Like many people in the local real estate business, Donnie Jarreau says meltdowns in other markets have helped scare people away from investing here, even though the Capital Region’s economy has held up relatively well.
“We’re part of one of the better markets in the country,” says Jarreau, the founder of Donnie Jarreau Companies. “We haven’t lost much value. What’s been hurting us in Baton Rouge is the inactivity.”
Call it wishful thinking if you like, but Jarreau says the market might finally be picking up. Local Market Monitor’s recent first-quarter Home Price Forecast ranked Baton Rouge as one of the best-performing markets with populations greater than 600,000.
In the meantime, Donnie Jarreau Companies has gone beyond development into construction, levee work and even some work in Afghanistan.
1. What’s the mood in the real estate industry?
A lot of people are just glad to have 2009 over with. Just getting to a new year, we’re seeing a little more activity, and definitely more optimism. I think it’s going to be a slow climb out of this.
2. I’ve heard buyers are coming out of hiding, but they’re looking for steals.
For the past year, most of the equity guys and the cash have been sitting on the sidelines for two reasons. One, they’re scared; they’re not sure what’s going to happen with our economy. And two, they think there’s a better deal coming along, and locally that’s just not happening. There are isolated projects that are in foreclosure, but it’s such a small percentage compared to other markets. Anything in the $500,000-to-$1.5 million investment range, income producing, can sell. Now you’re starting to see calls coming in: “I’m tired of my money sitting at 1% or 2%. Let’s get back into the investment market in real estate.”
3. What’s going on with the Perkins Road Hardware site?
Rock-n-Sake, an upscale, West Coast-style sushi bar, will open mid-March. Schlittz & Giggles will open mid-March. Jimmy John’s [Gourmet Sandwiches] opened in the fall, and they’ve doubled their projections. We have one bay left for lease. We just finished two condos, and the second floor we’ve left unfinished. We may come back with office or residential; we’re not sure yet. We’ve had some great comments from the surrounding neighborhood. It’s a very passionate area. I’ve never had more comments or calls on anything we’ve ever done.
4. When do you expect to start construction on Spanish Town Road east of Interstate 110?
Probably in the next four to six months. We’re going through the design phase right now. These are 1,100- to 1,400-square-foot homes. It’s basically “green” features like SIP [structural insulated panel] construction, which is insulated foam that cuts utility costs in half. It’s a very unique product, and you’re going to see the wave head this way. We had planned to do between 100 and 130 homes. Phase One will be four to six homes. The lending on speculative homes is very tight, and the lenders won’t let us go out more than that right now.
5. It seems like lenders haven’t wanted to do speculative lending in a while.
They still don’t. I have some partners and the group is well capitalized, but even being well capitalized, [the lenders] are still cautious.
6. So the selling point on homes like this is, the buyer spends more up front but expects to save money in the long term. Do you fear turning off buyers with higher square-foot prices?
We’re going to have to educate the consumers on the long-term benefits of green features, where you maybe pay 10% to 20% more for the home, but you may recapture your costs in utilities over 10 years. With this recession, people are going to reevaluate how they live and the size of their homes. They’re going to try to be closer to the city, so I think the urban infill development is definitely going to be hot for a while. Everyone’s going to try to live below their means.
7. Are these homes the first phase of the TND you’ve talked about in that area?
With a TND, that’s going back to speculative lending on retail and offices, and there are no loans for that right now. Our thoughts are to bring in the rooftops and continue the residential expansion, and hopefully as the market turns, there could be a demand for office and then retail in that area. If not, we know there’s a need for workforce housing [near] downtown.
8. Are you pursuing LEED certification for the Spanish Town homes?
Probably between 25% and 30% of the homes will be LEED-certified [eventually]. We want to test the market with green features first.
9. What’s the status of the development on Nicholson Drive at Oklahoma Street?
It’s an 11-lot subdivision, and it will be gated, with green features. It’s going to fit in with the connection that’s going to happen between LSU and downtown. There are some strong real estate developers [involved in the area] like the Lafayette group, Moreno [Properties] and Mike Wampold. That’s going to be a great corridor. You’ll see speculative construction come back there first before any other place in the city.
10. Why do you think that is?
First, the location; the dynamics of LSU with a student population of 30,000 plus faculty, and, of course, downtown, with the lack of available housing. The Old South revitalization is happening. The product you’re going to see down there is going to be unique.
11. We’ve been talking about infill-type developments. Do you have any particular philosophy about infill development versus greenfield or suburban development?
For so long we developed out in the suburban parishes of Ascension and Livingston. That’s how we got our start: with a lot of retail, a lot of unanchored strip centers. But once the market changes, you’ve got to start reinventing yourself. There’s not much lending for retail or office buildings at this time. So we kind of backed into the infill. The problem is finding the right areas that work and that people are comfortable going to.
12. Why did you decide to rebrand the construction company?
We have a governmental division. After [Hurricane] Katrina, we got into the government contracting business, and it has continued to grow. My name didn’t have much bearing [in that field]. We’re doing work in the Gulf South, we’re in the process of doing work in Afghanistan, and we just wanted to go with a more commercial name. So we have two divisions: We have Apex Constructors, which is our commercial division here, and we have Apex Solutions, which is our governmental division.
13. Afghanistan?
After the tragedy of [Katrina], a lot of companies here learned a lot about governmental contracting. One of the largest divisions of Shaw is emergency preparedness, and Shaw helped give us a start [as a subcontractor] in this. We’re doing 100 homes right now through the LRA at scattered sites between New Orleans and Lake Charles. We’re doing some minor levee work in New Orleans. I’ve got to be careful [talking about the Afghanistan work], but if you think about the troops over there, there’s support work that’s needed, and we’ve been concentrating on that.
14. You really have been branching out. It’s a long way from a local strip mall to Afghanistan.
You’ve got to reinvent yourself. What I did before, there’s not a market for. In today’s times, especially in real estate, you always have to be ready to reinvent yourself, and we’re in the process of doing that.
GOING TO MARKET
Top-performing markets in home price with populations greater than 600,000:
Baton Rouge
Buffalo-Niagara Falls, N.Y.
Los Angeles-Long Beach-Glendale, Calif.
McAllen-Edinburg-Mission, Texas
Miami-Miami Beach-Kendall, Fla.
Oxnard-Thousand Oaks-Ventura, Calif.
Rochester, N.Y.
Santa Ana-Anaheim-Irvine, Calif.
Stockton, Calif.
Syracuse, N.Y.
Tulsa, Okla.
Washington-Arlington-Alexandria, D.C./Va./Md./W.Va.
SOURCE: Local Market Monitor
