3 reasons why mixed-use projects in Jacksonville struggle to attract equity

[simms3]

Resi and commercial rental rates are probably in the same ballpark at 11 East and at the Carling (~$15/sf annually).  Usually commercial space rents are significantly higher than resi rents in larger cities with mixed-use assets in walkable or downtown settings.  I'd venture to say that Vestcor probably eeked out a proforma and took out a loan (with the city, which would have had to do its own underwriting) that included NOI from the commercial spaces.  So in that sense, yes, the commercial spaces are probably dogging these rehab deals more than anything else (Vestcor is likely missing Starbucks badly because they often way overpay on rents, kinda like banks do).

But, I know lots of apartment developers in Atlanta/Charlotte/other SE cities that basically don't even underwrite the commercial spaces if they are a relatively insignificant part of the cash flow.  There's no telling what will happen in any such markets regarding leasing to stable, longer term users with decent credit than can be considered for underwriting standards.  I don't know which restaurant is going into 11 East, but Vestcor probably has very limited opportunities to talk to a successful operator who can put up a strong letter of credit, or something similar.  Are we talking sandwich maker that might be out of business in 2-3 years or are we talking the guy that owns Black Sheep?

[thelakelander]

The interested restaurant is currently a food truck (so much for Ron's argument that trucks won't create more B&Ms in DT). However, the article says the deal would be around $12/sf.

[Keith-N-Jax]

^^^ Good for them I hope everything works out for them.

[simms3]

The interested restaurant is currently a food truck (so much for Ron's argument that trucks won't create more B&Ms in DT). However, the article says the deal would be around $12/sf.

Restaurants in DT Nashville are getting done at $25-$35/sf.  $12/sf is essentially $1.00/sf per month.  I hadn't checked ina  really long time, but I had assumed that 11 East was averaging $1.25 or $1.33/sf per month on the residential side (which would still seem shockingly low), however, apparently they are mostly around $1.00-$1.05 with a few 2 BR floorplans pushing $1.15/sf.  So commercial and residential rents are down around $12/sf (not the $15 I had previously estimated).

That is VERY VERY VERY low.  I can see now why Vestcor is having coverage issues (and is likely in the negative returns), and it isn't just because they haven't leased up those commercial spaces.  They probably realistically need to be hitting $1.40/sf resi rents for the amount of money that was put into the building.  My finger is in the air, so no Excel or background knowledge on their debt terms and cost of capital to assist in the estimate, full disclosure.

So the rents are too damn low all over the place!  I check back every so often, and there certainly isn't any rent growth for these older loft rehab communities.  My rent control where I live is increasing my rents faster than those market rents down there!

[tufsu1]

The interested restaurant is currently a food truck (so much for Ron's argument that trucks won't create more B&Ms in DT). However, the article says the deal would be around $12/sf.

said food truck is also looking at another space a few blocks away that has more street activity but also costs more...and right now, several others are also interested in that space, including a pretty well regarded local BBQ mini-chain

[thelakelander]

MoJo's?  They've been searching for quite a while.

[simms3]

^^^Does MoJo's franchise?

None of these landlords are going to get a plausible LoC or sufficiently backed Guarantee from these kinds of restaurant operators, which is fine, but so long as we're talking about proformas and real estate financial performance (of individual assets), this must be brought up as it is relevant to the OP.  A locally decent operator will want a full scale buildout, but won't be able to put up his own guarantee for it, so the risk is on the LL.  An operator such as the one at Black Sheep likely wants a top of the line buildout, but also has operating history, partners, financing, etc etc and can more readily guarantee the amortized leasing costs for the landlord should the business fail.

[tufsu1]

MoJo's?  They've been searching for quite a while.

yes...they are talking with Mike Langston about his new building next to Florida Theatre

and simms, downtown Jax is offering $50,000+ in incentives for retail projects....that would help quite a bit in restaurant buildout

[ronchamblin]

The interested restaurant is currently a food truck (so much for Ron's argument that trucks won't create more B&Ms in DT). However, the article says the deal would be around $12/sf.

said food truck is also looking at another space a few blocks away that has more street activity but also costs more...and right now, several others are also interested in that space, including a pretty well regarded local BBQ mini-chain

Guy's ..... this is great ..... a "food truck" person looking to "open a B & M" establishment.  This is what we've all been wanting.... not more food trucks.


