Regional Spotlight: Southeast

While the real estate industry in Florida and Georgia has slowed compared to the torrid pace of several years ago, long-term economic growth and demographic trends continue to favor the two states, and that means development is expected to pick up when demand increases. Read what factors are causing developers to remain optimistic about the region’s future prospects.

With Florida and Georgia experiencing major shifts in the real estate sector, developers, designers, and financiers are adapting to the new economic landscape and targeting niche markets, as well as exploring untapped ones, while remaining optimistic about the region’s future prospects.

While the real estate industry in Florida and Georgia has slowed compared with the torrid pace of several years ago, long-term economic growth and demographic trends continue to favor the two states, and that means development is expected to pick up when demand increases.

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“Economists are forecasting that Florida will be the third-most-populated state in the country,” says Brad Horner, president of Atlanta-based Coldwell Banker NRT Development Advisors, a residential real estate brokerage company with a regional office in Orlando. “Florida is still a favored retirement destination. As the baby boomer generation starts to retire, Florida is the optimal destination. We also are seeing the return of foreign investors at several Orlando condominium communities, including Madison and Mosaic at Millenia. International investors, who are cash buyers, are looking for sound investments. They are interested in a destination city such as Orlando, which has numerous theme parks and vast shopping options, but is only an hour away from the beach.”

The new Northwest Florida Beaches International Airport, located in West Bay near Panama City and Panama City Beach, is expected to be a significant economic catalyst for the region. Since it opened in May with service provided by Delta and Southwest, passenger traffic has increased by 192 percent from levels at the former regional airport in Panama City. The airport covers 1,300 acres (530 ha) of 4,000 acres (1,620 ha) donated to the airport by the St. Joe Company, which is developing VentureCrossings Enterprise Centre adjacent to the airport. That project has more than 1,000 acres (400 ha) of land available in Phase I for up to 4.4 million square feet (372,000 sq m) of commercial, industrial, and retail space. With seven military bases within 90 miles (145 km) and more than 1,900 aerospace companies, the region offers companies a well-trained workforce for the aerospace and defense industries, among others.

At the same time, national and international companies continue to look to Georgia when considering relocation, providing the state with a promising outlook for long-term growth. The state’s probusiness attitude, skilled labor pool, and education centers will continue to drive real estate development in the years ahead.

Already Georgia is attracting investment in the green energy sector, and it is expected to continue to do so, says John Reyhan, executive vice president and Georgia general manager of Skanska USA, an international project development and construction company. “Several European-based manufacturers of green energy—solar, wind, or alternative—have located U.S. operations in Georgia,” he says. “We expect new manufacturing facilities to be built in order to support this expanding industry in Georgia. The state’s business-friendly climate, available trained workforce, and major research universities are all drivers for this expansion.”

Florida and Georgia, the two largest states in the Southeast, are experiencing major shifts in the real estate sector. Real estate developers, designers, and financiers are adapting to the new economic landscape and targeting niche markets, as well as exploring untapped ones, while remaining optimistic about the region’s prospects.

Florida and Georgia have bright futures despite the current economic situation, says Charles L. Charlan, principal of Maitland, Florida–based architecture and planning firm Charlan Brock & Associates, which specializes in the multifamily sector. “Fundamentals have improved in many markets, including the return of HUD- [U.S. Department of Housing and Urban Development–] backed financing for some areas,” he says. “In addition, many of our long-term clients have concentrated on different areas, such as student housing or seniors’ housing instead of luxury high-rise condos. Some who were previously planning a 350-unit residential development have decided to reduce it to less than 250 units and use the remaining land to add assisted living or a commercial/mixed-use component to the site.”

More important, Florida developers and designers are seeking untapped niches in the real estate sector, adds Gary Brock, principal at Charlan Brock. “While there are still many niche opportunities for rental housing, many developers are retooling their business models, looking at student housing and aging-in-place seniors’ communities,” he says. “Many Florida community colleges are converting to full state colleges, creating a need for student housing on campus. With seniors’ communities—especially in the case of continuing care residential communities—there are various levels of senior care with a wide range of housing products to serve those various levels of care, which provides a wide range of opportunities for developers and designers.”

