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BusinessObserverFL.com
BUSINESS OBSERVER | JANUARY 3 – JANUARY 9, 2014
PREDICTIONS FOR
2014
Two years ago, we made bold predictions for the new year. Although we missed the mark on a few (we didn’t call them bold for nothing), they nonetheless remained some of the most relevant topics affecting business that year. So, we did it again. The following are 10 predictions for issues, legislation and trends to watch in 2014.
MULTIFAMILY WILL TURN FROM MOMENTUM TO BUBBLE The good news is national firms once again see value in the multifamily and apartment markets on the Gulf Coast. In 2013, for instance, the top 10 multifamily deals in the Tampa region were worth more than $650 million combined. Several deals were for at least $40 million each, which is up significantly from five, even three years ago, say several commercial brokers. Other areas of the Gulf Coast are also in a multifamily resurgence. The renewed attention, which dates back to 2012, makes sense. Occupancy rates are at five-year highs in many markets. Interest rates remain low. That’s why national firms, everywhere from New York City to Dallas and Boston to Chicago, want in on Florida and the Gulf Coast. That good news, however, might also be bad news. That’s because the interest, in some cases, has been so strong that signs of a bubble, not merely momentum, have cropped up from Tampa to Naples. Multifamily bubble signs, based on recent Florida history, include an abundance of private equity money, complexes selling at deep discounts and growth in renters outpacing growth in new homeowners. Some of that has started to happen on the Gulf Coast. Another sign of a bubble looms: Research, including a September report from Freddie Mac, the government-
COSTAR
Clockwise, from top left: Berkshire Reserve Townhomes at 3539 Winifred Row, Naples; Huntington Place Apartment Homes at 3201 Huntington Place Drive, Sarasota; and Broadstone Citrus Village at 7940 Citrus Garden Drive, Tampa sponsored secondary market mortgage entity, that says bubble fears are overblown. Experts in bubble denial?
A run-up on deals? Florida real estate? That sounds, and smells, a lot like a bubble.
COURTESY
Hertz plans to build its global headquarters building in Fort Myers, consolidating its operations from Park Ridge, N.J., and Oklahoma.
COMPANIES WILL FOLLOW HERTZ TO THE FORT MYERS-NAPLES AREA Corporate site selectors can now add a new area to the list of suitable destinations in Florida: Fort Myers-Naples. Once considered a sleepy backwater for retirees, the announcement of Hertz’ corporate headquarters relocation from New Jersey to Estero signaled the area is going to give the Tampa Bay region a run for its economic-development money. In economic development hunts, Hertz is considered the Big Elephant trophy. It’s the kind of prize that rarely comes around because of the huge costs of moving a Fortune 500 corporation. So it must have stunned economicdevelopment officials in Orlando, Miami
and Tampa to learn that one of the biggest corporate relocations in the state’s history should land somewhere outside their metro orbits. Financial incentives are nice, but we don’t think they really made a big difference in Hertz’ decision to move to Estero. The $18 million in state and local taxpayer money for Hertz won’t nearly cover the estimated $100 million cost for the company to move its headquarters here. We won’t really know the full story why Hertz moved to Estero, at least not yet. Some speculate that CEO Mark Frissora’s residence in Naples had something to do with the selection.
If that’s the case, then the Fort MyersNaples area has a good shot at continuing to be a preferred destination for corporate relocations. The region has one of the highest numbers of CEOs and retired CEOs with second homes here. In fact, this has been the strategy of the Fort Myers Regional Partnership: Pitch CEOs who have second homes in the area in the hopes that they will locate some or all of their company here. It’s worked, with companies such as Gartner and Alta Resources already locating facilities here. The region’s assets include schools and roads that have kept up with growth, one of the 50 busiest airports in the country and a state university with 14,000 students. When you combine that with a population that approaches 1 million between Lee and Collier counties, we call that Dunk City.
