Florida Blue says Jacksonville not ready

[spuwho]

It seems like politicians around here got stuck on these bizarre projects and when the next one comes along, they scrap it all for another project that will save the day.  ...

+1

Which is normal for a municipality that doesn't have a robust strategic plan. They move from tactical (whim) to tactical hoping it is the silver arrow.

Then we try to be everything to all and we end up being mediocre to many.

Relative Success = Cecil Commerce
Relative Fail = Prime Osborne

[simms3]

Yes, there is a lot of vacant land but most if not all of it is broken into smaller parcels with disparate ownership.  A great deal of the owners have rather unrealistic expectations of the value of the real estate as well, i.e. the Bostwick Building and the various parcels and buildings owned by Hionides and others.

Yea I don't think connectivity is the issue with that site for reasons Lake mentioned. I think the real difficulty would be assembling the land to create a unified development. The only way to do so without adjacent property owners overinflating sales prices of land, is to have a private developer with deep pockets buy the different parcels up on the down low...and even then the developer would need assurances of what would get built and who would be coming. Which of course would be difficult to keep quiet.

That said, like Icarus said, you could repurpose some of the exisiting parcels at and around UF/Shands. There are definitely a lot of surface lots to build up on and older buildings (that aren't architectually significant) to potentially tear down. I'm sure a good design team could make some magic happen there.

Agree on most points but I don't think sellers in and around downtown are mostly unrealistic.  I wouldn't be a seller either.  They are simply holding out for ANY market to return, and some may be taking even longer positions if they have patient enough money.  Anyone selling out now is giving away their land to a developer who may or may not actually be serious or who may even have money that's even more patient than the seller's (in that case what's the point of selling if you can hold out?).  Most developers are clearly still only developers if the city gives them enough incentives that cover upfront costs like land (which in effect means that property owners ARE literally giving away their land for free), or at minimum takes down their tax liability to a certain scale over a certain period of time (usually a longgg period of time...long enough for them to buy, hold, build, hold, then sell AND pass on tax benefits to next buyer).

Crescent Heights is surely also not looking to develop.  They did not follow their usual course of action by buying development sites (if there was any concern for new competition in either apartments or condos if they go condo conversion in the future, they would have probably bought adjacent waterfront development sites for their own control and future development).  Instead they bought a single stabilized multifamily asset in the smallest market they now play in.  Pricing may have set a new watermark for the entire metro, but I guarantee you that at $183K/door it's still well below replacement cost, especially with land value considered.  CH is clearly not worried about another developer coming in and putting up new high-rise/mid-rise condos or apartments and diluting their rent growth or their future condo sales velocity.

Their only competition in the near term will be 220 Riverside, and it's an entirely different product in an entirely different submarket.  At minimum given their basis ($183K/door), they don't have to necessarily worry about 220 Riverside dragging rents down with lower than market for Type III construction in this kind of market (lease-up concessions at most, but nominal asking won't be a concern).  Strand is Type I construction, which is more expensive since it requires concrete/steel and more intense contract/sub work.  Despite this, 220 Riverside will likely even have higher effective rents than the Strand before upfront concessions, perhaps driving more people to look at the Strand in the long term.  Anyway, I digress - no matter how cheap that riverfront land is next door, they still saw no reason to make a move on it to hold for later.  If they aren't buying it, nobody is.  And if nobody's interested in prime waterfront development sites in a growing FL city with a warm climate and during a booming multifamily lending market, they sure as hell aren't interested in office development sites in desolate or unsightly as-yet-to-be gentrified "urban" markets in an otherwise suburban city with no market or labor force for R&D.

Bottom line - NO market.  Nowhere for the market to go but up.  If you are young and aren't concerned about fixed income shortfalls or certain tax liabilities, then hold and even discreetly double down while the market is still at the bottom!  LoL

Blame city leaders for not doing Jax economy any favors, not local property owners not yet willing to give away their property.  If the city wants a small "Jacksonville" version of Cambridge or Silicon Valley, wherever in the city, then it needs to somehow focus on the basics - lower crime, improve area schools, beef up local secondary programs and work with state institutions rather than turn them away to competitive markets like Orlando, increase quality of life so that mobile professionals will actually want to move here, and the Chamber should have clear goals and relatively narrow focus playing to area's strengths, rather than trying to get whatever it can, etc etc.

[mtraininjax]

Mayor Brown doesn't know what he's doing, but he's not exactly at fault for this. Like I said earlier, these are the type of things you have to plan and work on years in advance.

You are right, not fair to blame Brown, but the lack of vision by Peyton and Delaney (although he did give us the BJP and legacy is built on capital improvements) is an easy target. Not to hijack the thread, but I have yet to see Brown in front of a Medical facility for a press conference to hype what we offer locally in medical services. He is quick to jump into a sports press conference, but real growth seems to elude his legacy.

Transit will be a real issue no matter what is built. Any medical center will need a stream of patients and as people age, they won't drive, should not drive either, and public transit needs to be available. A center would thrive if it is on a good transit line in close proximity to its customers. Or maybe you follow Baptist' lead and build their neighborhood centers?

[icarus]

Agree on most points but I don't think sellers in and around downtown are mostly unrealistic.  I wouldn't be a seller either.  They are simply holding out for ANY market to return, and some may be taking even longer positions if they have patient enough money.  ...

...Crescent Heights is surely also not looking to develop.  ...  Anyway, I digress - no matter how cheap that riverfront land is next door, they still saw no reason to make a move on it to hold for later.  If they aren't buying it, nobody is.  ...

