Former Hedge-Fund Titan and Bill Gates Are Betting Billions on Tampa

TAMPA, Fla.— As a former hedge-fund owner and manager of the Fidelity Magellan Fund, Jeffrey Vinik is used to making giant bets in financial markets. Now he is part of a $3 billion wager to revive Tampa’s once-moribund downtown.

Mr. Vinik is teaming with Cascade Investment LLC, the investment firm of Microsoft Corp. co-founder Bill Gates, in the city’s biggest-ever development, known as Water Street Tampa.

Food options at the Sparkman Wharf project are housed in converted shipping containers.

Food options at the Sparkman Wharf project are housed in converted shipping containers. Photo: Eve Edelheit for The Wall Street Journal

The 50-acre project includes two luxury hotels, office towers and apartment buildings with amenities such as roof gardens and fitness centers. The first element opened last week: Sparkman Wharf is a waterfront entertainment venue with a beer garden and a collection of shipping containers housing eateries by some of the city’s best-known chefs. Office space will come online in 2020.

“It’s going to transform this market,” said James Nozar, chief executive of developer Strategic Property Partners LLC, a partnership of Mr. Vinik and Cascade.

The population of the Tampa metro area grew to nearly 3.1 million at the end of 2017, making it one of the biggest-gaining regions in the U.S. Steady job growth sent the unemployment rate to 2.9% in October.

Mr. Vinik and other developers are now trying to cash in with a flurry of new projects, aiming to remake Tampa as a more vibrant and pedestrian-friendly city that can lure more young professionals.

Ben Eng, left, and Katelyn Glass eat oysters from a vendor at Sparkman Wharf.
Ben Eng, left, and Katelyn Glass eat oysters from a vendor at Sparkman Wharf. Photo: Eve Edelheit for The Wall Street Journal

The Heights, a mixed-use development, has a 314-unit apartment complex and a 73,000-square-foot former streetcar facility that now is home to a food hall and co-working space. Construction is set to begin this month on an office building for the project.

Midtown Tampa is to offer office towers, apartments, hotels and a Whole Foods supermarket—with a public plaza at the center. The 20-acre development is scheduled to break ground next year.

On the residential side, a luxury condo tower on the Hillsborough River downtown will be the tallest building on Florida’s west coast. The units at Riverwalk Place sell for up to more than $2 million.

The mixed-use developments are the first high-end office space built in Tampa in more than two decades, said Tim Rivers, Florida market director for real-estate firm JLL, who is based in Tampa. The numbers “did not pencil out, up until now,” he added.

The vacancy rate in Tampa for class A office space fell to 8.7% in the third quarter of 2018, according to Cushman & Wakefield, a real-estate-services firm. Rents climbed to $30.29 a square foot, the first time above $30 in the market’s history, the firm said.

Some worry that the city won’t be able to absorb all the supply coming on the market in the next few years, especially if economic growth slows. “The biggest risk is…the overall condition of the economy,” said Mr. Rivers, who added that the city’s low living costs and high caliber of its planned office space could give it an edge.

Tampa’s downtown was once a desolate area at night. But over the past decade, development of the Channel District, adjacent to the Water Street project, drew residents to new apartments and restaurants. Public and private investment added attractions, including museums, parks and a walkway along the river.

Now, Mr. Vinik is trying to take it to the next level.

The former money manager, 59 years old, ran Fidelity’s flagship Magellan Fund in the 1990s starting at the precocious age of 33. With about $50 billion in assets under management, he was one of the world’s most powerful stock-market investors and regularly chalked up double-digit gains. He had a 17% annualized return during his 4-year tenure running Magellan.bought the Tampa Bay Lightning National Hockey League team in 2010, and soon began acquiring land around Amalie Arena, where the Lightning play. He eventually amassed 50 acres.

Mr. Vinik wasn’t sure at first what to do with the growing portfolio, Mr. Nozar said. But after reading books on urban planning and smart growth, he envisioned a lively, walkable neighborhood that would attract companies and workers. Mr. Vinik teamed up with Cascade, and together they hired high-end architects and designers.The project, fully backed by equity, is scheduled to conclude its first phase in 2021 and its second in 2027.

A tower that will house the University of South Florida medical college recently topped out, and the builders have broken ground on one of the apartment buildings and a hotel, a JW Marriott. By next fall, the developers say, the area is expected to be teeming with 20 cranes and 2,800 construction workers.

Write to https://www.wsj.com/articles/former-hedge-fund-titan-and-bill-gates-are-betting-billions-on-tampa-1543924802

Arian Campo-Flores at arian.campo-flores@wsj.com

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The Tech-Multifamily Connection

How the sector is spurring development and investment opportunities far beyond Silicon Valley, and where it could strike next.

Amazon’s watershed selection of Arlington, Va., and Long Island City, N.Y., as the twin locations of its second U.S. headquarters may well be the most closely watched corporate site selection in history. Yet for all the fanfare about the 50,000 jobs that the e-commerce giant is projecting to add as part of its expansion, the impact on the office sector is only the part of the story.

Amazon’s HQ2 is only the most recent example of the technology-multifamily link. It is no coincidence that technology is a critical factor in the economies of the four geographically diverse markets that lead new multifamily development: Austin, Raleigh/Durham, Seattle and San Francisco, according to Tech Cities 2.0, a Cushman & Wakefield study.

As the tech industry takes an increasingly prominent role in the economy, contenders beyond the established tech hubs are bidding to get into the game. The city that has posted the fastest-growing tech employment since 2010 might come as a surprise: Provo, Utah. With a population of about 100,000, the home of Brigham Young University is a relatively small market compared to more familiar technology centers. But the number of people employed by tech companies has increased 65 percent in the last eight years. That surpasses even San Francisco’s 63 percent jump.

