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Economic Slowdown Impacting Biloxi Condo Development
Ten Condo Developments Let Permits Expire, but City Still Poised for More Condo Development

By Keith Burton – GulfCoastNews.com    4/7/08

Biloxi officials have initiated a review of the true number of condominium projects that appear to dead in the water. This is after finding that some ten major condo developers have allowed building permits to expire.

Officials and developers are citing a slowdown in the overall economy and the difficulty in getting money as a result of the banking industry’s sub-prime mortgage problems and overall banking problems. But the national slowdown that is affecting the city hasn’t slowed down progress at a number Biloxi condo sites that have come out of the ground.

South Beach condo developer RW Development is moving forward on its projects on the Beach and along Veteran’s Avenue in central beach Biloxi. The first of five South Beach condos is well underway.

Just west a few miles is Ocean Club along the U.S. 90 beach drive. Ocean Club, Beau View and Sea Breeze condominiums have been completed since hurricane Katrina in 2005. They are all seeing customers and selling units. Their owners remain confident in Biloxi’s condo market. While the overall condo market is soft nationwide, Biloxi’s condominiums are terrific values when compared to units in other states, something that savvy investors should consider if looking for a premium resort-location home.

But there are concerns by Biloxi city officials. As of April 7, nearly a third of the 31 condominium projects that have gone through the city’s lengthy permitting process have allowed their permits to expire.

When developers apply for building and land use permits a clock begins ticking. If there is no significant work done for 18 months, there is a sunset clause in the permits issued by the city, and the project permit could die.

It is a possibility that the developers may not be aware that their permits have expired, report Biloxi officials.

“It is the responsibility of the developers to know when the deadline occurs,” said Biloxi Communications Manager Vincent Creel.

But developers with approved projects can restore their expired permits to an active status though it is not just a matter of re-filing some minor paperwork.

“If the developers are making no changes to their previously approved projects, and are only seeking an extension, then they do not have to go through the entire hearing process,” said Creel.

“What they do have to do, though, is make a request for an extension with the Development Review Committee at the Community Development Department. The DRC will confirm that there are no changes to the original, approved plan. After that, the extension would be voted on by the Planning Commission, with the Planning Commission’s recommendation then made to the City Council, which then votes on whether to grant the extension.”

“If a developer is proposing any changes to an expired project, he would have to go through the public hearing process,” Creel said

“By the way, members of the public have chances to weigh in on these extensions at the Planning Commission and City Council levels,” said Creel

Empty Lots

Prior to Hurricane Katrina in 2005 and even after, the city seemed poised for a huge building boom. And that is still the case, but not as great as the permit filings now indicate. The highrise condos that have risen since Katrina were projects well on their way before the hurricane. Developers had already pre-sold most the units and were committed to the projects. Most of these condos have finished construction and have changed the city’s skyline

Even though there are many other condominiums on the city’s list of permitted projects, only a few projects have come out of the ground.  All along the Biloxi beachfront there are large empty sites with only a sign promising a new development. Biloxi officials are uncertain now of these projects, even regarding properties that have not had their permits expire.

Ever since Katrina took out the city’s main bridge on U.S. 90 to Ocean Springs in 2005, city leaders and developers anticipated that the real reconstruction of Biloxi, and new construction would be well on its way by the time the bridge was finished. Well, that day has come. The new Biloxi Bay bridge fully opened April 7 but the apparent construction has not met expectations.

The issue is one of significant pride for the city, which saw its casinos rebuild almost immediately after the Hurricane. These casinos are also massive economic engines for the area and have done very well since Katrina. Their gross business is breaking records that were established prior to the devastating storm.

The condo development story seemed initially to echo the casino recovery and result in a dramatically changed Biloxi landscape. Prior to the hurricane, the city’s beachfront was mostly large stately homes, apartment complexes and scattered businesses including local and chain restaurants. There were few tall buildings, but those predated even the arrival of casinos in the early 1990’s.

As the casino industry was clearly a success, drawing over a million visitors a year, and getting bigger every year, there were expectations that Biloxi was going to see a rapid change. Katrina, has moved that change forward far faster than anyone expected, but the reconstruction especially of new condominiums, hasn’t kept up.

“We first began seeing the interest in condominiums in Biloxi a couple months before the storm .At that time, we had proposals for about 4,000 units going through the development process. Several months after the storm, that figure had jumped to more than 10,000, and it’s 12,000 today,” said Creel.

Rapidly changing economic forces are clearly changing some of those figures downward, but is that a permanent trend?

