Looking back on 2016, Coldwell Banker’s Flo Meadows says the commercial real estate market was plagued by a “prevailing wait and see” attitude.
“Market activity involved heightened consulting with clients, and [it] was a lackluster transaction year for many sectors,” she says.
“It’s not unlike the traffic snarl that results from onlookers at an accident scene.”
Meadows says the negative impacts of the downturn in oil prices were far reaching. For example, landlords and tenants in industrial buildings were negotiating shortterm leases up to 40 percent below previous market rates.
“Landlords didn’t want empty buildings, and tenants needed price concessions to offset significant revenue reduction,” she says. “As some companies contracted, there was notable increase in industrial product inventory.”
Peggy Grace of Engel & Volkers says industrial oversupply remains an issue. “Average lease rates for an industrial facility in early 2016 were on average $8 per square foot,” Grace says. “Today the average rate, according to [Louisiana Commercial Database] Market Monitor, is $5.75 per square foot.”
Meadows, however, believes the tide may be turning. “Business owners entered 2017 with increased optimism ... This psychological shift is showing up in significant market activity increases and the number of office buildings currently under contract,” she says. “Tenants want to be owners, investors are buying and entrepreneurs are starting new ventures.”
The Lafayette office market, in contrast to the industrial sector, has been more resilient. “The occupancy and rental rates showed very little movement from 2015,” says Todd Trahan of Trahan Real Estate Group. “The data showed in 2015 that occupancy in class A space was 96 percent occupied and class B&C was 84 percent. For 2016, the numbers were 98 percent for class A and 85 percent for B&C. I think the increase in property taxes last year is having an impact on rental rates.”
On the retail side, it’s been a mixed bag, as overall occupancy rates in the area have been holding above 89 percent from 2016 to 2017 while many independent retailers struggle to stay afloat, with the highest vacancy rates among small shop inventories.
Van Eaton & Romero’s Dewitt David points out that retail sales declined from a record $6.4 billion in 2014 to $6.01 billion in 2015 before falling to $5.78 billion in 2016. On a positive note, however, retail sales have outpaced the comparable months from a year earlier in five of the past six months.
Charles Cornay of Stirling Properties says the area to watch for retail growth is the northern part of the parish, noting that commercial developers have been turning their attention to the area as the number of rooftops increases. Cornay points specifically to the activity being fueled by Lafayette-based Southern Lifestyle Development’s planned community Couret Farms — located on the 500 block of Pont des Mouton Road near the intersection of I-49 and I-10 — as well as new residential subdivisions on Moss Street, property that’s being developed in phases by Southern Lifestyle and sold off to national builder DSLD Homes.
Overall, commercial construction has taken a big hit, David asserts, noting his research shows that building permits for commercial construction in the city of Lafayette (and unincorporated areas of the parish) — which includes additions, alterations and repairs to existing structures — dropped from $302 million in 2014 to $254 million in 2015 and $161 million in 2016.
“Of interest,” he says, “is the top three new commercial permits issued in 2014, totaling $92 million, were for new oil-related projects.”
Oil prices have fallen from north of $100 a barrel in mid-2014 to about $50 today. And while the resulting economic downturn has cost the Lafayette metro thousands of jobs, there is growing sentiment that low oil prices may be the new normal.
That means “wait and see” won’t cut it if this economy is to move forward. It’s time to look for opportunities beyond oil and gas.
Meadows believes some of our best bets are in aviation and avionics, informatics and engineering, marine and heavy industry, high-value business services, heritage tourism and food and beverage. “Our resilient and innovative people are responding to the oil industry downturn by pursuing new opportunities in these clusters,” she says.
ABiz reached out to local experts for their take on the state of commercial real estate. Participating panelists were Robert Daigle of Southern Lifestyle Development, Peggy Grace of Engel & Volkers, Monty Warren of Beau Box Commercial, Flo Meadows of Coldwell Banker Commercial, Adam Loftin of Teal Realty & Development, Paul Segura of Segura Development, Todd Trahan of Trahan Real Estate Group, Steven Hebert of Billeaud Companies, Mo Hannie of Keller Williams Commercial, Jim Keaty of Keaty Real Estate, Danny Nugier of Southwest Real Estate, Dewitt “Zeen” David of Van Eaton & Romero/NAI Latter & Blum, Jeff Landry of MPW Properties and Patrick Caffery of Caffery Real Estate.
1. Discuss with us the top one or two commercial projects that got underway in the past year — or that are planned and likely to come to fruition — that you are most excited about, either in terms of what the project might mean for you and your company or its significance for economic development in general.
