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Coming in 1992: Central Arkansas commercial real estate leaders look at what the future holds.

The 1980s was a decade that took the feast-and-famine cycle of commercial development to new extremes.

The Little Rock-North Rock market experienced a heralded period of profit and then loss from overbuilding.

The apartment, office and retail markets remain in a period of recovery.

What does the future hold?

That question and others were posed to some well-known commercial players in the central Arkansas market:

* Ed Willis, president of Financial Centre Corp. of Little Rock.

* Dickson Flake, president of Barnes Quinn Flake & Anderson Inc. of Little Rock.

* Jim Hathaway, president of The Hathaway Group of Little Rock.

* Rett Tucker, partner in Flake Tabor Tucker Wells and Kelley Inc. of Little Rock.

What's in store for commercial developers?

Willis: "I think '92 will |see a return~ to stability in the real estate business. The past few years have been very volatile, and we've had big swings in attitudes in the marketplace.

"It will be a year when relative calm returns with an atmosphere that's conducive to a renewal of existing leases. We're not going to see the tenant incentives and discounting you saw over the past several years.

"It's a time when real estate developers and property managers can plan and project, do the more conventional side of the business.

"You're going to see some quality development projects in the next few years, primarily user-driven. I don't think you're going to see the stand-still you've seen ...

"Most real estate people are cautiously optimistic, in that we know where the bottom is, and there's going to be a slow upward trend ...

"Housing is going to be ... strong. West Little Rock will continue to grow and expand out Highway 10 and the Financial Centre Parkway corridors."

Tucker: "As far as Pulaski County goes, it will depend on people's confidence in the economy.

"The defeat of the Little Rock 2000 project leaves us in a stagnant state of mind ... You would have seen a greater enthusiasm and optimism for the future had it passed.

"We're going to have to move forward anyway, but I just don't think there's a high level of confidence out there.

"Interest rates are down, and I think we can look forward to low interest rates during the next six to 12 months. I believe they will go down a little more, too. That's certainly an important component of developments and acquisitions. That's good news for 1992."

Hathaway: "The level of activity, as represented by inquiries about property to buy or lease, has increased sharply in the past 90 days.

"The corollary to that is there has not been an actual increase in transactions -- yet.

"Buyers and sellers have adjusted to different pricing levels on all sorts of properties. In other words, there's a greater recognition of actual value on a property, and buyers are seeing a better framework to judge that value."

"There are some very, very good buys out there in terms of investment property ... if people will buy and exercise some patience."

Flake: "A phenomenon we've been experiencing is the reversal of liquidity positions of investor real estate and user real estate.

"Traditionally, investor real estate has been more liquid, but the investment market almost dried up ...

"I think that will shift back to the traditional relationship, but it won't all occur in 1992."

How will city government and issues such as the overlay planning and development concept impact development?

Willis: "One of the big question marks ... is the perception of our city government and how responsive |it~ is going to be to the will of the people ...

"That's a continuing negative until we have a revenue base that lets the city plan and somewhat expand essential city services ...

"The Highway 10 overlay is a good concept that should apply to the ... developing arterials in west Little Rock, |but~ maybe not the exact criteria in every instance.

"But it shows a long-range picture of how this city is going to look 20 or 30 years from now. If the requirements are fair and not effective, that's no good. And if they're effective, they've got to be fair.

"We've got to create in the minds of everyone that Little Rock is a progressive place to live, has a welcome atmosphere, is a place to do profitable business. There have to be trade-offs involved, of course."

Tucker: "I go back to Little Rock 2000. It was the highest pro vote in the history of Little Rock. It would have carried any other |special election~ ...

"You're going to see better cooperation between this generation of leadership and these emerging coalitions, and I think that's going to be good for Little Rock.

"This will lead to better lines of communication and bridge building.

"My guess is the overlay standards |for Kanis, Col. Glenn and Stagecoach roads~ will be closer to what is established on Chenal Parkway than on Highway 10.

"The interesting thing about Chenal is that the owners paid for almost all of the improvements. They believe it's unfair for the city to come back and affect the value of their property, which it unquestionably will."

