Ken Stoltenberg Talks Grand Central & Tampa’s Channelside District
Attendees: Eric Odum with Ken Stoltenberg, Mercury Advisors
Date: May 31, 2011
Subject: The Commercial Real Estate Market Minute – Grand Central and Current Events in Tampa’s Channelside
EO: Welcome to today’s Market Minute. I’m Eric Odum, I’m the principal broker for Net
Channside - Grand Central @ Kennedy
KS: Good to be here, Eric.
EO: For those that don’t know, Ken developed Grand Central which is in the Channelside District. You can’t miss it – brightly colored building as you’re driving down Kennedy Blvd. into downtown. It’s really an eye catcher.
KS: You need a vision exam if you miss it; let’s put it that way.
EO: Let’s talk about it because you had a unique path in sales and marketing of the building, because I think originally it was meant for sale…
KS: Correct.
EO: And then the market hit a little bit of a challenge, a little bit of a road bump, and you guys seem to be the first in the market to adjust. You adjusted pretty quickly to that situation. How did you handle that?
KS: We were closing into 2007. We did very well in the East Building, which closed in the early part of the year, February. In the West Building, we did not do nearly as well because that was closing in July/August. At that point, the mortgage market was pretty much in full disintegration mode and a lot of people just couldn’t get loans. So, we saw this coming and didn’t really think it was going to be something that was just going to be a couple quarter event. So, as soon as we closed the last unit, we hung out the “for rent” signs and into the rental business we went. My partner and I have built apartment complexes, leased them and managed them for years, so that wasn’t something that we were unaccustomed to.
EO: So you were comfortable with the apartment complex situation and it was pretty natural for you to go from a sales situation over to an apartment situation.
KS: Absolutely.
EO: It’s interesting, because I know that you seem to be the first one to pull the trigger on that strategy. Everybody that knows the market in Downtown Tampa knows there’s a lot of residential tower/condo development that was going on after you, but a lot of them seemed very late to the game to try to convert over to rentals. Do you think that’s a fair assessment?
KS: Yes, I would tell you that a few of them wanted to convert to rentals, but their lending institutions did not let them do it. How we solved that problem was, we didn’t ask.
EO: You begged for forgiveness?
KS: Yes.
EO: Well, the end result, you are 98% occupied right now?
KS: That is correct.
EO: We were talking a little bit earlier about it. You managed to sell about 50% of the entire amount of the residential space, and then 48% of it you turned into rentals. So, you are pretty much a full house now.
KS: Well, obviously we are going to start up our sales program, and we do have a lot of leases rolling over the next three months, which will give us the inventory we need to go forward on our sales program.
EO: Let’s talk about that a little bit. You said you are going to try to switch over now to go back into selling some of these units.
KS: Yes, it’s back to the future.
EO: How is that going to work? Was there a re-pricing of the model, or is it at the price it was before? How is that working?
KS: Well we were able to restructure things at the end of last year financial with the entire project, which is going to allow us to sell units at today’s prices, which are obviously significantly below where they were in 2005/2006.
EO: It’s a pretty cool place to live, and I suppose your target market is young professionals looking for an urban environment, is that fair?
KS: Actually, that’s part of the market, but the demographic actually skews a little bit older than people think. It’s not a bunch of twenty-something’s running around here. It’s much more people in their 30’s 40’s and 50’s.
EO: So, if somebody wanted to move in here, (i.e., Young Lawyer), what is his/her first option to come in here in terms of price point?
KS: Our pricing is very attractive. It’s starting in the $120’s which is really the lowest price point that has been seen in this market for luxury high rise living in an urban setting. All of our residences are priced between $120k and the high $300’s, with the majority being under $200,000. So, it’s very affordable for your average, working downtown, pulling down $50,000 to $100,000 per year. You can afford to live here and pretty much have run of the roost.
EO: What do you think in terms of time frame for you to be completely out, in terms of being able to sell out the rest of the space?
KS: Well, obviously we don’t know what is going to drive that. But, we think that within 18 months to 24 months, we should be through the inventory here, and we’ll see what the future holds.
EO: This is a mixed use complex for those that don’t know, not just residential. Residential makes up about 75% of the floor space, no?
