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Breaking it Down
Panelists explain their positions and elaborate on their answers. This year’s panelists were also afforded the opportunity to expound on their survey answers. Participating in the survey were Ryan Pécot of Stirling Properties, Dewitt David of Van Eaton & Romero, Jeff Landry of MPW Properties, Mo Hannie of Keller Williams, Monty Warren of Beau Box, Tex Plumley of Billeaud Companies, Flint Zerangue of Acadiana Metro Realty, Peggy Grace of Par Realty, Hammy Davis of Coldwell Banker Pelican Real Estate and Adam Loftin of Teal Realty & Development. Below is what those who chose to participate had to say; be sure to reference a panelist’s survey response to better understand the commentary on that question.
1. Compared with this time last year, do you feel better about the local economy, worse or about the same?
Pecot: Even considering how strong the 2011 year turned out, my gut tells me that the local consumer confidence is ever stronger in 2012. There seems to be plenty of discretionary income being spent out there, which bodes well for retail development.
Davis: I feel about the same, but feelings can change daily, as we watch the price of commodities, more particularly the price of oil and gas.
2. Compared with this time last year, do you feel better about the outlook for your sector, worse or about the same?
Pecot: The national retailers are back in a measured expansion mode, and markets the size of Lafayette are the target for 2013 store openings. What is great for Lafayette is that amongst our peers our community is fundamentally sound, has a robust economy and has continued to show great retail sales numbers — this ratchets Lafayette to the top of many target lists.
Davis: Granted some market sectors have a lot more lead time than industrial, but it also gets back to jobs and the incomes people derive from their employment.
3. Without getting into politics, do you think the outcome of the 2012 presidential election will directly affect your business?
Pecot: Change at the top likely will benefit the retail sector, but only as a sell fulfilling prophecy, not fundamentally. The perception is that change will make things better, maybe it will — maybe it won’t; but if there is no change, I’d expect a lull economically.
Hannie: Lafayette has a very good economy in spite of our current administration. If this area hadn’t lost most of the deep water drilling rigs our economy would be stronger. A lot of people I talk to say we don’t rely on the oil business. We do have a strong medical presence, which is helping. The oil industry, however, still drives this economy. Small businesses are a big part of the economy and can be affected the most by policy. They aren’t hiring because of the uncertainty in the tax codes and health care. The 2012 presidential election will have a major effect on how big businesses, small businesses and the $2 trillion of cash sitting on the sidelines gets involved.
Davis: As a general proposition I know this area is generally in the “Anyone but Obama” camp, but I feel like if Romney is elected and opens federal lands to oil and gas discovery this could create a substantial oversupply. The same sort of oversupply that has been created in the natural gas market, as a result of the shale plays, throughout the country.
In the industrial market I deal with, no one I represent is saying, “I’m waiting on a new president to start making money.” However I will say, never before has an industry made a president such a lightning rod for its perceived unhappiness.
David: Small business owners are concerned about the impact proposed legislation by the current administration will have on their business. Investors are concerned about possible changes to the treatment of long-term capital gains.
Loftin: Despite everyone’s hopes and/or fears, I think it will have a negligible effect at best.
4. What commercial real estate sector is hottest? (industrial, office or retail)
Davis: Hot is a relevant term. Industrial is white hot, if you’re looking at the increase in sales and lease prices. In the area of new construction, there has been quite a bit of industrial construction, and this building is steady and should remain strong as long as activity around the country continues and the price of oil holds.
5. Are per-square-foot retail prices overall climbing, falling or stable?
Pecot: Simple Economics 101 — the demand is greater than the current supply in almost all categories.
9. On a scale of 1-10 (10 being the most likely), what chance do you give Lafayette of getting this retailer in the next three years?
Landry: Regarding P.F. Chang’s — It’s just the reality; we don’t have the demographics to support their site criteria.
10. How long do you think it will be before national retailers that are in a holding pattern now but may have considered Lafayette in the past begin to expand again? (1-2 years, 3-4 years, 5-6 years, or longer)
Zerangue: We’re already seeing national retailers (such as Burlington Coat Factory, Rooms To Go and others) opening here in Acadiana. Others are working on site selection and performing their due diligence. However, this trend could turn on a dime if the price of oil dips for too long or if the federal government over regulates the energy sector.
