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bobliocatt

Tampa's Channelside Drive

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Tampa Bay Business Journal - January 10, 2005

http://tampabay.bizjournals.com/tampabay/s.../10/story1.html

EXCLUSIVE REPORTS

From the January 7, 2005 print edition

Channelside's drive

Ken Salgat

Staff writer

TAMPA -- When Tampa developer Michael McGuinness breaks ground on two 30-story towers in the Channel District Jan. 17, he'll have more than $100 million in signed contracts in the bank. McGuinness said he's inspired to get the 257-unit Towers of Channelside project in the works while the getting is good.

He's not the only one inspired by the Channel District.

With decreasing large tracts of land available on the Bay area outskirts, the Channelside area saw a swarm of activity in 2004 in terms of plans and units announced. A Tampa Bay Business Journal inquiry has found as many as 6,000 units now are on the books or envisioned for the downtown district in view of the Port of Tampa.

That kind of volume elicits a range of reaction among the area's real estate community -- from elation to major concern.

The success of the Channelside development market depends strongly on whether or not developers can secure enough pre-sales to merit bank funding, said Jeff Hicks, president of the Dohring Group in Tampa. The firm specializes in commercial real estate appraising.

"We keep a library of neighborhoods for prospective buyers, and I have to keep updating the Channelside report because so many projects are breaking ground or being announced," Hicks said.

This volume, he said, could spell trouble for unwary developers.

"The reason a lot of real estate projects tanked in the 1980s was because the lenders weren't requiring pre-sales or pre-leasing, which made it (supply) get out of balance more quickly," Hicks said. "Most of these projects in Channelside are required to have a percentage of pre-leasing, which precludes a great deal of oversupply."

But there's currently a large number of investor buyers in the area, Hicks said. That can decrease the number of end-users and may also skew the perceived demand.

"If I were a bank, I wouldn't want to see a large number of 'token buyers' -- those that only risk anywhere from $5,000 to $10,000 -- because that just makes it easier for them to back out," Hicks said.

The best option is to retain the greatest number of end-users -- those buyers that plan to live in the unit for an extended period of time.

"Most investors want to buy it at the pre-construction pricing and then flip the finished product for a quick profit, whereas the end-user would put more money down and take a greater risk," said Hicks. This, he explained, lessens the risk the developer assumes, which in turn reduces the lender's risk.

A banker's outlook

The investor mix is very important and most people don't want to see more than a 20-percent mix, said Dale R. Dignum, group president and CEO of Regions Bank in Tampa.

"Sometimes it is hard to determine, but owner-user is the most preferable from the standpoint of getting behind it," said Dignum. "Right now you have investors that are looking at the current market and watching appreciation. There's no assurance that it will continue to appreciate."

Dignum, like Hicks, harkens back to the 1980s real estate market where there was a point where the market ceased to appreciate.

"When the market stopped appreciating, investors had to weigh whether to flip it or to walk away from the project and lose the down payment," said Dignum. "When there is too much of this, there is a danger the project could fail."

Having the right mix of investors to end-users was a main starting point with his Towers of Channelside project, developer McGuinness said.

"Basically, as you go along with the project like ours, you have to have a close relationship with your lender," said McGuinness. "We are limiting our investors to 20 percent, and we made it a priority from the beginning to ensure success by getting our project under way while the market was still very strong."

McGuinness' project, which has 190 of the 257 units under contract, is one of the first projects with more than 200 units to break ground downtown.

What the city has seen up until now has been smaller projects such as the 28-unit Channelside Lofts 212.

Many of the other smaller loft projects downtown are benefiting from the market created by the successful "base-amenity" loft project completed almost two years ago, Wilson Stair, Tampa's urban design manager, said.

The $3.2-million project sold out within its initial six-month construction period. The units, of which no two are the same, ranged from $155,000 to $305,000.

"(Channelside) Lofts 212 really primed the pump for this market," said Stair. "That's really what showed that the loft market could sell in the Tampa Bay area. There is a growing number of empty nesters and young professionals who want to live within an urban area."

Uncharted territory

But it's hard to gauge demand in downtown Tampa because of lack of precedence, said Marvin Rose, publisher of Rose Residential Reports Inc. in Tarpon Springs, which tracks new residential construction in the Bay area.

"There's really nothing to compare it to other than what's happened on Harbour Island," said Rose. "But looking at that history, there seems to be a pent-up demand for downtown housing. If all the planned units were going to come on line at the same time, there would be cause for concern, but that's not going to happen."

National demographics tend to support the speculation that demand will eat up the Channel District's supply.

While household size continues to shrink, the country's population is projected to grow by 60 million during the next 20 years, said Maureen L. McAvey, senior resident fellow for the Urban Land Institute, at a Tampa Downtown Partnership forum last year. Most of this increase will be felt in 17 states, Florida being one.

"By all accounts, throughout the nation, the need for housing units will skyrocket as the number of households without young children continues to climb and young professionals move back to the city," McAvey said. "Tampa has the infrastructure to succeed in its transformation to a 24-hour, urban city. You've defined the bones through its amenities. Now it is time to add the frame, which includes housing."

And the project announcements keep flooding in to the city.

St. Petersburg developer Roger Gatewood goes before Tampa zoning officials Jan. 13 seeking approval to build a $100-million mixed-use village, complete with 360 units in 14-stories in the Channel District.

The project also anticipates shops and office space among its four buildings between Meridian Avenue and 12th Street, bordered by Whiting Street and Cumberland Avenue.

Dignum said that from what he's seen, demand for Channelside projects, even the ones that include 200 to 300 units, has been very strong. However, he also said that those still are the smaller of the projects and that the larger ones, with 600 to 800 units, will bear the burden of the market's future.

"These developers are pioneers and taking the risk, but the first ones also have the benefit of a pent-up demand," said Dignum. "Some of these projects are long-term, and there has to be a concern as to what the market will be in two to three years."

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6000 units planned as of the publication of this article. I wonder how many of the contracts and/or indications of interest are coming from investors (either flippers or potential landlords), as opposed to eventual residents? The fundamentals are a little concerning; granted FL in general and Tampa Bay in particular has great job growth, relatively (compared to other coastal regions within and outsdie of FL) low RE prices, and lots of room to grow, but is this capacity sustainable?

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6000 units planned as of the publication of this article.  I wonder how many of the contracts and/or indications of interest are coming from investors (either flippers or potential landlords), as opposed to eventual residents?  The fundamentals are a little concerning; granted FL in general and Tampa Bay in particular has great job growth, relatively (compared to other coastal regions within and outsdie of FL) low RE prices, and lots of room to grow, but is this capacity sustainable?

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I suspect that there is more than enough demand to fill these and heretofore unannounced projects, and to radically transform the Tampa skyline.

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