downtown revitalization - EGS Commercial Real Estate, Inc.

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JULY 24, 2015
TABLE of
E XPERTS Series
Insights into
D OW N T OW N
R E V I TA L I Z AT I O N
Sponsored by:
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BIRMINGHAM BUSINESS JOURNAL
The Experts
Rodney Barstein
Martin Brown
Chad Hagwood
John Lauriello
Hurston Raley
David Silverstein
Retail Specialists
IBERIABANK
Capital One
Southpace Properties Inc.
EGS
Bayer Properties
Rodney Barstein joined
Retail Specialists in May
2014 as Executive Vice
President to lead a team to
develop commercial and
multi-family real estate
throughout the United
States. Prior to joining
Retail Specialists, Rodney
was President/ CEO of
Simply Fashion Stores, a
ladies clothing store which
peaked at over 300 stores
with over $130,000,000
in sales in 22 states. The
company was sold in
2013. Prior to founding
Simply Fashion Stores in
1993, Rodney had started
Barstein & Associates,
a full service real estate
development, leasing and
management firm.
Martin joined the IBERIA
team in February 2013
and has over 18 years of
banking and commercial
real estate experience
primarily as a lender. He
has a vast amount of
commercial real estate
lending experience
including residential
construction lending,
land acquisition and
development, and capital
markets but has spent
the better part of his
career focused on income
producing commercial
real estate with the top
developers in the market.
Chad Thomas Hagwood
serves as Senior
Vice President and
Southeast Manager for
Capital One Multifamily
Finance. Hagwood
is actively involved
in the origination of
multifamily, manufactured
home community and
commercial real estate
debt throughout the
nation and focuses on
loan originations through
Fannie Mae, Freddie Mac,
CMBS and FHA programs.
In addition, he manages all
of Capital One’s Southeast
production staff located in
4 offices.
John Lauriello, CCIM,
SIOR, CPM is a founding
Principal at Southpace
Properties Inc. He has
redeveloped over 50
historic properties in
Birmingham, totaling
more than $250 million including historic homes,
apartments and office
buildings. John, also, has
brokered more than $400
million in sales and leasing
transactions during his
42-year commercial
real estate career in the
Birmingham metro area.
He has been a voice for
progress and change
in Birmingham and has
led the revitalization of
downtown for more than
30 years.
Hurston Raley joined
Cushman & Wakefield
| EGS Commercial Real
Estate in 2000. He currently
serves as a Vice President
in the firm’s office division
and is responsible for the
marketing and leasing
of the company’s 1.2
million-square-foot office
portfolio. Hurston has
experience in all segments
of commercial real estate
including office, industrial,
retail and medical. He is an
active member of NAIOP
Commercial Real Estate
Development Association,
where he currently
serves as President of the
Alabama Chapter.
David Silverstein manages
Bayer’s relationship with
governmental entities
around the country. Before
joining Bayer Properties in
1994, he was a Partner in
the law firm of Berkowitz,
Lefkovits, Isom, and
Kushner, serving as
outside counsel to Bayer
for seven years. His legal
practice concentrated in
the acquisition, financing,
leasing, management,
and development of
commercial real estate
projects. In addition he
frequently acted as local
counsel to out-of-state
lenders in connection
with the financing of
commercial real estate
projects in Alabama.
The Discussion
Q: Of all the projects going on
downtown, which one are you most
excited about?
Rodney Barstein: The one I’m most
excited about is one we just recently
announced, which is Central City, a
redevelopment of the Waite’s Bakery
property on Seventh Avenue and 21st
Street South. It’s going to be a mixed-use
development with retail on the ground
floor and 45 apartments above that will
open in summer / fall of 2016. We’re
getting tremendous response for the retail,
and we’re already seeing people interested
in the apartments. But just in general, a
kind of wild answer is the Rotary Trail,
because this trail is going to link a lot of
the entertainment districts in the city. I’ve
heard the term “Cross to Sloss,” meaning
it will go from the Crossplex Arena in Five
Points West all the way to Sloss Furnace.
It’s just going to link a lot of different
entertainment and residential areas, and
bring the city together as one larger venue
as opposed to having all these individual
pockets. Long-term, I think that’s going to
be a big asset for the city.
Martin Brown: As long as I can
remember, the talk has been about getting
a major downtown grocer. Many people
thought that would be the catalyst for
downtown development. Now that it’s
going to happen, looking back on it, I
think most people see that it didn’t happen
previously because there just wasn’t
enough critical mass and rooftops. But
with Regions Field, Good People Brewery,
the Westin and Uptown, and all the other
development going on downtown, it’s
finally happening. I’m excited to see that
come to fruition.
Chad Hagwood: It’s hard for me to pick
just one because there are so many great
projects going on. It’s hard to narrow it
down to a single favorite. I have three or
four that are my favorites for different
reasons. Instead, look at everything in its
totality, with all the synergy and what’s
going on now versus what was not going
on 10 years ago, and everything as a
whole feeding off each other. That’s what
we should get really excited about.
