Florida Builders Bullish On Jacksonville
Jeff Klotz, CEO of The Klotz Group of Cos., was born and raised in Jacksonville, Florida — and has never left. At 875 square miles, Jacksonville is the biggest city by area in the United States.
Klotz's bullishness on Jacksonville is evident in his firm's real estate presence in the city, where Klotz Group has established itself as one of the most dominant players, and that playing field is only growing.
The city's growth has been occurring steadily over the past two decades, Klotz said, but especially in the past five. The region is drawing more investors due to its strong fundamentals and amenities — universities, a beach, port, riverfront, downtown and an NFL team — while still remaining affordable.
"For pretty much almost every asset class in Jacksonville, there's some of the cheapest real estate you can buy of any real city in the country right now," Klotz said.
The firm's development pace hasn't let up.
On the heels of its February debut of the 220-room oceanfront Margaritaville Beach Resort, Klotz Group is now building a 10-story luxury condo development and a 500-unit luxury apartment building. More is on the way, with the firm winning approvals last month to move ahead with a $200M redevelopment of the Morocco Shrine Center. The 37-acre site adjacent to the University of North Florida is slated to hold a mixed-use project with 1,025 residential units.
In 2020, nearly 10,000 more people moved to Jacksonville from other Florida cities than the year prior, including 4,000 from Miami, according to data from CBRE.
According to Cushman & Wakefield Marketbeat reports for Jacksonville, the average asking rent for office space is $21.70 per square foot, which is a 2.9% increase over the year prior, and there is a 20.8% vacancy rate. The average asking rate for industrial is $5.46, a 5% increase over the year prior, with a 3.9% vacancy rate.
“Jacksonville is the fourth-largest metropolitan area in the state,” said Mike Hammon, senior vice president of Miami-based Related Group, who is leading development of the Azure Oceanfront Residences condominium — Related's first foray into the area. “It's probably passing 2 million people sometime in this decade. And we just want to be part of that growth. We feel it's a strong market and it's going to continue to get stronger.”
Hammon said Related Group acquired the Azure site after another developer got approvals to build the project at 10 stories in 2004, but then saw the city of Jacksonville Beach change zoning laws and restrict building heights to 35 feet. After years of litigation and a settlement, Related Group took over the site last year and has permission to build at 100 feet (nine stories). It will be the last tall building allowed on the ocean there.
Hammon said the firm is building a sales center — even though it has already sold 20 of 26 luxury units, and at a higher price point than anticipated. The average unit size is 3,900 SF with an average price around $3M, he said.
“We're getting pricing $200 to $250 more PSF than any other property in Jacksonville Beach,” Hammon said. "Our nearest competitor was around $600 PSF. We're averaging over $850 PSF."
A lot of the product in the area is dated, he said, creating pent-up demand for luxury projects.
Related Group also won a request for proposals process to replace the former River City Brewery in the Jacksonville Southbank region with a $100M mixed-use project, called Downtown Southbank, which will include an eight-story, 300-plus-unit residential complex, an eight-story garage and a 5K SF restaurant. A grant package is providing development tax incentives of $18.3M, according to the Jacksonville Record & Observer.
Hammon said Related Group has begun developing relationships in the city and is seeking other potential development sites as part of a long-term expansion plan for Jacksonville.
“When Related enters the market, we want to really enter the market,” he said.
A separate large development in the works for the city is Beachwalk, located in St. John’s County, which is next to Jacksonville’s Duval County, but still considered part of the Jacksonville Metropolitan Statistical Area.
Encore Capital Management, which was co-founded by South Florida developer Art Falcone, in 2012 acquired a defaulted mortgage out of bankruptcy for an undeveloped 550-acre parcel, according to the company's website. Encore then master-planned a community with 800-plus lots for sale, parceling them off to six different homebuilders.
Falcone and developer John Kinsey planned a 14-acre man-made Crystal Lagoon, with waterslides and paddleboarding, as the centerpiece of the neighborhood. They also incorporated schools, parks, office space and a retail village.
Boca Raton-based PEBB Enterprises teamed up with Falcone Group to create Beachwalk Retail Center LLC to develop the 47-acre retail portion on the northern part of the project. The 170K SF commercial space will include a 110-key hotel, restaurants, a gym and a Union 76 Daybreak Market with a 4,800 SF gas station and convenience store. PEBB Enterprises also developed the Publix at Beachwalk shopping center across the street from the under-development master-planned community.
PEBB Enterprises’ Senior Vice President of Leasing Chris Stewart told Bisnow that PEBB was inspired to invest in Jacksonville because of its demographic trends. Growth has been driven not by major employers, but by families steadily coming in seeking good schools and affordable homes, he said.
During Stewart's tenure at Regency Centers about 15 years ago, he'd seen the publicly traded REIT develop Publix shopping centers in the area and watched them lease up quickly. The PEBB team also noticed that sales had been brisk in Nocatee, a master-planned community in Ponte Vedra consisting of 22 neighborhoods on 22,000 acres. About 1,000 homes per year are sold there, according to developer Parc Group.
“We just know there's a demand for our retailers,” Stewart said. “We knew some of the people that were interested and there was a good story there. We felt very confident in our ability to execute on the project in Jacksonville.”
According to Elliman’s most recent New Signed Contracts report, there were five sales of million-dollar-plus condos in Jacksonville in September, up from just one sale in September 2020. For perspective, Miami sold 214 million-dollar-plus condo units this September.
Klotz said he is not bothered by the influx of South Florida developers on his turf. In fact, he feels the opposite.
Most Jacksonville developers over the years "have taken the easy way out," Klotz said. "They really haven't pushed the envelopes. They haven't built high-quality developments. So having folks like Related and Art Falcone is going to really raise the bar, and that's good for everybody."