Landry: While they are looking now, the availability of retail is next to nothing for Class A buildings and locations.
Loftin: This is more because of the national economy — not necessarily because of anything Lafayette is or isn’t doing.
12. Which commercial corridors have the most potential for retail growth (not necessarily the fastest-growing now)?
Pecot: The easy answer is the Ambassador corridor, and it’s the correct answer also. Scrutiny at respective retailer site approval committee meetings is still very high, resulting in difficulties to receive approvals for new stores. Therefore, new site opportunities really need to be located in the main-at-main areas to get deals approved.
Landry: Ambassador needs the infrastructure (sewer, water, etc) and north Lafayette needs the roof tops.
13. Which commercial corridors have the most potential for office growth (not necessarily the fastest-growing now)?
Davis: At this time what is there is very tired, and with the increase in residential and industrial, this area should see some new office growth.
15. On a scale of 1 to 5 (5 being the largest impact) what impact do low interest rates on commercial loans have on developers’ decisions to move forward on a project?
Warren: They have a huge impact but are not the only variable.
Davis: The decisions by companies to move or build are most always driven by need, after which interest rates are a good reason to accelerate their decision. So many industrial users make such a good return in their core business that real estate, as an investment, does not look that attractive. Therefore they rarely make a decision based on wanting to own a site, as an investment, which is where interest rates become important.
Loftin: Availability means a lot more than rates right now.
16. The accolades for Lafayette have been pouring in all year, best city for job growth, “Tastiest Town in the South,” Most Optimistic City, largest increase in household income. On a scale of 1-10 (10 being most likely), how much do you think this affects a company’s decision to relocate here, open an office here, bring a restaurant or grocery store concept here?
Pecot: These accolades are fantastic for the community and create a buzz that can get expanding businesses attention, but the actual decision to expand is purely based on the fundamentals each respective business needs to be successful. The positive thing is that the accolades are pouring in because Lafayette’s fundamentals are really strong, creating a snowball rolling in the right direction.
Landry: It’s great but the business and retailers look at the numbers at the end of the day as well as the resources and synergy in the area that their business can utilize.
Warren: It helps the decision makers “feel good” about their decision and speaks to quality of life issues that many other markets lack.
Davis: These factors are a three on a scale of 1-10 for an industrial user. For a restaurant or a business that is bringing people here from other parts of the country it would be substantially more important.
17. On a scale of 1 to 5 (five being most likely to discourage) tell us whether you think the council’s decision to revoke Waste Facilities’ permit over the controversial waste transfer station will discourage potential developers from coming here to do business.
Pecot: I don’t feel that was a very smart move by the council, and stories like this get out and can definitely discourage new development. This community is too strong to let the voice of one group change development protocol when executed correctly.
David: The current work on a comprehensive plan should help prevent similar situations in the future.
Landry: A political decision should not affect the process. This will cost the city millions of dollars in attorney fees and compensation.
Warren: It will scare off developers who are aware of the decision and understand the ramifications. Against advice from their own legal counsel, the City-Parish Council voted to revoke a building permit for a legal and compliant use because they did not agree with the use. Most developers (and probably the federal courts) will recognize the action as an “illegal taking” of private property and approach the market very cautiously.
Davis: This was a one-time bad call but not a systemic problem.
18. Of Lafayette’s recent accolades, which do you think most impacts how others view us in a positive way?
Pecot: Regarding economic growth that puts us on expansion radars, both Best City for Job Growth and Most Increasing Household Income show very well.
Davis: Though this does not fit as an accolade, this hire could be the most talked about change in our parish’s history. Pat Cooper’s work in McComb, Miss., is legend among educators around the country. If he gets the support he needs and deserves, Cooper will change the way we are seen when people consider Lafayette. Education is the most talked about issue when a company and their employees consider Lafayette. Right now public education is an area we are not able to brag about.
19. What about Lafayette has others viewing us in a negative light?
David: Public education, but Dr. Cooper appears to have things headed in the right direction, which could improve outsiders perception of our public eduction system.