Blame city leaders for not doing Jax economy any favors, not local property owners not yet willing to give away their property.  If the city wants a small "Jacksonville" version of Cambridge or Silicon Valley, wherever in the city, then it needs to somehow focus on the basics - lower crime, improve area schools, beef up local secondary programs and work with state institutions rather than turn them away to competitive markets like Orlando, increase quality of life so that mobile professionals will actually want to move here, and the Chamber should have clear goals and relatively narrow focus playing to area's strengths, rather than trying to get whatever it can, etc etc.

Simms - Not all owners downtown are unrealistic and several are in for the long haul hold.  Unfortunately, I have been on the acquisition side trying to deal with some of the smaller parcel owners and some of the larger.  The values asked weren't just above market, not just above market 5 years later but just not market rates.  And, I'm not just talking downtown proper but Phillip Randolph area and others. The properties remain vacant unoccupied or demolished.  I think the recession has tempered some of the irrational exuberance but it would still take some deep pockets to aggregate and hold the parcels. And, I agree that the downtown Jacksonville market is just not strong enough to support that kind of investment now or in the near future.  Especially, when the City has a 19 story office building 2 blocks from the new Courthouse for sale for just $3.5m and no takers.

I don't know that I can agree that no one is interested in developing multifamily sites downtown but as a developer why would you when it can be done so much cheaper as low rise mid rise in already established areas.  I think as the market recovers there will be more demand especially once Publix is in San Marco. But, Crescent or any other developer can wait on the sidelines to pick it up at that time with out tying up their capital. Its not like there is a shortage of vacant or available waterfront land.

As for your bolded opinion, I wholeheartedly agree and completely blame the lack of vision and planning on our current and former politicians.

[simms3]

I don't know that I can agree that no one is interested in developing multifamily sites downtown but as a developer why would you when it can be done so much cheaper as low rise mid rise in already established areas.  I think as the market recovers there will be more demand especially once Publix is in San Marco. But, Crescent or any other developer can wait on the sidelines to pick it up at that time with out tying up their capital. Its not like there is a shortage of vacant or available waterfront land.

Too many things at play.  When it all comes down to it, multifamily follows jobs (and grocery merely follows rooftops - 3rd in the chain of command), which is why apartments of many types are being built in mass AND financed on the SS (220 Riverside was not financed as a reminder).

CH bought the most expensive apartment building in Jax for well below its replacement cost, based on in-place rents and forecasted rent growth.  That alone is an indicator that high-rise apartments aren't feasible in the Jacksonville market, and with land such a negligible component of apartments anywhere in Jax, it's not even about land prices.  Current rents simply aren't high enough and rent growth predicated on job growth is not going to overcome this anytime soon.  Apparently there's not nearly enough job growth of the higher end variety in Jax, especially downtown, for anyone to be bullish on further development.  Which is probably the only reason CH didn't buy any adjacent or nearby land.  They aren't bullish on the market and know that nobody else is either.

They saw a value add opportunity (even though it's a "core" stabilized multifamily deal) and they struck.  Given the area risks and Jax as a market, they are definitely going for mid-teens or higher leveraged IRR in a hold strategy (even with 5+ year hold - I don't think anyone sees DT jobs roaring back within 2-3 years), probably well north of 20-25% IRR if their business plan is for a condo conversion), whereas if this building were picked up as it were - stabilized and prime location with high watermark rents for area - in another more "core" city, buyer would be holding and maintaining status quo, looking for 5% annual yield and an almost equally low leveraged IRR (definitely sub-10).  Also of note - their returns are going to be that much lower IF this was a cash transaction.  My memory is telling me this was a cash transaction and wasn't even financed (either because lenders couldn't underwrite a condo conversion or lenders don't touch DT Jax, as we saw with 220 Riverside).

IF there was the threat that others would enter the DT market for high-rise condos, or apartments (or even more Type III deals like 220 Riverside), I'm sure they would have either reconsidered their acquisition or made room to tie up land that would otherwise go to a competitor.  Low land costs and low interim taxes are an easier known in-place cost/risk than a returning market with competing developers and more expensive land where delivery sensitivities as they relate to rent growth are hard to forecast given the narrow depth and short history of the market.

My take - and it semi-relates to Jax not being ready for a biotech cluster, lol.

[fieldafm]

220 Riverside was not financed as a reminder

Incorrect.

[simms3]

^^^Who's lender?  I thought all articles said it was an all equity deal between the JV.

[fieldafm]

There is an equity partner, but that doesnt mean the entire deal isn't financed.

[simms3]

^^^There's a BIG difference between equity "financing" and traditional financing by a bank.  We are a preferred equity partner in countless deals - like any other preferred partner or LP, we are much more expensive than debt right now.  Preferred returns are more similar to mezz debt (even higher though I'm not in capital markets so I'm not the right person to be commenting), the difference being that if you are equity you must be silent whereas if you are mezz you can bitch and whine and butt in when you want with approvals and this that or the other.  We could be talking hundreds of BPs difference "cost" - equity is more expensive than debt.

Hallmark probably has a promote and as GP collects fees, but MAA is probably demanding a super high return (especially given nature of project, experience of partner in multifamily, and the local market/submarket), which easily eats into exit proceeds, let alone interim CFs once development is complete and stabilized, before Hallmark can collect on anything.

If the deal were leveraged, after debt service a more common and equitable equity structure would have been pari passu where both parties receive an upfront return relative to each's respective interest in the deal before the waterfall trickles down to favor one over another.

So overall, for most situations a traditional C-Loan is preferred, and obviously a perm for stabilized acquisitions.  A really experienced operator would be able to convince at least A lender to do a low interest short term loan for even the most complex or risky of deals.  We just received 3-yr financing from JP Morgan for a really complex deal I'm working on.  Much cheaper than finding an LP to be the silent equity partner.

[fieldafm]

I am acutely aware of the differences.