BUILD IT; They Will Come
By Jean Gruss
John McGarvey winces when he hears the label "spec builder."
Developers who built speculative offices and warehouses with hopes of filling them with tenants have all but disappeared since the commercial real estate wreck of the late 80s and early 90s, victims of overbuilding and loose lending practices.
But Bonita Springs-based McGarvey Development comes as close to a spec builder as you get these days, charging into the Fort Myers market with plans to build 2 million square feet of new speculative office buildings and warehouses. That's enough space to fill nearly 35 football fields and bring welcome relief to businesses struggling with Lee County's low commercial vacancy rates and rising rents.
Despite the speculative nature of his projects, McGarvey stands out from other developers in two respects: he's got a long track record of success and he's built his company differently from others, relying on his own workforce rather than outside subcontractors.
It also helps that the market is ripe for new buildings. According to Integra Realty Resources, a Naples-based commercial real estate research group, some areas of Lee County have office vacancy rates under 10%. Anecdotally, commercial brokers say there is virtually no space in hotspots such as Cape Coral and along Interstate 75 between Colonial Boulevard and Daniels Parkway.
While existing businesses struggle to find space into which they can grow, industry recruiters acknowledge that it's tougher to attract new businesses to the area when space is limited. Michael Jackson, economic development director for the City of Cape Coral, says most businesses won't consider locating to his city unless they can move into a building quickly.
"Somewhere between 60 percent to 80 percent of the time," he says, "if buildings aren't available within four to six months, the project won't go through."
Needless to say, Jackson and others welcome McGarvey with open arms. "I have assured him that he will be rewarded," Jackson says.
McGarvey shuns the word "spec." He prefers to think of himself as a developer of inventory and uses the analogy of the car dealer. He asks: Would you buy a car from a dealer without inventory? Besides, McGarvey won't start a new building until the last one is at least half full. "We don't overbuild," he says.
But talking about building inventory without tenants lined up in advance and getting the financing are two different things. Although he won't get into specifics, McGarvey says banks provide the construction loans for his projects and institutional investors such as Wall Street firms and insurance companies provide long-term financing after the buildings are built and leased. He says banks are willing to extend him credit to build on spec because of his track record and the way he's organized his company.
McGarvey built 1.5 million square feet of office and industrial space in 25 buildings in Southern New Jersey and sold the portfolio to real estate investment trust Mack-Cali Realty Corp. for about $100 million in 1997. Since he started building in the late 70s, McGarvey has built over 5 million square feet of commercial space and developed 500 acres of industrial parks, much of it in southern New Jersey and Philadelphia.
Selling his company's assets to Mack-Cali didn't presage McGarvey's retirement. He and 37 employees moved from New Jersey to Bonita Springs shortly after the asset sale to Mack-Cali and he's on his way to building an equally large portfolio of commercial properties today. McGarvey already is responsible for developing a stunning corporate campus in Bonita Springs called Riverview Corporate Center, which is nearly full. It's home to companies such signature companies as Colonial Bank and Source Interlink.
In the house
Despite the success of Riverview Corporate Center, area brokers and builders didn't think much of the project when McGarvey started it in 1992. Apart from the Bonita Bay community, there wasn't much action there. "A lot of people thought we were nuts," McGarvey recalls.
Not any more. The area straddles a prime location between Naples and Fort Myers, providing access to both towns via U.S. 41.
What also sets McGarvey apart from his competitors is that he keeps virtually all the work in house, from plumbing to leasing, architecture and engineering. With few exceptions, McGarvey holds onto his properties and maintains them with his own employees-which gives added comfort to lenders and customers.
Although he does use some subcontractors for specialized work, such as roofing, he says most of them are unreliable, cause delays and add to the cost of construction with expensive markups. He says many subcontractors in Southwest Florida are taking on too much work and when events such as Hurricane Wilma strike, delays are inevitable. "They're too greedy," he says.
As an example, he points to the recently completed Gateway Charter School near I-75 and Daniels Parkway. Permitting delayed the start of construction with just three months to go until the first day of school. McGarvey's team completed the building in a record 97 days, which he says would never have happened if he had subcontracted the work.
