A national low-fare airline leader targets a new business — luxury condo resorts — starting in underdeveloped Charlotte County. How will the project takeoff?
Allegiant Air travelers who love the carrier's bargain fares have made the airline one of the most profitable in the industry.
But will these same customers shell out $750,000 or more for a resort condominium on the Peace River in Port Charlotte?
That what executives of the airline's parent company are counting on as they work on its first foray into real estate development: Sunseeker Resorts.
The concept includes a 75-room hotel and 750-unit condo resort with 5-star amenities, located on a 22-acre tract on Port Charlotte's Bayshore Drive.
Publicly held Allegiant Travel Co. says it thinks consumer psychology is on its side. It believes the same people who want ultra-low fares will spend big to live in its Sunseeker Resorts — especially because their units can generate rental income for them.
“I think there is a great matchup,” says Allegiant Travel Co. President John Redmond, a 30-year veteran of the hospitality and leisure travel industry who served as CEO of Echo Entertainment Group, a publicly traded company in Australia, before he joined Allegiant in August 2016.
“When you look at airfare, everyone on every airline is a bargain hunter, says Redmond, who followed up executive stints at Cesar's World with CEO positions at MGM Grand and MGM Grand Resorts before heading to Australia.
Redmond says consumers look at airline seats as a commodity and won't pay a lot of money for them. “They are more willing to spend more on having fun” at their destination, he says.
Company officials also are confident Sunseeker's timing is spot on, that underdeveloped Charlotte County is primed for a boom. Executives see Sunseeker Resorts as a fitting kick start.
Another key in the chosen location is Punta Gorda Airport's Allegiant passenger counts have surpassed 1 million in each of the last two years. Las Vegas-based Allegiant serves 34 destinations from there.
One more reason: the 22 acres on the north side of Charlotte Harbor Redmond scouted in February. The spot, which the airline paid $35 million to buy, is a great fit for Sunseeker's marina and riverwalk shops, restaurants and entertainment venues, he says.
He cites company statistics that show 4.5% of Allegiant passengers fly to Punta Gorda Airport eight or more times a year. “Obviously, when they fly with that kind of frequency, they have wherewithal,” says Redmond, who served on Allegiant's board for seven years.
Allegiant Chairman and CEO Maurice Gallagher Jr. told analysts in an Aug. 29 investor call Redmond's “trained-eye” assessment of the tract on Harborside Drive just west of U.S. 41 sold the company on the resort project. “He knew what he was looking at and said, 'This is unbelievable,'” Gallagher says.
Flying the same models
The project builds on an Allegiant business model Gallagher created when he started Allegiant in 1998, after he sold ValuJet, a discount carrier that never recovered from the crash of one of its aircraft in the Everglades in 1996.
Gallagher wed his Allegiant Air to a leisure travel counterpart that generates revenue from third-party commissions on room bookings, car rentals, entertainment and theme park tickets and other leisure activities. Because it owns its air reservation system, it can enhance product offerings based on specific needs, Allegiant officials say.
In 2004, Allegiant Travel made $5.87 on each passenger above the sale of a ticket. By the end of 2016, that figure rose to $49.48, the company says.
The focus on revenue beyond ticket sales has led Allegiant to 58 profitable quarters and revenues of about $1 billion last year.
The resort will follow the same revenue model, executives say. Allegiant will generate money from commissions on condo rentals, retail leases and rentals on everything from marina slips to paddle boats to resident parking spaces. To limit expenses, Allegiant plans to handle its own marketing and condo sales.
Answering an analyst question about why a developer has not done this already, given all the potential Allegiant cites, Redmond says no one has put together a giant piece of waterfront property like this, nor been willing to put up $35 million to pay for it.
Says Redmond: “So, this was 20 separate parcels that had to be purchased from 15 different owners. ... But it's done. And that's where the upside is.”
Construction should start the first half of 2018 and be completed by the end of 2020's first quarter, the company says.
The schedule is based on Allegiant's assumption that each unit of a condo building will be sold and a 35% deposit placed before construction on a building will begin. Officials say eight to 10 residential buildings will be built.
Allegiant says the worst-case scenario is that the resort isn't built and it will sell the 22 acres at a markup.
Allegiant is still tabulating development costs. Until it finishes, it's difficult for Allegiant and analysts to assess the risks, they say.
One key expectation, says Redmond, is the company won't spend its own money beyond the $35 million land buy. However, he also emphasizes that Allegiant could scrap the project if its full cost shows an inadequate return. “Keep in mind that the absolute worst downside for this is to flip the land,” he told analysts.
Gallagher tells analysts Allegiant received 4,000 replies to 4 million emails regarding the project to people in its database. Responses included 550 expressions of interest from people who would spend at least $750,000 for a condo in a waterfront resort, Gallagher says. The responses came from 31 states Allegiant serves. Half came from Floridians, the company adds.
“We're not targeting upscale New Yorkers that we've never talked to before,” Gallagher says. “These are people who already know us and know what we do.”
Gallagher and Redmond further anticipate three potential buyers for each unit. “I think that gives us quite a bit of confidence that we know we can sell this,” Redmond says.
Meanwhile, Chris Westley, an economics professor and director of the Florida Gulf Coast University Regional Economic Research Institute, questions how hunters of ultra-cheap air fares can be turned into buyers of luxury condos. “Their target market doesn't appear to be the type who are spending a lot of money on resort living,” Westley says in an interview.
But Westley says he thinks it could prove “a shrewd enterprise” on Allegiant's part. Charlotte is what Collier County was a few decades ago, he says.
In the early 1970s, Naples was a retirement town, mostly for military retirees, he says. But it soon “was discovered and developed,” notes Westley, whose institute publishes a monthly economic report on the region.
Today, Westley ranks Charlotte County and the St. Joe Co. holdings in Northwest Florida as the state's top two places set for a development boom. He says Northerners want a place in Florida to put their equity.
“I think the Allegiant people recognize this, too,” he says.
A question on the degree of luxury Allegiant Travel will be selling came up in the investor call.
“I don't know,” says Kevin Crissey, an analyst with Citigroup's Research Division. “I'm not paying $750,000 in Florida for a 3-star resort experience. I'm trying to reconcile that.”
Redmond sees the resort's condos as both 3- and 5-star, essentially with 5-star amenities and exteriors and 3-star interior finishes. The idea there, he says, is to keep the interior of the furnished condos uniform with the hotel rooms, since many will be rented out to lodgers.
The sales price is also somewhat unusual for Charlotte County, where the condo market has a median price of $184,000.
“There are not many available in the higher price points,” says Peter Rivera, president of the Punta Gorda-Port Charlotte-North Port Association of Realtors and owner of REMAX Palm in Port Charlotte and Venice. “With a lower inventory and a demand from snowbirds for condos, we see a place in the market for the 750 proposed condos.”
Charlotte is especially short on new product. Although Charlotte has 4.8 months' worth of condo inventory, the market has only 16 condo units newer than 2014 listed, he says.
Redmond knows the pricing numbers. But the data doesn't diminish his bullishness. “It is a beautiful part of the world,” he says. “That is why we put our stake there.”