The Downtown Investment Authority's Future

[Captain Zissou]

Out of curiosity, a friend of mine is wondering why the sale requirement is so high. In his experience, construction costs usually come out to the $300-350 psf range, and he doesn't get why $900 is needed to finance new construction. Is land acquisition cost particularly high or is something happening with building costs? Or other costs like parking?

Like Simms said, costs for concrete/steel construction and high end finishes are much higher than $300-350 psf these days.  Basic materials like concrete and glass went through the roof last year and have barely come back down.  Natural stone, high end electrical and lighting, and high end appliances and fixtures have gone up in price considerably in the last couple years.  Waterfront sites in Jacksonville that could ultimately command higher sales prices also tend to have a number of complicated site conditions or remediation requirements.  These things all factor into the high overall costs of development.

[thelakelander]

I will say I'm not quite sure what the DIA's solution should be (beyond actually making some nearer term infrastructure decisions like parks, right-sized convention center, getting city agencies into vacant office space, etc). If national firms like Related and Carter and Spandrel can't make it work, and local firms like JWB and ADG and certainly Southeast are struggling, who else is there here?

We haven't adequately invested in our public streets, parks, facilities, etc. for more than 20 years.....probably since BJP. The economy was crap during the Brown administration, so I get that the city did not necessarily have the budget at that time to get some of these critical quality of life improvements completed. Curry hurt downtown more than he helped it but the city now has more money than in previous years to spend. It's time to invest in ourselves and build an environment where market rate projects become more feasible. That's the low hanging fruit answer that's been slapping us in the face for a while now. New built skyscrapers are literally a pipe dream right now.

[CityLife]

^^^Well it's what I've been saying for years.  People are always like "you can't compare Jax to __", but I'm like can't we just get 1-10% of what any of the other cities are getting?  Just 1-10%?

Regarding condos, it's a frustration of mine that we have such a weak condo market in town.  Needs $800-900+ psf in sales to build new construction high rise condos.  Villa Riva and Marina San Pablo penthouses top out at $500-600psf in resales.  The beach has $1K psf resales all the time, but now they are limited to 35 ft everywhere so you won't see new condo projects out there where the market actually does justify them.

So frustrating that Tampa can get 10 flashy new buildings along Bayshore and we can't get one anywhere.  Part of me wants that for the sake of housing diversity, skyline, etc but I also happen to have a condo development site I need to sell.  Ughhhh

Out of curiosity, a friend of mine is wondering why the sale requirement is so high. In his experience, construction costs usually come out to the $300-350 psf range, and he doesn't get why $900 is needed to finance new construction. Is land acquisition cost particularly high or is something happening with building costs? Or other costs like parking?

Sure capital markets are weakened and costs have gone up, but it's time for the DIA to stop making excuses and do something other than just throw incentives at projects to try and make things happen. The truth is, they are generally working with firms that either don't have enough of their own capital or do, but are barely interested enough to push through when the first sign of trouble pops up.

I will say I'm not quite sure what the DIA's solution should be (beyond actually making some nearer term infrastructure decisions like parks, right-sized convention center, getting city agencies into vacant office space, etc). If national firms like Related and Carter and Spandrel can't make it work, and local firms like JWB and ADG and certainly Southeast are struggling, who else is there here?

Those three firms are really not huge players nationally. Spandrel has basically just done a few mid-rise projects in North Carolina, South Carolina, and Georgia. Carter and Related Group are both bigger, but each has built virtually it's entire portfolio in very strong local markets that they know well, Atlanta for Carter and South Florida for Related Group. They aren't going to waste their time building projects elsewhere, unless it's a great deal for them. It's also important to note that the Related Group (who are doing the River City site) are not "Related", who have an absurd portfolio and are truly a national behemoth. Companies like Related could redevelop Downtown Jax with little to no need for outside capital.

Those type of companies are looking for vision, positive direction, competence, stability, and long term growth. All they need to do is read one of KenFSU's posts to realize Jax has none of those things going for it.

Hopefully Mayor Deegan can right the ship.

[vicupstate]

I will say I'm not quite sure what the DIA's solution should be (beyond actually making some nearer term infrastructure decisions like parks, right-sized convention center, getting city agencies into vacant office space, etc). If national firms like Related and Carter and Spandrel can't make it work, and local firms like JWB and ADG and certainly Southeast are struggling, who else is there here?