Hathaway: "|The overlay district~ is one of those concepts that has gotten started without a full discussion among the parties involved.

"There hasn't been a real discussion about where all this is going. Who determines where the overlays go? Does God do it? Does some individual in city hall determine it?

"... We shouldn't have started with Highway 10 unless we knew where we were going with this overlay concept. Why should a property owner on Baseline Road have more use of his land than someone on Highway 10?

"I know they've talked about just doing the arterials that lead in and out of the city. Well, University Avenue leads out of town, but I don't hear any talk about putting an overlay there.

"They're doing it where they have the least resistance, and they're isolating it to specific streets so they can dilute the opposition ... If they didn't, people would be marching down there to city hall in the hundreds.

"The prospects for cooperation between the city and landowners grow very dim. Had the city announced |it was~ going to slap an overlay district on Chenal Parkway, I guarantee you the city would have had little chance in getting that road built ...

"You're setting up special situations where a single source is determining the fate of a street or part of a street, as opposed to setting up a regulation that everyone can look at and study.

"It creates uncertainty, and we don't need that."

Flake: "The overlay concept has a place, and it will enhance the quality of development on these major arterials. It also offers offsetting benefits to landowners in that it will expand the alternative land-use opportunities.

"The regulatory bodies might be willing to allow certain land-use policy concessions, |which~ they would be reluctant to grant without those land-use controls.

"In a marginal situation, a developer might be able to do anything ... The regulating bodies might assume the worst ...

"Now, they don't necessarily have to make that assumption. But every corridor will be a unique situation with respect to the overlay."

From where will new growth come?

Willis: "The buyers are going to be primarily users. We're going to have to make sure that No. 1, they're welcome here, and No. 2, they will be assisted and accommodated from a quality development standpoint.

"Our charge is to make Little Rock a place where companies want to expand |and to have~ a positive plan for the city's future growth.

"This will be a time to test the city's real leadership and see who steps forward with innovative ideas and projects to move the city forward.

"Certainly, one of those was tried with Project 2000, and there were lots of reasons that didn't work. Even if we can't agree on how to pay for improvements, we can't stop dreaming our dreams and let one setback stop us."

Tucker: "The economics of the market don't warrant any new development for a rental-type property.

"The real activity is among owner-occupants who are moving out of rental space to create their own buildings, which allows them to have their own identity and greater flexibility.

"We just need more of those.

"I would look |for~ the economy to really rebound, not a slight rebound. Of course, I may be looking forward to something that's not going to happen."

What can we expect on the office, apartment and retail scenes?

Tucker: "When you start getting close to 90 |percent occupancy~, it's a big threshold. Until the rates get to the point where they support new development, the office market will be just like apartments.

"It may have to go up to 95 percent before anyone takes a look at it.

"The same thing goes for retail, especially on the speculative side. You'll have to have a specific user."

Flake: "It's obvious that apartment occupancies have recovered. We have a long way to go before the operating ratios recover. Since 1984, apartment rents are up perhaps 5 to 10 percent, and operating expenses are up 40 percent and more.

"While rents have been relatively flat, operating expenses have been rising, and that has destroyed the operating ratios of these projects.

"Retail space has been increasing at a far greater pace than disposable income. All we're doing is shifting volumes around and dividing the purchasing pie into smaller pieces.

"Just as we're overofficed, we're overretailed. I don't think any of the local observers anticipated what impact Park Plaza, and to a lesser extent University |Mall~, would have on retailing."

Hathaway: "It's no secret that apartment occupancies are way, way up, and we've restored the balance between supply and demand. In the next year, I think we'll see some activity.

"The corollary there is can you get financing. Because you can't prelease apartments, developers will have to borrow against their assets.

"In the office area, there's no demand for speculative space, and we're several years away from new construction, although west Little Rock has firmed up considerably. But the downtown market hasn't.

"In retail, ... there won't be anything of significance developed soon ...

"Hopefully, the worst is over, and the best have survived. I'm optimistic, but there's no return to boom in sight."
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Article Details
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Author:Waldon, George
Publication:Arkansas Business
Article Type:Interview
Date:Oct 21, 1991
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