Casino Market Still Growing

The city’s casino market is still growing. Currently, Biloxi has eleven casinos consisting of many of the major companies that also have properties in Las Vegas. When Biloxi’s casinos first started, they were small river-boat vessels. Those earlier operations then grew to huge structures on barges complete with shoreline high-rise hotels. They were always filled.

After Katrina, state regulators revised the gaming laws to allow Coast casinos to build onshore as long as they were on properties that had control of the water’s edge. This law, passed shortly after the hurricane, was the key factor on the fast recovery of the area’s casinos.

As the casinos rebuilt, a new element was being introduced, the Condo-Hotel, and several properties that planned new casinos, such as Bacaran Bay, anticipated a project that included hundreds of condo-hotel units and even condos for private sale as part of the project’s plan.

In late March, however, it became clear that the condo element was not going to happen for Bacaran Bay and the developers started looking for an alternative to keep the project moving. The Bacaran Bay Resort has reconfigured their business plan to exclude the condo elements.

“We are reconfiguring our project with no condo’s,” said John Ainsworth,’ said John Ed Ainsworth, managing member of Caillavet Street Development Group.  Ainsworth says he is confident that financing for the Bacaran Bay project will be found and the new configuration will still have a hotel with between 700 and 900 rooms. The change has set back the project’s timeline. It was anticipated to open in 2010, a new opening date has not been set.

Bacaran Bay’s site is on Biloxi’s Caillavet Street northwest of the IP Resort and Casino on Biloxi’s Back Bay. Biloxi only last year finished a complete rebuild of Caillavet Street in a project that connects the IP to the giant Beau Rivage on the Gulf beachfront. City officials anticipate that Caillavet Street will become a key business and visitor corridor.

Ainsworth said that the current condo market is not suitable at this time. Mainly, that means funding by investors and speculators isn’t there as it was when the project was initiated.

Biloxi officials have always understood that the condo market was speculative

”The appeal of the condo market for government is that typically condo owners pay 15 percent of the assessed value, as opposed to the typical homeowner, who pays 10 percent of the assessed value. That’s because
condominiums are typically a second home,” Creel said

“The appeal of the condo market here in Biloxi is that first, it takes advantage of something we don’t have a lot of – land. It’s essentially a vertical subdivision. Second, condotels would augment that hotel room inventory that was cut in half by Katrina.”

“Having said all of that,” Creel said, “We stand by statements we were making years ago, when this issue first came up. The condominium market is speculative. That is, for all of the plans and proposals people hear about, not all of them come to fruition. Typically, more than half of the units must be sold before construction begins.

Future Still Bright

Still, time moves on and Biloxi is confident that the economic forces will come back into focus for the city to see condominium projects move forward again

“We’ve had several instances where developers of proposed condominium developments have had to approach the City Council to receive extensions on their permits because they had not been able to begin construction within the 18-month lifespan on the permit because they had not sold or received commitments from buyers on an adequate number of units,” Creel said.

But not all is all dark for condo developers.

RW Development has purchased a large area of property in the Biloxi Strip area of central beach and is well on its way with the first of several condominiums it plans for the area. RW Development says it is committed to build over a billion dollars in new construction including condos, apartments and shopping venues for the land it owns along the beach and up Veterans Avenue in central Biloxi.

RW has also petitioned the city successfully early in April for a zoning change that would allow a casino to built in Biloxi Strip area.

The Biloxi Strip lost almost every single business from Katrina’s storm surge. While the Biloxi City Council has approved the RW zoning change, the issue must still obtain approval from the Mississippi Gaming and there is no certainty that the casino proposal will be approved. RW Development does not control the water’s edge. But, if a casino is approved, RW Development officials say their projects will receive a major shot in the arm. But regardless, the company has made, and plans to keep, its development commitments.

Biloxi is not alone in the country with the slowdown in the condo development market. South Florida, Las Vegas, and Southern California have seen a similar slowdown. The difference for Biloxi is that the area is recovering from the largest natural disaster in the history of the country. The slowdown means Biloxi’s future remains bright, but it will take a bit longer than counted upon.

Biloxi Mayor A.J. Holloway recently told a group of area businessmen that he anticipates that the city will need at least another eight years to be fully back to normal.

Related Information:

Biloxi Mayor A.J. Holloway Ratifies Council Vote to Rezone Biloxi Strip for Casinos - GCN

Rooms with a Bubble View - Wall Street Journal

Biloxi Mayor A.J. Holloway Wants Beachfront Businesses to Return - WLOX


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