View from Oklahoma City on Tulsa's river

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http://www.journalrecord.com/article.cfm?recid=81401


Realizing the river's potential
August 31, 2007
TULSA – Sparkling Bricktown references dance like visions of sugarplums when most Tulsans speak of Arkansas River development potentials.
"This should have happened 15 years ago," said Aaron Hargrove, the Tulsa multifamily broker for Commercial Realty Resource Co. "And if that would have been the case, in my opinion, then there would have been an NBA team in downtown Tulsa. Or at least Tulsa would have had the benefits of the Hornets for the past three years. Unfortunately we just kind of missed that."
Such visions often overlook the hard economic fact that, even with the NBA in town, doing business in Bricktown remained a risky proposition – as it does in any entertainment district, where trends come and go, and public favor often proves fickle.
So clear and deep runs that faith in the Arkansas, built through years of anticipation and envy, even opponents of the Oct. 9 tax vote voice support for its general concepts. But how realistic is the dream, and at what cost can it be achieved?
"That's a good question," said J. Markham Collins, associate dean at the University of Tulsa College of Business Administration, when cautiously considering the cannibalization of the existing retail pie. "Clearly there's going to be some in all of this."
About 35.6 percent, projects Tulsa Metro Chamber Economic Research Manager Bob Ball.
Because of the nature such development would take, much-loved Tulsa business districts like Cherry Street and Brookside may face intense competition through Tulsa County's $393 million river development proposal, $280 million of that to be drawn from public funds.
But even accounting for shifting business and all the turmoil that could bring, Ball foresees a $2.8 billion net return on investment from adopting the river plan. Some consider that conservative, drawn just over the life of the seven-year tax, based purely on the seven-county metro economy.
That data reinforced Bricktown comparisons for University of Oklahoma economist Robert C. Dauffenbach, who examined Ball's research. Dauffenbach said all that now surrounds the canal, AT&T Bricktown Ballpark and Ford Center represents physical proof of such returns, in this case from Oklahoma City's November 1993 Metropolitan Area Projects vote.
"There were a lot of doubters about the Bricktown project," he said of the district's origin and the first MAPS campaign. "I really believe it has had a phenomenal effect in that central core of the city."
While many Tulsa real estate brokers and developers welcome such comparisons, they also note key differences. Bricktown thrives in a true urban environment, unlike the Arkansas River development sites, said David Forrest, first vice president with CB Richard Ellis of Oklahoma.
"Bricktown isn't exactly the same animal," said Steve Walman, owner of Walman Commercial Real Estate Services. "In Bricktown they improved a drainage canal and called it a water feature."
Walman, the broker and developer who played key roles in bringing to life the first two Arkansas River projects, RiverWalk Crossing in Jenks and King's Landing across the way in Tulsa, said Bricktown remains focused around special-event marketing because of its poor surrounding demographics.
"Many of those restaurants are still finding it hard to survive," said retail analyst Mendy W. Parrish, even with Bass Pro and the Harkins Theater to broaden Bricktown's appeal.
With its 20-mile stretch of the Arkansas, however, Walman said Tulsa has a stronger, more viable platform to build from, with strong demographics in most cases.
"They've done great with what they have," he said of Oklahoma City, "but we actually have a river. There are identifiable public opportunities. The more those complement each other, the more successful the river will be."
Tulsa industry veterans expect adding two low-water dams, property acquisitions and other river enhancements will spur development of far more than entertainment districts along the Arkansas. Many foresee lifestyle retail concepts centered on strong multifamily options and office prospects, which would mark a national trend finally making its way into Oklahoma.
"In my mind the critical nature of river development is residential," said Parrish, a Tulsa associate with CB Richard Ellis of Oklahoma. "Young people seem to be very interested in living where they have all there services right there, in more of a walking community."
But this mixed-use model presents challenges of its own, since each of those Tulsa real estate sectors have struggled this decade. But when it comes to the attractive atmosphere of living, breathing and doing business along the Arkansas, many of these concerns seem to disappear.
Retail
Analysts have described the area retail market as dormant to hurting for much of this decade, with double-digit Tulsa vacancy rates offset by growth in Owasso, Bixby, Broken Arrow and other suburbs.