David L. Silverstein: There are a
number of downtown projects to be
excited about that are happening right
now, although we are most excited about
the redevelopment of the Pizitz building.
Jeffrey Bayer and I acquired the building
in 2000, believing it was right for future
redevelopment and that it would have a
positive impact on downtown. With the
redevelopment of the Thomas Jefferson
building, growth of UAB, and success
of new downtown destinations such as
Regions Field, Railroad Park, Uptown
and the Rotary Trail, the time is right for
Pizitz. The Pizitz redevelopment will help
continue the transformation of Second
Avenue North.
John N. Lauriello: The mixed-use,
three-phase, $110-million project
that Scott Bryant and Dick Smaltz are
developing called 20 Midtown. In addition
to bringing a much-needed grocery store,
Publix, to downtown, the project will
also add several other retail users that
will be new to the downtown area. When
finished, the project will contain 100,000
square feet of retail plus 350 apartment
units.
Hurston Raley: There are several great
projects under construction downtown,
but the one I am most excited about is the
renovation of the Redmont Hotel because
of the impact it will have on the city center.
The hotel is located just one block away
from the high-profile intersection of Fifth
Avenue North and 20th Street, which is
surrounded by some of Birmingham’s
largest office towers. You have Financial
Center, Wells Fargo Tower, The Plaza,
Regions Harbert Plaza, Renasant Place,
AT&T Center, Concord Center and One
Federal Place all together in a small radius
with a large concentration of office space.
As companies compete for new hires and
the best talent, being located in a vibrant
downtown area is crucial. This project
will add several new amenities to the area
such as a restaurant, café and rooftop bar,
adding more value to the companies and
employees who already work in the central
business district.
Q: Which future project do you think
offers the most potential to be a catalyst
for additional development?
Brown: One that is not yet on the
horizon – at least that I’m aware of – is
a larger regional / national corporation
moving their headquarters to downtown
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Birmingham. That would just continue to
enhance the perception over the last few
years that Birmingham has an up-andcoming vibrant downtown, and help spur
development going into the future. To me,
that’s kind of the missing part in the cog
of where we are right now. How do we
continue this momentum? Ultimately the
answer is we have to have job growth, and
a new headquarters in downtown would
be a big part of making that happen.
Hagwood: For downtown to continue
to grow, more and more companies
have to be here. That unfortunately is not
happening in mass yet. We have a lot
of multi-family housing coming on line.
When people move in, they have to have
somewhere to work. A lot of what’s going
on is about convenience. It’s about bignews employers coming in more than just
a development in and of itself. We have
a lot of development activity that we still
have to see become successful first. There
is a tremendous amount going on out
there that doesn’t have the track record
behind it yet. I believe it will be successful,
but let’s take it one step at a time. I
think now it’s more about employment
attracting additional development longterm.
Silverstein: First, a multi-purpose
facility across from Uptown, next to
Legacy Arena at the BJCC, would be a
transformative project. We believe the
timing is right to build a facility that will
allow us to attract additional events that
are not supported at the current facilities.
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JULY 24, 2015
Not just NFL or NBA teams, but SEC
events and new conventions. Jeffrey and
I feel that a smaller facility is appropriate,
but the size can be debated, whether that
be 50,000 or 70,000 seats. The multipurpose facility would be a fabulous
venue for UAB football, students and
fans. Coming to the multi-purpose facility
and celebrating at Uptown Entertainment
District before and after games is a
natural. This has to happen. Another
transformative need is an improved
transportation system, which is crucial
for regional growth. It’s time for public
and private sectors to come together,
further evaluate the expressway system
and inner-city transportation, while
working with the Alabama Department
of Transportation to determine the best
approach for I-20/59, so the area can
reach its maximum potential. Finally,
the development of the Rotary Trail and
reopening of the Lyric Theatre are both
important for growth. The Rotary Trail
has the ability to create a better quality
of life that attracts businesses and builds
community, generating growth throughout
the region. The Theatre District rebirth and
Pizitz are strong anchors for the city and
will help spur development in the western
portion of downtown.
Lauriello: The Pizitz project. This
wonderful building has been vacant
since 1987. This project will benefit the
immediate area of downtown that has
several vacant buildings available for
redevelopment.
Raley: The re-development of the
former steam plant site owned by
Alabama Power into a mixed-use facility,
in addition to the Pizitz Building project,
will help connect Parkside to Birmingham
Green to the Cultural District to Uptown.
Connectivity creates additional foot
traffic, which will positively impact the
many small businesses and restaurants
located between these districts. As these
companies thrive, the smaller pockets of
empty buildings will fill in behind.
Barstein: There’s still talk of a multi-use
facility. There’s hopefully talk of a UAB
football stadium. Look at what Regions
Field has done to bring people to that area.
