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Real Opportunities
CEO Q&A by Jean Gruss | Editor/Lee-Collier
Dennis Gilkey, who recently resigned as CEO of the Bonita Bay Group, says there are opportunities to make money in Southwest Florida real estate.
Dennis Gilkey is a different kind of Florida developer.
As the president and chief executive officer of The Bonita Bay Group, Gilkey pioneered projects in areas where many others feared to tread, such as eastern Lee County and Hendry County. What's more, he cemented the company's reputation for working closely with surrounding communities, landowners and environmental groups, preferring consensus to confrontation.
Now, after 23 years with The Bonita Bay Group, the 55-year-old executive recently resigned to start his own company, the Gilkey Organization. His company will focus on consulting for other developers, forming venture groups and establishing a brokerage arm geared toward land development.
The Review sat down with Gilkey recently to discuss the real estate market in Southwest Florida. Here's an edited transcript of the conversation.
Q: You've said there's money to be made at every point in the cycle. Where are we in the cycle and where can we make money?
A: On the [residential home] side, we're somewhere near the bottom or maybe not quite there. A lot of people in this business will tell you the majority of your money is made on the buy side. So I think right now it's moving into more of a buyer's market. Land prices haven't really adjusted materially yet, but I think they will over the coming months and it will be a good market for buying land.
Q: Can you elaborate about your forecast for land prices for residential development?
A: Land prices lag the market. I don't have a prediction. It's very regional and it's almost too site-specific. But I think there are a lot of players out there with land on their books and they're trying to sell it. Even though they may not have it priced at a discount, I think if a buyer came along they would discount it.
Q: What have buyers been paying for land and what's reasonable in Southwest Florida?
A: What we've seen is people paying numbers that you don't see how they could possibly work. Some of that was kind of outrageous. Hopefully that reality will come down to where people know that you've got to have a realistic relationship of the land price to the end user's price. Generally, the raw land is anywhere from 5% to 10% of the end-user unit price. If it gets beyond that, you have problems making the numbers work.
Q: When do you think we'll see a rebound in residential real estate in Southwest Florida?
A: Most builders think it's going to be 12 to 15 months. I don't think anyone has a crystal ball. The good thing is that we're still getting good population growth, good tourism and good airport traffic. Hopefully that will accelerate the recovery.
Q: The major moving companies recently reported moving more shipments out of Florida than into the state last year. Is that an indication that our population growth may not continue as fast?
A: From the middle of 05 to the middle of 06, it's still a very robust number, about 1,100 a day on a net basis. The one thing that did happen last year was that a greater number of older residents moved out than in. Part of that is because of health issues, part of that is the hurricane issue and part of that may be wanting a slower pace. But I think there is probably some slowdown that will occur depending on several factors, one of them being the perception of value here compared with other states. Certainly the hurricanes and global warming issues don't help. But I think overall we'll still have very good growth in Florida as a whole and Southwest Florida, too.
Q: What signs are you looking for that will tell us a recovery is underway in the residential real estate market?
A: Certainly sales, but I think also the reduction of the resale listings. We've seen a very sharp reduction in the last two years of traffic going into sales centers. That means people aren't looking as much. So once they start back into the sales centers, we'll know they're looking and contemplating buying.
Q: Commercial development tends to lag residential development by a couple of years. Do you think we'll see a decline in commercial development on the same scale as the residential slowdown?
A: Just like every cycle, there's going to be an oversupply just as there was in residential. We're probably seeing that now on the retail side. In certain markets there's going to be oversupply on the commercial office side as well. There are just a lot of new office buildings on the way that may not have users. I think it's just an overreaction to a very good market.
Q: What is the impact of the subprime-loan crisis in Southwest Florida?
A: I don't know that I can really speak to that. It probably hasn't totally played itself out with some of the adjustable mortgages.
Q: We've already seen foreclosures jump in Southwest Florida. How much of that do you think is due to the subprime-loan crisis and how big a factor will it be in the overall residential market?
A: It doesn't appear that it's going to be a huge factor. I don't think it's going to be 50%. It's probably 10%. It's not the majority of mortgages.
Q: What is your outlook for the condo market in Southwest Florida?
A: We obviously had a lot of investor activity in the condo market. We've not only got the supply, but a lot of negative talk. So there's a negative perception, which scares people from buying. We've also seen price reductions. The slowdown has been more pronounced than for single-family homes. It's still a good product for our second-home and retiree market that we cater to.
Q: Do you expect the condo market to recover as fast as the single-family market?
A: I think it will take longer.
Q: Any idea how much longer?
A: No, not really. But we're also seeing more significant price reductions there so hopefully that will balance it out.
Q: There are huge residential projects planned in Southwest Florida, including Ave Maria and Big Cypress in Collier County, Babcock Ranch in Charlotte County and Bonita Bay Group's projects in Hendry County. Can this area absorb these in the next 10 years?
A: Some of those are 20- to 30-year developments. I think the market will rebound fairly strongly for a few years. Most developers are counting on that. We've got the demographics working in our favor with the baby boomers. We still have a great quality of life in Southwest Florida. Will it be to 2005 levels? Probably not, but certainly it could still be very respectable absorption. We've moved up to a range where we're top tier. The numbers that we can expect to see is 20,000 to 25,000 new residents per year.
Q: Baby boomers are notoriously unpredictable. Are they going to come to Florida in the numbers that we're expecting?
A: I think they will come in the numbers expected. It's too big of a bulge for it to not have an impact on our market. Most people who buy here have visited here numerous times and our visitor and airport traffic is doing well. Those are the people who will ultimately look to buy product here.
Q: How much further do prices have to fall to bring supply and demand back into equilibrium?
A: I don't have a formula for that. It's as much a psychological issue as it is an economic one. Right now, people just aren't in a mood to buy. They're waiting for prices to go down. It's something we've got to make sure that we don't talk ourselves into, just as we might talk ourselves into a recession.
Q: Do you think the drop in prices will resolve our affordable-housing issues?
A: No, though there's already some level of workforce-priced housing. In the early 2000s, we had a pretty good supply of workforce-level housing with builders making money. As we got closer to 2004 and 2005, that pretty much disappeared. It would be nice to see builders make money providing that workforce housing. The problem is you look where impact fees were years ago versus where they are today: they tripled. Between the land prices and impact fees, it's very hard to provide something at a reasonable price.
Q: Your new company will specialize in sustainable developments. Can you define that term?
A: It's got a lot of different components. It accounts for long-term efficiencies of water, energy and environmental resources. It looks for long-lasting solutions to both economic and environmental health of a community. It looks at the natural system as the real driver of the community. The public is warming up to embrace some of the sustainable concepts. Things such as water conservation and energy conservation basically pay their way. It's economically viable.
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