Commercial real estate professionals say the best is yet to come.Commercial real estate professionals say the best is yet to come. By Leslie Turk
Monday, June 17, 2013
|Photo by Robin May|
|FOR LEASE: In early June a sign advertising lease space went up |
at the new Whole Foods site on Settlers Trace Boulevard at
Ambassador Caffery Parkway. The Houston-based developer tells
ABiz ground will break in September and Whole Foods should open in
August 2014. At press time, no additional leases had been inked, according
to the developer.
Optimism permeated the air in the small section of the Realtor Association of Acadiana's Esther M. Guidry Education Room where five local commercial real estate agents and brokers gathered to share their outlook for the sector with ABiz. With the exception of some infrastructure issues that could create barriers to already planned developments, or potentially block those just making it to the drawing board, the real estate reps were unable to find any real trouble spots on the horizon.
On the topic of what they're most excited about, there was little hesitation, as they believe Whole Foods will affect how others view Lafayette's economy like nothing before it. Already, they say, it's attracting the attention of higher tier tenants who snubbed the market in the past because of its population.
After a decade of waiting - not to mention false hope created when an overzealous Houston real estate rep made a premature announcement in 2011 - Lafayette finally got confirmation in February from Whole Foods that it is planning to build a store at the corner of Settlers Trace Boulevard and Ambassador Caffery Parkway on property once owned by the Saloom family.
That single retailer - plans call for the center to break ground in September with natural/organic foods grocer welcoming customers in August of next year - could open all sorts of doors for Lafayette. There is also abundant curiosity about what else will locate in the Whole Foods center, an approximately 95,000-square-foot development called Ambassador Crossing and, perhaps even more intriguing, what additional projects in that hot corridor might come to fruition because of it.
At least for now, there is nothing new to report about Ambassador Crossing itself, although the same developer, Houston-based The Ainbinder Company, is bringing a Designer Shoe Warehouse and Petco across Ambassador at 605 Settlers Trace, next to ULTA. Both are well under construction.
"I do not have any new tenants to announce [at the Whole Foods site]," Chairman and CEO Michael Ainbinder tells ABiz in a voice mail message. "We are negotiating with several pretty cool, upscale, well-known retailers, but none of the deals are signed yet," he says. "The direction the project is taking is decidedly upscale. Some of these tenants are located in either Perkins Rowe or Towne Center at Cedar Lodge in Baton Rouge, so it's that type of lineup. I wish we had more signed leases, too," he continues, "but it's all going very positive."
In terms of dollar value, commercial permitting activity is down so far this fiscal year - the fiscal year runs Nov. 1 to Oct. 31 - with 29 permits valued at $36 million issued by Lafayette Consolidated Government in the city and the unincorporated areas of the parish through June 1. But while the dollar amount is off about $10.5 million from the same period last year, the number of permits is down by only one. For commercial additions and alterations, where the number of permits is down significantly from a year ago, 243 versus 176, the dollar value is up 21 percent to $44.5 million.
So far this year, the largest commercial permit, $12.7 million, was issued for the new Park Place Surgical Hospital on Ambassador Caffery Parkway near Our Lady of Lourdes (the hospital is relocating from the Oil Center), and the largest commercial renovation permit, $9.1 million, is for the Congress Street library project downtown.
It's worth noting that these figures don't include the recently announced $18 million Plains Exploration & Production deepwater facility (the company is now Freeport McMoRan Oil and Gas), which was permitted in Broussard.
Our panelists believe this project, which consists of warehouse and office space to service the oil and gas company's deepwater Gulf of Mexico operations, is just the beginning - albeit a splashy one promising 600 high-paying jobs - of what's to come from the energy sector. They were not at liberty to discuss specific projects but say they are anticipating a significant influx of energy-related companies.
In the meantime, Frank's Casing Crew, which last year topped ABiz's list of the region's largest privately held companies, confirms that it has two major construction projects in the works for its Verot School Road campus - an approximately $20 million operations facility on Beau Pre Road that has already gone out for bid (bids are due in late June) and another 200,000-square-foot office building behind its current offices on Verot.