Zerangue: LCG’s planning commission and/or council’s inability to follow, adhere to and/or approve new residential and commercial property developments and projects that clearly meet the established guidelines.
Commercial real estate panelists provide an overview of the market.
[Editor’s Note: Panelists participating in the survey for the 2012-2013 Commercial Real Estate Report also had the option of submitting their views on the overall state of the market. Below are the responses from those who chose to participate in this online-only component of the report.]
Lafayette’s market remains unique in Louisiana, primarily due to its rapid growth. The past 50 years have brought expansion like no other, creating serious challenges to growing efficiently. Communities rarely face this challenge in this short of a time frame. With that in mind, our city has honed what’s probably the toughest skill to build in government — adaptability. A community’s ability to adapt is the life-and-death difference between growth and stagnation. Our continued growth is a testament to our ability to keep pace with rapid population expansion, changes in market trends and industry diversification. The examples of how we’ve adapted are easy to see. Just 50 years ago, Lafayette was an oil town. Today the petroleum industry continues to grow, but health care is our largest private employer. Health care organizations continue to invest in a city that’s likely to continue as a well-known medical hub. We remain a retail hub for the region and we’ve adapted with new shopping centers consumers enjoy. Almost all of us know someone who has been affected by this growth and we all enjoy the benefits. That’s a community that adapts.
Looking forward, we see evidence of our community embracing a new change — becoming a Cool Town. For the first time, we’re connecting available labor with available fun. In other words, people aren’t choosing where to work, they’re choosing where to live. Once again, Lafayette adapts — only this time, we have a distinct advantage. This has always been a fun place to live, so it’s almost our destiny that the fastest growing cities should also be relaxed, enjoyable, laissez faire. Who does that better than us? No one. Who knew that before recent times? Not many. But that’s changing.
Recent cultural and culinary distinctions in national media outlets are only the beginning. Look closely at our demographic data and you’ll find that, despite national trends, our young people are staying. While other communities fight “brain drain,” our city struggles to accommodate the new wants and needs of a vibrant young workforce. But we’re used to adapting to growth, so we feel confident.
The possibilities of what will come next are beginning to surface. Certain businesses may adapt to this workforce’s love of cycling, which is disproportionately popular in towns like Portland, Ore., and Boulder, Colo. (now Lafayette’s on that list). We see government adapting further to this workforce’s desire for more public spaces with the Horse Farm an excellent example of that response. Over the next five years we’re going to gain an estimated 18,000 new residents — because we’re responding, adapting.
Companies will locate where people want to live. And for the first time in history, our joie de vivre becomes not only an export, but a source of imports. That looks good for Lafayette real estate across the board.
We used to think politicians with blinders on were only located in Washington. Now, however, we are seeing our local elected officials absolutely missing the necessity of harmony and cooperation. When Realtors or economic developers get to a meeting with a new employer/business and that new employer is asking us which sites in the area can he expect to have his water withheld from, we are immediately talking about the wrong thing. When businesses are looking to locate in a new community they can throw a community out of consideration quickly for reasons far smaller than issues we see our municipalities fighting over now.
When you see political bodies solving problems with public relations firms and lawyers, we have a problem. Get in a room and negotiate an agreement on all services, which are being provided moving forward. That’s what any business would do — and it would be done quickly.
Joey Durel, Charles Langlinais and Wilson Viator have been exceptional public servants for their communities. The common trait for these men has been consensus building and cooperation. However, to a man, they have lost their way.
I was in the airport last week and a young couple was in line. They were coming to Lafayette after selling their business to a local company here. The couple was overwhelmed by everyone telling them what a wonderful community we have. Our residents believe we have something special. Let’s not forget what makes this place great. Continue to do the little things well.
The one area of continuing disappointment is the airport. Not the airport itself, but rather the airlines that are still treating this community with poor service and understaffed desks. With the amount of business we are generating, both domestic and international, we deserve better.