KS: A little bit less than that. We have about 70,000 sq. feet of office space and about 108,000 sq. feet of retail space. So, it truly is Tampa’s only mixed use urban project. Some other high rises have a couple stores down on the first level. We have a 70,000 sq. foot office building on the second floor of the building and a full shopping center on the first floor. Now my background is originally retail. When I got out of college I went to work for Leo Eisenberg and at the time we were the largest Wal-Mart developer in the country. So, I learned a thing or two about what retailers need, and that was some of the things we incorporated in this complex, which is proving to make the retail successful. The single biggest aspect is building enough parking; the city regulations did not require me to build but 3 per 1,000 for retail and 1 per 1,000 for office dwelling. Well…that dog simply won’t hunt. So, we have 900 parking spaces dedicated to the retail and the office. Part of the reason we put structured the parking this way is office is busy when the retail is not. So, we double use that parking. We effectively have a parking ratio for the retail on evenings and weekends of about 8:1, and since Wal-Mart only requires 7:1…. I figure we were probably safe there.
EO: And you have the gym you put downstairs, and they seem to be knocking it out of the park.
KS: Yes, they were our first retail tenant. They opened in June, 2009; they have now expanded three times. We’re about to expand them a fourth time, and the brothers who are the proprietors of that establishment are originally from California. They had five or six gyms in LA for a period of over 10 years, so they really know what they’re doing, and create a great atmosphere. I would stick my neck out and say its Tampa premier fitness facility.
EO: You’ve also got the Pour House that’s downstairs as well.
KS: Yes, that’s a beer and wine bar that has over 40 craft beers on tap that are local micro-brewery’s that you won’t find anywhere else. They also have a nice wine selection, and it’s proved really popular. Their sales are strong. We put in just over a year ago, a whole courtyard in between the two buildings that has shade elements, pavers, umbrellas, and all the tenants that occupy space in that area, get a certain portion of the courtyard to use. Last year, we wet zoned the entire property. We ended up going downtown. We got the liquor license thing. We have done that for the entire property. It really works out well, because it’s kind of a turn key situation for somebody who wants to open up a restaurant. One of the things that (you have to make sure you have zoning, parking, and go through the whole process to get a liquor license…) is already done here. The only thing you really need to do as a potential proprietor is get your plans drawn up, send them into permitting and we’re ready to go.
The other thing that we have done, since this project was approved in 2005 is (this is a very significant economic factor for any business, but especially for restaurant businesses), we’re grandfathered in to the old impact fees. We paid them all for the entire property. The last restaurant that we put in – would they have had to pay the impact fee – was almost $8,000, and that’s already been paid…..was grandfathered in. So it is pretty substantial.
EO: Well, it sounds like you’re just missing the grocery component to it, and there’s really no reason at that point for anybody to even leave the complex. You can work out, go drink a beer; you can go get grocery, dry cleaning…
KS: Well that would be great, and I have been working with a number of supermarkets for about two years now. The biggest challenge that we’ve had, is not the location. We’ve had three major chains that are here in Florida come look at the site. From a logistical standpoint and design standpoint, everything works. There’s enough parking. There is room for transformers. There is room for loading docks, all those kinds of things that you would normally see. We put all that in not knowing exactly who we were going to get. Obviously, if we would have had a little more input from a potential user that would have been helpful. But, we’ve had three folks look at it and as a physical plant, everything checks out just fine. The biggest issue is just the overall economy of the area. Retailers at that level are really watching the eggs they already have in their basket and making sure their existing stores are performing, and keeping their sales where they are, or increasing them a little bit. Any type of new business development for those types of companies has been greatly curtailed in the past 36 months, so we ran into that (the economic pull back). That’s been the biggest issue. I don’t have any doubt we will get a grocer. It’s just a question of when.
EO: What’s the straw that essentially breaks the proverbial camels back to instigate the grocer to start a new store?
KS: Well, I think the market is there. If you look at the channel district downtown at Harbor Island there are over 10,000 households and that seems to be the number that everybody looks at. So we’re about that point. I think what it’s going to take is maybe a couple more projects that are on the horizon, so somebody can say, “Hey, you know not only are we at the point, but we know we are going to be exceeding that within a period of 18 to 24 months.”
EO: You mention that there’s another project that’s coming into Channelside District, correct?
KS: Yes, the Related Companies from Miami have bought the old Sembler piece that’s about 2 blocks south of here and they plan to build 360 apartments.
EO: So you’re going to have additional 360 apartments coming in. What else is happening in the Channelside District that might be of interest to folks, coming down the pipeline?