People are now coming early and eating
in the area before the game. They’re not
shopping because there are no shops.
But those type of facilities could bring a
lot more restaurants and entertainment,
which is what the people living and
working downtown are looking for. The
other thing that excites me is that while
there has been a lot of activity south of
Morris Avenue, there’s been very little
north. So the Pizitz building coming
on line and the new hotels that were
announced, I think we’re going to start
seeing a lot more activity from Morris
Avenue north. I think those projects
can help do to the north side what has
happened on the south side.
Q: How is your organization
contributing to downtown’s growth?
Silverstein: Certainly we are excited
about Pizitz and our work with Uptown.
We are also working on plans to build
adjacent to Pizitz where the New Ideal
building currently stands. While these are
major investments, we are committed to
these projects to help position the city for
further economic growth.
Raley: As the leasing and management
agent for Financial Center, we are
proud to have worked with Allegiance
Realty Corporation out of Charlotte on
the acquisition of Financial Center and
subsequent $3 million renovation project
that was completed at the end of 2014.
This prominent Class A office tower
has completely been transformed and
now provides a sophisticated, corporate
setting for businesses, which we feel
is a perfect example of the kinds of
renovation and revitalization going on all
over downtown. The addition of Edgar’s
Bakery and Café and construction of the
outdoor dining patio facing 20th Street
has created a space with the kind of urban
feel that people wan,t and has added to
the much-needed energy for this area.
With the space in the Financial Center that
we currently have available for lease, we
welcome the opportunity to bring more
businesses to downtown.
Barstein: First, our office is downtown.
We think that helps a little bit by bringing
40 people to downtown on a daily basis.
Then we were the catalyst in developing
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the 29 Seven project in Lakeview, with
retail on the bottom floor and apartments
above. Some nice restaurants like Babalu
have opened up there and brought some
activity. There is now another apartment
complex announced that is going to be
built next to 29 Seven, and we think we
helped contribute to some of that growth.
Central City is going to be a similar
project. We think that’s a great model,
and there are other pockets in the city
of Birmingham where we can take that
model. Because they’re not large projects.
They are 45 to 55 apartments units. So
it can work in areas like Avondale and
downtown. We’re honing in on that and
trying to become experts in that mixeduse field.
Brown: We just opened our second
branch office downtown. Of our nine
branches in the Birmingham metro
area, two of those are downtown. So
we obviously have a big commitment to
downtown. We have been involved in the
financing for the Pizitz building and the
Publix project. We’ve financed numerous
other restaurants and small office deals
in downtown Birmingham. And on top of
that, we’re extremely civic-minded. We’ve
provided financial support to the Rotary
Trail and Railroad Park, and we continue
to actively look for areas like that where
we can invest in downtown.
Hagwood: It’s no secret that
I’m a fan of Birmingham and our
community. I was a fan and proponent
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BIRMINGHAM BUSINESS JOURNAL
of Birmingham before it was popular
in the permanent debt markets. It all
comes down to fundamentals. We have
great fundamentals, and I am very, very
committed to this city and its commercial
real estate community.
Lauriello: We have renovated more
buildings in downtown Birmingham than
all other real estate developers combined.
We have redeveloped over 24 buildings
downtown for clients. We now are selling
several buildings to new developers/users.
It has been wonderful watching all of
these new buildings being developed and/
or redeveloped.
Q: Many companies are moving their
offices downtown. How is that impacting
the office market?
Hagwood: You hear a lot more about
folks moving their offices downtown,
which is the opposite of the trends we’ve
had for so long of moving farther out. A
lot of people want to be back downtown.
Those are things we’re adjusting to. I
don’t think the bulk office as a whole has
dramatically improved, but it’s marginally
better today than it was, and I think that
trend probably continues.
Raley: As more companies move
downtown, overall vacancy will continue
to decline. However, we still have a
significant amount of office space
downtown that needs to be absorbed
in order to create a really strong office
market. We need new corporate jobs
relocating to our metro area. This will
happen in due time. In the past five to
seven years, we have seen an increase in
the number of outside investors looking
for opportunities in the downtown
area, signaling increased confidence in
the market as a whole. We now have
new building owners from other cities,
spreading the word about Birmingham to
a broader audience.
Lauriello: Many of the companies
moving to downtown are buying vacant
buildings which has helped reduce the
inventory of vacant properties. We are
also seeing occupancy rates in multitenant A&B buildings going up. We
sometimes forget the amount of space
that became vacant downtown after
the 2008 economic crash. Losing the
headquarters for Southtrust, the merger
of Amsouth/Regions as major office
tenants downtown left over 400,000
square feet of A&B space available. Some
of that space – not all – is now occupied
by new office tenants. New downtown
businesses like Viva Health Care, Infinity
Insurance, and Lewis Communications
are helping our downtown grow. Who
would have believed that businesses that
moved out of downtown many years
ago are returning to downtown? Who
would have thought they would live long
enough to witness that ever happening in
Birmingham? Now we need to insist that
all the local governments – 35 different
municipalities in Jefferson County alone
– start working together. It is insane that
there is not more regional cooperation
and cost savings by working together. Too
many of these government leaders act
like children and do not want to discuss
any cooperative efforts or sharing of
services. Who gets hurt? Our tax payers.
