John Rood: Without a strong Downtown, Jacksonville won't 'ever be a great city'

[thelakelander]

If anyone is in a position to opine on Downtown Jacksonville, it's developer John Rood.

Rood, founder and chairman of the Vestcor Cos., redeveloped The Carling and 11 East Forsyth into apartment buildings, investing tens of millions of dollars in the projects. The city provided financing for those projects, a $17.8 million loan for 11E and a $15.5 million loan for The Carling, and in early 2010 agreed to a three-year, interest-only payments modification, as the buildings were operating at a deficit.

Rood said he has also poured "several million dollars" into the maintenance of those buildings over the years.
I sat down with Rood on Tuesday morning, to talk about Vestcor's 30th anniversary. In the lobby of The Carling, the conversation naturally turned to Downtown Jacksonville. The following is an excerpt of our conversation — more will be in the July 12 edition of the Business Journal.

full article and interview: http://www.bizjournals.com/jacksonville/news/2013/07/09/john-rood-without-a-strong-downtown.html

[Tacachale]

He's definitely someone who has lived the struggles of downtown. It would be nice if the city would commit to revitalization to the extent Rood has.

[fsquid]

he seems to echo Simms's view on downtown rental rates being quite low.

[jcjohnpaint]

right!  I agree, but compared to what?  If you compare to San Fran or Atlanta, yes they are!  But if we want to get people DT, we have to have some up on the suburbs. 

[icarus]

The relative rent rate is predominantly a finance concern.  Rents have to reach a level DT where an investor can not only recover his investment but get a return on the investment. Until DT rents can support the capital cost of development, City, State or Federal incentives become an essential element to make it work financially.

John Rood and Vestcor made an early bet on DT and their costs were higher than anticipated even with incentives. 

[Tacachale]

A big part of the problem has been that the city didn't keep up its efforts to incentivize development downtown. It's so expensive to get new or even rehabbed development there that it's just not going to be feasible without incentives for quite some time, especially since the recession. As a comparison, Charlotte was doing similar things at around the same time, but they stayed the course. As a result, they now have a pretty thriving market.

[simms3]

"But I think that's more important than spreading out too far and too thin and that's going to be our challenge. Because Shipyards are important. Southbank is important. Brooklyn is important. Springfield is important. But I think we're going to dilute what we do, if we try to do too much for each of those areas and not really make a difference. "

Via Mr. Rood.  I know Skyway funding for Brooklyn is a separate pocket, but overall incentives aren't.  I agree with Mr. Rood on 3 fronts:

1) There is tangible demand for housing downtown, but with rents already so low it either doesn't seem very robust relative to peer cities (perhaps because the neighborhood isn't yet desirable - but chicken/egg question ya know?) or Jacksonville is really kinda poor.

2) Rents for all classes of real estate are unsustainably low, and to Mr. Rood's other point, rental rates are declining on average over the past 3 years!  Stagnant at best.  Coming from the investment side, yes rents have to "be there" to a degree, but it's the prospective rent growth that developers, banks, and investors can work with depending on what the goal of the investment/fund is.  Relatively stagnant is ok for coupon clippers, which are deals that don't exist in Jax or most of the south, and they don't exist for multifamily which is totally dependent on job creation, high barriers to entry, and rent growth to make such deals work (typically multifamily = low yield).

3) Jax is stretched thin with lots of "high priorities", which have typically not included downtown, politically or financially.  I see the city making a change to bring that will to focus on downtown from 0 to 15, which for Jacksonville is a very material change, but it will be very difficult to allocate material funding and time to downtown (esp. given Jacksonville's extremely limited overall budget) until the city can bring the will to focus on it from 0 to 60 or beyond.  So I hope the city and DIA really choose their battles and where they spend money on downtown wisely.

I think it means something for Rood to say that there is demand for residential downtown, although he surely has a few biased reasons to publicly say what he says...I don't think there is much demand for office downtown from what I have observed.  Today a building in Richmond, VA sold for just shy of $500psf...which would even be a record for Atlanta (this was a corporate HQ coupon clipper deal).  Nobody wants office in Jacksonville and absorption is slow...when it comes back the city will overbuild in the suburbs.  Horrible office environment.

2 more quotes:

We've also found the commercial market has been very, very flat, both in terms of demand and the rental rates.

"The office space, we've got pretty good demand for office, but the city really wants us to utilize the storefront space for businesses that can use a storefront, not just put an office in there.

[simms3]

If you compare to San Fran or Atlanta, yes they are!

