Jacksonville Emerging Trends 2012

[simms3]

Jacksonville Emerging Trends 2012

Summarizing a report by PWC and a panel I went to yesterday, here are some macro trends and some Jacksonville specific trends.  Avoiding "capital source" specific information.

1=abysmal
9=excellent

Investment Prospects by Market
1. Washington D.C. 6.93
2. Austin 6.92
3. San Francisco 6.92
4. NYC 6.85
5. Boston 6.60
...
15. Raleigh/Durham 5.96
...
17. Miami 5.81
...
20. Charlotte 5.58
...
27. Nashville 5.32
...
33. Tampa/St. Pete 4.79
...
36. Atlanta 4.65
...
40. Jacksonville 4.48 (color was shaded red)

51 total cities; Jax was 41 in development prospects and 37 in homebuilding prospects.  Generally metro areas with 3 million people or more scored higher (15/22 green) and metro areas with less than 2 million scored low (8/18 red)

Description:

...Orlando (29), Tampa (33), and Jacksonville (40) struggle to decouple from Florida's housing woes.  Jacksonville's port looks like a long shot in the competition for Panama Canal traffic...

Best RE Investments -  the obvious:

Besides apartments, interviewees prefer downtown office buildings in 24-hour cities, warehouse properties producing cash flow in prominent port and airport gateways, full-service hotels in the major markets, limited service hotes without food and beverage (Courtyard by Marriott and Hilton Garden Inn concepts), and neighborhood shopping centers serving stable infill suburban communities.  Sentiment diminishes for power centers (because of concern for big-box tenants) and malls: owners will not sell the best fortress malls...Suburban offices score the lowest investment marks; commodity buildings in campus settings isolated from urban amenities receive big thumbs down.

Prospects for Niche and Multiuse Property Types

Medical Office 5.98
Urban Mixed-Use 5.35
Data Centers 5.34 (a large DT data center 100% leased to tenants like Level 3 Communications just sold here in Atl for $250/SF or so to a REIT)
Infrastructure 5.22
Self-Storage 5.02
Mixed-Use Town Center 4.83
Lifestyle/Entertainment Retail 4.34
Resort Hotels 3.98
Master-Planned Communities 3.71
Master-Planned Resorts 3.41 (bottom of list)

Prospects for Residential Property Types 2012
Senior Housing 5.88
Student Housing 5.63
Infill and intown housing 5.39
Affordable housing 5.08
Single-Family Moderate-Income 4.21
Manufactured Home Comms 4.08
Single-Family High-Income 3.89
Multifamily Condos 3.79
Second and Leisure Homes 3.22
Golf Course Communities 2.89


What does this mean for Jacksonville?

Opinion (by me): I have been closely tracking multifamily and land sales in Jax this year.  Lots of SS class-A apartment communities near the town center have traded for premium prices.  Investors really want those apartments.  Southside multifamily vacancies are pretty tight at around 5% (the metro is rate above 10% due to tons of crap around town, not on SS).  The buyers of these SS properties are by no means institutional, though we are finding that institutions are pursuing deals in smaller markets because pricing core properties in larger markets is becoming way too expensive to make their numbers work.  The problem is that Jacksonville’s RE market is so bad all across the board that institutions won't even look at "bright" submarkets like the SS.  Still, buyers are paying above $150K/door for some properties in town, all near the Town Center.  Also there have been lots of land sales zoned for apartments with entitlements of between 200 and 500 units this year.  Next year could see some new construction in multi-housing, all of it concentrated around the Town Center and Baymeadows Road.

My take is that Jacksonville is seriously bucking all of the trends.  There is literally no activity in the center of town.  Pope & Land buying up some land along Riverside Ave could translate into something, though I don't really think of them as a first-mover or an urban pioneer (they were by no means a first-mover in their first foray into the overbuilt Buckhead office market during this last cycle!).  Investors all across the country say that residential far away from the city is a bad investment, golf course communities are done for the time being, etc.  What do I hear about today?  75 lots being sold in SJC near WGV and 2-3 golf course communities trading hands, among other odd deals.  The rest of the country says, “attract young people, build in the city, build transit, invest in the city where barriers to entry are high, suburban office is crap,”; Jacksonville says, “we don't follow national trends.”

Had we the same fundamentals and level of activity as our peers Nashville, Charlotte, and Austin, our new land sales would be concentrated in the urban core around Lavilla, Brooklyn, Riverside, the Southbank, and the Northbank.  That speaks volumes to the other cities and negates any positive connotations to Jacksonville.


Our port boom is not going to happen.  It's time for Plan B.  Maybe tech related to military?  Defense?  San Antonio is a major military medical hub, maybe we could go for that, too?  It's got to be something 21st century and geared towards the younger crowd.

The equity and bond markets are pretty shot right now.  Wall St is parking money in RE like they haven't before, and the lists above basically show in a nutshell what they want:  Gateway, High Barriers to Entry, Generation Y, Wealth, Cash Flow (especially REITs - they have to pay quarterly dividends), Infill, Multifamily, Core CBD Office Towers in Gateway Markets, Legacy Projects That Can't Be Replicated, etc etc.

On this list, I think Jacksonville can shine with senior housing and even student housing.  All of that will go on the SS, but we have nothing to offer investors or Wall St or lenders in terms of intown/CBD development.  That's a problem because that's a major trend now, even in small markets.

[Noone]

Thanks for sharing this report.

[billy]

Was any of this from the ULI conference in Atlanta Friday?

