to help the commercial side.
Duffy: We’ve hired engineers to come in and give us probable maximum loss numbers. In the past, if you had a $50 million shopping center, you insured it for $50 million — the bank or your lender required 100 percent coverage. We’re finding that we’re able to go in with an engineer’s report that says that the probable maximum loss on this asset is $8 million. Then, you sit down with the lender and you say: probable maximum loss is $8 million, we’ve got it insured at $50 million; if we insure it at $25 million, which is three times what the engineers are saying will happen, will you live with that? We’re finding that the lenders are caving. Where we were going to get a 1,000 percent increase, we may end up with 200 or 300 percent. We manage approximately 14 million square feet and we took that out to a catastrophic group that’s used to doing this in California for earthquakes. They cut $1 per square foot out of our average insurance because we were able to aggregate. It can be managed. The free market is going to step back in at some point. The citizens made it much worse but Tallahassee made it worse for commercial real estate. There are ways to manage down the costs. Some of the major retailers may want to go into a situation where they’re buying their pad and they’re taking responsibility — more like a mall model — and they’re using their national portfolios in order to basically take responsibility for any wind damage done to their box. By aggregating that into their national policy, they can cut their insurance rate down. We’re going to have to look for more complicated, cost-effective approaches on the insurance side.
Murphy: Is the retailer in New York going to come to Florida? Florida’s growing. Businesses are doing good business and they’re making money. They’re going to come down here.
Hennessy: A lot of retailers are looking at this market right now. And not only are these additional costs increasing as well as rental costs, but they are just blown away by some of the numbers. I’m talking about overall state type of numbers but down in the Southeast part, you are talking up to $30 for a 12,000-square-foot box plus $10 extra.
Rutledge: Well, if you look at it as a capital investment you’ve got to say, I could invest $50 million into places like North Carolina. What’s the yield? It’s really just a yield driver, so they’re going to take public dollars out of the market. If you invest $50 million here, what’s the return? It’s that simple. You can say it’s sexy, it’s Florida, it’s yield driven. They go to the market every quarter and they have to tell them whether they are making their yield.
Rettig: We also have another strong economic factor that drives our market retail-wise, and that’s tourism. We’re one of the Number 1 destinations in the world, Orlando particularly, and that bodes well for retailers looking at this market. Maybe our migration numbers are changing a little due to those prices. I think there are other markets taking advantage of that, by the way. I was in Nashville and everyone was talking about these half-back people who have moved from the Midwest and the Northeast to Florida, and now they’re going halfway back. Everyone’s really taking advantage of that. We really have to get smart about this crisis and fix it. Florida has got one of hottest industrial markets in the country now.
Higgins: You have to look at those retail sales numbers in perspective. Looking back a few years there were comp sales that were 14, 15 percent, so they have dropped from 2004 to 2006, they’ve come down a little bit, but they’re still great numbers. Maybe they’re negative comps, but we’re really coming off with numbers that were just unsustainable. The petals have fallen off the rose a little bit, but overall the volumes of the retail stores in general are still very good.
Rutledge: I pulled all our numbers before I came, so we had Winter Park, Lakeland and Sarasota, and I can say across the board all of them are up significantly. Obviously, we have some retailers that aren’t well, but the centers as a whole — and they are lifestyle centers — are not unique in their performance.
SREB: Along those lines, what are some of the projects and some of the markets across the state where retailers want to be?
Duffy: There are over 12 pages of projects in this document in front of me, most of which are over 300,000-square-foot projects that are announced. It’s all over the state. John [Joyce] said wherever there’s projected population growth and a piece of dirt that you can actually put into production, that’s where the development is. Everybody’s gone wherever they can. We’re seeing growth now east of I-75. There was a time when that was only good for holding the state together! People are moving out there now, looking for less expensive homes. We talked a little bit about people are now commuting 40 minutes to get into Tampa in order to have a bigger lot, a little lower real estate taxes. Every time they put in one of these new roads, whether it’s a loop around Lakeland, a loop around Orlando, a new toll road running out to the midwest coast, every time a new road goes in and those new nodes are created, boom, off the residential development goes. Because the residential developers follow it. I think The Villages lit Ocala on fire. We did a Panera Bread deal in Ocala; it’s the Number 1 store in the state.
Crossman: Ocala had no middle class. That was the big challenge for Ocala. Gainesville is an interesting geographic region. Now, you’ve got The Villages which is larger than the city of Ocala, but it’s not on the map. There are 65,000 people in one neighborhood. Then you’ve got Ocala, which now has a middle class. And then Gainesville, and I’d argue Gainesville is an outstanding city. That is what we call that upper middle central Florida, that’s not been on the radar or seen as a second tier. It’s going to become its own market.
Rettig: Palm Beach County is hot and a lot of people are looking at it. There’s obviously not a whole lot of land to buy. The Scripps deal again will bring a lot of high-paying jobs. There’s going to be a lot of folks to run it and there are a lot of retailers/developers that are opening up offices down there to start looking for dirt and redevelopment opportunities. I think that’s the market to look at.
Rutledge: In 90 minutes of any place in Florida you can be at a major port and it’s a much shorter time to any airport. In other words, you are within 30 to 40 minutes of any airport wherever you are in Florida. And you have sunshine. I think the argument that every location, every blade of grass, every corner, Leesburg, you know, Palatka, I don’t care. You name the spot and the question is can you get it approved, do you have roads, do you have residential? If those three things are there, I don’t think there’s any spot in Florida that isn’t on somebody’s radar screen.
Sobelman: From an investment perspective, we had a portfolio of restaurants in the Florida panhandle in some definitely tertiary markets, very rural areas — and we got a tremendous amount of response from people out of the state looking just to invest in Florida. That was a big component of that, even though that these were markets that were very small population, they just wanted to have assets in Florida.
SREB: Are you running up against other uses when you look for retail land, like industrial, for example, with all the ports growing?
Joyce: Residential hurt us for a while.
Bovero: We’ve been looking at what’s been going on in Jacksonville with the whole changing of the port. They removed two cruise line terminals and have moved that over to shipping. Tampa and Jacksonville are going to be major ports on the East Coast just like California was, we saw that at Long Beach. You throw the CSX deal at Winter Haven in the mix; eventually we won’t have a choice. It’s infill or nothing.
Rutledge: I think infill integration is something that we as developers need to look at, should look at and is good to look at. A lot of cities understand that as a part of the solution. I just don’t know that they have an execution plan for that.
Joyce: Not that I’m an advocate of the Hometown Democracy Initiative, but that would be a silver lining in the passage of that. You’d see a huge urban renewal focus.
Schiff: You have people with a lot of homeowner’s associations and groups that are going to be involved and impacting that decision and not knowing what the implications are.
Rettig: You would be running a campaign if you were a developer; you would literally be running a campaign for every development on a ballot.
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