Our citizens. Competing cities use this
stupidity against us. We are recruiting
against them for business. Even with all
this foolishness, I am more positive about
the future of downtown and the entire
metro area now than at any time in my 42year real estate career in Birmingham.
Barstein: Twenty to 30 years ago you
had a lot of people leaving downtown and
moving to Riverchase and down the 280
corridor. Now a lot of people want to start
moving back. My office was in Irondale
for 23 years. I love being downtown now.
There’s a lot more energy, the convenience
of getting pretty much anywhere in the
city, there are more food choices, the
walkability of downtown. The problem
is, we still don’t have enough major
employers in downtown Birmingham.
Hopefully as people start moving back
downtown, employers will start to see it
as a vibrant economy and they’ll want to
come back into Birmingham. Because
we have office space, we have buildings
available.
Hagwood: Also, for the first time in a
long time, there certainly is much of a
public-private cooperation. I believe we
have a mayor with a vision who promotes
business and is a strong advocate for
the city. There are a lot more synergies
here than we’ve had in years. That
philosophy has played a pivotal role in
getting business to want to move back
downtown. No matter how great things
are, if it’s impossible to do business here,
you’re not going to move. It’s just that
simple.
Brown: And the economic environment
that the city leadership has been able to
do that in has been pretty incredible. Not
only were we coming out of the recession,
but with Regions and AmSouth merging
we lost a complete office tower. It took
several years to get things moving, but the
pendulum has started to swing back the
other way and we’re really making a lot
of progress. Now if we can just attract a
large office tenant downtown, it will really
set things into motion.
Q: What strategic advantages does
downtown Birmingham have compared
to other Southeastern metros?
Lauriello: Inventory. When
Birmingham, like most cities, experienced
the major moves to the suburbs from late
1960s to late 1980s, the people left but
the buildings remained. Many other cities
demolished all or most of their downtown
buildings for many reasons, federally
funded urban renewal projects being one
major reason. Most of these projects
did more harm than good. Birmingham
property owners just boarded up the
vacant buildings. Our downtown has a
larger historic building inventory than
Atlanta, Nashville, Charlotte, or any other
southern city we compete with except
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JULY 24, 2015
New Orleans.
Silverstein: Positive inertia. Birmingham
is in a growth mode with tremendous
momentum and upside potential. While
other southeastern metros still are
developing, they are in the mature life cycle
stage whereas Birmingham is in a new
growth mode with room to expand. A low
cost of living, a vibrant downtown and a
positive business environment will continue
to attract private investment and growth.
Raley: There are plenty of real estate
opportunities available right now that
provide individuals and businesses the
chance to contribute in a meaningful way
to the growth of our city. We have a great
quality of life and the overall perception
of our city has drastically changed. On
a national level, our story is being told
as a positive, which is attracting exciting
attention for our city. Collaboration in the
community will be key moving forward.
Brown: The obvious answer is that
Birmingham is just a great city with great
people. When you bring somebody in
from out of town who has never been
here, they’re always completely blown
away by the scenic beauty of Birmingham,
the people and the warm hospitality that
they get here. I’ve seen that happen on
numerous occasions. That confirms to me
that Birmingham has something that a lot
of metro areas might not have. It’s kind of
difficult to put your finger on it. Birmingham
is also a very philanthropic city, which
creates a nice corporate culture for people.
Hagwood: When I have visitors here,
their impression walking in and walking
out are two totally different things. I hear
“polite” and “harmony” a lot. I don’t think
we talk about that enough. We’re very
blessed as a community today. There is a
good feel to it in my opinion versus a lot of
other cities I travel to. We’re a community
as a whole. I think we do one of the best
jobs in the nation of cities our size in that
regard. That’s the part you can’t really
put in a report. You can’t necessarily sell
that in a power point presentation. But
people can feel it when they walk around
and spend some time here. Certainly you
can say that we’re centrally located and
have good infrastructure and all that. But
there are some intrinsic things that are
very important that give us a strategic
advantage over some cities.
Barstein: I agree that we’re a very
philanthropic city. We have great weather.
We have four seasons. I’ve been to other
parts of the country where they don’t
have trees, they don’t have green. Places
where it’s either hot most of the year or
cold most of the year. So our weather and
seasons offer a lot. One thing we don’t
have, though, is water. If you look at some
of our competitive-type Southern cities
– Montgomery, Chattanooga, Nashville,
Memphis – water tends to be a really big
focal point to try to bring in development.
