Rapid Escalation

Rapid Escalation

By David R. Corder

Associate Editor

Last September, St. Petersburg real estate developer Roger Gatewood paid a princely sum for his vision. His West Bay City Homes LLC acquired about three-quarters of an acre of industrial-warehouse property in Tampa's Channel District for almost $2 million. It apparently was worth every bit of the $57 a square foot he paid for the future site of his mixed-use Seaboard Square condominium project.

Five months later, the entrepreneur who founded Westfield Homes assembled an adjoining 4.1 acres for $10.3 million. That's $2.5 million an acre. It completed his plans to build 430 condominiums, a 120-room hotel and an 80-room bed and breakfast.There's a dramatic game of supply and demand at play in this southeast section of downtown between the Crosstown Expressway and the Port of Tampa.

"Everything is at market value," says Channel District developer Greg Minder. "It's increasing all over as land speculators try to get in front of developers."

Developers such as Gatewood and Minder appear pretty confident the trend will continue. That's evident in the price they're willing to pay, in addition to the acquisition costs. Many of these properties require complete demolition or expensive rehabilitation.

The market pressure on prices in the Channel District is no more evident than the 25,000 square feet of land up for sale at the corner of Morgan Street and Channelside Drive. Arena Holdings of Tampa Inc., a real estate holding company controlled by businessman Robert Hoskinson, wants about $140 a square foot. It's a property viewed as a complete teardown for possible condo development.

"We're seeking $3.5 million for the entire property plus some participation in (future) profits," acknowledges Bill Eshenbaugh, the Tampa commercial real estate broker who represents Arena Holdings.

Eshenbaugh helped Gatewood assemble much of the property for his Seaboard Square project. He won't talk about future value of properties, because he says he didn't foresee the current cycle of runaway real estate prices. He is certain, however, prices in the Channel District will continue going up.

Says Eshenbaugh: "When I started working on Seaboard, we could have bought it for $40 to $50 a square foot. At closing we paid close to $60."

To illustrate the market dynamics, Eshenbaugh cites the asking price on a 2.3-acre property for sale just a few blocks north of Seaboard Square. He says the broker on that property recently told him the asking price increased to nearly $80 a square foot, up just recently from around $70.

"There are fewer sites and a lot of appetite," Eshenbaugh says.

It seems just about any property in the Channel District is able to command the asking price.

"Lots of buyers," says Tampa real estate agent Frank Vacanti. He represents AACS Inc., owner of a 23,400-square-foot lot on the northeast corner of North 11th and West Washington streets. Negotiations are so intense on that property he wouldn't disclose the asking price.

"We're in the middle of negotiations," Vacanti says. "This property may take 12 months to sell, since some rezoning would be required."

Across the street, CB Richard Ellis represents JAZ Properties LLC in its bid to sell 2.63 acres. An old sign advertises part of the building on property as the JAZ residential lofts. It appears the owner never completed the warehouse conversion, however.

One block over, Amazon Hose & Rubber Co. recently vacated the building it occupied for years on a 42,000-square-foot lot at the northwest corner of North 12th Street and Kennedy Boulevard.

"It's being sold," acknowledges Bill Smith, the Orlando-based company's general manager. "It's under contract."

While land value figured in the company's decision to sell, Smith says the transformation of the Channel District to an urban residential living community hindered the company's operations. He would not talk about the deal or the company's asking price.

Construction on the nearby Kennedy Boulevard bridge restricted customer access, Smith cites as an example. Condo building construction also made it more difficult for the company's trucks to negotiate the already narrow streets. Plans for even more condo construction at projects such as Seaboard Square only hastened the company's decision to relocate its Tampa operations east near Interstate 75.

"There are a lot of changes going on in that Channelside district, which we basically thought we would be pushed out, per se," Smith says. "It just became more and more difficult for our customer base to come downtown."

A few blocks south, a group of well-heeled investors has proposed one of the latest condo projects - 25 stories on about 1.4 acres. These investors include the principals of the adjoining Meridian Channelside, a 37-unit loft-style condo project under construction at 102 N. 12th St.

Only this time Channelside Developers LLC, a partnership between the Tom Newkirk and Steve Gardner families, has joined with the principals of Atlanta's Novare Group to build the 25-story condo project. The Novare Group manages Novare-Intown Tampa Development Co. LLC, which is building the 32-story, Skypoint condo project downtown at 777 Ashley Drive.

The Channelside Developers-Novare partnership has secured purchase options on about 1.4 acres belonging to Channel District real estate investor Claude Bonanni, says development partner Greg Minder. But the deal is far from complete.

Primarily because of increased project costs, the partnership wants the city to grant a variance from the Channel District's 60-foot height restrictions, Minder says. It's not just land costs, he says, but rising concrete and steel prices are cutting into developer profit margins.

"Some (costs) are more intangible dollar items," says Minder, who doubles as the Meridian Channelside's development manager. "The Channel District was built with dredge, organic materials. The Meridian's auger cast piles are deeper than (Novare's) 32-story building downtown. That's just geotechnical costs. That's not the only reason for (the variance request)."

To win city support for the variance, however, the partnership has proposed a creative concession. It wants to dedicate nearly a quarter of the proposed development site as public access green space. In exchange for the variance, the partnership would deed the park to the city but require a condo association formed for the unnamed project to care for it in perpetuity.

That proposal has won support of neighbors such as Tampa lawyer Cody Fowler Davis, who is converting a warehouse into law offices across the street at 110 N. 11th St. in a partnership with Finn Caspersen, Beneficial Corp.'s former chairman.

"Everything is going in the right direction. But I think it would be very good for Channelside if the city allowed the Meridian developers to build a park on 11th Street," Davis says.

Atlanta's White & Associates Development LLC also has requested an increase to 70 feet from 60 feet for The Lafayette, a 30-unit condo project planned next to the Amazon Hose property.

Will all of this development activity come to fruition? "It only takes a short period of time for interest rates to rise," Eshenbaugh says. "You could have a 20% decline in the value of a project very quickly. If the equity disappears, you may have (individual condo investors) walk away from (their) 20% deposit."

Not only that. "When beginning construction, you better know your costs," Eshenbaugh says. "Costs are not as stable as they once were, and you've got an 18- to 24-month (construction schedule) on some of these big projects. I'm a little bit concerned a deal will fail not because of the investor but because the general contractor missed (the deadline)."