Cities grow in spurts, their futures shaped by chance, vision and real estate markets that defy the best laid plans.
West Palm Beach is no different, a 100-year-old hub in the shadow of a predicted downturn, with millions of dollars worth of projects approved but stalled by developers unwilling or unable to move forward.
Despite those omens, other signs point to sustained growth ahead.
According to Rick Greene, director of development services, West Palm has $2 billion to $2.5 billion of projects in the pipeline, whether under construction or recently approved.
A number of those won’t get built, as developers drop plans for any number of reasons — trouble financing the projects or internal studies showing the market timing isn’t right, for example. But what Greene watches is the money the city takes in from construction permits and inspection fees — a reliable growth indicator, he said, because developers hesitate to lay out money for fees and permits unless they’re confident. “Rarely does someone pay for a building permit and not start the job,” he said.
And the latest numbers are strong.
During the recession year of 2009, he said, the city collected $3.95 million for building permits. That continued trending downward, to $3.47 million in 2011, but four of the past five years, the city collected more than $9 million.
As of this year’s 3rd quarter, collections were $272,000 a head of last year’s pace, on track for another $9 million-plus year, Greene said.
The city also is on track to top $43,000 in inspection fees this year, more than double the $20,000 collected in 2010 and 2011.
“We’re getting a lot of redevelopment activity, people taking older buildings and refurbishing them, both downtown and on the South Dixie corridor,” he said. “It doesn’t have to be large projects like the Bristol (condominium tower). It could be a small shopping center that’s gone up on Palm Beach Lakes Boulevard in front of Home Depot, or the storage facility recently completed on Congress Avenue north of Palm Beach Lakes, and a slew of new restaurants on South Dixie….”
Construction cranes dot skyline
But larger projects are going up, as well, especially downtown.
The Bristol, on the south edge of the downtown waterfront, is nearing completion with its 69 units, the most expensive residence in Palm Beach County history. A condo at the tower recently sold for $10.4 million, a new record for a unit in West Palm Beach.
Across from the new Brightline train station, All Aboard Florida’s Parkline apartments and the Broadstone apartments also are nearing completion.
The city is pouring money into construction as well, not of buildings but of Clematis Street, spending $2 million this summer to remake the 300 block of its main commercial strip into a shadier place more comfortable for pedestrians and sidewalk diners. Three additional blocks of Clematis are scheduled for reconstruction next year, as well as nearby alleys, which the city hopes to transform from Dumpster sites to trendy byways.
There’s talk on Wall Street and around the country that the up-cycle of recent years is nearing an end. But West Palm’s numbers indicate that if there is a slowing, it won’t be as dramatic as the crash in property values that began in 2006, in Greene’s view.
That crash tempered risky investor behavior, he said. “I think we’ll see a steady increase in growth and some decline but not a big drop.”
Mark Pateman, managing principal for Cushman & Wakefield in Palm Beach County, said the market shows enough activity that one shouldn’t read too much into the projects that haven’t come to pass.
The past year, for example, developer and former candidate for governor Jeff Greene, no relation to Rick, dropped plans for a micro-apartment project on Banyan Boulevard and an apartment house on the 500 block of Clematis. He also said he was giving up on his proposed $250 million One West Palm project, a two-tower office and hotel complex for which he won regulatory approvals about two years ago but never built.
Residential rents weren’t high enough to support the apartments, which faced stiff competition from other buildings that came out of the ground sooner, he said.
As for One West Palm, he blamed the city for creating an unfair regulatory environment, after it eased development rules on the Okeechobee Boulevard corridor, opening the door to competition to Greene from a site with waterfront views superior to those of his Quadrille Boulevard site. The same competing developer, The Related Cos., meanwhile is planning a Class A office tower next to its CityPlace retail and entertainment venue.
Commercial broker Pateman said Jeff Greene’s decisions to pull back don’t bode ill for West Palm real estate trends. Greene’s properties will only become more valuable as time goes by and the city improves around them, Pateman said.
Northern investors take a closer look
Pateman has his own gauge of how well the market is doing: how many investors come to his office asking for tours of commercial properties in the area. Since the tax bill passed in November, “we saw a tripling of our tour activity,” he said.
Cushman & Wakefield, which represents millions of square feet of commercial property in the county, was averaging eight or nine tours a month but immediately after the tax code changes, “that jumped to 28, 30 tours a month and it stayed that way through the summer,” he said.
“Is that turning to ink yet? No. …But everyone from up north is coming to at least kick the tires.”
The common argument from market prognosticators is that real estate has always moved in cycles, generally between seven and 11 years.
“We are at the long end of that traditional cycle,” Pateman conceded. “But if could predict the future from the past, there’d be a lot more wealthy people.”
The caveat to Pateman’s upbeat outlook is that, because West Palm is a smaller real estate market, lacking the depth of economic development of Miami or Atlanta, “a development requires more thought” to ensure success. The other side of that coin is that what does get developed tends to be of high quality and to have a sense of place, he said. The current construction cycle has brought hotels, apartments, an adult living facility and a train station and demand is strong for top-tier office space, he said.
Related, which has built CityPlace, condos, offices and a convention center hotel in West Palm, remains bullish on the city, Senior Vice President Gopal Rajegowda said.
“The city’s increasing connectivity and higher quality of life appeal to individuals representing all facets of a growing economy — potential residents, business owners and visitors,” he said. “Brightline’s recent opening not only connects us to the rest of South Florida, and soon to Orlando, but it will also connect us to the rest of the world through the three major international airports within those markets. Now is the time for significant thoughtful growth for downtown, and we will continue to introduce long-term investments with first class office, residential, hotel and retail assets in strategic locations.”