(This the second in a two-part series. In January, we looked at rebuilding efforts in New Orleans.)
Taco del Mar master developers Fred Vosloh and Scott Redlich had big plans to open several quick-serve Mexican restaurants along the Mississippi coast before Hurricane Katrina devastated the region. The monster storm forced the duo to rethink their expansion strategy.
“Katrina definitely changed our plans,” Vosloh says, adding that he and Redlich had hoped to build Taco del Mar units right on the beach in Gulfport, the second-largest city in the state, and in neighboring towns such as Biloxi and Pass Christian. Fortunately, they had also targeted inland areas such as Jackson and Hattiesburg, where construction will proceed.
“But now we have a wait-and-see attitude on Gulf Coast restaurants,” says Vosloh. It will be at least 12 to 18 months before they review those plans. “Most of those areas right on the beach are not prepared for us to come there today,” Redlich says, noting that Katrina destroyed nearly all of the existing buildings appropriate for a Taco del Mar store.
Vosloh and Redlich are just two of the hundreds of developers who have had to put their plans for the Mississippi coast on hold because of Katrina.
Nearly eight months after the hurricane slammed into the coast, Mississippi development activity hasn't resumed the frenetic pre-Katrina pace. Many developers are holding off on restoration activities or new construction, waiting to see what new building standards will be required to “hurricane-proof” commercial and residential buildings. Another hurdle: Many cities along the coast have not been able to restore sewer and utilities to their beachfront areas because FEMA hasn't yet committed to reimburse them for infrastructure rebuilding. Meanwhile, costs — and competition for materials and contractors — are rising.
Casinos are perhaps in the best position to rebuild once the constraints are removed. They have already gotten what they long wanted: the OK to build directly on land, rather than on the formerly mandated floating barges, which were blown to bits by the winds and crashing water. Previously, gambling was only allowed offshore. That changed when planners acknowledged land-based gaming stood a better chance of surviving a major storm than barges.
Some casino owners and other big developers, all with deep pockets, are trying to put a positive spin on the Katrina aftermath, saying it's an opportunity (not that they have a choice) to rebuild for the future. “The Gulf Coast had really improved over the past few years, and Katrina has given us an excuse to redo it and take it to a new level,” says Robert Brvenik, president of Prime Retail Inc., which owns Prime Outlets-Gulfport in Gulfport, Miss. Brvenik says that the Mississippi rebuilding will likely move faster than in New Orleans, where business people are depending more on uncertain government funds for their projects. The Gulfport center opened in 1995.
Charles Cartee, an economics professor at the University of Southern Mississippi and president of Gulfport, Miss.-based real estate appraisal firm Cartee Properties Inc., also thinks there's reason for optimism. “This is our opportunity, through fate, to design what we might want 50 years from now,” he says, adding that many cities are considering higher-density zoning among other smart-growth principles.
Even Vosloh and Redlich say they're not giving up on the region that has earned the politically incorrect nickname “Redneck Riviera.”
“The Gulf Coast is a gold mine and there's no way that it's not going to be built back up,” Redlich says.
All the optimism, though, can't mask the reality. In mid-2005, the Gulf Coast had $1.5 billion of tourism-related development such as retail, hotels and beachfront condominiums under construction, according to the Mississippi Gulf Coast Convention & Visitors Bureau. Most of those projects were damaged or destroyed. In Biloxi, for example, the $150 million Beau View Towers was being built when Katrina hit.
The coastal counties of Hancock and Harrison, which experienced the worst of Katrina's Category-4 fury and 25-foot plus storm surge, previously housed 12 barge casinos and attracted nearly 30 million visitors annually, according to the state's tourism department.
The casinos along the Gulf Coast, many of which offered retail and restaurant space, brought in $1.2 billion in gaming revenue in 2004, according to the Mississippi State Tax Commission. Moreover, these two counties boasted pre-Katrina unemployment rates of 4.9 percent and 5.2 percent, respectively, according to the Mississippi Department of Employment Security (MDES). That compares favorably with a rate of more than 9 percent statewide.
Sadly, Hurricane Katrina destroyed almost everything along the coast and about half a mile inland, throwing the huge barge casinos around like toys. Because of the casino closures, Hancock and Harrison counties have reported the highest unemployment rates in the state with 24.3 percent and 24 percent, respectively, according to the MDES.