[jerry cornwell]

Our port boom is not going to happen.  It's time for Plan B.  Maybe tech related to military?  Defense?  San Antonio is a major military medical hub, maybe we could go for that, too?  It's got to be something 21st century and geared towards the younger crowd.



On this list, I think Jacksonville can shine with senior housing and even student housing.  All of that will go on the SS, but we have nothing to offer investors or Wall St or lenders in terms of intown/CBD development.  That's a problem because that's a major trend now, even in small markets.

Really good stuff, time well spent, simms3, for jax's future. I agree with your conclusions and prospects, particularly the San Antonio alternative. Your port development conclusion is harsh, but has so much evidence to support it.
Again great to post this at metroJax.

[JeffreyS]

Just another Florida city that won't invest in anything that isn't sprawl based or a stucco strip mall.  We learned that everyone of our council members are too stupid or corrupt with the mobility fee moratorium to stay in office.

[simms3]

Was any of this from the ULI conference in Atlanta Friday?

Yes, were you there?  If so...who are you and who do you work for   I'll pm you.

PS: I asked Bucky Johnson (mayor of Norcross who spoke to the Transportation Investment Act) if the 10-county Atlanta region was dependent on all the other 11 regions passing the TIA, too, in order for it to go into effect locally.

[Tacachale]

Very interesting, thank you simms. I don't know that this represents bucking the trends, though; it seems more of just the status quo around here. Southside has continued to develop while the urban core is much slower for a long time now, and this has been happening in similar areas in Florida cities like Orlando and Tampa as well. These numbers suggest that Orlando and Tampa are doing better (if not great) compared to us, and perhaps this progress is reflected in their respective cores more than here. But they've done better (if not particularly great) in their cores than us for years.

At any rate this is certainly food for thought.

[Springfield Chicken]

Great overview!  A year ago our office had tons of short sale listings on condos in the Town Center/Southside area.  Now we've watched that market heat up to the point that we are back to seeing multiple offers and/or quick sales on the ones that do come on the market.  Some other areas are still a buyer's market.  What we are seeing a lot of right now is individuals getting into the market as investors buying rental properties, both condo and single family.  The numbers work and in most cases the investors are getting a positive cash flow almost immediately.

[mtraininjax]

Our port boom is not going to happen.

Nice report, but that is a bit harsh on the port. When the US Economy is 2/3 driven by consumer spending, I see little money for the crap from China that comes through our port to other cities.  Until the US consumer comes back, the port is not going to happen, but we have some time as Jaxport is not ready for the port to handle new traffic. Will we get 1.1 billion to rebuild the river now, probably not, but the port has a lot going for it and the new rail depot will expand the offerings.

The numbers work and in most cases the investors are getting a positive cash flow almost immediately.

Where? Many SS condos have bankrupt HOAs. The new apartments at Salisbury and Belfort were over 100,000 per door, I am not a rocket scientist, but the only way to ever make that money back will be to convert to condos, and they may have to wait another housing cycle for that to happen.  Gardens of Bridgehampton were 80,000 per door and the recent purchase was only 170, not the majority, so the new owners have no majority in voting rights. Some investors though have so much money to put to work, they are willing to risk it. IMO, no better than the mess that launched us into this mess.

[CityLife]

^I know of a condo complex on Hodges where virtually all of the owners abandoned their properties and the banks still haven't foreclosed on many because they are worth 1/4 of the mortgage values.

Simms, When you say SS multi family vacancies are low are you strictly talking rentals? Or all multi-family?

[ChriswUfGator]

^I know of a condo complex on Hodges where virtually all of the owners abandoned their properties and the banks still haven't foreclosed on many because they are worth 1/4 of the mortgage values.

Simms, When you say SS multi family vacancies are low are you strictly talking rentals? Or all multi-family?

Apartment complexes that went condo during the bubble aren't the same thing as anything else. Those are ghetto and the prices reflect the myriad issues they have. They were cheap to begin with, which attracted Ma & Pa Flipper, and once you hit a certain % of HOA/COA delinquencies, the banks won't lend in that complex anymore and that's really the death knell. Usually people abandon the units en masse because they can't sell except to a cash buyer once you can no longer get a mortgage in the complex. And you can't rent them, since by the time you tack on the mortgage and taxes based on the $90k purchase price set back when things were good, then tack on $200-$300/mo more in condo fees, your break-even is almost double what the thing rented for back when they were apartments. Which makes no sense, I never understood why people would pay money to buy a former apartment for more than what it rents for? WTF was the logic?

Anyway, since you mentioned Hodges, it's probably one of those. I wouldn't put too much stock into whatever happens with those apartment-turned-condo complexes, just about every one of them is having serious problems. It's more about that particular niche than anything else.

[mtraininjax]

Great article in this weeks BusinessWeek on how lawyers, sorry Chris, and a number of developers would squeeze HOA and put their people on the boards to milk lucrative maintenance settlements. I read it in amazement, I am sure that some of that may have happened in Florida, but you never know until you see it in the papers.

[ChriswUfGator]

Great article in this weeks BusinessWeek on how lawyers, sorry Chris, and a number of developers would squeeze HOA and put their people on the boards to milk lucrative maintenance settlements. I read it in amazement, I am sure that some of that may have happened in Florida, but you never know until you see it in the papers.

In Florida it's pretty much the reverse, HOAs here can be and often are downright abusive. Not sure what Nevada's legal structure is for HOA powers, but here they're just out of control.