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Cover Story - February 2006

An owner's perspective

Louisiana's developers, owners weigh pros, cons before investing

By Karla Wall

The market remains strong for owners and developers, according to national real estate market analysts. Commercial construction is in an expansion cycle; there was a boost in job creation in 2005; industrial construction is increasing, particularly in the Southwestern and Southeastern U.S.; and vacancy rates are lowering for office property; all of which points to a healthy market for developers over the next year.

Industrial construction should remain steady, said Robert Bach, national director of market analysis for the Grubb and Ellis real estate advisory firm. According to the firm's second-quarter 2005 report, industrial vacancy rates nationwide decreased to 8.6 percent, 30 basis points below second-quarter 2004. Construction of new industrial space increased for the fifth consecutive quarter, according to the report, to 87 million square feet.


The retail market will remain strong, as well, said Frank Warren of Warren and Associates Real Estate Marketing Strategies in Charlotte, NC. with the most activity seen in the Southwest and Southeast regions of the nation. In the Gulf Coast states, population increases due to influx of hurricane evacuees will boost the retail market considerably, said Robert Dischler, senior project manager for Stirling Properties in Covington, La.

"Lots of national retailers are seeing the population growth in some areas caused by evacuees, and that justifies them coming into the market with a second or third store. So the opportunity for retail development will be great," said Dischler.

The housing market has peaked, according to Warren. The emphasis in the coming year, he said, will be on urban living. "The apartment market will come back strong in the next year or so," he said.

Several factors could still affect the market, however, including energy prices and interest rates, said Bach.

"As long as the interest rate stays below 7 ¼ to 7 ½ percent, the market will be okay," agrees Warren, "anything above that, and it will impact the affordability of housing and the housing market."

Another factor which could have an impact on all real estate markets is the increasing price of construction materials.

"Prices for construction materials has increased by eight percent over last year," said Bach. "And the Gulf Coast recovery efforts will mean that number may rise to 10 percent by next year."

Keeping the market strong, said Dischler, will require a larger, more qualified workforce for contractors. The availability of skilled labor, he said, is declining, a situation aggravated by a housing shortage along the Louisiana Gulf Coast.

"There's a shortage of qualified labor," Dischler said. "People are hired, maybe from out of state or out of the country, and they may be qualified in one specific trade, but they're asked to do things they're not ready or qualified to do. They could be doing roofing work one day, and pouring concrete the next. The result is that work is done at a faster pace, but with less quality. There's less quality in the product because contractors' labor forces are too small or unqualified."

A crucial factor in the health of any sector of the market is the strength of the relationship between developers and contractors, said Dischler. Contractor loyalty, particularly in light of the temptation to chase high-paying but temporary disaster recovery work, is paramount to the health of the real estate development market.

"Developers want contractors that are loyal," Dischler said, "who work for them on a regular basis and who will stick with (the developer). Contractors can pick and choose right now, but that won't always be the case. This is an industry where relationships and loyalty are very important."

Developers can keep that loyalty, said Dischler, by offering contractors adequate numbers of bid opportunities in a fiscal year, and fairness in contracts and dealings.

JTS Interests. JTS Interests of Baton Rouge was established in 1978 by Joseph T. "Tommy" Spinosa, who remains president and CEO of the organization. The company focuses on real estate investment, management and development, and with its affiliates currently owns and manages eleven office properties, four multi-family properties, and one mixed-use development. The company also has several other developments in the design and planning stages.

The company currently employs 65 real estate specialists.

The company's planned development includes the Perkins Rowe mixed use area on the corner of Perkins Road and Bluebonnet Boulevard in Baton Rouge. The project has been dubbed "Baton Rouge's first urban village." Dedicated to providing an urban environment in which all living, shopping and dining needs are within walking distance, and inspired by areas in Savannah, Georgia, Tuscaloosa, Alabama, and New Orleans, the property will offer upscale condominiums and apartments centered in an area offering retail, dining and office space.

Tree-lined streets, covered sidewalks, arcades, and balconies will give the property a small-Southern-town feel while providing all the needs of urban living in a concentrated area, including movie theaters, fitness club, markets, a boutique hotel, cafes and restaurants, book stores, and residences including loft-style apartments, condos, brownstones, and flats. Homes will include balconies, large windows and French doors, and gourmet style kitchens with views.

"We wanted to blend the unique architectural influences of the deep urban South with a contemporary landscape for a 21st-century designation," said Brandon Diamond, R.A., senior associate at Development Design Group, of Baltimore, land planner for the Perkins Rowe project.




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