FLO MEADOWS: In 2016, UL’s 143-acre Research Park celebrated the opening of a $13 million state-of-the-art facility for CGI, one of the world’s most successful information technology companies. The highlight of the press conference was peering into the transformational landscape of the 250 diverse faces of CGI employees. CGI as an anchor tenant tells the story of a community whose collaborative leadership has a shared commitment to the successful future for their communities and people. We are positioned to increase UL’s research capacity and computer science and allow informatics graduates to work, live and play in our market.
The CGI return on investment far exceeds the projected $90 million annual impact for the next five years. In 2017 and beyond, as the successes of CGI and its employees are celebrated, corporate site selectors will become increasingly aware of our community’s status as a leading destination for knowledge-based employers.
JIM KEATY: The two commercial projects that I am most excited about are the Rock ’n’ Bowl and Hook & Boil Downtown. These two projects signal the first of many projects we have been waiting to happen Downtown. I had the privilege to visit with John and Johnny Blancher, the father and son owners and creators of Rock ’n’ Bowl, about their project, and I can tell you their plans are incredible. They plan to open in November. The venue will not just be good for locals but will become the hottest tourist destination in Lafayette and will attract people from all over the Acadiana and the world. Rock ’n’ Bowl will become the next must-visit place when you come to Acadiana. They will host weddings, office parties, birthday parties and some of the biggest names in music. With Rock ’n’ Bowl opening their doors in November and Hook & Boil (which is renovating the old Filling Station at the corner of Jefferson and Lee) just across the street shooting to open their doors early 2018, this is sure to transform the entrance into Downtown.
PATRICK CAFFERY: In the last year New Iberia has seen creation of several new commercial developments that my company played a key role in. The first of these was a prototype Walmart Neighborhood Market, which is Walmart’s version of a neighborhood grocery store. The facility is located in the northeastern part of the city. At the end of 2016, Caffery Real Estate was successful in negotiating not only the land sale but also the pairing of a new Domino’s Pizza with a CC’s Coffee House, which are now under construction. These stores are also located in the northeastern part of the city near the Bayou Teche.
2. What’s the one infrastructure project you think is most critical to the successful development of Lafayette (or Acadiana) and why?
PEGGY GRACE: I-49. Uncertainty in any market causes distress, and this project has been uncertain for a long time. The completion of this infrastructure would bring new life and confidence to this region.
MONTY WARREN: The I-49 Connector is the single most important infrastructure project for Acadiana. The current roadway is dangerous to motorists and pedestrians, it divides the city, it discourages viable development and does not move traffic efficiently. Like it or not, this roadway has become a vital corridor for motorists and commercial traffic and can no longer handle the volume of daily traffic. Moving commercial freight and materials is not safe on the current roadway and is expensive due to time spent in traffic and vehicle repairs resulting from the deplorable state of the road. An interstategrade design will accommodate the higher traffic counts, be much safer for motorists and pedestrians, reconnect several neighborhoods to the CBD and be more attractive to private development. This is an opportunity that may not present itself for two or more generations, and we must capitalize on it if we expect to continue to grow.
PAUL SEGURA: I-49. This would greatly improve travel and access through Lafayette. We need this improved thoroughfare to facilitate growth in the area. Typically interstate highways create growth and development opportunities along the routes and particularly the exits or overpasses. Interstates attract national and local business developments by creating access and visibility opportunities.
Lafayette is a desirable growing city, but can only grow with proper infrastructure to support traffic flow and create development opportunities. Road improvements in recent years have made getting around Lafayette much better. Because Lafayette is the Hub City for the surrounding parish towns and cities, we will need an adequate road system to facilitate traffic generated by growth. We should also have a plan for a loop road system to offer alternate access and create even more development opportunities for growth.
STEVEN HEBERT: The Connector and the continued completion of I-49 South is, by far, the most important infrastructure project for Lafayette and Acadiana. The Connector alone will bring almost $1 billion of investment to our community, transform the congestion and blight along the Evangeline Thruway Corridor and spur new investment in our city’s core. Not to mention improvements to traffic, safety and hurricane evacuation. A reinvented and revived Evangeline Thruway Corridor in the current conceptual design will stitch back together Downtown and the historic neighborhoods to the east. This will have the potential of creating an entirely new market area for commercial development and create opportunities for reviving the residential housing stock in the area. The federal government is about to plunk down a billion dollars in our community, and they are actually asking us for our opinion on how, where and what. The process has been rocky, and we have a long way to go but a ton of progress has been made. We need to work to improve the project to have the most favorable outcome possible for our community, with the ultimate goal of completing the Connector.
