Real estate developer Mike Wampold is still in the real estate development business. Like others, however, he’s pulling back on the reins since the way is steep and rocky when it comes to the finance market.
But in the past year, Wampold has opened The Crescent at University Lake, an upscale condominium complex on Stanford Avenue across from LSU. Just last month, tenants began moving into II City Plaza, a 12-story, 260,000-square-foot building on Convention and Fourth streets that is the first privately built downtown office tower in at least 25 years. And he’s still going ahead with plans to turn a partially completed Jimmy Swaggart Ministries dormitory on Bluebonnet Boulevard into a Marriott Renaissance Hotel, a $70 million project that has been stymied by the national credit crunch.
Wampold, who founded Wampold Companies in 1981, has seen hard times before. Business Report checked up on the status of his projects and checked out his views on the long-term impact on real estate the future of development and opportunity in disaster.
1. What’s the environment like for developers these days?
The new development environment is not good at the present time. No. 1, there’s a lack of credit availability, or debt, to finance a project. And then there’s a lack of market. Look at our home sales. They’ve plunged. Look at Woman’s Hospital. What better credit could you get than that? The cost of the bonds that they’re going to issue on that are cost prohibitive at the present time, and that’s just a sign of the market.
2. How insulated is Baton Rouge from recession?
Baton Rouge typically lags behind a recession about 12 months or so. It’s happened before. For the most part, Baton Rouge has sustained the economic downturn very well so far. The job count has held steady. Multi-family rental, which is what we do, and Class A office space rental have held pretty steady and is pretty strong, and we’re glad about that. However, if you look at the home sales, which kind of leads everything else, those are down.
3. So it hasn’t hit yet?
I think we’re going to experience a downturn in 2009. We’re still feeling the positive effects of Katrina, which happened at the end of ’05. We all of a sudden had a huge population influx, we had the GO Zone depreciation incentives and GO Zone financing. We took advantage of that. But the population has stabilized. The depreciation incentives are gone. There is availability of GO Zone bonds, but there’s not a whole lot of applicants running over themselves for bonds like it was early on. Why? Because you can’t sell the bonds. It’s difficult to do that.
4. You’re not at a total standstill. What projects are you moving on now?
Over the past 12 months we have been very busy, but we’ve been finishing two projects that we started in 2006: The Crescent and II City Plaza. Over the past 10 months we’ve closed over $61 million in sales at The Crescent. That’s basically from April ’08 through January of this year. To me, that’s phenomenal because the housing slump started well before April. We feel fortunate and we’re pleased about that. And that project is a success. We sold 115 out of 165 condos, and we’re continuing to have strong interest in the rest of our product. Has it slowed down? Yeah. It’s slow across the board.
5. Some condo owners are converting units to rentals because of the slow market for buyers. Would you consider that at The Crescent?
We’re selling brand-new product there. We’re not selling used product. Would it be nice to get the income from those units? Yeah. But then you’ve got used product. We’re not doing it. I don’t care if it takes two years to sell the rest. We sold enough to where it’s manageable. If we need to owner finance the units to get it done we’ll do that.
6. You don’t seem to be in any hurry on the hotel project in the old Swaggart dorm on Bluebonnet.
The credit market has certainly slowed us down there—not just the credit market, but the hotel market. I’m kind of glad we’re not coming out of the ground with 300 rooms right now, because the hotel market is in the tank. We’re glad that’s on hold. We’ll probably see that come around in the later part of this year, or in 2010. We’re linked to it. We’ll continue to be for a while.
7. Is there anything good for real estate developers in the stimulus package—indirectly at least?
I haven’t read the bill, but I doubt if there’s anything about mortgage relief for Class A office buildings or luxury condos. But I think that the infrastructure improvements in that bill could definitely impact this city. There is an indirect impact. You build infrastructure, it will allow Baton Rouge to continue to grow. Growth in Baton Rouge is good for the real estate industry, and we’re all for that.
8. What would you have done differently if you’d known what was coming economically?
If we’d started the condos a little earlier, maybe 12 months earlier, maybe the beginning of ’05 or something like that, then we would have been sold out of them and we would have been down the road. But you can’t time everything perfectly.
9. What will be the long-term effect of the recession on the real estate market?
Across the country, this is what I think is going to happen: People and consumers will be more focused on affordability and efficiency than they have been. And that’s going to be in homes. I think you’re going to see more 2,500-square-foot to 4,000-square-foot homes—and not just for first-time homebuyers. The 6,000- to 8,000-square-foot homes are going to be fewer and farther between, I believe.
10. Is there opportunity in disaster?
We’ve seen these cycles. The one I remember the best is the mid- to late ‘80s cycle. We built our company on a lot of the opportunities presented back in those days. We did a whole lot of acquisition of distressed properties, or apartment complexes and office buildings. That helped build our company. We positioned our company really to survive during those times. I’m not saying that we’re recession-proof or depression-proof or anything like that, but we’ve always been conservative in our decision-making. And we’ve kind of positioned the company to ride those times out.