Jax has a few projects comparable to some deals in Nashville in terms of rents (Villas at St. John, presumably 220 Riverside, Strand, Tapestry Park, 5000 Town).  Nashville simply has a lot more UC or built...deeper inventory.

Raleigh is similar...building a huge amount of new construction relative to inventory, much of it high end infill in the $1.80-$2.10 range around Glenwood Ave or North Hills submarket.  Garden style still going up in PUD areas such as Cary or Brier Creek (similar to Jax SS, but larger).  We have vintage '08 class A garden style community in exurban Cary (similar to Nocatee - a PUD called Stonewater), and it achieves ~$0.95 effective give or take $0.02.  Our peer communities in Brier Creek of the same age, construction, and layout achieve $1.05-$1.10 due to their location near shopping and RTP.

Rents for Brooklyn comparable infill just outside of DT Charlotte are in the $1.85-$2.25 range, $2.00-$3.00 in Uptown, and new "infill style" class A hybrid product in the suburbs is similar to Tapestry Park/5000 Town, if not a little more expensive.  Garden style is probably fetching $1.15-$1.35 in the prime suburban multifamily markets there...I would imagine Jax is similar, maybe a little less because the product here seems inferior on average and the land is likely not as expensive ($600K/acre for around SJTC?  Yeah, I've actually never heard of desirable urban/suburban land that cheap!).

Rents in Atlanta are actually quite similar to Charlotte, but the city has considerably more inventory on the higher/luxury side ($2.50-$4.00psf), often originally constructed as condos and converted to rental as the Atlanta market has teetered.

Austin is the most expensive market in the South outside of Miami.  It is more expensive than Dallas or Atlanta, both of which are more expensive than Houston (infill, maybe not metro/existing overall).  Austin is maybe 15-20% more expensive than Atlanta.  I know of one project that was underwritten for $1.85 rents in Atlanta, and the same developer underwrote $2.25 for Austin - similar project, similar locations in each city.  This developer has seen ~$2.05-$2.10 rents in Atlanta I believe, which is about 11-13% higher than underwritten - if this developer sees the same surprise in Austin, their project their will achieve $2.50-$2.54psf effective rents.

Rents in Miami are $2.50 for cheaper projects in well-located areas to $3.00 and up in Brickell/Downtown, though most everything under construction now is fancy condos for Russian oligarchs and rich Brazilians looking to protect their savings from currency issues in the homeland.

Rents in San Francisco average $4.50 for new construction around the city, rarely ever dip below $4.00 now for new or olddd, and frequently exceed $6.00-$7.00psf.  Only Manhattan is more expensive on average, but even Manhattan has more "deals".  I pay $5.12psf for a unit in a rent-controlled 1960s or 1970s building with "new" GE appliances and a balcony (which is quite nice and rare here!).

Jacksonville's best peer example is obviously Nashville.  Just thought everyone might want to know a brief synopsis on the SE!    I no longer work on multifamily, so my information may be outdated or off...I would appreciate corrections, adjustments, or additions for those who are in the know about the different markets.

[ProjectMaximus]

^quasi-attacked you on that other thread, but always appreciate your insight on financing and development across the country. Such great info!

[Noone]

^quasi-attacked you on that other thread, but always appreciate your insight on financing and development across the country. Such great info!

^I appreciate simms3 insight as well. Went  by Berkman Plaza, Plaza at Berkman and there was just one boat in the marina. There are numerous noticed DIA meetings that are taking place and simms3 what needs to be done from the Waterways Downtown? Suggestions?

[simms3]

Since rents were the primary topic of Rood's interview and I earlier provided some comparison to a few peer cities in the south, as well as Atl, Miami, and SF (since they were brought up), I figured for comedy I would post the following.

What $2,000 can rent you in SF complete with pics and descriptions.
http://sf.curbed.com/archives/2013/07/16/what_2000month_can_rent_you_around_san_francisco.php#more

What $3,500 can rent you in SF complete with pics and descriptions.
http://sf.curbed.com/archives/2013/06/19/what_3500_can_rent_you_around_san_francisco.php

There is a Curbed NOLA (brand new), Curbed Atlanta, Curbed Miami and Curbed DC for those who may be interested in similar stories for southern metros.

[jcjohnpaint]

Thanks Simms

[HisBuffPVB]

The St. Johns Town Center is the new downtown.

[fsquid]

What area of Richmond was that office building that sold?  Curious.

[simms3]

What area of Richmond was that office building that sold?  Curious.

Downtown.



http://www.timesdispatch.com/business/economy/real-estate-investment-trust-buys-meadwestvaco-building/article_563a358d-a62a-51b7-8ace-c08bf382a52b.html