ONLINE SALES TAX WILL MAKE ITS WAY TO FLORIDA Will Florida lawmakers finally pass a law in 2014 requiring the collection of Internet sales tax? At least two legislators, both Democrats, say the time is now right to level the playing field between Main Street merchants and online retailers, adding hundreds of millions of dollars in state revenue. Rep. Michelle Rehwinkel Vasilinda, D-Tallahassee, and Sen. Gwen Margolis, D-Sunny Isles, have VASILINDA proposed bills to require online retailers to pay sales tax. Vasilinda contends that behemoth retailer Amazon’s decision to build distribuMARGOLIS tion centers in Hillsborough and Polk counties means it won’t fight a change in the law. With a physical presence in the state, Amazon is required to pay the tax under current rules. Vasilinda has proposed a bill — for the sixth time — that would require all retailers, not just those with a physical presence in Florida, to collect 6% sales tax. Strengthening the case for online sales tax is a recent U.S. Supreme Court decision. The high court refused to hear Amazon’s challenge to New York’s attempt to collect sales tax on online purchases. The Florida Retail Federation estimates that Florida loses between $500 million and $1.5 billion annually in taxes. It’s now up to lawmakers, who are reluctant to be seen as “pro tax,” to close the loophole. And the governor, several cabinet members and numerous legislators are up for reelection in 2014. In addition to the Florida Retail Federation, supporters of the tax include Florida Tax Watch, the Florida Chamber of Commerce and Associated Industries of Florida. “Not requiring Internet sellers to collect sales tax erodes Florida’s tax base and creates an unfair advantage over ‘bricks-and-mortar’ retailers,” Florida Tax Watch says in a statement. As it is, online retailers have a 6% price break over traditional retailers, the watchdog group says.
JANUARY 3 – JANUARY 9, 2014 | BUSINESS OBSERVER
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FLORIDA GOV. RICK SCOTT WILL DEFEAT CHARLIE CRIST IN A NARROW ELECTION The race for the governor’s mansion in Tallahassee certainly looks like a doozy. On one side is current Gov. Rick Scott. When he successfully ran against Alex Sink in 2010, Scott used $70 million of his own money on a campaign that promised to add 700,000 jobs in seven years. So far he’s on pace to hit his goal: The state has added at least 400,000 privatesector jobs since Scott took office in January 2011, according to U.S. employment data. The statewide unemployment rate dropped from 11.1% to 6.4% during that span. Scott nonetheless has an army of critics. Some say the jobs figures are inflated and use selective data. Other initiatives Scott supports, like drug tests for welfare applicants, have been mired in controversy. And not even the most ardent Scott supporters always consider him a gifted speaker or communicator of a conservative message. But Scott, in many ways, is a pillar of stability in comparison to Charlie Crist. An overview of the past decade in the political life of Crist includes the following: He was elected governor of Florida in 2006, when he was a Republican, over former U.S. Rep Jim Davis, a Democrat from Tampa. Crist then ran for U.S. Senate in 2010 and was beat in a Republican primary by Marco Rubio. He ran against Rubio again in the general election, this time with no political party affiliation. Rubio defeated him again in that elec-
COURTESY
Tavira at Bonita Bay in Lee County was one of the last condo towers built in Southwest Florida during the real estate boom.
SCOTT tion. Crist officially switched parties and became a Democrat in 2013. Yet for all his instability Crist has what Scott doesn’t have: a public speaking gift. That goes a long way in a diverse battleground state like Florida. That gift, ultimately, won’t be enough to defeat the incumbent. Scott, flaws and all, has too much going for him. The economy is better, unemployment is down, the housing market is up and the state’s tourism sector is booming. And when people are happy on Election Day, the edge goes to the one already in office.
FILE PHOTO
Benderson Development’s LARRY FINEBERG, right, stands with MARK CURRAN of Benderson at the construction site of the SRQ Tech Park in Sarasota.