Joining ABiz for the discussion, which took place in early June, were David Gleason of Van Eaton & Romero, an NAI/Latter & Blum Company; Jeff Landry of MPW Properties; Flo Meadows of Coldwell Banker Pelican Real Estate; Ryan Pécot of Stirling Properties; and Monty Warren of Beau Box. Read our panelists' views about the state of commercial activity in the Acadiana region and their prognostications on the following pages; scan the accompanying QR code to see the video.
Moderated by Leslie Turk
ABiz: What commercial projects, either planned or under way, are you most excited about?
JL: Whole Foods has been a name that's been kicked around for a long time. It has the potential to really make Lafayette, on the retail spectrum, a higher level for other higher tier tenants that for a long time Lafayette may have been passed over because of the population size. I'm interested to see what the adjacent retailers do, how that intersection flows and what other developments come up around it.
RP: I think Whole Foods creates gravity for a certain tier of retailer. We're already seeing it in phone calls and daily activities of higher end tenants that haven't looked at Lafayette in the past. I'm curious to see how lafayette, the city, steps up and handles this development.
FM: What really thrills me is the amount of planning taking place in this community, looking at the comprehensive plan for the city, UL's master plan, Central Park has world-class leadership, and when that comes online it's going to be a catalytic game changer that's going to ignite this community. Our school system has a facilities plan, Scott has a master plan. Most all of our communities are engaged in investing in the future, and that bodes well for the next decade.
DG: One of the nice things is the oil and gas industry that's driving a lot of the [industrial] retail growth. Monty's been working with Halliburton on the north side. Forum Energy is doing a 150,000-square-foot building in Broussard. Houston Plating and Coating [is under way] in Scott. We heard about PXP [that's] now committed to an $18 million project With these bigger projects you get smaller projects.
JL: Uptown Lofts. Regardless of all the backstory, I'm really interested to see how that affects downtown. As someone who loves Lafayette and thinks downtown is a huge asset for us, that is a critical component we've been missing for a long time. It looks like that project will be successful. Hopefully it spurs additional growth. I think that's a critical aspect. They've been missing residential.
ABiz: What economic indicators do you pay the most attention to?
JL: Oil and gas, price per barrel, is in my opinion far and away the most important indicator; it's easy to say, but in our business we primarily focus on office space, [and] I can tell you that the oil spill in the Gulf instantaneously had an impact. It didn't matter what type of business, investor groups, insurance, not related to oil and gas whatsoever, their spigot shut off, so our spigot shut off. It's great to feel like we're getting more diversified, and I think we are, but that to me is the leading indicator.
RP: Retail sales, that's all I care about. That's what my guys are looking at.
FM: The [Lafayette Economic Development Authority's] Economic Performance Index. That is the most invaluable tool. For the last two years, The Independent has provided the platform for [LEDA Executive Director] Gregg [Gothreaux] to pull together all the research that they have done for years [at the annual ABiz Economic Performance Outlook luncheon]. That along with the benchmarking that [Gothreaux] unveiled this year. When we meet with our clients, that comprehensive picture, the lagging, the current and the leading indicators in our economy and how much we've grown ... a lot of site selectors do 90 percent of their work before their feet touch our soil. Having that kind of info online where they can take a look at all the indicators, along with year over year growth ... is why we might improve going forward.
DG: The unemployment rate is important as well. Investors are looking at all of these factors. They want to know that in the future those revenues are going to keep coming in.
MW: All economic indicators are important, but ultimately it still comes down to energy. Period. We're a hub city and a lot more diverse than we were, but none of this would be here if it weren't for oil and gas. And that's not going to change.
ABiz: How significant is north Lafayette's first traditional neighborhood development, Couret Farms, for development in that area of the parish?
MW: I think it's an exciting project for that part of town, but it's also interesting to know where it is. That Pont Des Mouton corridor, because of the improved roadway, is going to be great. I'm not saying the development wouldn't have happened without the improved roadway, but I can tell you Halliburton wouldn't be there. The extension of it going all the way to Louisiana Avenue and connecting to the Stirling shopping center is going to be huge. That's going to be the spot to develop for the next five years.
