Is there a benefit from a development perspective to having a strong mix of finance and professional services institutions within a close proximity?
The whole theory of cities is agglomeration—this idea of that the more of us that exist in the same place, the greater the network effects, and the higher the productivity gains. It means as an employee, you have a greater likelihood of finding the perfect match employer and same on the employer side. We do a lot in our buildings to establish a sense of community and give people—regardless of whether they work for the same company or not—an opportunity to
Interact and network with each other. A good example is a few weeks ago, we had a tenant in First Central Tower ask about hosting a chili cook-off in the lobby. We were thrilled and ended up inviting the entire building; 280 people showed up. For as much as you hear about post-COVID being the “death of office space,” that is a pretty good indicator of the opposite being true. We had more people in that building in that lobby than we've ever had.
It is events and gatherings like that where you hear people meet other tenants who they had no idea were also in the building. The law firm meets the developer, who meets the banker, the engineering group and the architect. The beauty of urban spontaneity is the possibility of running into a potential connection, whether on the street, at a restaurant, or in the elevator. On top of that, amenities within our Downtown office spaces facilitate these spontaneous interactions that can turn into doing business together—the fitness center, tenant lounges, lobby.
Expectations for residential amenities have risen over the years. Is the same true within commercial office space to facilitate these crucial interactions and collaborations?
A big trend in our industry right now is flight to quality. We are lucky to be a little bit ahead of the trend. We've been putting amenities in our buildings since we got into the market over a decade ago—some in response to COVID and some more generally to appeal to the workforce demands. We've installed a UV ionization system in the HVAC throughout most of our portfolio, with one or two exceptions. The system kills bacteria, viruses, even small insects; it also collects allergens and molds. These are beneficial for peace of mind with COVID but extend to more general health and safety as well.
Aesthetically, our buildings are going to look a lot more like hotels. You’ll see more programming amenities and happy hours. Potential future projects at our properties include creating a rooftop bar, adding a golf simulator, and generally adding experiential things that differentiate yourself from the competition. Some of the concepts are tenant-driven, while others are best practice recommendations from ULI, Gensler or new trends coming from New York and LA.
Nothing happens overnight, so from your seat in the development world, what are the biggest challenges in bringing a project to life in Downtown St. Pete?
A year ago, I would have said land availability, and that's still right up there as number one or number two. It's still very, very competitive to get a good, well-zoned site, ideally, with some water views. That's tough to find when you’re the densest county in the state. We’re twice as dense as Miami-Dade. We don't have large tracks of land that we can convert and go horizontally and grow. We have to do infill, and the only way to do that is to tear something down and put something taller on top of it. That has political implications; not everyone likes to see that happening especially if an older building is in question. It also has practical considerations—it's expensive to tear down, run the analyses and then go vertical from there. Then in advance of a tear down you have the legal constraints of active leases in place. A lot of the older builders were smaller 10-20 tenant properties so before any of this can really begin you have to work through assemblage, working with individual tenants.
Today, aside from land, I would say cost of construction is probably number one. Construction costs are at a premium to where they were pre-COVID—and even pre-COVID they were marching along at a pretty good clip. We have been having a lot of trouble trying to develop new office space in Downtown, partly because the rents are too low, although they are starting to rise. But it really comes back to the construction costs; I'm competing against the multi-family developers and the condo developers for the same trade, the same labor pool—all to build a product that just simply isn't worth as much. It's just really tough to make that work. Then there are interest rates. Construction loans are a lot more expensive than they used to be. You're not getting there on proceeds like you were two years ago, and all that requires a lower expected return, which investors don't like.
Complete this sentence. Downtown St. Pete is a place to _____.
Downtown St. Pete is a place to thrive.