To be fair, some brokers consider vacancy rates of 15 to 17 percent a good thing, since it fosters competition and provides ready space for growing or new businesses. Support for this argument can be seen in Tulsa's industrial market, where tight vacancy rates have restricted offerings and growth while not supporting rates that justify new construction.
As metro Tulsa's retail vacancy rates approached single-digit numbers, over the last year and a half developers proposed or started work on a couple of million square feet of retail space around the area, including downtown. But this led some observes to question just how much new construction and business the Tulsa market could absorb.
Even the optimistic Walman, whose firm is working on three huge retail projects far from the river, suggested at March's Greater Tulsa Commercial Market Update that this sector could see a "flattening" over the next few years. But river prospects could supersede that.
Gaylon Pinc, environmental program manager at Program Management Group LLC and one of the architects of the Indian Nations Council of Governments master river plan, foresees private development starting at three primary areas along the river – on the west bank of the Arkansas at 23rd Street in Tulsa, south of the Oklahoma Aquarium at Jenks, and below the Jenks dam at Bixby.
Since the plan was developed with insight from the Army Corp of Engineers, Pinc said all three could work through the permitting process and open before contractors complete the two low-water dams and channel work. Especially at Jenks and Bixby, which do not depend on publicly funded land acquisition.
Some, like Walman, questioned the initial prospects offered at the 23rd Street location – especially with a lifestyle development, which he thought better suited the east side of the Arkansas than the west. Surprisingly, no one foresees growth around the Sand Springs dam in the short term, although both Parrish and Hargrove suggested that could reflect negative perceptions toward west Tulsa that could disappear once someone with vision invests in the land.
Parrish said the river provides two elements Tulsa needs: available land and a tax base.
"Within Tulsa city limits we really don't have a lot of retail locations," she said, noting that large centers often require 250,000 to 850,000 square feet to create atmosphere and synergy, much less attract the eyes of national retailers. "When somebody wants retail development, it almost always involves tearing down and combining multiple properties."
That's one reason why many large developments have risen in Broken Arrow, Bixby and other Tulsa suburbs. Since both banks of the Arkansas flow through Tulsa city limits for several miles, waterfront development promises to possibly reverse that, although Jenks, Sand Springs, Bixby and Broken Arrow also will compete for river dollars.
That said, both Walman and Parrish doubt riverfront retail will attract Target, Best Buy, Barnes & Noble or other big-box giants. In fact, neither see these sites competing with traditional retail, such as those projects Walman is developing in Owasso or Broken Arrow.
As entertainment districts, these river developments will court restaurants, gift shops, bars and other such prospects – areas dominated by local operations. These not only will compete with Tulsa's existing entertainment areas, such as the Brady District or Cherry Street, but may even spur relocation or expansion of thriving locals to riverfront sites.
But Parrish said such changes reflect national progression, opening the door for new business even as another moves or closes. The higher cost of river construction, and the higher rates it will command, also will help reposition older facilities.
"What will happen is some class C properties may end up going away," she said. Others will lower their prices, filing a critical niche for small, growing firms.
With the river's unique character and residential support, she expects the Tulsa market's big enough to support more such entertainment districts, as long as consumer spending remains healthy.
"I think we could handle another one million square feet and be OK," she said.
Multifamily
Tulsa's multifamily market presented the one truly shining spot over the past two years, with occupancies and rents rising and concessions falling, even as many apartment complexes changed hands in valued deals. Yet even under those high notes, analysts have doubted whether market rents would support new construction.
But that's not the case with riverfront proposals. Both Hargrove and Forrest thought Arkansas River projects would find ready demand – from renters, developers and buyers.
"We're working on a deal located on the east side of the river right now," said Hargrove. "Given the condition of the property, if it wasn't located on the river, it would be selling for half of what it will sell for. And that's not an exaggeration."
Forrest doubted such construction would have a dramatic impact on Tulsa's overall apartment sector. He pinned their success on the environment these entertainment districts create.
"We're not overbuilt today, so adding one, two, three, four apartment complexes, it's not going to significantly over-build our market," he said. "If successful, it would push demand for more multifamily and raise rates. But that's us trying to predict the future.