But one thing we do have that is a big
advantage is UAB. We’ve seen a lot of
buildings that were big-time in their
heyday that are empty today. Development
happened around those buildings, and
then over time offices moved out and
it became a blighted area. I don’t think
that’s ever going to happen with UAB. So
the development that happens around
UAB will stay strong, and you don’t have
to worry about that major tenant leaving
and all of a sudden you have an empty
building. That’s why I think we have a
big advantage for development as UAB
continues to grow.
Q: The historic renovation tax credit
has had a major effect on sparking
development. If the credit was extended
and/or expanded, how will that affect
Birmingham moving forward?
Raley: It will only help with the
continued renovation of the older
structures in downtown, which is
important because downtown has a good
deal of inventory of older buildings to be
redeveloped. The Redmont Hotel, Lyric
Theatre, Pizitz Building, Thomas Jefferson
Tower and Florentine Building are all great
examples of renovation projects that
have taken advantage of this program.
These alone give enough credibility to the
program.
Silverstein: A few years ago, we saw a
need to work with the Alabama Legislature
on a state historic tax credit, and the
legislature passed a bill allowing for these
tax credits. This availability of credit played
a major role in the Pizitz project. Over 30
states have historic tax credits, and it’s a
major incentive for development in urban
areas. Pizitz is approximately a $70-million
project. You have to spend money in
order to achieve a tax credit, so it makes
sense to invest in job creation and new
tax revenue that otherwise would not have
been created. We hope the Legislature
will remove the sunset provision, which
will allow the timeline for credits to be
extended, and eliminate the cap on credits.
Hagwood: It’s obviously a fantastic
program. A lot of buildings downtown
have certainly benefitted from it. It doesn’t
work for every deal, for a variety of
reasons, whether it’s the developer’s plans
for the building itself or just simply timing
needs. But there has been and always will
be a place for a tax-credit program. It’s
just not a one-size-fits-all program, and
it’s not intended to be.
Barstein: I think we all agree that we’d
much rather see older building renovated
than a new building being built in place of
it. I was talking with somebody recently
in his office, and he had a photo of the
old downtown train terminal on his wall.
You could tell that – almost with a tear in
his eye – he really hates that it is gone. So
tax credits in general have a tremendous
effect on development, but it also has a
snowball effect. Because a lot of times,
credits allow developers to offer lower
occupancy costs for their project because
they were able to get those tax incentives
and make them work. It sets the level
of what occupancy rates can be. If
somebody can take an older building and
renovate it and get the federal government
to pay for half the renovation, clearly
they can offer lower rents to their tenants
versus somebody who has to build
something brand new. Then if somebody
else can’t get the tax credits and they
have to put 100 percent of their funds
into renovation, then they have to charge
higher rents and they can’t compete with
the other buildings in the market and the
project doesn’t work. So we have to be
careful, because once you start doing
it, it’s hard to stop giving it. If you do,
development will basically stop.
Lauriello: Any tax credits are a benefit
to all cities, counties and states. Historic
tax credits encourage developers and/or
users to invest in our wonderful inventory
of great buildings. By extending these
tax credits everyone wins. Contractors,
sub-contractors, architects, suppliers and
more. The projects create temporary and
full-time jobs and will increase our tax
base long term.
Brown: It’s a very important piece of the
puzzle. The Pizitz building, for example,
wouldn’t have happened without historical
tax credits. Any time you can take a
beautiful historical building and renovate it
and maintain the historical richness, it’s a
win-win for everybody.
Hagwood: That’s one advantage we
do have in Birmingham. We have a lot of
great-looking old buildings downtown.
Buildings that you couldn’t build today
for a billion bucks, with that kind of
craftsmanship. There are a lot of buildings
downtown that could be served by that
program and put life into these beautiful
historic buildings.
Barstein: Renovating a building can
be a lot harder than building a new one.
You don’t know what’s behind those
walls. A lot of contractors won’t take
the job because of the hidden unknown.
Sometimes the electrical has to be ripped
out or the water doesn’t work or there
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is asbestos in the building. So you need
those tax credits because your costs are
going to be higher.
Q: Do you think retail will follow all of
the new apartments to downtown?
Lauriello: Yes, I think retail will follow
these new developments. We have already
added several new bars, restaurants and
coffee shops to downtown because of all
the activity. We will see much more in the
next 1 to 3 years.
Raley: I agree. It has already started
with Publix being under construction, as
well as restaurant and additional retail
space.
Barstein: Yes, but in small pockets.
I don’t think you’re going to see the
traditional strip-center retailers following
these apartments downtown. You’re not
going to see sporting goods shoe stores,
the national chains of women’s clothing
stores, things like that. The problem is
they just can’t generate the sales in a
downtown market like you can in the
strip centers. As a former retailer, I can
attest to the fact that rents from a retailer
standpoint are based on projected sales.