MO HANNIE: Hands down a loop that will connect north and south Lafayette Parish. Actually it would connect Iberia to St. Landry, and Lafayette benefits. I believe this would spur growth outside of the concentrated areas that are being developed currently. Congestion is so bad on our roads that a loop would allow a business to locate north of I-10 and have uncongested access to south I-49. A loop will allow businesses to locate in either area and cut drive time down, which is the restriction currently blocking growth in those areas.
DEWITT DAVID: Louisiana DOTD’s plans for widening Verot School Road, a state highway, into a four-lane thoroughfare began over 35 years ago when the state began acquiring the necessary rights-ofway. This important project finally began in November 2015 and is expected to be completed in the fall of 2018. The 3.2-mile project, beginning just south of Pinhook Road near Feu Follet Road and ending at Vincent Road just south of Ambassador Caffery, will help to move the 20,000 cars traveling between these two major arteries on a daily basis. There are several tracts of land between Pinhook Road and Ambassador Caffery Pkwy. that should present excellent development opportunities once this much-needed project is completed.
JEFF LANDRY: The I-49 Connector will have the greatest impact on Lafayette development. While there are valid concerns that need to be addressed with this project, I believe the benefits far outweigh the cost when considering the long-term outlook. From a regional perspective, it’s relatively easy to see the benefits in connecting our interstate system. By creating a conducive environment for businesses in our area to export their specialties, namely the offshore energy sector, local industries will thrive, and our community will attract businesses. That said, there are other local benefits in this Connector project, the most notable relative to Lafayette development is the linkage of our Downtown to the southern portion of Lafayette Parish. As Evangeline Thruway has become more congested and challenging to navigate, our CBD/Downtown has become disconnected and struggles to evolve and grow. As rapid expansion continues in the Ambassador Caffery/Kaliste Saloom corridor, Downtown Lafayette will fail to reap the benefits of development synergy and market appeal if infrastructure fails to connect these “districts” in an efficient way. A focus on providing better accessibility to this historic district will make it ripe for redevelopment.
3. Do you feel Lafayette is overbuilt or at risk of being overbuilt for a particular product?
ROBERT DAIGLE: Single family residential development in Lafayette Parish continues to favor relatively large lot development, which leads to suburban sprawl. Significant changes in housing demographics tell us this product is becoming overbuilt and will be significantly overbuilt over the next five years as more and more home buyers are moving toward smaller home sites with less maintenance. Recent changes to planning and zoning codes in Lafayette are encouraging higher densities, which may mitigate this problem, but developers still seem to favor large lot development.
MONTY WARREN: I do not think that any of the commercial product types (retail, office, industrial) are overbuilt. This is evidenced by the generally healthy occupancy levels across all three property types. With the downturn in the oil and gas industry, we have seen a spike in vacancies in the industrial sector. Leading up to the downturn, vacancy was almost non-existent, and rents were high for a prolonged period of time. Relative to this phenomenon, vacancies have spiked, but when compared to most similarly sized MSAs, we are still considered to be relatively balanced and healthy. The product type that does concern me is new single-family residential construction. While I do not participate in the residential arena, I believe there is some risk of overbuilding in this area, given the job losses we have experienced.
PAUL SEGURA: I do not. Despite changes in the economy over the past 25 years, Lafayette has seemed to not get too overbuilt in any one real estate development sector. Twenty-five years ago we had an abundance of every sector due to the 1980s oil crash and national savings and loan collapse. While Lafayette development seems robust since then, actually we have kept a steady pace and have avoided overbuilding. When the national financial crisis hit in 2008 and residential overbuilding hurt other areas of the country, we had very few (comparatively) loan foreclosures because the residential market was not overbuilt. While we have experienced some vacancies and readjustment of rents in the industrial market due to the recent oil downturn, there is not an overabundance of properties. We have not seen the devastating market effects despite the oil downturn.
4. Is there one type of product currently missing or lacking in Lafayette that you think the city is primed for?
ROBERT DAIGLE: Lafayette’s inability to develop high-density residential in Downtown Lafayette is the single most important factor preventing our Downtown from achieving the success of many other communities in our state and nation. Without significant life on our streets after dark, we will continue to deal with safety issues, real and perceived, and we will continue to struggle to attract retail and service providers who rely on rooftops for their business success. The good news is that our current administration is actively involved in addressing this issue and seems to understand that it will take development incentives, including — potentially — public-private partnerships, to effectively move the needle. One only needs to look 50 miles to our east at Downtown Baton Rouge for an example of how it can be done. Lafayette appears to be primed to finally successfully address this long-term need.