But Lake, I don't quite get what you are saying.

I presume this is clearly a case of an existing food truck operator deciding to open a B & M in the core.  Fantastic.   

But there seems to be a logic error in your comment about my argument. 

Have I really argued that "trucks won't create more B & Ms DT"?  The phrase makes little sense, and therefore I have difficulty relating it to the fundamental issue.

I have argued that food trucks, if allowed in high population and too close to B & Ms, would tend to destroy B & Ms in DT, and would tend to destroy the incentive for entrepreneurs, including current food trucks operators, for opening B & Ms DT.

I've argued repeatedly that "instead of applauding parasitic food truck mobile panzer units  who invade the core, .... why not encourage and incentivize these brave but hesitant entrepreneurs to OPEN a B & M in the core." 

The current food truck operator, by making this wonderful decision, is "filling a building" ... which is what I've always encouraged as a move toward core infill and vibrancy.  I've argued that food trucks in the core, if not regulated as to population, location, and times of operation, will tend to cause the exit, one by one, of existing B & M restaurants. 

All the while, I've argued that these food truck fellows and ladies, would do well to "open a B & M" (fill a building) instead of behaving as a parasitic animal -- sucking from the customer base that the core B & Ms have built over the years.  The existing B & M operations in the core, "opened in the area (and I know this is difficult for some to understand) with the reasonable expectation that the competition would be limited by the buildings in their immediate area."  This expectation, and their preparations according to it, is reasonable, and should be thought of by the city council members as a valid condition and predicament held by the B & M restaurants.

The existing B & M in the core should not be exposed to, or be expected to endure, excessive competition of an extraordinary nature.   To expect these B & Ms to welcome food trucks ... who can come and go as they wish, who can set up anywhere they wish, who can sap customers while not drawing more into the core ... is to expect too much -- is to cause the failure of some B & M operations ...which will empty buildings.

Because filling buildings means "people" .. .. who are workers and residents, the core is brought closer to achieving a momentum .... a threshold .... after which, the core will see a greater rate of growth.

Why impede the process of filling buildings by careless legislation allowing excessive freedom to food trucks which have the potential to "empty buildings", instead of filling them?

Any effort or program to revitalize a partially desolate and weak city core involves applying "pressure" ... (as is the case with any problem having somewhat hidden aspects to it) .. .. in  varying ways, from different origins ... so that .. no matter what time of day or time of year, that "pressure" is always working toward the achievement of vibrancy.  I am arguing that allowing excessive freedom to the food trucks will be exert pressure "against" the ultimate long-term goal of achieving real vibrancy. 

I've mentioned earlier that "IF" it could be imagined that for every B & M restaurant that fails as a result of the presence of food trucks, a food truck entrepreneur "OPENS A B & M restaurant", then all would be good.  This could potentially rid the core of restaurant mediocrities. But would these food truck persons actually open a B & M, as any fail?  I fear that they would simply stay in the food trucks, as they observed more empty buildings.   

To allow careless legislation to allow excessive freedoms to the food trucks in the core area would be to betray the existing B & Ms who survive with the existing relatively low core foot traffic, and would invite the emptying of buildings .... all via the notion that food trucks will bring vibrancy.  Perhaps a solid food truck invasion would provide a sort of vibrancy and the appearance of infill, but it will actually be a slow poison for the core .... a poison which will cause, one by one, more spaces and buildings to become empty. 

[simms3]

Yes, but a "decent/average" restaurant buildout for ~10 year term and above average proven concept (i.e. MoJo's) is likely $100+/sf.  At 3,000-5,000 ft you're talking $300K-$500K.  $50K simply buys you a new kitchen line, or finishes some of the exterior storefront work.

Of course every bit helps...restaurants are the most expensive buildouts, though.  That's why landlords carefully consider whether to even pursue them, or not (plus they offer up no credit - the most they can offer up is a cool concept that drives foot traffic and a guarantee or LoC on certain costs/abatements).  If your only choice was to risk giving an expensive buildout to an unproven operator who wanted to open up a hip Vietnamese dinner theater concept in lil' ol' non-Vietnamese heavy Jax, and he wanted $150/sf allowance and required an additional $25/sf landlord base building work, or sitting on the space and doing nothing, I'm willing to bet every landlord would just sit on the space and do nothing.