Observations on South Florida business
This is a good time to be the mayor of a big South Florida city, because it seems a day doesn’t go by without news of a significant downtown project.
Decades of migration to the suburbs may be slowing as redevelopment takes off in and around downtown cities from Tampa to Fort Myers, Orlando and Miami. Fueled by a variety of demographic and business trends, downtowns aren’t the urban deserts they used to be after dark as shops, apartments and offices fill with tenants.
Consider a few notable examples:
•Tampa: A partnership between Microsoft founder Bill Gates and former hedge-fund manager Jeff Vinik is planning and developing the $3 billion Water Street Tampa project.
•Miami: Plans for Brickell City Centre keep growing.
•St. Petersburg: Red Apple Group plans a downtown mixed-use development anchored by a 50-story tower.
•Orlando: Here’s the skyscraper’s guide to Orlando. Meanwhile, Interstate 4 is undergoing a major infrastructure upgrade downtown that will include new express lanes, reconstructed interchanges and rebuilt bridges.
•Fort Lauderdale: Riverparc Square will take up an entire city block
•Sarasota: Construction on the Quay in downtown Sarasota is underway.
•Fort Myers: More residential towers are planned downtown, now a lively destination on the Caloosahatchee River.
Changing demographics and technology are big drivers of downtown redevelopment: Millennials on scooters armed with laptops and mobile phones prefer the urban lifestyle. Businesses seeking to employ them are also moving downtown.
But it’s not just young folks who are attracted by this way of life. Older professionals whose children have left home are ditching their long commutes and moving downtown. Meanwhile, retirees are choosing to be within walking distance of restaurants and coffee shops, too.
Cities eager for redevelopment have been soliciting developers with incentives and tax breaks and the federal government is encouraging development with the new tax law’s Opportunity Zones (see the IRS frequently asked questions to learn more.)
Of course, there are always risks to real estate investing. These include economic recessions, overbuilding by zealous developers and permitting obstacles. You can expect some empty condos, shops and offices as demand catches up to new supply, but urban revival in Florida is making it fun to be downtown again.
Real estate folks are generally an upbeat bunch.
But it’s hard to argue with the positive assessment of the U.S. economy by two real estate economists: Lawrence Yun, chief economist and senior vice president of research for the National Association of Realtors, and KC Conway, CCIM Institute chief economist.
The two economists reassured a packed hotel ballroom at the CCIM Commercial Real Estate Outlook Conference in Bonita Springs on Feb. 11. They ticked off reasons the U.S. and Florida likely will avoid a recession in 2019:
•Record job openings, low jobless claims;
•No oversupply of new homes;
•Conservative residential lending;
•No oil-price spikes;
•Fewer interest-rate hikes forecast this year;
•Relatively high consumer confidence;
•Rising home values;
But Yun and Conway highlighted some of the challenges the economy may face this year, though they’re probably not enough to tip the country into a recession in 2019:
•High U.S. debt relative to gross domestic product;
•Relatively high commercial real estate values as indicated by low rates of capitalization;
•Slowing commercial real estate investment sales;
•Fading impact of tax cuts;
•Labor shortages and rising construction costs;
•New accounting rules that will require companies to report real estate leases on their balance sheets;
•Trade wars that could hamper growth and affect business optimism;
•Low corporate spending.
Taken together, the outlook is positive for the nation, according to Yun and Conway. Florida is in an even position to benefit because of population growth, weather, investment in ports and intermodal distribution centers in areas such as Lakeland. What do you think? Leave your comments below.
How much money does it take to launch private passenger rail in Florida and California?
The answer is more than half a billion dollars.
More specifically, Miami-based Virgin Trains has proposed raising as much as $538 million in an initial public offering of stock to acquire, build and operate several passenger-train lines, including the Miami-Orlando-Tampa line formerly known as Brightline and another line linking Los Angeles with Las Vegas.
The latest IPO documents filed with the Securities and Exchange Commission by Virgin Trains offer fascinating glimpses into the Florida train operations and how they might work. To be sure, it will be one of Florida’s biggest public-stock offerings. Finance geeks can read the offering here.
Brightline launched its Miami-Fort Lauderdale-West Palm Beach line last year and it is now building the leg to Orlando, with plans to expand that to Tampa thereafter. The company says it will take three years to ramp up the ridership.
The IPO reveals how costly this will be. Virgin Trains reported $87 million in expenses in the first nine months of 2018 while revenues for that period totaled $5.2 million. When accounting for interest expense, the company lost $87 million in the first nine months of 2018.
But by late 2023, Virgin Trains estimates it will carry 3.1 million passengers on the Florida line from Miami to Fort Lauderdale and West Palm Beach. The Orlando station will boost ridership to 6.6 million and the Tampa extension will carry an extra 2.9 million passengers.
Virgin Trains is banking on several trends. These include attracting commuters from congested roadways, the development of new rideshare services such as Lyft and Uber that can carry passengers to and from stations and the growing dependence on mobile devices for personal and work activities.
Plus, the company can leverage the Virgin brand. The airline Virgin Atlantic carries more than 1 million passengers between Florida and the United Kingdom annually. Meanwhile, Virgin Voyages will be launching cruises from Miami starting in 2020. A station at Disney World in Orlando would ferry passengers to and from Miami in about 3 hours, 15 minutes.
In fact, the Miami-to-Orlando train line satisfies a niche in the transportation market: too far to drive but too close to fly. Still, getting people out of their cars and planes will be a tough marketing challenge. But if anyone can get everyone all aboard, it’s the branding geniuses at Virgin.
Blogging for entrepreneurs in Southwest Florida (SoWeFlo)