As a developer, we want rents to be based
on the cost of the land and the cost of the
bricks. And a lot of times, those numbers
don’t match. Saturday is a huge retail
day, and in a lot of downtown areas you
just don’t get any Saturday business. So
now you’re relying on Monday through
Friday, and after 5 p.m. you don’t do a
whole lot of business either. So your sales
18
BIRMINGHAM BUSINESS JOURNAL
projections are always going to be lower
in the downtown area. And as retailers
are expanding and they want to do the
most profitable deals and the easier deals,
that makes it tougher. Since rents have to
be lower in the downtown area because
their sales projections are lower, a lot of
times what you’ll see is some unique-type
retailers will open up in these markets,
retailers that are a lot more cautious. But
those projects almost have to be up and
open before a retailer will actually have
the vision to go into a space like that. We
can talk to a national retailer and show
them a shopping center that’s going to
have a Publix and small shops, and they
can project what it’s going to look like
and commit on paper. Whereas the small
retailer who is ready to open today doesn’t
want to wait a year for that project to be
built. It will happen, it’s just a very slow
process.
Brown: I agree that it will happen
in pockets. For example, I think the
Publix development downtown will be
tremendous and bring in additional retail
development. Preleasing for the retail
space has been very strong and you’ve
already seen some of the other previously
existing retail space adjacent from the
property benefit from the announcement
and construction. I certainly don’t
anticipate seeing any large strip centers or
lifestyle centers in downtown. Hopefully
there will eventually be enough critical
mass with all the new multifamily units
coming on line, and that will bring some
dry cleaners or clothing stores or basic
service-type retail into downtown. That
will be driven just by critical mass.
Silverstein: Apartments bring
residents, which drives demand for more
amenities, restaurants, grocery stores and
commercial activity.
Hagwood: First, the planned multifamily has to be leased up and running.
So there’s still some wait-and-see,
particularly on the boutique retail side,
before everybody goes all in. Frankly, I
think a lot of multi-family projects in the
downtown areas that have had a retail
component to them have struggled to
lease the retail. Folks have had to readjust
some of their projects to minimize the
retail. But certainly if the multi-family is
successful, you’re going to see more and
more retail.
Brown: It’s what you’d see in just about
any urban setting in the country.
Hagwood: Sixty years ago, nobody
thought about going to the suburbs to
go shopping in Birmingham. It’s just a
change in mindset, and that’s going to
take time. It will take a generation. We
have people in mass saying, “Let’s go
live downtown.” That’s new and strange
for us. So it’s going to take a little time
to adjust how we live, eat and shop. But
if something is good or easy, people will
change their habits.
Barstein: Look at the 29 Seven project
in Lakeview. It’s taken a while to lease out
the bottom. Some of that was a factor
of, just because I have 50 families living
above me, it doesn’t necessarily mean that
my restaurant is going to be successful.
We’re excited about our Central City
project not because of the 45 units up
above, but because of how successful all
the other restaurants are in the general
UAB area. The retail part of mixed-use
works because of other retail in the area,
not because of the people living above it.
Q: Aside from Parkside, what
neighborhoods/parts of downtown are
primed for more development?
Brown: I think the Lakeview and
Clairmont areas are primed to continue
the momentum that they have. That’s the
area that really jumps out at me. Another
is Avondale. You would be hard pressed
to find an area where there has been as
many successful restaurants pop up in a
short period of time. I think that area will
continue to expand.
Hagwood: Avondale. One day there is
nothing there, and then stuff pops up.
There are some pretty cool bars and
restaurants there. It’s become a pretty
neat little place. It’s a perfect example of
people moving into an area, and then the
retailers and service industry comes to
them and not the other way around. That’s
what’s going on in several communities
right now.
Lauriello: Lakeview, the areas in and
around the Rotary Trail, Southside area
west of Railroad Park, the avenues in
North Downtown, First, Second and
Third Avenues west of 18th street, and
Avondale. We are beginning to see a lot
of interest in rehabbing old houses in
Norwood, Avondale, Eastlake, Woodlawn,
and some of the western parts of town
within 1 or 2 miles of downtown.
Silverstein: We see the northwestern
portion of downtown primed for
development with the opening of Pizitz in
2016 and development opportunities with
the New Ideal building adjacent to Pizitz.
We believe Pizitz is in the bullseye of the
city, with growth already occurring to the
south and east. The next opportunity is
to take this growth west of the Central
Business District.
Raley: Lakeview and Avondale should
continue to see additional development.
The Rotary Trail project will continue
to attract more interest to this area
due to better connectivity. Uptown has
the potential for more entertainment
development as well.
Barstein: I think another area that is
primed for growth is the Continental
Gin area (at 4500 Fifth Ave. S.). Cahaba
Brewing announced that they’re moving
there, and I think that’s going to be
a catalyst for redeveloping that area,
because there is acreage out there. So
something can really happen with all the
property there. It’s what Avondale was in
2007, where people were like, “Really, you
want to go to Avondale?” Continental Gin
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19
JULY 24, 2015
feels like that right now. By 2020, I think
it’s going to be a hot area.