INDUSTRIAL SPACE WILL RISE AGAIN Industrial, the real estate laggard tied to the declining manufacturing sector, is positioned to have a strong resurgence this year. The truth is that while other forms of real estate were overbuilt, in most areas industrial never surpassed capacity. Much of the pain industrial experienced during the recession was caused by the large number of industrial businesses that collapsed. Conditions for the surviving industrial companies and the fair number of replacement companies, including a few high-tech firms that have sprouted up, is much improved. The vacancy rate across the Gulf Coast looks like a bell curve over the past five years, peaking in 2010 at 11.3% and falling to 8.1% recently, according to the CoStar Group. This is the lowest level since 2008. Meanwhile, in the past four years only 918,000 square feet of industrial space has been started, just half the 2.21 million square feet of industrial construction started in 2008, which was a slow
year historically. This industrial need has only recently started to be reflected in asking rental rates, which hit bottom in the second quarter at $4.84 per square foot. Since then, rates have headed up to $5.05 as of the most recent quarter, reversing nearly three years of declines in just six months. Exhibit A is Benderson Development’s SRQ Tech Park. One of the region’s largest real estate companies is already taking a chance on the industrial market, building the first phase (233,000 square feet) of a 27-acre distribution center, which is substantially committed. Similarly, Clearwater-based Meridian Development Group is continuing to bet on industrial. The firm purchased a 200,000-square-foot industrial center in Tampa’s Eastside earlier this year with plans to redevelop it. The developer also has plans to construct a new 83,250-square-foot flex project on McIntosh Road in Sarasota, called Meridian Business Center.
HIGH-RISE CONDOMINIUMS WILL MAKE A COMEBACK Southwest Florida is not Miami. But real estate developers are watching dozens of cranes build new high-rise condominium towers in Miami with a sense of déjà vu. With inventory tightening and prices increasing, the time is ripe for the resurgence of highrise condos on the Gulf Coast. Already, developers are building mid-rise condos and high-rise rental apartments from Tampa to Naples. This includes Sarasota’s 17-story Jewel condominium, set to start construction in February. But 2014 will mark the year high-rise condos make their reappearance since the bust. We think the Naples area will be a prime location because the supply is dwindling and the demand is growing. Consider the latest data from the Naples Area Board of Realtors published for October. The median price of an existing condo rose 35% in October to $210,000 compared with the same month in 2012. Meanwhile, the inventory of existing condos shrank 24% in that same time period. More evidence: In the year ending Oct. 31, Naples Realtors helped sell 5,129 existing condos, 14% more than the previous
year. But here’s the kicker: There were only 2,606 condos for sale as of Oct. 31. We expect the prices for existing condos will continue to rise as demand grows and inventory shrinks. Recent gains in the stock market means retirees flush with cash will snap up the remaining existing condos, creating the conditions necessary for developers to build a new highrise condo. Of course, there will be obstacles. Developers are still cautious because they’re concerned about how fast they can sell condos in a high-rise. “Financing could be difficult,” says Howard Gutman, president of The Lutgert Cos. in Naples, which built Tavira at Bonita Bay, one of the last condo towers built on the Gulf Coast five years ago. “Absorption is going to be a major issue.” One of the leading high-rise condo developers in the region, WCI Communities, is also taking a wait-and-see approach. “We’ll see how this season goes,” says Keith Bass, the CEO. “We don’t want to sell to people who aren’t end users.” But if the market improves substantially this winter season, 2014 will be the comeback year for high-rise condos.
OBAMACARE UNCERTAINTY WILL CONTINUE OK, so we’re not necessarily claiming clairvoyance on this one. But multiple polls from pro-business groups reveal what many Gulf Coast business owners and executives already know: The Affordable Care Act is confusing, costly and breeds uncertainty. Anecdotal evidence supports that theory. Executives, in recent interviews with the Business Observer, have discussed internal struggles about the 50-employee rule and what exactly constitutes a full-time and part-time employee under the law. The myriad rollout delays and problems have only added to the perplexity. The big question: What’s next for the law, and what kind of impact will any changes, big or small, have on Gulf Coast businesses? Some in the fervent anti-health care law camp hope a potential change in majority control of the U.S. Senate, from Democrat to Republican, will be their salva-
tion. And that changeover, say several political pundits on both sides, has a legitimate shot to happen. One-third of the Senate is up for re-election in 2014, and Republicans currently hold 45 of 100 seats. Many states in so-called play are red, where Republican candidates have an advantage. Yet Republican control of the Senate, and maintaining it in the House, will likely be a case of hype over substance. Many parts of the health care law, for example, are intricately connected to other parts. For that reason and others, full repeal, even with a majority, will be difficult. So the prediction here is be prepared for more holdups, more chaos and more consternation, no matter what happens to majority control of the Senate. This is, after all, the federal government. See PREDICTIONS page 16
16 brandstorm