We haven't adequately invested in our public streets, parks, facilities, etc. for more than 20 years.....probably since BJP. The economy was crap during the Brown administration, so I get that the city did not necessarily have the budget at that time to get some of these critical quality of life improvements completed. Curry hurt downtown more than he helped it but the city now has more money than in previous years to spend. It's time to invest in ourselves and build an environment where market rate projects become more feasible. That's the low hanging fruit answer that's been slapping us in the face for a while now. New built skyscrapers are literally a pipe dream right now.

JAX has been trying to 'walk run' before it has learned how to 'crawl' for a few decades now. Always aiming for the grand slam when it needs to master hitting a base run first. The streets are needlessly (and disruptively) one-way, the sidewalks are empty except for the homeless, there is litter and barren lots everywhere, greenery and green space is in little supply and in a state of disrepair, office vacancy is quite high and lease rates are basement level low.  And yet there is this expectation that massively expensive construction projects actually make sense in this environment. It's ludicrous.
     
DIA needs to work on the basics and get the 'soil conditions' improved. Work on getting the smaller projects completed like the ones JWB is doing, and get the First Baptist buildings in private hands. Finish the Johnson Park and Landing parks. Until things on the ground improve significantly, don't even waste time on a project over $50-60mm. It isn't going to happen, so don't waste the time on it.     

[jaxlongtimer]

I will say I'm not quite sure what the DIA's solution should be (beyond actually making some nearer term infrastructure decisions like parks, right-sized convention center, getting city agencies into vacant office space, etc). If national firms like Related and Carter and Spandrel can't make it work, and local firms like JWB and ADG and certainly Southeast are struggling, who else is there here?

We haven't adequately invested in our public streets, parks, facilities, etc. for more than 20 years.....probably since BJP. The economy was crap during the Brown administration, so I get that the city did not necessarily have the budget at that time to get some of these critical quality of life improvements completed. Curry hurt downtown more than he helped it but the city now has more money than in previous years to spend. It's time to invest in ourselves and build an environment where market rate projects become more feasible. That's the low hanging fruit answer that's been slapping us in the face for a while now. New built skyscrapers are literally a pipe dream right now.

Lake, we are all singing this same song but no one in power is listening.  Again, to promote more development you have to create demand.  To create demand, you need to give people something they want (starting with green spaces, cultural attractions and events, food options, easy accessibility, etc.).  Jax city leadership isn't responding and this shows up in the results we see.

[marcuscnelson]

There's a lot I want to say to all this, but my first thought is the way that the DIA's new "Master Plan" opens in part by saying that it does not include "Specific future uses of privately owned parcels - instead, developers have flexibility to respond to market conditions within the Downtown Overlay Zone".

I find that ironic, with how that doesn't even seem particularly true? The renderings later include plenty of specific visuals of what the privately owned parcels at places like the Berkman II site or in Cathedral Hill. Clearly even if they don't want to admit it they have some ideas, they just don't want to admit what those ideas are.

It's especially silly when the mere existence of zoning and land use is just that, prescribing specific uses for parcels, public or private. In some cities, they even provide blueprints for what developers are pre-approved to simply finance and get built instead of having to create a project from scratch.

I wonder what, if there were a shakeup at the DIA by Deegan and Salem (who appoint the board), it would look like to somewhat wave the flag and acknowledge the need to re-assess. Obviously there are big projects that are likely going to be a matter anyway, like the stadium and UF campus, and projects that might be worth fighting for at any cost (Laura Trio), but what if we politely asked Carter and the like to walk away and give us the chance to focus? Work on getting the smaller projects off the ground, actually commit to accelerating the timeline for things like two-way streets, restriping lanes for bikes & scooters, Riverfront Park, Friendship Fountain, JWJ, and having those amenities, or having an at least 10-year convention solution with the Hyatt, things of that nature. Would that work? Would it be helpful?

The mayor spoke at the Meninak Club yesterday about attracting young professionals and convincing them to not leave, how can she be shown that these kinds of changes in mindset will help do that?

[thelakelander]

There's a lot I want to say to all this, but my first thought is the way that the DIA's new "Master Plan" opens in part by saying that it does not include "Specific future uses of privately owned parcels - instead, developers have flexibility to respond to market conditions within the Downtown Overlay Zone".