Q: What impact do you think the surge
in property values around Parkside will
have on the district moving forward?
Will they limit deals/developments or be
catalyst for them?
Barstein: We’re going to hit a peak with
surging property values where people say,
“I’m done. I have to go somewhere else.”
Office development is still continuing to
happen in the area, but most of the older
buildings have already been redeveloped.
You also have UAB as a boundary, so
eventually there is going to be a standoff
where it’s going to stop. Then it will
eventually start moving west and north
rather than south toward UAB.
Brown: Generally speaking, I think the
increases in property values are a good
sign because it’s indicative of good things
happening in the area. However, that doesn’t
mean rising property values are a catalyst
for development. Ultimately an equilibrium
will be found and if land prices get too high
it will limit development. We’ve seen multifamily rents in Birmingham go from $1.35
a foot five years ago to touching $2 a foot
now. At some point somebody is going to
find the peak in rents. At that point, if land
costs continue to increase then people will
pass on the building/land because they can’t
make the numbers work. So the equilibrium
in property values will be found.
Lauriello: The values should continue
to go up. UAB will continue to grow
and expand over the next several years,
especially in the medical areas. We now
have the private sector competing with
UAB for property. Up until the last 24 to 36
months, private money would not pay the
same amount for property that UAB would
pay. That has all changed. Plus there is
not as much property inventory available
for sale today. Simple supply and demand
should dictate higher property values in
the future.
Silverstein: Clearly this is a catalyst
for growth. And as the Parkside District
develops, we believe the momentum
will spread north and west as the city
continues to realize its potential.
Raley: Property owners will be and
should be proud of their property values
around Parkside. Sellers always think
their property is worth more than it is, and
buyers always think it is worth less than
it is. In an active area such as Parkside,
parties will be reasonable at the end of the
day and development will continue. This
district is already a success. There may be
a few parcels that remain as-is due to an
inflated opinion of value, but development
and redevelopment will definitely continue.
Hagwood: I think it’s good for the local
guys. They’ve seen an opportunity and
they’re capitalizing on it. But we’ve seen
a lot of influx, and frankly ridiculously
prices on some things. Not necessarily
downtown Birmingham but in other
sub-markets. Without the job growth and
population growth, it has to affect one
market or the other, somehow someway.
There is certainly going to be a lot of
competition in the market. We have a lot
of units coming on line. Those tenants are
coming from somewhere, and if it’s not
from out-of-city or out-of-state, it’s from
one of our other sub-markets. So looking
at it as a whole, I think downtown is going
to do great. But I’m a little concerned
about how that affects some of the older
properties in some of Birmingham’s submarkets.
Barstein: If you get a little blip where
demand falls for properties in that area,
developers will start backing off and
people will start backing off from wanting
to buy these properties. And people
who have opportunities to sell now at a
really good price are going to be kicking
themselves for not doing so.
Hagwood: A lot of the development
decisions were heavily dependent on very
favorable interest-rates. You’re dealing
with an environment that’s virtually free
money. That will change someday, and
if happens quicker than expected, it’s
going to mess up a lot of pro formas very
quickly. I suspect some of these deals
that are currently on the table do not get
done. And even if they do, the numbers at
the end of the day are going to be entirely
different from how they started out.
Q: How critical are incentives to
maintaining downtown’s momentum? To
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P 205.313.3676
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what degree have they been responsible
for the area’s revival?
Silverstein: Incentives are extremely
important for future growth. There
are a lot of projects that would not be
happening today without them.
Brown: I think they’re critical right now
where we are. Because we do have a lot
of positive momentum, more than I’ve
ever seen in my lifetime. The ball is rolling
now, and we don’t need to do anything
to inhibit the positive momentum that
we have. So I think the tax incentives are
critical to continue right now. In a perfect
world you’d want to get to the point where
they’re not needed, but right now they are
needed and have played a huge role in
getting us to where we are.
Hagwood: You have to grease the skids
somehow, and we’re still in that process.
I think that will continue for some period
of time. It’s still important. That’s what
they’re for.
Barstein: I think they are absolutely
beyond critical. In our line of business we
work with a lot of municipalities to help
them form public-private partnerships,
dealing with incentives to show them that
it’s a win-win. Again, as a retailer rents are
based on sales, and as a developer rents
are based on the cost of the land and the
bricks. And a lot of times there is a big gap
there. We work with cities to help them
understand that if we can help generate
an extra half-million dollars worth of
sales tax, is it worth giving the developer
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20
$100,000 a year so he can help bridge
the gap and make his project a go? Most
cities will say that is a win-win and will
participate in that. As soon as you turn the
spigot off, though, and you stop offering
incentives, you basically see development
stop. The reason is, if I’m building a
project that’s a $10-million project and I
get $2 million in incentives from the city
and now it’s an $8-million project, I can
lower the costs to my tenants and my
residents to make the project work. I’m
not doing that to get a bigger return. I’m
doing it to make the project work and be
competitive with what rents are in the
marketplace. If we turn the spigot off, if
a guy wants to do a project next door,
he now has to spend $10 million and his
rents have to be higher. So the project
isn’t going to happen.
