Raised Expectations

Raised Expectations

By David R. Corder

Associate Editor

Over the past decade, the commercial market at Tampa's Fowler and Nebraska avenues took a turn for the worse. It started around the time Burlington Coat Factory vacated a large chunk of retail space at the intersection and relocated about a mile east to the University Mall.

Then a neighboring supermarket shut down. So did an Eckerd drug store. Service Merchandise complicated matters when it closed down the nearby Fowler Avenue store as part of a national restructuring. About four years ago, Circuit City added to the market woes by relocating its Fowler Avenue store to the more affluent New Tampa area.

The market flight perplexed commercial property owners over the ensuing years as land values there stagnated. Commercial brokers lamented over their inability to find creditworthy tenants willing to fill large blocks of retail and even small chunks of office space.

"It was like a no man's land; it was pretty rough," says Ross Realty Group commercial broker Mike Myers.

Then about a year ago two entrepreneurs took separate gambles on this market eight miles north of downtown, where the median household income is only about 64% of the U.S. average. The demographics didn't dissuade real estate investor Mario Garcia Jr. or retail entrepreneur Bill Boukalis.

It is the high volume of daily traffic - most of it headed to and from the University of South Florida and the University Mall - that bolstered Garcia and Boukalis' willingness to invest millions of dollars into this beleaguered market. It's the type of commitment that has raised expectations.

"It's slowly coming around," Myers says.

Wrong concept

The positive signs in the market may be more of a reflection of a cyclical trend, says Garcia, whose family-owned company bought the site of the old Circuit City store. It may be that the market there just can't get any worse.

"The area there has pretty much hit rock bottom," Garcia says.

However, Garcia doesn't attribute the stagnate growth in this market to its demographics. Nearly 22% of individuals and about 17% of the families live below the poverty level in this market, the 2000 U.S. Census Bureau reports. That compares with national averages of 12.4% for individuals and 9.2% for families.

Instead, Garcia thinks the mass retailers such as Circuit City didn't understand the market. "It just may have been the wrong concept," he suggests.

For instance, Garcia cites the success of national retailers such as Sound Advice and Rooms to Go. Each of them has been in the market for years.

Garcia's Validus Group Partners Ltd. paid $2.2 million in June 2004 for the 53,875-square-foot store at 1401 E. Fowler Ave. That is almost $41 a square foot.

To cover acquisition and renovation costs, the family partnership borrowed $3.2 million from Regions Bank.

"We just did a demo inside," he says. "All that's left is the shell. We're going to redo the whole thing."

Rather than pursue a single tenant lease, Garcia decided to reposition the property as a mixed-use retail and office center. The nonprofit Children's Board of Hillsborough County already has leased space in the building for Bright Beginnings, a program that helps single parents with child-rearing strategies.

Although hesitant to provide details, Garcia also says he is talking to a national company that is interested in leasing space there.

"We're negotiating now," he says. "It all looks good."

Good neighbor

The decision to buy the site of the old Circuit City site was a timely one for the Garcia family partnership. Three months later, Boukalis, president and CEO of Clearwater's J&B Factory Carpets Outlet Inc., purchased the old Service Merchandise site as part of a company expansion.

Renovation work began almost immediately on the 48,750-square-foot mini-strip center. Boukalis Development of Tampa LLC purchased the site for about $2 million, or $42 a square foot, and invested another $1.3 million in renovations.

Façade renovations there distinguish the new J&B Factory Carpets store from other neighboring properties.

In addition to the use of eye-catching colors, Boukalis created a retail showroom that rivals the decor of even the most upscale mall tenant.

"It was good for the area," Garcia says about his neighbor. "It pumped up the area pretty fast. The showroom for his business is impressive."

Business is good at the new Fowler Avenue store. Boukalis says customers come from far away.

The renovation also paid off in the form of tenant rents. When Boukalis acquired the property, one prospective tenant offered to lease space at only $9.50 a square foot. He turned down the low price.

Instead, Boukalis has leased space to piano and mobile phone retailers at about $14.50 a square foot. Even the carpet store pays that amount.

"The company has to pay," he says. "Everybody has to pay. I spent over $1.3 million in improvements. So I better get it back. I'll get it back no matter what."

Because of the current land price affordability, Boukalis says he might even consider additional investments in the Fowler-Nebraska market.

"If it happens to be at the right price I would be interested in buying," he says. "I'm very happy with this project."

Word of caution

This new wave of investment in the market may have had some unanticipated benefits for neighboring landowners.

About 11 years ago, Clearwater's Rollar Realty LP purchased 30,000 square feet of office space in three separate buildings in the Fountain Plaza on Nebraska Avenue.

Over time, however, the Clearwater investment firm found it increasingly difficult to find creditworthy tenants with the wherewithal to fulfill their leases, Myers says. The company lost some good leases; vacancy neared the 45% mark.

Clearwater's Ross Realty Group tried several strategies to pump up the occupancy in Fountain Plaza with limited success, Myers adds. So he and his boss, Elliott Ross, suggested that Rollar Realty put the property on the market as three separate properties, which would require the owner to subdivide it under city government supervision. The strategy worked.

Earlier this year, Ross Realty found three buyers willing to pay about $50 a square foot for the three buildings. They closed on all three deals about a month ago, once the city approved the new plans.

These were good deals not only for Rollar Realty but also for two tenants who bought two of the buildings, Myers says. Those tenants bought office condominium space at about $50 a square-foot, he says, when comparable properties elsewhere in the Tampa Bay area sell for much more than that amount.

"And I got more money for the owner that way than selling to an investor who might be willing to pay only about half the amount," Myers adds.

Next door to the former Rollar Realty property, the Logan family partnerships have tried to fill the 35-acre strip center that Burlington Coat Factory once occupied. The family partnership has invested an unspecified amount of money to renovate the strip center at 11411 N. Nebraska Ave., and recently leased the Burlington Coat Factory space to the International Flea Market.

Just as his neighbors, Claude D. Logan III says the family partnerships have adopted new strategies to fill vacant space. For instance, it may be necessary to take a new look at how to market the 12,000 square feet the Eckerd drug store once occupied.

"We will have to divide it," he says, "because that space size has been overproduced."

Even then it could be a challenge, Logan says. He has seen the ebb and flow in this market for years. His family has owned property here since the 1930s.

If anything contributes to the market's revitalization, Logan adds, then it will be the university's continuing investment in biotechnology and nanotechnology research. Although optimistic about the market, Logan knows the industry can have bad years, too.

"To me, the market's coming back," he says. "Is it going to be there for the maximum upside potential tomorrow? Not necessarily."