IMO, this is okay. Yes, the market will largely determine private sector uses. However, a master plan should address public sector properties like catalytic sites, streets, parks, riverwalks, convention centers, libraries, public transit, jail, etc. Having a vision for these items and committed funding and timelines show we have some real commitment and skin in the game to making transformational public spaces. These types of commitments and investments can be transformational for the feasibility of market rate developments and additional private sector development.

[marcuscnelson]

I'm not saying we have to mandate "this and nothing else." And there's certainly a sense of "yes and" to what you're saying as well, but the point is that it should be as easy as possible to get something built downtown as soon as possible because otherwise we keep missing economic cycles and ending up with nothing. It seems that's going to mean guiding developers around like children to get to get their projects to the finish line on top of doing our part with providing public amenities.

[thelakelander]

Having good zoning, solid plans for public spaces, committed timeliness or their implementation and investing in them is what guides development. The market determines if a private property becomes a hotel, office, residential space or something else. The DIA shouldn't have to worry about that part, as long as there's general guidance (like a Form Based Code) on design to make sure it fits into the overall scene.

[marcuscnelson]

The Federal Reserve announced today that they are raising interest rates again. That could have additional effects on the capital markets and therefore on developers' ability to finance their projects.

[jaxoNOLE]

I'm just amazed that rising interest rates and tightening credit are being portrayed as surprises on these projects. Inflation and the likely consequences were well-known a year ago. Are sophisticated developers not making projections for these factors? Cash flows get projected out for decades; surely interest rate trends over the next 24-36 months are considered. I'm not in commercial real estate, but I do have experience in finance, and none of the companies I've worked with over the past 2 years have been surprised by what's happening. Point estimates have been off here and there, but only by degrees. Victims of circumstance, these developers are not.

[thelakelander]

I don't think any of them or the DIA are surprised. It's more likely that they always knew. It's just being covered in the media now because a deadline is approaching that they know they aren't going to meet and it was discussed at a meeting where media was present.

[Jax_Developer]

I'm just amazed that rising interest rates and tightening credit are being portrayed as surprises on these projects. Inflation and the likely consequences were well-known a year ago. Are sophisticated developers not making projections for these factors? Cash flows get projected out for decades; surely interest rate trends over the next 24-36 months are considered. I'm not in commercial real estate, but I do have experience in finance, and none of the companies I've worked with over the past 2 years have been surprised by what's happening. Point estimates have been off here and there, but only by degrees. Victims of circumstance, these developers are not.

Cap Rates (your projected income less expenses/total purchase price) for typical downtown areas range between 3% - 6%. In Jacksonville, that will of course be a slightly higher range.

Short-term debt increases the per unit or per square foot cost to build, which “could” be mitigated with a larger incentive package.

Long-term debt currently exceeds Cap Rates in most circumstances (6%+ right now). Meaning, the more debt you take out, the lower return you will have. This on top of stricter DSCR, LTC & LTV metrics results in developers bringing more cash to the table to complete the same project, that started 12-24 months ago. Long Term Debt is rarely fixed at the beginning of construction. This has lead developers to prioritize their most fruitful developments. DT Jacksonville, is not one of those markets, sadly.

[Ken_FSU]

^When the Jags say that if a stadium deal isn’t reached by their Q2 2024 deadline, project costs will increase by $100+ million, what’s the math behind that? Any idea?

[Jax_Developer]

To me seems like BS, but here are a few ideas:

- Projecting the supply constraints (aka cost increases) on steel & concrete - apparently there are some heavy signals that concrete in particular is going to increase by double digits in 2023. Very large projects buyout concrete or steel typically long before it reaches the site. Maybe they see this changing drastically.
- They think their SR & LR debt (both) are going to be severely impacted by interest rates (deals of this magnitude with public funds can negotiate their entire debt as a package).
- There are maybe economies with 4S? (I doubt this though)

Beyond those three things I really can't fathom a jump in costs to that degree. To be honest, you need all of these factors working against you to make a difference that wide. Plus, economist think that rates will drop by 2025. So I'm not sure my logic makes sense in reality. Hence why I'd bet it's a bluff. Maybe its partially internal expenses (paying consultants/firms to seek alternatives for example.)