FLO MEADOWS: What I’d most like to see in 2017 are developers at the table ready to provide the following critical real estate pieces for our knowledge economy workforce: Downtown housing and parking, and supporting retail. 2017 carries the potential for a transformational commercial real estate landscape. We will see shovels turn for the Lafayette Regional Airport expansion, at Moncus Park at The Horse Farm, and for game-changing Downtown projects. As Realtors who operate regionally and nationally, we have opportunities to be an integral part in bringing world-class knowledge economy employers to our area. By increasing the number of these companies in the area, we increase the demand and feasibility for projects such as Downtown housing and retail development and further diversify our economy.
ADAM LOFTIN: Urban infill housing. We’re overdue for greater diversity in housing options, and modern living trends are dictating smaller footprints and greater density in areas that are walkable and bikeable, and generally less vehicle-dependent due to public transportation, Uber, Waitr, etc. Our success in growing our tech, medical and other sectors has helped attract and retain a younger, talented workforce, and what’s interesting is how their housing needs mimic the desires of our older generations as well. River Ranch and the demand for The Blake (along with initial demand for the failed Parc Tower) are evidence of a population that is ready to downsize out of large family homes into active, social living environments. And it’s important to point out that this doesn’t mean solely focusing on Downtown Lafayette: There are numerous areas in the city that are as well or better suited for infill housing development, and Youngsville, Broussard, Breaux Bridge and other surrounding cities all have core areas that can offer these lifestyle opportunities as well.
TODD TRAHAN: I think one of the most talked about projects lacking in the market is residential options for Downtown. The only way to really know if the demand is there is to make the old courthouse building available to the developer market. The response would tell you if there truly is a demand. I happen to think it would be exciting.
MO HANNIE: I believe developers have missed a faction of our community that is growing every day — one that would cater to Baby Boomers ages 57 – 74. As a group, baby boomers are the wealthiest, most active and most physically fit generation. Some still work, some are semi-retired, and the rest are retired. An age-restricted community is designed to offer upscale community living with amenities ranging from concierge services to dining and health clubs in a gated community.
JIM KEATY: I am excited about the future of Downtown Lafayette; however, I fear without a residential component we will never have the foot traffic we desperately need on weeknights to sustain a vibrant Downtown. I am hopeful that our government officials and representatives can work something out to encourage and promote residential development Downtown.
Specifically, I hope the city and its officials can finally do what is right and free up the almost 2-acre tract of land where the old federal courthouse sits between Jefferson and Lee. Something needs to be done with this property ASAP.
DANNY NUGIER: Those of us on the recent Lexington, Ky., tour (see final question) understand that a strong, vibrant downtown will benefit the entire region. Although Downtown Lafayette has business offices, retailers, restaurants and government agencies, a large, vibrant residential aspect needs to be added to the mix. There are several properties Downtown that are prime for residential development but may require cooperation between the business sector and the local government. The demand for Downtown living is apparent. Many of the IT companies setting up shop Downtown have employees who want to live near their offices and walk to Downtown restaurants, parks, festivals, schools, banks and churches. A large residential presence will also bring new amenities and businesses as the demand grows.
5. What can government do to help commercial real estate in the near term (e.g., tax or other incentives, public-private partnerships, better public transportation or better planning to incentivize development)?
PEGGY GRACE: If I am asked to dream big I would wish for regional transit systems. The growth in our future is within the Gulf Coast region and not within the confines of Lafayette Parish lines. Regional transportation between points of Calcasieu, Acadia, Lafayette, Baton Rouge and New Orleans would increase a corporation’s access to a labor pool, diminish the need to house a mass number of employees in confined areas and allow the region to develop commercial enterprise to meet the growing demand.
ADAM LOFTIN: All of the above, and I don’t think they’re mutually exclusive by any means. Public-private partnerships in particular will be vital in addressing critical community needs, especially in the city of Lafayette, and help spur private development at the same time. These partnerships can be successful in many forms, and not only as large-scale redevelopment efforts. A minimal investment, for example, addressing the utility or other infrastructure needs of a smaller project can make all the difference between it moving forward or going elsewhere. I commend Youngsville in this regard for doing cost/benefit analysis of certain infrastructure investments that have helped sustain the growth of commercial and residential developments of all shapes and sizes. Giving equal consideration to developments large and small is essential, as not all projects may make headlines, but each supports local trades, provides a home or place of employment, expands our tax base, and, particularly for smaller projects, stimulates local bank lending and keeps any profit closer to home.
