Commercial real estate development in Tampa Bay is going strong right now, but one leading Tampa Bay banker is keeping a close watch on economic growth that makes it possible.
“Everything is going fairly well right now,” said Al Rogers, senior vice president and executive lending officer for the West Coast Florida region for Valley National Bank. “We’re just concerned with so much expansion and development — quite frankly success — we are prone to overbuild and correct. We haven’t seen that yet, but we certainly sleep with one eye open.”
Rogers was a panelist at the May 2 Capital Markets Update for the Tampa Bay chapter of the Urban Land Institute. At the breakfast meeting in St. Petersburg, commercial real estate financiers debated whether an economic downturn would squelch the building boom that’s underway in the area.
“Tampa Bay is on fire,” said Yakhin Israel, senior vice president at CBRE and moderator of the panel. He moved to the area 10 years ago, just after the Great Recession hit in 2008, to resolve distressed situations for a bank. “It was a different place than it is today. Fast forward 10 years, and I can’t go more than day without someone calling me and wanting to know more about Tampa Bay, wanting to invest in Tampa Bay, wanting to lend in Tampa Bay.”
The panel highlighted ongoing development in downtown St. Petersburg, Carillon Office Park, the West Shore and Midtown areas in Tampa, and the $3 billion Water Street Tampa project in downtown Tampa, being developed by Strategic Property Partners, a partnership between Tampa Bay Lightning owner Jeff Vinik and Cascade Investment, controlled by Bill Gates.
“We’re fortunate. We have good developers who have done good projects and they talk people like me into co-investing in them,” said Gus Katsadouros, a panelist, and founder and managing partner at Osprey Capital, a private equity firm in Tampa.
Developers from the Midwest and other areas are bullish on Tampa Bay, Rogers said.
“We have a great tax environment, we have growth, we’ve got sunshine, the wind hasn’t blown very hard that often in this spot, and I don’t see the sea rising quick enough to scare people away either,” Rogers said. “The capital has come because returns are attractive and people see this area of the United States as an attractive place to live and work and develop and deploy their capital.”
Still, construction costs are rising, labor is tight and wages are not rising. For Rogers, that raises questions about whether apartment tenants will be able to afford the rents charged to cover construction costs for new multifamily developments.
“I think we’re in the 7th inning stretch,” Rogers said. “We’re still expanding, the game is not over, but we’re not quite sure how it’s going to end.”
Valley has dialed back the amount of lending it will do for any one deal and is requiring more equity in projects, Rogers said. He cited as an example a $35 million multifamily development. Banks traditionally lent between 70 percent and 75 percent of the cost of the project.
“We are disciplined, and we do remember what happened so we’re mostly in the 60 percent range, which requires 40 percent equity and it can come in many flavors and forms,” Rogers said.
Some of the additional equity can come from a private equity firm like Osprey Capital, where Katsadouros, also a former banker, is less worried about a downturn anytime soon.
“I’m concerned enough to where I see it, but I don’t think anything will happen in the next 12-18 months. I think there’s going be a correction, but I think it will be more of a product-by-product and market-by-market situation,” Katsadouros said.
There’s more money available than there are deals, and that should keep the overall economic system on track, Israel said.
“I haven’t sold a distressed asset in five years and I still get calls from people looking for distressed [properties],” he said. “What I’m saying is that as a problem arises, there’s enough capital out there to help solve that problem individually.”