FM: Before Couret Farms, we had Stirling [Properties] develop on Louisiana Avenue Subsequent to that you began to see corporate expansions all along Pont Des Mouton. We had several companies expand along the Thruway and along University [Avenue]. This residential component is what was needed to spur the what next, because what will happen next as a result of it will be education, retail, entertainment. You'll see much more in the way of all sectors of real estate development.
JL: As Flo said earlier, it worked backwards. Commercial came first, and now we're seeing potentially Couret Farms. Residential followed. Usually it's the opposite. But we need residential there.
ABiz: TIFs (tax increment financing) have become a bad word in local development, thanks in large part to the failed TIF debacle on Kaliste Saloom Road. What are your thoughts on TIFs?
FM: It's an economic development tool that's been around since our founding fathers. I think the question when it's asked really boils down to one word: Trust. We either trust our government officials to sit down and take a look at it situation by situation. The [TIF-funded Stirling Louisiana Avenue] project has gone so far beyond even our wildest projections in the way of job growth, sales tax growth and property values. It has spurred growth that would have never happened. The question that has to get answered is how bad does the community want what's proposed to go there? If they want it bad enough I think our community would vote yes in some instances, not all, but some, despite the fact that there may be an unfair advantage surrounding it.
RP: Need them, love them, have to have them There is a 0 percent chance [the Stirling Louisiana Avenue] project would have happened without it. I think trust is a good word. I don't believe a TIF should start paying for internal development components that specifically go to developers' pockets or landowners. I think it should only be in place if it simultaneously allows a development to occur and doesn't potentially impact other things around it. Whole Foods, it's 30 acres, that's going to drive X amount of traffic, but then that F-rated intersection becomes something worse and it doesn't work. That doesn't make our world better. But if there is a TIF to help with sewage removal and lift stations, additional travel and deceleration lanes, and signal timing with adjacent signals, it can make sense. It's a user tax. I'm not going to pay the extra whatever percent to use it, but my time isn't impacted negatively because of this thing. If it's helping the city to sustain or improve the immediate area and not going to a landowners' profit margin, then I'm all for it.
JL: It's about location. If you have a TIF that's going to come into place, increase value for property owners around it, then they're going to support it. I think there are times and places where TIFs can be huge benefits for communities like north Lafayette and Broussard. I think it's tough when you go head-to-head against local property owners and even non-local property owners and projects they had to do the regular way. I think it turns into an unfair advantage at times.
DG: It allows a raw piece of land to be turned into something that consumers can take advantage of. And they can choose to take advantage of it, and it may save them gas in the long run from driving to a different area. In Broussard, you can choose to go to that Walmart or you can choose to go to another Walmart. If you go to the one in Broussard you're going to pay an additional 1 percent tax for convenience. I don't think that deal would have happened without it. I think it's done well for the Broussard area.
ABiz: What are some of the challenges to economic development locally? Is there anything that could throw a wrench into our strong, robust oil and gas economy?
JL: Political incentives. The small, independent exploration companies truly are the backbone of the Lafayette service corridor. If any of that goes away or if the federal government changes policy If those things get wiped out, you really hurt a lot of the local guys here. Those are companies and individuals that really have helped Lafayette become what it is, a really good community. We have a lot of high net worth individuals, but it's really spread out. It's not just one company that has all of the wealth or worth.
DG: [At] a [recent] conference in Lake Charles, we talked about a lot of what's going on in oil and gas and what could change and impede what's happening. Lake Charles is adding LNG [liquefied natural gas] plants. If there's a change in policy that doesn't allow us to send it to other places ... if we're not able to export to other countries like we're hoping we can that can cause a problem.
RP: Infrastructure is one There are a lot of due diligence hurdles that still have to be crossed [on the Whole Foods development]. That intersection currently rates as an F. It's a failed intersection on DOTD standards [There are] big offset cost issues that could preclude the development from happening unless the city can assist in some capacity Most of the Ambassador corridor is C, D, F rated. When you add more curb cuts it creates more traffic issues. Most developers can't pick up offsite costs because of high-priced land, site work and construction costs. That's part of the everyday, typical development issues ... It goes back to master plans and whether they've been appropriately designed and implemented. I think we've got a new group of leadership in the community that wants to see some things happen.