Lauriello: Incentives have been
extremely important. Birmingham
is competing with other cities in the
immediate area and throughout the south.
We have to remain competitive. Also, the
recent reduction in our business license
fees and business taxes have helped retain
and attract business to Birmingham. I
applaud the City Council and Mayor Bell
for approving these changes.
Raley: Incentives are always vital to the
redevelopment and growth of an area.
Business owners and investors want to
feel welcome and know they are supported
by the city before making an investment in
the city’s future. The city of Birmingham is
BIRMINGHAM BUSINESS JOURNAL
doing its part to sustain and enhance the
current momentum downtown.
Q: Think ahead five years. What do
you think downtown Birmingham will be
like? What factors will shape its future?
Hagwood: If you’re going to talk about
Birmingham five years from now, you
can’t help but go back in your mind and
think about what it was like five years
ago, or 10 years ago. It’s very exciting
to see the activity and the energy that’s
going on. It’s something that most
people in Birmingham haven’t seen in our
lifetimes. There’s just a very nice vibe.
If development is done judiciously, and
the “rate gods” continue to be kind to us,
there could be a lot of game-changing
things that happen downtown that really
transform not only how we look at the
city but how the city is viewed externally.
Think about how much the perception of
Birmingham has improved in such a short
period of time. So the right ideas done the
right way can be transformational. We’ve
already seen that in a limited area in a
pretty short period of time.
Lauriello: I believe we will not recognize
downtown five years from now. Young
and old people are moving into city
centers in cities large and small all
over the United States. Even Detroit is
making a comeback in their downtown.
Birmingham’s population has been
declining over the last 40 years. It is
projected that we will see an increase in
population by 10,000 or more within the
next five years.
Silverstein: The quality of life downtown
has greatly improved with developments
such as Railroad Park, Regions Field,
Uptown Entertainment District, UAB, the
Midtown Publix, Pizitz Building and Powell
Avenue Steam Plant renovation. Add the
Rotary Trail and Bike Share program, and
Birmingham has a vibrant energy that
we believe will continue for the future.
These developments will bring people,
especially millennials, from the suburbs to
downtown to live, work, shop, dine, and
play. People now want to live in downtown
Birmingham. They want to go to dinner,
watch a concert, go to a baseball game,
shop and participate in a yoga class. All in
downtown Birmingham. Companies now
more than ever want to locate in downtown
Birmingham. Growth begets growth.
Raley: Our firm moved downtown from
Highland Avenue in 2004. I can remember
back to those first few years, and there
seemed to be no reason to stay downtown
after work or drive back into town later
in the evening. Today, it is very much
the opposite. The amount of residential,
retail and entertainment development
that has occurred in the last 10 years has
had a drastic impact on the landscape of
downtown and is the driving force behind
the current positive momentum in the city
center. As more people move downtown,
the labor pool will expand in this area, which
means employers and new jobs will follow.
This activity is what is needed in order for
downtown to sustain in the long term.
Barstein: It’s interesting that developers
from outside the city are coming to
Birmingham and doing things here. We
have our building at Second Avenue and
18th Street, and right behind us there is
a big family development going on, and
the developer is out of Memphis. You
are starting to see more of that. We still
have some blighted areas in Birmingham.
We have pockets of development and
pockets of blight. As that development
slowly spreads we’ll see less blighted
areas, but it’s going to take time for that
to happen. One neat thing that I think is
going to help shape Birmingham a little bit
is the new bike-share program. It will help
people venture out of their neighborhood
and explore other areas of the city. Just
exposing people to different areas of the
city will help Birmingham grow.
Brown: All the things that have been
talked about – Bike Share, Rotary Trail,
Railroad Park – kind of combine into an
interesting urban vibe that Birmingham
is developing. Birmingham has always
had a handful of really, really good
restaurants, but just a handful. Now there
are restaurants popping up all over town.
There is a music scene that is developing
in Birmingham. WorkPlay was kind of
the pioneer in that, and now Iron City. All
these things combined is just creating an
interesting urban vibe that we have not
seen in our lives.
magic
Some call it
We call it passion.
Beginning with the redevelopment of
our Title Building office headquarters
in 1984, Southpace Principal John
Lauriello has been passionate about the
revitalization of downtown Birmingham.
His dedication has led to the preservation
of 30 historic commercial buildings in the
downtown and Southside area in the past
three decades. John continues to find
ways to renovate, redevelop and reinvent
downtown.
Come to think of it, maybe it is magic,
afterall. It’s The Magic City.
Commercial Real Estate Specialists
www.southpace.com
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