Developers must get 'very creative' to succeed in Pinellas County’s real estate market
By Breanne Williams
Tampa Bay Business Journal
Published: Aug 19, 2022

Pinellas County is — in many places — built out, which has led to a rise in acquisitions and renovations.

Michael Kilpatrick, Centennial Bank’s Tampa Bay region market president, said the market is beginning to slow down as lenders get more cautious about the projects they take on. He believes lenders are slowing on the wave of development due to uncertainty in the market and the recession they see on the horizon.

“Word on the street is the Fed is going to bump the prime rate down to 35 basis points, which will then shock the system,” Kilpatrick said. “We went from three and a quarter to six and a quarter in a matter of a few months and had some pretty big swings there. So, you start seeing things slow down. We’re seeing the residential housing market in Pinellas slow down, too. It used to be you could list a home and you’d have four offers on the same day. Now it’s going to market and sitting for 30 to 45 days.”

Much of this he contributes back to the bottom line and rates. As residential rates climb, people who are making the same money in their careers as they made this time last year, before the inflation rate, are technically now making less. That has factored into how they shop, eat out, travel and how much they’re willing to pay for a mortgage, according to Kilpatrick.

“It’s an adjustment in the market, not a huge real estate collapse,” Kilpatrick said. “We’re seeing this pretty much across the board, but Pinellas is interesting because in Tampa there is a lot of land still. You can go north to Pasco and Hernando County if you want. Pinellas, well they’re not making any more land; they’re out of it. So you’re starting to see acquisitions and rehab and leveling of properties to build what they want at different locations.”

Multifamily and commercial both continue to be a major demand in Pinellas County, but Kilpatrick said developers are having to get “very creative” on how they identify and bring these projects to life.

He sat down with the Tampa Bay Business Journal to discuss the market in Pinellas and share his insight on what lies ahead.

Answers have been edited for brevity and clarity.

What you’re seeing is a slowdown, but do you think the demand for housing is ever going to diminish enough in Pinellas that these concerns over the upcoming recession could lead to a collapse as we saw in 2007-08? This is just getting us to the plateau. What’s going to make us a little bit different is that Florida itself sees a consistent influx of residents, but within Florida, there are hotspots like Tampa Bay, Orlando, South Florida and Jacksonville. You drive around, and you see a lot of license plates from other states, and you wonder if they’re visiting or moving here. But I think the data shows that at least a significant portion of them are moving. The number of people that are moving here from places like New York, Oregon and Washington, they’re selling their property up north and paying cash for luxury real estate here. Missouri, Arizona and some of those states that don’t have the influx of future residents are going to feel it a lot quicker and a lot harder than we are. I think we’ll all bounce back out, but it’s going to take Florida a little bit longer just by the sheer number of people moving here and the money they’re bringing with them.

When it comes to commercial you talk about the fact that Pinellas doesn’t have the landmass Hillsborough does. What are you seeing in response to that? On the beach, for example, let’s look throughout Pinellas’ beaches; I’m seeing these older hotels that are suddenly worth a substantial amount simply because of the dirt they’re on. A buddy of mine has a hotel that he bought for $3 million. Someone offered him $40 million for it. They want the dirt. You see a lot of people willing to pay top dollar, and they don’t care what they pay as long as the lot size can sustain what they want to build.

With rising costs in the construction market, what have you seen in regard to the timeline of projects? Are developers taking their time? Walking away? We’ve seen both. We’ve seen a couple of projects where the developer decided that costs have gone up so much and margins were so tight that it was a loss for them. They walk away, put it on the market and see what they can get out of it. I also have seen one developer doing self-storage; he had a 24% increase which equates to about a $2 million increase in cost. They did a call with the investors and got it stabilized. We’ve had instances where banks have helped cover the leverage of that increased cost, but that’s based more on the relationships we have with you. Or you go to the investors, and then you get this building built as quickly as possible.

Is there anything else about the market in general you think is being overlooked right now? The biggest thing is that we just need to keep an eye on what's happening with rates; the rates are going to dictate what's happening in the market now as things get more expensive. We need people back in the workforce, but our problem is that after you pay your taxes and everything else, sometimes you can make more money by not working. These developers can't get people to come to work because either they can make more money with these cash-only deals or are collecting unemployment or any kind of government assistance. We can't do much without the workforce. So keep an eye on raising wages. When wages go up typically, these costs are passed to the end user. But for those in the market that are not getting pay increases as inflation rises, they’re making less than they did a year ago, and their buying power diminishes.