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Developers Charting Gulf Coast Course
Slowly but surely, retail developers are readying to rebuild the ravaged Gulf Coast that is taking steps to rebound from Hurricanes Katrina and Rita.
The latest breakthrough in the region has come from Tupelo, Miss., two weeks ago winning a competition to become home to a new $1.3 billion Toyota SUV factory set to begin production in 2010. The factory will bring 2,000 needed jobs in the region, and help spur development throughout the state down to the Gulf Coast.
That was one of the signs for hope that had developers buzzing at last week's ICSC Gulf Coast Idea Exchange held in Biloxi, Miss., that was attended by about 600 retailers and real estate executives.
Another sign of recovery is that tourists by the busload go to Biloxi daily to visit the 12 resuscitated casino-resorts including the Beau Rivage, Isle of Capri and IP.
"The casinos are thriving and that's driving retail," says Martin Mayer, president and CEO of Stirling Properties, headquartered in Covington, La.
The company, which operates 83 properties throughout the region, itself is still dealing with damages from the hurricane. Its signs affront some of the hundreds of vacant, damaged or destroyed properties along the 23-mile Route 90 or Beach Drive, that had been replete with hotels, condos and mixed-use centers. Now much of that beach front land serves as a morgue for remnants of leveled restaurants, mangled retail shops and shattered businesses.
"Now we've got these open pallets, it is an open slate as far as land goes," Mayer says.
George Freeland, president of the Mississippi Gulf Coast Alliance, during the opening remarks at the show, said the parcels—now cleared of wreckage--are ready for fresh development.
"The region has all the ingredients to support quality commercial development and retail has to be a part of that," Freeland said.
However, one of the obstacles to new development remains the skyrocketing cost of insurance.
"Insurance continues to be a big deal," says Dave Dennis, president Specialty Contractors & Associates Inc. in Gulfport, Miss.
By some accounts, industry observers said the cost of insurance has risen anywhere from 15 percent to 30 percent since Katrina. Compounding the challenge of finding affordable insurance throughout the Gulf Coast are the decisions by State Farm Insurance and Allstate to stop writing new policies in the region. State Farm has pulled out of Mississippi while Allstate is not issuing insurance in Florida, Louisiana and Mississippi.
With the rising insurance costs industry experts say it restricts the size of developers' anticipated projects and limits brokers ability to secure tenants that can shoulder the higher rents.
In his remarks during the General Session, "A Tale of Two Markets" panelist Andy Everett, vice president of market development for Jackson, Miss.-based Steward, Sneed, Hewes Insurance Co. notes Katrina was a watershed event for the insurance industry.
"It changed the world," said Everett. "Insurance companies do not mind paying for their own losses. But, what they don't want is to pay for the state's residual losses and that's what they're being stuck with more and more."
He cites, the Mississippi Windpool paid over $730 million in losses, however, it collected only $13 million in premiums from the exposure.
On the plus side, there are still a lot of federal incentives available to developers in the region through Gulf Opportunity (Gulf Opportunity) Zone bonds. Mississippi has $4.9 billion in tax-exempt bonds that must be issued on or before December 31, 2010 and the developer has three years from the date of issuance to complete the project. According to the Mississippi Development Authority, as of December 2006, just five retail projects had received GO Zone bonds.
Will Mississippi drain its allocation of $4.9 billion? "Not unless there are some very large projects," says John England attorney, at Jackson, Miss.-based Butler, Snow, O'Mara, Stevens & Cannada.
Retailers exploring expansion opportunities along the Gulf Coast include Wal-Mart Stores Inc. Felicia Hamilton, a real estate manager for Wal-Mart, in the southeast, was there to evaluate potential sites for one or more of its big boxes.
"We're going to invest in Mississippi," says Hamilton who explained that could entail establishing new stores and or rebuilding some of it damaged properties.
In determining whether to build or rebuild in Mississippi, and in which markets, Wal-Mart's Hamilton explained as landowner and anchor, Wal-Mart has a proprietary model it uses to determine the cost it would charge a complementary retailer to purchase or lease property adjacent to its store.
"In some Mississippi markets it isn't easy . . . retailers in smaller markets cannot pay the assessed prices we've set," says Hamilton.
Gap Inc. too is looking to increase its presence in states along the Gulf Coast.
"We continue to analyze the market," says Patricia Luster, a real estate manager for Gap Inc.
The specialty retailer whose brands include, Old Navy, Banana Republic and the Gap has a total of 38 stores in Alabama, 37 in Louisiana and 20 in Mississippi.
Grapevine, Texas-based GameStop Inc., is shopping for regional centers in Gulf Coast states to locate its video game retail stores that operate as EB Games and Electronics Boutique.
"We'd like to do 20-30 stores in Mississippi and Louisiana," says Thomas Eldridge III, regional real estate manager for GameStop.
--Riccardo A. Davis
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