TODD TRAHAN: Government can help the most by improving traffic in the growth areas of the parish. This is very difficult considering our lack of funds, but it is the most widely used excuse by the public to be against new projects. We should be supportive of trying to increase the tax base for Lafayette.
DEWITT DAVID: It is critical for commercial real estate agents to have a good understanding of the codes and ordinances that affect planning, zoning and development. In May 2015, the Lafayette council adopted the Unified Development Code that became effective in December 2015. Under the direction of Carlee Alm- LaBar, director of Planning, Zoning and Development, a special task force is in the final stages of producing a Development Guide that will be extremely beneficial to Realtors, builders and developers in helping to streamline the various development processes. Of particular interest is the staff’s encouragement for anyone planning a development or platting a commercial property to arrange for a pre-development meeting to review zoning districts, platting requirements, availability of utilities and future infrastructure projects that might affect the development or commercial use. Training classes are being planned for commercial agents and others interested in becoming familiar with the UDC.
JEFF LANDRY: In the near term, I believe our local government and development community should come together to create a public-private partnership for “small” projects specifically aimed at the “local” developer. Lafayette government recently supported a public-private partnership through a PILOT, Payment In Lieu Of Taxes, for the Ambassador Town Center. I would hope this PILOT can be used as a platform and premise to replicate the public-private partnership for the smaller projects, which are typically built by local development firms. This would give developers, large and small, the same opportunity to grow our city. Allow the developers to continue to take the risk and make the investment in our city, but give the local developers the same incentive to be repaid for their capital expenditures into city infrastructure through a small-scale PILOT program.
PATRICK CAFFERY: The most critical role government can play in any commercial real estate scenario is the building of infrastructure that allows real estate to be developed and utilized by the end user. Without roads, water, electricity and sewer, the project is out of gas before it starts. Infrastructure should be viewed as an investment in a community’s future not as a burden.
6. If you or someone in your firm attended the late April One Acadiana-sponsored Leadership Exchange in Lexington, Ky., what are your takeaways from the trip?
STEVEN HEBERT: While almost every statistical measure of Lexington and Lafayette are nearly identical, the cities couldn’t be more different. First, Lexington is much older with a wonderful supply of old historic structures begging for revival, not to mention the picturesque countryside. From a real estate perspective, my biggest takeaway was the “Urban Services Boundary.”
Long ago as a solution to the struggle between development and the incredible, sprawling, beautiful horse farm industry, a boundary was established to restrict development, commercial and residential, to the core of Fayette County where Lexington is located. This has proved to be at least a manageable solution to the battle of growth versus no growth. The formula used to restrict growth is revisited every five years, and the boundary is adjusted based on a measured need. So far it seems to have reduced sprawl, created a vibrant core, and preserved the pristine, endless, rolling acres of horse farms while not inflating real estate prices. Imagine putting a lasso around Carencro, Scott, Youngsville and Broussard and drawing them all into and around Lafayette proper; where those cities were there would be thousands of acres of the most beautiful land you have ever seen. You would have one vibrant, somewhat dense community centered on an urban core — that’s Fayette County and Lexington. Is that better? I’m not sure, but Lexington’s Downtown was large, had a ton of energy, plenty of new development, and while not without plenty of challenges, was more like a downtown of a much larger place. Our flooding, extension of services, funding and taxation struggles are all due to the sprawl in our parish. It’s way too late for us, but it seems Lexington definitely got that right.
DANNY NUGIER: Public/private partnerships and regionalism resonated throughout our visit. Public/private partnerships have and are currently creating opportunities for the redevelopment of many historical Downtown properties and buildings. One renovation project in particular involves the old county courthouse in the core of the city, which is more than 100 years old and being converted into an office building and museum. The speakers also stressed that it was important that Downtown Lexington remain vibrant with residents, retailers, business offices, restaurants and government agencies. A strong, vibrant core is important for the wellbeing of Lexington and the surrounding counties. Regionalism was also stressed at the conference. We heard from the owners of a large bakery business that was recruited to the Lexington area. The owners stressed how important it was to them that the area counties worked together to recruit them because they were not looking to a specific county to facilitate their factory, but it was the entire Lexington region that piqued their interest. I think their story confirms the efforts of One Acadiana and its goal to achieve a regional community within the nine-parish membership.