BUSINESS OBSERVER | JANUARY 3 – JANUARY 9, 2014
BusinessObserverFL.com
BY JAMES R. GREGORY | CONTRIBUTING COLUMNIST
The truth of the matter Although you won't find it on a company's balance sheet, trust is a crucial component of a successful brand. Make sure your organization builds it with every interaction. When did “truth” lose its significance? Is there any “consequence” for lying? Lies seem to be committed more and more frequently in politics and business with seemingly less consequences to those committing them. Maybe we have grown immune to the onslaught of falsehoods where truth simply doesn’t matter anymore and the ends justify the means. Don’t believe it. Truth matters, and you need to build it into the culture of your business or the consequences can be devastating. Just like the 1960s television show, "Truth or Consequences," I believe that the truth matters in business and in life. Trust with your customers is the most valuable of assets. Most business leaders think of communications such as public relations, advertising, or packaging to be the most obvious approaches to brand building. But trusted brands are actually more efficiently and effectively built when brand alignment occurs between the business processes, the business culture, and ultimately the communications of a company and its products. Trust is built with every customer at every intersection of the brand experience — CoreBrand calls these “trustpoints” when they are actively implemented,
managed and aligned. Here are five ways to build trust in your company. 1. TRUST IS BUILT FROM THE FIRST INTERACTION. It happens whether the interaction is intended or not. Brand trust often begins with a potential customer’s first interaction with the employees of a company. What is the first impression that is made? Is the employee knowledgeable, helpful and friendly? If so, a trustpoint has been earned. Or, does the body language say the employee is tired and would prefer not to have you in his or her life at that particular moment — a barrier to the brand has been created. Once the barrier goes up it takes much greater effort to overcome the resistance to embracing the brand. 2. MANAGING ALL TRUSTPOINTS WILL BUILD A BETTER BRAND. Think about your favorite product or service. Every time you use that product, an impression is made — ask yourself if the impression is positive, negative, or something in between. Consciously considering your own interactions with products you purchase will help you appreciate how consumers think about
PREDICTIONS from page 15
GAMBLING WILL ROLL THE DICE AGAIN, BUT STILL LOSE An extensive study on the economic effects of allowing “destination resort casinos” in the Sunshine State is expected to be the starting point for the gaming debate in the Florida Legislature’s spring session. Gaming expansion would have a “moderately positive impact” on the state economy, concluded the study, commissioned by the Legislature and completed by New Jersey-based Spectrum Gaming Group. But sweeping changes to gaming laws aren’t expected in 2014 — a reelection year for Gov. Rick Scott, several cabinet members and a number of legislators. Gaming expansion was a divisive issue in the 2013 lawmaking session. Large casino companies are seeking new laws to allow them to build destination resort casinos with roulette and craps tables as well as slot machines. Supporters contend Florida’s tourism industry needs Las Vegas-style casinos to compete with Louisiana and Mississippi. They face opposition on many fronts, from local horse and dog tracks to Disney, a longtime gambling opponent that seeks to protect its
Top gambling activities among Florida residents 80% 60
2001 2011
40 20 Lottery Casinos Bingo Raffles or Horse or charitable games dog racing Source: Spectrum Gaming Group Gambling Impact Study, Oct. 28, 2013
family-friendly reputation. The Senate Gaming Committee, chaired by Sen. Garrett Richter, a Naples Republican, held public workshops throughout Florida in November and December. Richter contends the study, which cost the state $400,000, provides a “solid foundation” for determining the viability of gaming expansion, as well as addressing ambiguities and inconsistencies in existing laws related to gambling, according to his YouTube video of his 2014 legislative priorities.
and grade your brand with every single interaction. Every trustpoint is an opportunity to build a lasting and positive impression with the brand. 3. ALL STAKEHOLDERS HAVE THEIR OWN PERSPECTIVES. Trustpoints are different for every constituency that is critical to a company’s success. For example, the investor may consider consistent earnings the most important trustpoint. For employees, the trustpoint may be the employee salaries and benefits offered by the company. For the customer, the quality and price of the products or services are the most significant components of trust. What all these stakeholders have in common is a desire to be treated with respect, which is the essence of trust. 4. INTANGIBLE ASSETS HAVE TANGIBLE VALUE. Building trust creates a premium value for product brands as well as enterprise value for the corporate brand. While accounting standards don’t yet account for brand value on the balance sheet, we know it plays a significant role in building businesses more efficiently. In other words, it takes less of an invest-
James R. Gregory is founder and CEO of CoreBrand, a global brand strategy, communications and design firm headquartered in New York, with offices in Los Angeles and Tampa. He helps clients develop strategies to improve their corporate brands and profitability. Gregory has written four books on creating value with brands: “Marketing Corporate Image,” “Leveraging the Corporate Brand,” “Branding Across Borders” and “The Best of Branding.” Contact him at JGregory@corebrand.com.
