Growing southeast U.S. developer details site selection process

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Rapid growth in a vast number of Southeastern U.S. cities, including Knoxville, Tennessee, and Charleston, South Carolina, has put a strain on their infrastructures.

Some cities welcome the idea of denser developments to prevent sprawl and the various problems it creates.

Palmetto Business Daily  recently reported on a study conducted by the Victoria Transport Policy Institute indicating that dense, multi-family developments can, in fact, reduce traffic congestion and the need for more infrastructure.

The Beach Company, based in Charleston, is a fast-growing real estate development company that is developing housing developments and expanding its presence in cities throughout the southeastern U.S. 

“We are heavily concentrated in the Charleston market, but we are in other cities in the Southeast, and right now, we are active in about, right around 15 different cities,” John Darby, president and CEO of the Beach Company, told TI News. “And we’ve got a healthy pipeline that goes everywhere from Mount Pleasant to Summerville to Columbia to Nashville, and we are always looking at new markets.

Darby said the company looks at rental markets and the difference between what a new building would rent for compared with what he referred to as “a B or C product.”

“The reason for that is if there is a big gap between those two -- more than usual -- that is a sign; we usually dig a little further,” Darby said.

The real estate company also looks at rental growth, employment and absorption.

“All of that data is usually available, and then we look at what is proposed, what is under construction, how many units, how many square feet are coming on-line within a certain cycle -- basically, we size up our competition,” Darby said. “We see if we can build our product and get absorbed and get the right rents so it is a good investment. That is kind of basic, but a lot of work goes into figuring that out.”

Once the initial questions are answered, the company starts assessing available locations. Darby said each location has unique challenges.

“It either has to be rezoned, it may have environmental issues, it may have soil issues, traffic issues, ingress, egress. Every site we are working on has a story,” Darby said.

Because the market is so competitive, Darby said companies have to be very selective when considering a location because renters have many options and rely on many different factors in deciding where they want to reside.

“So if you have a B location where you are a little off the beaten path, that could be the difference between a win and a loss. So you get that,” he said. “Then what we have been looking at a lot lately is just the culture of the community. Does the community as a whole accept progress? Are they a progressive city or are they fighting everything being proposed and anti-growth? And that usually coincides with the age of the population.”

A city like Nashville – where the average age is in the 30s – is considered to be very progressive, Darby said. How easily a competitor can enter the market is another factor the company considers.

“The other thing that we are focused on is just the stability of the government," Darby said. "Can you depend on the process? Can you be delayed? How litigious is the community? And we are not looking to pick up a problem,” Darby said. “In this business, time is critical because the cycle comes and goes, and the one thing between getting a project planned and permitted and built and stabilized is time. So we are starting to really look into how can you trust the process with the municipalities? Will they change the game on you? Will they try to change the zoning? Withhold or hold up permits? Require design approvals that may be unrealistic and that type of thing.”

Over the past year, the Beach Company faced a string of legal hurdles in redeveloping its Sergeant Jasper apartment building in Charleston after the Charleston Board of Architectural Review (BAR) rejected the company’s application over zoning issues.

A legal saga ensued, with Judge J.C. Nicholson recently siding with the Beach Company after the City of Charleston and the real estate company reached an impasse in court-ordered mediation.

“We had no idea how the problems that exist in the city ordinances and the approval process and (how) we are zoned. We got thrown into litigation and had to fight through that and so forth. It is investor/buyer beware in Charleston. There are so many ways to trip you up; it is scary. And the culture here is fight to fight,” Darby said.

Other cities, such as Nashville; Austin, Texas; Greenville, South Carolina; the Raleigh/Durham area of North Carolina; and Charlotte, North Carolina, all seem to welcome development. One of the things that holds Charleston back, Darby said, is the city not allowing real estate developers to build a building tall enough to have any meaningful density.

“In a historic city, they don’t like tall buildings, so there isn’t much of that. But there are some pockets where it could be done. We’ll always have a presence in Charleston, and we have other projects going on that clearly, it is just more productive, more organized; it is a safer bet than other areas -- than here for sure,” Darby said.

Developers also consider which areas contain investors who are interested in creating a presence.

“Financial institutions will red-line areas, and they’ll also research cities, and they’ll let us know, ‘We’d love to be in Greenville; we’d love to be in Austin,’ or wherever it may be,” Darby said. “Charleston is normally on everybody’s list. But there are some that are less favorable. You’d like to know that ahead of time because you might find the greatest site, but not be able to pull it off financially because it is not viewed as one of the top investment spots.”


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The Beach Company

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