More than 1,000 apartment units are projected to come online in 2018 in the Provo-Orem market, a 105 percent increase since 2017, according to an August report from RENTCafé. And reflecting the much-discussed trend, Millennials are generating much of the growth. “Not always, but most of the time it’s people in their 20s,” said Ken McCarthy, principal economist & applied research lead for Cushman & Wakefield and a member of the team that compiled the report. “This is a large group that tends to live in apartments.”

KEY FACTORS

Despite several hot spots around the U.S., apartment construction is slowing down after six years of continuous growth. According to Yardi Matrix data, deliveries are beginning to decline after reaching a post-recession high of 317,872 new units in 2017. All told, about 35,000 fewer units are expected to come on line this year. Nevertheless, demand continues to grow, and rising construction costs and labor shortages pose a challenge to the industry.

Rising tech sectors tend to share certain qualities that attract fledgling and established: higher education, strong medical sector and urban density. When Christian Dalzell left Starwood Capital Group Global in 2016 to start his Dalzell Capital, he considered several possible directions before settling on multifamily. As he looked for markets with strong education and healthcare sectors, Philadelphia began to pop out. The region is home to more than 100 colleges with 440,000 students, and last year, those schools produced 89,000 graduates.

In a recent survey, he said, “67 percent of students that attended schools in Philly said their first choice would be to stay in Philly.” He pointed to an eye-catching statistic: over the past six years, the city’s Millennial population has posted the highest growth among the 30 largest U.S. cities. “It surpassed Boston and New York by quite a bit,” Dalzell noted. Other leading indicators of the metro’s technology boom are the University of Pennsylvania’s four-year-old tech incubator and the $1.5 billion Comcast Technology Center, which will house 10 tech startups through its incubator program.

BOOM TOWNS

The Crystal City section of Arlington, Va., instantly gained stature as a leading technology magnet with its selection by Amazon, yet it it hardly an overnight success. The capital region has one of the nation’s largest pools of tech talent as well as one of its best-educated workforces overall, and technology is creating plenty of well-paying new jobs. Amazon is only the latest technology giant to find promise in the capital region. In September, Microsoft purchased a 300-acre tract near Dulles International Airport where it is planning a $500 million mixed-use district that would include nearly 600 residential units.

Tech-Drives-New-Construction-chartScotts Run, an 8.5 million-square-foot mixed-use project planned by CityLine Partners in Tysons, Va., was an also-ran in the Amazon H2Q competition, but is reportedly attracting serious interest from Apple as a potential campus site. In May, Fairfax County approved a 28-story, 375-unit tower and an 18-story, 100-unit community.

These developments speak to the Washington metro region’s bona fides as a tech hub, but even the region’s boosters acknowledge that its potential can be a “double-edged sword,” said Daniel Peyton, senior vice president of Plaza Construction. “A lot of housing is being planned and created, (but by) the same token there’s now a push to look at affordable housing,” he said. “Although it’s not New York City, the prices there are creeping up.

At Plaza Construction, multifamily properties are a big part of the portfolio; the firm is working on major projects in Washington, Columbia, Md., and northern Virginia. Farther south, in Tampa, Fla., Plaza is working on four seven-story buildings that are in preconstruction.

All of them feature amenities influenced by the tastes of their target Millennial market and young technology professionals in particular: abundant USB outlets, door access via smartphone and co-working areas. One Plaza project in Washington offers 26,000 square feet of amenity space highlighted by an area that provides what he calls a communal coffee shop vibe. “It’s a very active space rather than an empty lobby with a couple funky chairs,” said Peyton.

THE NEXT WAVE

For other cities that are primed to gain ground in the tech sector, common threads are lower costs of living and doing business compared to the bigger coastal markets, combined with an an attractive lifestyle. Detroit, Pittsburgh, Tampa, Phoenix and Houston among the cities to watch named in Cushman & Wakefield’s study.

“We believe Pittsburgh and Salt Lake City are up-and-coming tech centers that are just starting to see tech industry growth, and they certainly have the potential to evolve in a similar direction as Austin and Denver over the long term,” said Kevin Kaberna, executive director of investment management at Greystar, which often favors value-add properties in the first-ring and second-ring suburbs of gateway markets like Boston, Washington, D.C., and Southern California.

Tech-Cities-Chart

Tampa has an expanding startup technology culture, particularly in biotech, and that is expected to help drive more than 20 percent growth in multifamily development [or demand?] over the next few years. Media and social platform verticals are on the move, as well.

Texas continues to lead the nation in new product, with more than 37,000 units slated for completion this year in Houston, Dallas-Forth Worth, Austin and San Antonio. Houston’s energy industry, including alternative energy startups, is an important part of its technology sector.

In Phoenix, 10,302 units are in the pipeline, a 50 percent year-over-year increase. ZipRecruiter, the job search site, reported in July that the metro posted a 188 percent year-over-year increase in job opportunities from 2016 to 2017. Downtown Detroit is experiencing a renaissance as fintech and e-commerce companies move in, while an abundance of vacant buildings provides relatively low barriers to entry for multifamily developers.

In a sign of Detroit’s continuing renaissance as a technology hub, Ford Motor Co. is planning a $740 million mixed-use campus in the city’s Corktown neighborhood. Anchored by the historic Michigan Central Station, the 1.2 million-square-foot development will include a multifamily component and host as many as 5,000 employees for Ford and its partners.

And Pittsburgh, an Amazon HQ2 finalist and one of the nation’s most affordable major cities, has experienced an upswing in venture capital funding and has a significant tech workforce. Carnegie Mellon University is a big driver, graduating a significant number of computer science and engineering students each year.

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