Developers are seeking niche or specifically targeted locations and situations, says John H. Classe, Jr., vice president in the Orlando office of Tampa-based PBS&J, which provides full-service architecture/engineering professional services, including planning, design, program management, and construction management. “I anticipate urban infill opportunities to increase along the existing and planned mass-transit corridors, such as Tri-Rail in south Florida and the new SunRail, a commuter rail system through the heart of central Florida,” he says. “And I anticipate spinoff opportunities adjacent to new regional developments, such as the Medical City in southeast Orlando.”

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PBS&J, which has been involved in a number of real estate development projects—including Baldwin Park in Orlando, the Wizarding World of Harry Potter at Universal’s Islands of Adventure in Orlando, Golden Oak at Walt Disney World Resort, and SouthWood in Tallahassee—is seeing increased activity in the Florida hospitality, leisure, and entertainment markets. “Even though the economy is less than robust, families still need to get away from it all and just have some fun,” says Classe. “Florida will continue to be a family-oriented destination for vacations. New attractions at Universal Studios and theme park improvements at Disney will generate positive momentum in the economy—not just in tourism, but in the professional services and construction firms that support this market.”

In addition, a number of municipalities are taking advantage of the current lull in real estate to transform themselves. Fort Lauderdale–based international planning and landscape architecture firm EDSA is currently engaged in a number of projects involving repositioning and beautification of existing developments, cities, and communities in Florida, says Paul Kissinger, EDSA principal.

Among these is the Destin community redevelopment area/harbor district improvements. “EDSA is helping lead the city through a preliminary detailed design effort that highlights pedestrian accessibility and connectivity, multimodal transportation, parks and open spaces, and parking, all with an emphasis toward redevelopment within the harbor district,” says Kissinger. “In Pensacola Beach, EDSA led a multidisciplinary team and recently completed for the Santa Rosa Island Authority a master plan that outlines pedestrian and beautification efforts to change the face of Pensacola Beach, while maintaining the overall community character.”

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Many Florida cities continue to be challenged by decreasing tax bases, adds Doug Smith, managing principal at EDSA, hindering public funding of redevelopment activity. “However, we are seeing blips of improvement in the public planning realm,” he says. “Many cities are engaging in urban planning assignments that position them properly for recovery. Most of these initiatives focus on revitalization to create walkable urban districts that offer safe streets, housing alternatives, and successful commerce—all of which ultimately increase a municipality’s tax base. Rather than focus on commercial developments, the goal is to gain momentum and a spirit of recovery through investment in animated public outdoor spaces that offer a mix of memorable and iconic experiences to seed redevelopment activity.”

Angst about the lack of financing has forced some Florida developers to find alternative ways to fund projects, opening the door wider for international investors and private sources of capital, Smith adds.

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Communities such as SouthWood in Tallahassee
provide easier access to the necessities of living
for residents. SouthWood was the first
planned community of the St. Joe Company.

Financial institutions in the state are starting to lend again, says Sean Racine, senior portfolio manager in the Orlando office of Cleveland-based KeyBank. “It’s not the full immersion we saw several years ago, but they are starting to put their toes back into the water,” he says. “We’re looking at stabilized or semistabilized properties with some in-place cash flow. We’re just looking to mitigate risk and still make new loans, which means we have a bigger appetite for bridge loans on existing properties with in-place cash flow, eliminating some of the lease-up risk and all of the construction risk. Lease-up risk is still too great and, frankly, we haven’t seen the demand generators that indicate a need for any new construction. The markets in all of Florida are less about excess demand creating the need for new projects than about absorbing the commercial space already there.”

There has been a hint from some national merchants looking to lease new retail space in Florida, says Racine, but such companies are entering the market very cautiously. “There is a market with some banks for construction financing with some small single users such as Walgreens, Family Dollar, and others,” he says.

KeyBank, he point out, was instrumental in the $70 million acquisition of 500,000 square feet (46,500 sq m) of retail and office assets in the Tradition area of Port St. Lucie by Inland Diversified Port St. Lucie Square LLC and Inland Diversified Port St. Lucie Landing LLC, wholly owned subsidiaries of Oak Brook, Illinois–based Inland Diversified Real Estate Trust.

One of the most significant developments in central Florida today is Restoration in Edgewater, says Ted R. Brown, a partner in the Orlando office of Baker & Hostetler LLP. It is being developed under a new land use category—restoration sustainable community development district, he says. “Among the major ideas and metrics of the plan are jobs-to-housing ratios that must be met, development of a fixed-rail trolley system to service the community, more than 75 percent of the site to be restored wetlands, and having all residents within a ten-minute walk of a trolley station and more than 50 percent of residents within a five-minute walk.”