ment to sell your products if you are a trusted company. 5. CONSISTENT BEHAVIOR BUILDS TRUST. Trust is built over many different dimensions depending on the perspective of the stakeholder constituency. Having a clear vision and training your employees to communicate it consistently over time is the best way to build brand trust. Truth is simply good for business. It builds trust and trust creates value. Customers want to buy from companies they can trust. Investors want to invest in companies they trust. The media would like to write articles about companies who give them the straight scoop. Employees want to work for a company that is trustworthy. Telling lies in business or in politics should have consequences. It says a lot about the decline of our society and culture if lying becomes the norm and truth the casualty.
HALF OF THE COMMUNITY BANKS BASED ON THE GULF COAST WILL DISAPPEAR. We made this prediction in 2011 and we’re going to repeat it. There were 54 banks headquartered on the Gulf Coast in 2011. Today, there are 43 banks based in the area that stretches from Tampa to Naples. As the wave of government regulations comes crashing down on community banks, shareholders of small banks will be faced with a tough choice: Sell out to larger competitors, merge with like-size lenders to get bigger or live with paltry returns. Any bank with less than $500 million in assets is vulnerable. Most banks with less than $1 billion in assets will struggle to produce decent returns for their shareholders because of the rising cost of compliance with government edicts. For example, First National Bank of the Gulf Coast Chairman and CEO Gary Tice says $2 billion is the new threshold to overcome compliance costs and generate good investor returns. At Gulfshore Bank in Tampa, President Joseph Caballero says that threshold is closer to $500 million, but he says investors prefer bigger. “There’s a clear consensus that the $1 billion-asset-size bank is when you start to see the scale,” he says. But only eight banks out of the 43
FILE
GARY TICE, chairman and CEO of First National Bank of the Gulf Coast, says banks will need at least $2 billion in assets to generate decent returns for shareholders. on the Gulf Coast reported assets in excess of $500 million as of Sept. 30, according to the Federal Deposit Insurance Corp. And just four of those reported assets of more than $1 billion: Raymond James Bank, USAmeribank, The Bank of Tampa and C1 Bank. The best solution would be for the government to create separate, less onerous regulatory requirements for small community banks. But we wouldn’t hold our breath for government relief.
LEGISLATORS WILL FIND A FIX FOR RISING FLOOD INSURANCE RATES Florida property owners will find relief from rising flood insurance premiums if a lawmaker’s effort to create a private market for flood insurance is successful. Sen. Jeff Brandes, R-St. Petersburg, has sponsored a bill to create a new state regulatory system for flood insurance in response to skyrocketing federal rates. The state bill is expected to have widespread support in the Legislature. Without it, some Realtors say the market will suffer greatly, and legislators know
that could slow the Florida economy. Meanwhile, Tampa-based Homeowners Choice Property and Casualty Insurance Co. isn’t waiting for the new law. The insurance company, a subsidiary of HCI Group Inc., will offer flood insurance as an endorsement on homeowner policies beginning Jan. 1. The company says rates will be comparable to existing federal rates. The federal Biggert-Waters Flood Insurance Reform and Modernization Act
of 2012, intended to make the National Flood Insurance Program more sustainable, reportedly will have increases of no more than 25% per year. But some property owners are being told their rates are rising by more than 500%. Under the proposed state program, private companies would be encouraged to write flood insurance policies to compete with the federal program. In addition, homeowners wouldn’t be
required to have content coverage or insure their house for more than is owed, as is now required. Brandes intends to get the bill to the governor’s desk as soon as possible after the start of the March 4 session, and the bill would go into effect immediately. Without the new state rules, the Florida Association for Insurance Reform estimates Floridians will pay as much as 65% of all federal flood premiums when the program is fully implemented.