“That which does not kill us makes us stronger.” With that said, thank God 2010 and 2011 are behind us. It’s no secret that 2010’s Gulf oil disaster and the subsequent drilling moratorium put a heap of hurt on a lot people and businesses here in Acadiana. But with every dip in the market there is almost always the rebound, and I don’t think anyone who watches the local market indicators can dispute that Lafayette Parish is in the middle of a record breaking rebound for 2012.
However, amid all of the recent positive press, as we reach the second half of 2012 and start to look at 2013, I remain cautiously optimistic about Acadiana’s commercial real estate market. There are many great things happening in and around the area. Unemployment is low, housing starts are on the rise, prime commercial real estate is in high demand and retail sales are comparable to post-Katrina numbers. Combined with low interest rates and this nation’s ever increasing demand for oil and gas, the Acadiana area should be a hot spot of continued growth for years to come, which in turn makes commercial real estate in and around Lafayette Parish a good investment. Another plus for this area’s commercial real estate market is Lafayette Consolidated Government. Although I don’t agree with everything LCG does, I think we are lucky to have pro-business local leadership that thinks long term.
So with all of these positive statements, why would I say I’m cautiously optimistic? Well, no matter how much we do here in Acadiana to grow and sustain our economy, I think this fall’s election cycle could bring big problems for our local economy if we are unable to make big changes in Washington. Therefore, I say, “Do your due diligence before investing in the market, think long-term and know your (financial) “IN” and “OUT” on every real estate transaction before you buy, sell or lease. Here’s a good rule of thumb, “When in doubt, sit it out.”
Commercial real estate in Lafayette Parish has fared well overall during the recession. We have not seen many tenants fold or downsize tremendously, and consequently there have been few properties in distress. Compared to many other markets nationally, this is an accomplishment. There have been bleak periods (2009-2010) from an activity perspective, as many companies waited to make decisions or chose to maintain status quo. Even during this period, occupancy rates remained pretty consistent in our market during the worst part of the downturn.
I believe that there are three major global issues that pose substantial risk to our economy. The European debt crisis could kill a domestic recovery. Our monetary system is tied too closely to Europe to avoid repercussions. Volatility in the Middle East represents a significant risk to our economy as we have energy cost exposure and military spending liability that cannot be quantified. Finally, regulatory mandates from the federal government represent real risk to a recovery. Businesses freeze spending when they sense that the government may interfere with their business practices, which may result in lost revenue and/or increased costs.
If we dodge all three of these bullets, expect to see growth in all four commercial sectors (industrial, office, multi-family and retail). Of the four sectors, I expect industrial properties to continue to outperform the other three sectors, and I expect to see new development in all four categories over the next several years.
All sectors of the commercial real estate market (retail, office and industrial) have been holding their own for the past couple of years. The industrial sector has experienced some healthy growth and will continue to improve in the near future. Lafayette’s diversified economy, anchored by health care, retail sales, the oil industry and the University of Louisiana at Lafayette, should remain solid with healthy growth expected over the next several years. With the continued promotion by the Lafayette Economic Development Authority of the recent, good-news reports about our area, we should see more national companies taking note of the strong economy here. This will certainly have a positive effect on our commercial real estate market.
In terms of commercial real estate, Lafayette Parish is one of the strongest counties I know of in the country right now. The recent job and income growth are major reasons, and signs of large companies consolidating operations in and around the parish and further expanding high-quality employment opportunities keep me optimistic. A new national or global slowdown could potentially impact demand for oil and gas, however, and that still could be all it would take to cool us off. LCG could address the major infrastructure problems affecting the area, like Evangeline Thruway and I-49,and the South College bridge. That could all go a long way in encouraging development and allowing Lafayette to continue to grow efficiently. It could also do a lot more to encourage in-fill development, so that Lafayette grows from within rather than letting sprawl get out of control.
If economic principals remain true, the current retail demand in the Lafayette market should spark new development, which will obviously bode well for many commercial industries and the consumer alike going into 2013. There are always outside national and global issues that can derail or slow the momentum, but in recent times Lafayette has been somewhat insulated and done a great job of weathering the storms, and I’d expect this to continue. The current LCG administration is very accessible and progressive, and is very development friendly regarding the issues it can control. This combined with LEDA’s support is often overlooked as a huge asset to our community.