Unicorp CEO Chuck Whittall on Florida development trends…
Unicorp CEO Chuck Whittall on Florida development trends, interest rate impacts
What is the state of construction and development right now? Is it at a standstill?
It’s not in a standstill, [but] slowed down about 75% to 80%. The equity requirements are huge, but … if you have the equity to do these deals, with the interest rates so high, they don’t make money. If I take a $100 million development and add 4% on the cost annually, that’s $4 million a year of what it was two years ago — there’s just not a profit to be made. We believe the rates are going to come down in the third and fourth quarter … but today, we would just be building at breakeven, and it doesn’t make sense.
What are other major issues that should be on developers’ radar this year and next year?
The result of the interest rate [and] the capitalization rates in which values are derived from has changed, therefore we’re holding property, we’re not selling at discounts. If it costs you more to borrow money, you’ll pay less for the income strain. So therefore, cap rates have risen. Those will come back down as interest rates come down. We were so busy for the last decade, a lot of the contractors, vendors and suppliers got a little fat, dumb and happy by all their prices continuing to escalate so severely. You kind of needed the brakes put on to bring that back in check and get the numbers back down to reality. It’s not realistic to charge Jimmy John’s $50 a square foot [because] they can’t sell subs at a high enough price. So, we need that to come back and check, and that’s really what’s happening this year. I think it’ll put us back into a level growth period next year.
What’s the latest you can share on your O-Town West development in Orlando?
We’ve built about 700 apartments. We’re getting ready to break ground on 600 new apartments, and we have announced the Tao Hotel, which is going to be a big game changer in Central Florida. It’s a very, very cool hotel, which is going to bring along the Tao Restaurant. Then we have a couple of other restaurants we haven’t announced yet, but they’re equally as big names, and we’re moving forward on that. We are delayed. …We thought we were going to break ground on those first quarter of this year. The plans are pretty far along, and we’re getting close to being ready to break ground, but we’ve been slowed down by the interest rates.