Florida is expected to continue to see increased real estate activity, Brown continues, but it will be moderate because market uncertainty lingers. “Larger-scale new developments will stay in the exploratory stage while the market continues to absorb existing built inventory and foreclosures, together with ‘paper’ lots—lots that are permitted but not developed,” he says. “The good news is that there is activity and, assuming a stable economy with predictable capital, Florida has turned around and now sees positive in-migration going forward. That, coupled with a real interest in job development and the funding and development of high-speed rail integrated into SunRail, bodes well for the state.”

In Georgia, the education segment continues to expand, along with the health care and military sectors. “The HOPE scholarship program, which is available to qualified Georgia residents, has provided many students access to a full-time four-year education at many of Georgia’s public universities,” says Reyhan. “Enrollments on many campuses across the state are increasing by double-digit rates. This creates considerable demand upon facilities and infrastructure in order to support enrollment growth.”

Skanska is working on developments at university campuses in Columbus, Albany, Milledgeville, and Valdosta, and has other stimulus projects underway in a number of cities. “The new health care bill, along with a universal mandate for electronic medical records, has caused many health care systems in Georgia to start the planning process for expansions and dedicated data centers,” he adds. “Our health care work underway includes projects at Atlanta’s Grady Hospital, St. Francis Hospital in Columbus, and Piedmont Hospital in Atlanta.”

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New construction starts in the next 12 months will mostly be in health care–related real estate, along with multifamily, and some corporate office—both interior reconfiguration and new building construction, says Kevin Cantley, president/chief executive of Atlanta-based design firm Cooper Carry. “We are also seeing activity beginning in the hospitality sector—both the renovation of existing hotels and some new project planning,” he adds. “Outside Atlanta, Savannah will likely see port-related real estate growth, as well as some hospitality activity.”

Many of Cooper Carry’s current design projects are public buildings and public/private partnerships, producing space for government end-users, he says, with many funded by money provided under the American Recovery and Reinvestment Act (ARRA). “Examples include buildings and interiors for the General Services Administration’s clients,” says Cantley. “The pace of activity in the private sector is picking up. Current projects that are active include a mixed-use development adjacent to the Emory [University] campus and the renovation of several hotels. Conceptual land planning is beginning for several transit-oriented developments in anticipation of future opportunities resulting from the recently passed transportation bill.”

Commercial real estate in the Atlanta region will primarily continue to burn off its inventory of vacant space through the next year, he continues. “This will occur through the recovery while demand rises slowly,” Cantley says. “We will not likely see significant new construction starts in the office, retail, and single-family sectors, but we will see planning and entitlement work begin for new projects that could be started in 2012–2013 for 2014 openings.”

Ray Kimsey, president of Niles Bolton Associates (NBA), an Atlanta firm specializing in architectural design, interior design, and landscape architecture, says his firm is seeing signs of recovery in the multifamily housing market, especially housing for seniors and HUD-financed projects. “At the same time, as university enrollment continues to increase in Georgia, the demand for student housing on campus and nearby—a market that Niles Bolton Associates has been involved with for more than 20 years—has generated a bunch of new projects,” he says. “Private multifamily housing is recovering a bit slower. Retail shows some signs of life in specific markets with specific products. Medical, religious, and educational markets have been hampered by budget shortfalls.”

NBA is involved with military housing for the U.S. Navy’s Southeast region with Balfour Beatty Communities. “We are working on 11 military bases covering five states, making it one of the largest public/private ventures to date in the United States,” he says. “We also have a project at Fort Benning outside Columbus that is currently under construction.”

The ARRA would have had much more of a positive and long-term impact if planning and design of high-priority public projects was funded, he says. “Unfortunately, virtually no jobs requiring technical skill were created,” says Kimsey. “The flow of projects moving from program to design to construction has been significantly impacted, and this lack of flow will continue to impede the economic recovery.”

Still, Florida and Georgia developers continue to reinvest themselves, seeking new markets to conquer and preparing for the inevitable upturn in the market. It is only a matter of time before the market turns around, they say, and they will be ready for the uptick.

Mike Sheridan is a freelance writer in Richmond, Virginia.
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