Many residents lost not only their jobs, but their residences as well. The Mississippi Home Corp. estimates that more than 134,000 homes along the Gulf Coast were damaged or destroyed.
The storm also had a huge and obvious impact on retail along the Gulf Coast. “Any type of retail, housing or offices south of the [CSX] railroad tracks were pretty much wiped out,” says Cartee.
In Biloxi, for example, retail sales tax collections dropped 19.9 percent from July 2005 to December 2005 compared with the previous year, while Bay St. Louis retail taxes dipped 24.2 percent and Long Beach's decreased 6.4 percent, according to the state tax commission. In Pass Christian, where Katrina flattened a Super Wal-Mart, retail sales tax collections plummeted 35 percent.
Edgewater Mall in Biloxi was just one of several retail centers that sustained damage, according to Carl Bartlett, senior vice president of Montgomery, Ala.-based Jim Wilson & Associates Inc., which owns the mall. Although it sits on one of the higher sites along the beachfront road, the mall was still flooded with 18 inches of water post-Katrina.
Bartlett says some retailers in Edgewater Mall have decided not to reopen or are still struggling to get things in order, but the bulk of them — more than 70 — and three of the four department stores are open.
Similarly, Prime Retail's center, located just blocks from the beach in Gulfport, was severely ravaged, Brvenik says. Although the center ended up with significant wind damage and flooding and required a new roof and an entirely new interior, Prime Retail didn't consider not reopening the center.
“With the casinos making even larger investments, we think the resulting residential development will be even more affluent, which bodes well for retail,” Brvenik says. With that in mind, Prime Retail repaired the center quickly, opening for the 2005 holiday shopping season. Longer term, the company plans to “trade-up” through a complete renovation and repositioning with upscale tenants.
Although most of the casino operators have pledged to rebuild, only three are open, and they operate gaming out of their land-based hotels along the coast. Rebuilding the casinos and homes along the Gulf Coast are the priorities, Cartee says. “Mississippi will be rebuilt faster and better because of the casinos,” he contends. “One of the problems with the New Orleans economy is that it doesn't have the casino base.”
Industry experts say that casino operators such as MGM Mirage, which owns the Beau Rivage Resort in Biloxi, are putting together plans to develop Las Vegas-style casinos that mix gaming with hotel and retail space as well as residential condos.
Retail follows roofs
New condos, whether they're part of casino projects or not, will undoubtedly boost Gulf Coast retail, says Billy Skellie, mayor of Long Beach. The city, which has a population of 15,500 (down from 19,000 before Katrina), saw 45 percent of its residential and commercial stock wiped out by the storm.
“If we get the high-rise developments, they're going to be the catalyst for retail,” Skellie says. Before Katrina, Long Beach had approved eight condominium towers and three of them were ready to start moving dirt. As of mid-January, none of the projects had broken ground, a situation that concerns Skellie.
“This area was just starting to kick in terms of development, and we had someone every week trying to put a plan together, but the storm just slowed it all down,” Skellie says.
Uncertainty with building codes also could be slowing things down. During the next month, the Mississippi government will be in session to address building codes for commercial properties such as condos, office buildings and retail space. “Right now, we're all waiting to see if the state pushes the issue back down to the local level,” says Crowell Armstrong, president of the Retailers Association of Mississippi, a lobbying organization for retailers.
Stricter building codes will make rebuilding more expensive. “Smaller retailers will have a hard time rebuilding because of the new construction criteria,” Cartee says. “The costs will be quite high and there's a danger that we will lose some of our retail forever.”
Taco del Mar's Vosloh and Redlich have increased their construction budget by 15 percent to 20 percent to account for the post-Katrina price hikes. “It's not just materials, it's also manpower,” Vosloh says, adding that finding quality contractors is difficult because of all the rebuilding.
In addition to problems related to building codes, materials and manpower, developers are also finding it difficult to get straight answers about zoning. Although many city leaders have met with urban planners to determine strategies to rebuild, most haven't released concrete plans.
Industry experts say that rebuilding along the Mississippi Gulf Coast will mirror the rebuilding that occurred in Florida after big storms such as Hurricane Andrew.
“When you look at the disasters in Florida, there was a big period of rebuilding during which the retail sales grew by 15 percent,” Brvenik says. “We think the same thing is going to happen here.” He adds, “In fact, we think this area will rebound much more quickly than New Orleans.”