"Our guys took it on as a challenge," McGarvey says. "No one else can do this."
McGarvey says he's invested heavily in employee training and he's started an apprentice school within his company for new employees. "We're better off training than hiring away," he says. Combined with health insurance and other benefits, McGarvey says that translates into a loyal workforce in an industry that typically has high turnover.
What's more, he's created a luxury custom-home division that now accounts for about half of the company's revenues, which totaled $50 million last year. Although both businesses have been booming, residential and commercial businesses don't move precisely in sync. If one side of the business slows, McGarvey says he can shift his employees to the other.
A five-year boom
If ever a market is ripe for speculative building, it's Cape Coral. The fastest-growing large city in Florida has virtually no vacant office or warehouse space as demand outstrips supply.
So it's really no surprise McGarvey is making a big move on the peninsula, which is across the Caloosahatchee River from Fort Myers. His company recently bought East Cape Coral Commerce Park on Pine Island Road and plans to build 400,000 square feet of office and warehouse space.
He plans to build in other hot areas too, including Gateway near Daniels Parkway and I-75 and Alico Road in Lee County. He says the company has a five-year backlog of work, including 28 luxury homes.
Although business is booming, McGarvey says he's noticed a more conservative shift, especially in home buying. He used to build 10,000-square-foot spec homes, but now has trimmed the sizes to 6,000 square feet. He says buyers haven't made as much money in the stock market as in years past and they're being more careful about their finances. "You don't have the funny money around anymore," he says.
On the commercial side, McGarvey says he's seeing larger companies that want to locate distribution centers in Lee County, with the population now exceeding 500,000. That's the magic number that puts cities on national companies' expansion radar
In particular, McGarvey sees Southwest Florida International Airport as a big engine of growth, especially for trade with Latin America. Ample ramp space and land around the airport will help land new business from overcrowded Miami and Fort Lauderdale airports, he predicts. Already, he says Spirit Airlines almost considered Lee County its headquarters before settling on Fort Lauderdale a few years ago.
Further afield, McGarvey expects commercial growth to move north and east of Fort Myers. He's scouting land in Hendry and Charlotte counties, among other areas, where he expects residential growth to boom.
What will it take to slow things down? McGarvey says a shortage of qualified workers could choke the growth. He's also concerned that quality of life issues such as traffic congestion and water pollution might hamper progress.
Says McGarvey: "The quality has to be there or it won't live."
McGarvey Development has hundreds of thousands of square feet of commercial space on the drawing boards. Here's a look at what's planned:
Location: Westlinks Business Park off Daniels Parkway east of Interstate 75.
Plans: Develop the east section of the park with 450,000 square feet of office, warehouse "flex" and retail space. "Flex" space typically includes a combination of warehouse, distribution and office space. Construction is scheduled to start in the second quarter of 2006.
Rents: $9 per square foot for flex space; $15 to $19 for office space. McGarvey may sell the retail space, though prices haven't been established.
Location: East Cape Corporate Center on Pine Island Road in Cape Coral.
Plans: Develop 400,000 square feet of offices and warehouse flex space. Construction is scheduled to start in the second quarter of 2006.
Rents: $9 per square foot for flex space; $15 to $19 for office space.
Location: 80 acres of land near the intersection of Alico Road and Three Oaks Parkway.
Plans: Develop 800,000 to 900,000 square feet of office, warehouse and retail space. Construction is scheduled to start at the end of 2006.
Rents: Not yet available.
Location: Daniels Parkway and I-75.
Plans: Renaissance Center, a 65,000-square-foot office building that will be three stories over parking. Construction has already begun.
Rents: $21 per square foot.
- Jean Gruss
McGarvey's keys to successful business
1. Keep it in house. Do as much work as you can with your own employees. Rely on subcontractors only when it's necessary.
2. Hit singles. Stick to your business plan and don't try to swing for the fences every time.
3. Train your employees. It's easier and more rewarding to train your employees than to hire the people you need from rival firms.
4. What goes up must come down. Be prepared to weather any downturn in your business.
5. Watch where the residential growth is moving. There are opportunities in fast-growing areas north and east of Fort Myers in counties such as Charlotte and Hendry.
- Jean Gruss