MW: We have a track record of paying a lot for these plans and never implementing them. I hope whatever the [city's master] plan is, the end result is good, has community support and gets implemented. Twenty years ago there was no planning at all.
ABiz: What are some of the hottest growth areas in Lafayette Parish?
RP: When it comes to retail, it's South Ambassador. The shopping center at Louisiana [Avenue], most of those retailers have exceeded their revenue projections, and that's good. But the new entries, the new tenants to Lafayette, they can't risk it. They're going south on Ambassador.
DG: That Broussard/New Iberia area along Highway 90 has really been a hot spot. That's been the majority of our oil and gas industry growth.
FM: I think as we watch what happens with UL's master plan and with Central Park, when you look at a Central Park, everything surrounding that area increases in value from 20 to 40 percent. We're already seeing facelifts on old, tired shopping centers. And I think we'll begin to see development surrounding the park and surrounding UL as the master plan unfolds.
ABiz: Economic development leaders have been outspoken in their confidence of Lafayette's 10-year outlook, mainly because of deepwater activity. How optimistic are you about Lafayette's development for the long-term?
MW: I have no doubt that deepwater is where it's going to be. The big [service companies] have been saying that for three years. They've been gearing up, and a lot of the moves they've made have been totally based on deepwater. Whether it's 5 years, 10 years or 15 years, I don't know. PXP is a piece of that activity, much like other expansions along Highway 90. I think it's probably very sustainable.
JL: My focus has primarily been office [real estate]. I will say it has allowed me professionally to feel like I have a really good pulse on the overall economy. From the office side, our portfolio occupancy is the highest it's ever been. Our rental rates are rising. All those things are great. What to predict over the next five or 10 years, I have no idea. I only hope that as we do development Lafayette doesn't get caught in the trap of overbuilding. I hope we continue to plug along and steadily grow. If we continue to outsource the oil and gas component, I think Lafayette will see a long and sustained growth.
RP: Even being a self-described and proud retail nerd, the world is good. There's a lot going on. The vast majority of my phone calls are with national tenants. They're trying to figure out what about Louisiana is good for them, and where geographically, specifically, is good for them. Lafayette is high on that list. There have been some barriers because of lack of supply, but my outlook is very positive. I predict in late 2014 into '15 and '16 you're gonna see a bunch of new square footage go vertical. I'm just hoping the stars align both governmentally and with the tenants, allowing those attributes and timing [to be] tied together. There are some pretty interesting things coming.
MW: I'm bullish on the market. I think we have a sustained growth pattern for a long time. Most of what I do is industrial and office, typically on the corporate services side, so it's mostly out of town people coming in. They all seem to be in a pretty aggressive mode.
FM: [This is] one of the healthiest cycles I've seen in my 20 years. I'm excited to see the development cycle we're in and the engagement of the community The calls I'm fielding are across all different sectors.
DG: The last five to six years have been steady, but it's refreshing to know we're back in the busy cycle where a lot is happening. Over the last six months it's like we're getting calls again for everything I'm excited because we're seeing more and more opportunity to develop and build [what] people are looking for. Leasing has been strong That gives investors the confidence to come in and buy income-producing properties. It's a great environment to be working in.
Caught on Tape
For the first time this year, ABiz, in cooperation with presenting sponsor Tuten Title & Escrow, is offering readers the opportunity to view the video discussion with our commercial real estate panel. The video can be viewed below. We edited the lengthy discussion to an hour and are providing the follow timeline to help readers navigate to the topics of interest to them.
Video Table of Contents
(times noted are approximate)
Potential impact of big projects 1:07
Comprehensive planning 9:45
Economic indicators 13:23
Benefits of LEDA's EPI and benchmarking 19:31
TND Couret Farms' impact on north Lafayette 24:04
Hottest geographical area for growth 26:36
Opportunities in a downturn (and where the "sexy fish" swim) 28:48
Deepwater activity: How long the upswing will last 32:46
Any problems on the horizon? 34:50
Industrial sector - employment and facilities 38:47
Tax Increment Financing (TIF) 42:00
Closing comments 52:43
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