KS: When we developed the property we donated about 6,000 sq. ft to Stageworks Theatre. They are Tampa’s oldest professional theatre group. They’ve been around for 23 years now and we donated space in the West building for a new theatre. They are going to open August 4th which is their first show. The construction is underway. We were able to help them secure a loan with the Bank of Tampa to get the rest of the build out done. Total project cost is about $1.2m and it’s going to be a first rate theatre. They are going to have over 180 shows a year. They also have a youth outreach program where they help underprivileged children, which is a really neat thing. They also offer the space for a conference or an event and you wanted a stadium seating venue, for a presentation, you could rent that space out.
EO: I should be careful saying this, because you’ll have every philanthropic organization pounding on your door, but you have always been very generous to the local arts scene, not only with Stageworks, but also with the Gasparilla Film Festival. You donated office space to them. I know that the Arts Community has been grateful for what you have done.
KS: With the theatre, or any type of Arts contribution, you can’t put a dollar figure on it – as far as how it enhances your project – but one thing I do know, is they’re going to have 180 shows a year, and they are also going to have an outreach program. They will also open it up during the daytime for various business groups.
EO: It’s not all altruistic, there’s some business motivation there too.
KS: Those folks are going to want to go to a show, going to want to get a meal before or a drink afterwards, or cup of coffee or something like that. Anytime you can add eyeballs and footsteps to a retail project, that’s what you want to do. And this very effectively does that on more than 50% of the days of the year.
EO: That’s awesome. Well is there anything else you’d like to add about what’s happening in Channelside? I think there are apartments coming in?
KS: Yes, and the city has started construction down on Washington Street, building the first community park which is about 25,000 – 30,000 square feet. That’s going to be a great addition. I believe it’s going to be done in October. The city has also now started the streetscape improvements on Washington St. They’re about halfway done right now and that will be done in October. That will really give folks – being in the development business, you want to everything done yesterday. We have had the CRA, which is the Community Reinvestment Area since 2004 now, and this is really the first big project where the city’s gotten in there in and said they were going to put in the streetscape, the landscaping, and the lighting per comprehensive planning. So when people come down here, they won’t see a bunch of dumpy warehouses with telephone poles hanging all over the place, and that type of thing. They‘re going to see a modern landscaped streetscape, so they can really get a sense of, “OK…Now I get an idea of what this place is going to look like!” These buildings have been up for almost 4 years now, and when people come down here they see a bunch of beautiful buildings, and the rest looks like Beirut, and that is extremely unfortunate. Obviously we have a new sheriff at the rodeo, and we’re certainly hopeful that the Mayor is going to look at what’s going on down here, and whatever’s getting done gets done quicker, and gets more of it done.
EO: Is there anything else you’d like to leave us with today in terms of what’s happening downtown and maybe you’d like to let us know how if somebody’s interested in residential condo, how they could find out information?
KS: The easiest thing to do is go to our website which is www.notthesuburbs.com, and that will take you right to the website. We have all of the units, all the floor plans. You can print everything out in pdf. We are getting on Facebook and Twitter, so you can check us out there. If you want to learn more about the project, you can certainly do that, and its going to be interesting next year. There’s going to be a lot of pretty cool things happening. For some reason, I can’t put my finger on it, we’ve got more activity for the retail and the office, than we have had in three years. We just signed a lease with St. Leo University, about 16,000 square feet; they are locating their administrative offices, as well as 5,000 square feet of classroom space. That’s going to bring more people. Obviously, the gym is very excited about that because of potential new members. I think the Channel District in the next several years is really going to be on the rebound again.
EO: Well good luck on the grocery store. I hope that you guys get something, I’m pulling for you because I live over in Harbor Island – you’d be the closest store to us over there. Hopefully that works out for you and good luck in moving along with your plans on the rest of the residential properties. I hope all goes well for you over the next year.
KS: Absolutely. Thank you.
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Downtown’s iconic “Beer Can” building recently sold for about $22 million in a foreclosure sale after fetching $35.5 million during the real estate boom in 2005.
Jacksonville, Raleigh and Dallas. I am not sure how much of an issue this is when companies are looking to relocate to Tampa, but I am quite sure it is an issue for real estate prices in the downtown submarket when compared to other submarkets. Westshore, the downtown market’s closest competitor, maintains average office rates at roughly $3/square foot higher than those Downtown. Increased convenience to the Interstate and Expressway are part of the reason for the higher rates, but parking in most of the Westshore district is typically included in the rent, while it is priced separately in the downtown market.