"All we can say today is, in the A-class new construction, it's not overbuilt from a supply standpoint," he said. "We don't have struggling 80-percent occupancies in these new properties; they're pretty full. And there's not a lot of new construction in the pipeline. If we new there were six projects being built in Tulsa, there might be some trouble ahead, but there's not."
Office
Ken Tooman's Tulsa's office market represented the one true downer at this year's Greater Tulsa Commercial Market Update, his 2006 report charting overall vacancy rates of more than 20 percent. While downtown played the role of chief culprit, even the suburban market posted vacancy rates last year of almost 17 percent.
But the managing partner of Tooman Partners has few concerns over river office development.
"I think that we need to look at this river development as an opportunity for economic development for Tulsa," he said. "When there's economic development, that will create demand for commercial real estate, whether it's retail and/or office-type uses. I'd be surprised if we don't see some unique and unusual combined office space development in some of these projects."
Tooman, like Parrish, sees a circle of life fueling consumption of river prospects. However, Tooman expects the mixed-use river projects to focus more on entertainment and multifamily prospects, with office options coming in third. While the new construction could siphon clients from existing Class A space, it also should carry a higher cost that will lead to natural separation of properties by economics and location.
He acknowledges some firms, like Sonic in Oklahoma City or AT&T in San Antonio, might seek to office in a waterfront environment, he doubts initial Arkansas River office efforts will be large enough to impact his survey, which ranks office buildings of 30,000 square feet or more.
"In all fairness, I would think residential and retail would probably be the most popular and the quickest to development in these areas, but that would then create an opportunity for office development," he said.
Enlarging the pie
As with MAPS and Bass Pro Shops in Oklahoma City, Tulsa and Broken Arrow, some citizens argued against spending public funds to jump-start private development. Since the Oct. 9 vote includes acquisition of land for resale to private developers – funds Ball factored out of his economic impact analysis – the Arkansas River plan has drawn some familiar opposition.
Perhaps not surprising, Tulsa's market professionals downplayed such concerns. Parrish said developers expect and plan for opposition at many levels.
"Almost every development in the history of our city has had this same group of people fighting it," she said. "Developers are a special breed. They have to fight through that."
The analysts took the same liaise faire attitude toward the competition this development should spur. Walman said such cannibalization was inevitable.
"Yeah, it has impact, but they're slow and over time," he said. "I have found that if you have a good product, you can survive in this market. I know places that are not particularly easy to find but have great food. There are places that don't particularly have good food but are convenient."
Through careful planning, Walman said prospects could be forwarded that best serve the city. He suggested that such areas as the 18th Street cluster or Brookside could be linked to river commerce through controlled development.
"Restaurants go in all the time," said Ball, who admitted to marveling at how full eatery parking lots often seem in Oklahoma's second-largest community, no matter what challenges the economy faced.
"This is an eating-out kind of town; I've never seen anything like it," he said. "Back in 2003, when the economy really experienced its worst year in some time ... people were still eating out in Tulsa and it (the restaurant sector) was growing at a pretty nice pace when other sectors were not.
"I don't know where they're making their cuts," he reflected on personal income choices, "but they seem to be eating out at various places and not stopping."
But the true potential of the Arkansas is that these projects could support satellite development that would not further slice the pie, but enlarge it by fueling growth in neighboring regions. Parrish compared it to construction of a Wal-Mart Supercenter, which usually attracts millions in neighboring retail development. Hargrove suggested that over time, that momentum could spread all along the Arkansas.
"You do that on the east side of the river anywhere from downtown to Jenks and it's going to take off," said the CRRC apartment broker. "And it would absolutely support higher rents."
That mushroom potential represents why some optimists look not to Bricktown or Oklahoma City, but to San Antonio for their vision – for they see Arkansas River development transforming Tulsa from a metro economy to a regional destination that would actually inflate the economic base beyond its demographic base.
Ball didn't factor that into his data, drawing his $2.8 billion projection from just the Tulsa metro economy. But he doesn't downplay the possibility.
"I think that's the important thing for people to understand," said Walman. "There's a radiating impact. Just think of RiverWalk. It was the first to go in, before anything. And look what it did to the Jenks tax base."