Apartment Finance Today

REGIONAL MARKETS

SOUTHEAST

Renovation Station

APARTMENT FINANCE TODAY • July/August 2008

Revitalizing Jackson's downtown is key to building an urban apartment market in this sprawling city.

BY LIZ ENOCHS

Jackson, Miss. — For a city that’s lost more than 20,000 residents over the past two decades, this town has a lot of development in the pipeline. More than $1.6 billion in commercial and residential real estate investment is poised to pour into the downtown area of Mississippi’s capital city, according to calculations by local investors and promoters.

That includes about $200 million for a downtown convention center with a hotel, apartments, and offices, and also encompasses mixed-use buildings, redevelopments of rundown historic buildings into multifamily properties, and a massive 5,300-unit, 14-squareblock development near downtown that’s expected to take a decade to complete.

“Jackson is a good market right now,” said David Watkins, president and CEO of Watkins Partners Cos., a local real estate development firm. “We really are primed for growth.”

One of the driving factors is population growth, although that may sound paradoxical. That’s because while the part of Jackson contained within its city limits has been losing population, the larger metro area has been growing.

As Jackson proper shed residents, the population in the three-county metro area, composed of Hinds, Madison, and Rankin counties, jumped 20 percent, growing from just under 400,000 to about 477,000 in 2007, according to Census Bureau figures.

With that increased demand, it’s no surprise that rents in the metro have increased 2.4 percent in the past year. Median asking rents rose to $648 in 2007 from $633 the previous year and $609 in 2005, according to data from market research firm Reis, Inc.

However, a high vacancy rate kept operators from raising rents at the same pace as other Southeast markets, which saw an average rent gain of 3.4 percent. Jackson’s vacancy rate remains stubbornly high, holding in the 8 percent range over the last two years—8.3 percent in 2006 and 8.9 percent last year.

Commuting pain

The metro area’s rental market is shifting, though, as job gains in the central city, combined with population growth in outlying areas, lead to traffic snarls and lengthy commute times. More than 25,000 people drive into downtown Jackson every day to work, and another 25,000 work in medical complexes less than five miles away, according to Watkins. Yet there simply aren’t enough housing units nearby, whether rentals or single-family homes, to accommodate all those workers, so many of them are making what can be an hourlong drive from Madison, which lies just 15 miles north of downtown Jackson, and other outlying areas.

“At some point, there is a threshold of commuting pain,” said Watkins. “If I work in downtown Jackson and I don’t have small children that I’m looking for schools for, or I’m an older person, I’m going to be looking for an apartment or condo closer to where I work.”

Because Watkins believes “there’s a huge demand for urban living” in Jackson, he’s been involved in several center-city real estate development projects, including one that has symbolic significance for downtown revitalization advocates: the revival of the King Edward Hotel.

Downtown development

The grand historic structure, located adjacent to the city’s downtown train station, was once a central gathering place for Jackson’s high society, as well as a frequent haunt of state lawmakers, who repaired there to wheel and deal when they weren’t on the floor of the state Capitol.

The King Edward was abandoned in the 1960s after occupancy declined, and it sat empty and deteriorating for decades as city officials and would-be developers wrangled over what to do with the property.

Finally, New Orleans-based HRI Properties partnered with Watkins and New Orleans Saints player Deuce McAllister to rehab the property. Construction started in November 2007 and is expected to be complete in 2009.

The entire façade, plus the building’s skeleton and some other elements, are being preserved, but the rest of the interior is being demolished, said Hal Fairbanks, vice president of business development with HRI. “The building had been open to the elements for 40 years,” he said. “Most of everything that was there was crumbled to a powder.”

When it reopens, the building will house a Hilton hotel in the bottom eight floors, with the top four floors reserved for 65 luxury apartments. The $89 million redevelopment was initially slated to include some affordable apartments as well, but the developers dropped that plan after they couldn’t make the numbers pencil out, said Watkins.

The developers are also working to rehab the nearby Standard Life Building, creating another 60 to 80 residential units there. That would bring the number of residential units downtown to more than 200 from only about 100 now.

“We think we’re on the ground floor of a trend of a lot of downtown redevelopment,” said Fairbanks.

The Farish Street Entertainment District, a renovation of a once-vibrant center for Jackson’s African-American community that later deteriorated into a rundown red-light district, is expected to come online within a year.

Modeled on the Beale Street renovation in Memphis, the $12 million project is expected to incorporate restaurants, clubs, gift shops, and offices.

The developers are working on agreements with high-profile African- American entertainers such as B.B. King and Morgan Freeman, and aim to get the area added to the itinerary of buses that take tourists on blues tours from Memphis to the Mississippi Delta, according to Watkins.

UniDev, LLC, a Los Angeles-based developer of workforce housing, is also working on a multiphase development project on land sited between the downtown area and Jackson State University, a historically black state college. The first phase, a $15 million mixed-use development that will include three stories of apartments with 78 units and more than 22,000 square feet of retail space, is expected to break ground this fall. Another 80 to 100 units of workforce housing will be built starting in 2009, said UniDev Vice President Tim McCarty.

Jackson is a sprawling city, like most in the South, so it remains to be seen how strong the demand for downtown living will be, but so far, at least for the King Edward, residents are lining up, said Watkins. “I’ve already got a list of 30 people for my 65 apartments in the King Edward, and it’s just word of mouth,” he said. “We’re not even soliciting people for another two to three months.”