Webbs' analyst says CentrePointe on firm footing despite recession

By Beverly Fortune - bfortune@herald-leader.com

Despite an economy in recession, a new financial analysis paid for by CentrePointe's developers is optimistic about their prospects for selling 91 million-dollar-plus condominiums, leasing retail space and filling a luxury hotel when the downtown development opens in 2011.

About half of the condos, which have an average price of $1.2 million, are expected to be sold before construction begins, according to a marketing and economic-impact study performed by the C.H. Johnson Consulting firm of Chicago for developers Dudley and Woodford Webb.

The study, completed in December, focused on the financial feasibility of the entire CentrePointe project, including selling the condominiums, renting the hotel rooms and parking spaces, and finding tenants for the office, retail and restaurant spaces.

Read the new feasibility study (7MB)
Highlights of the financial feasibility analysis of CentrePointe
By C.H. Johnson Consulting
J.W. Marriott and Spa: With no other luxury hotels in the city, "there will be no absolutely direct competition" to the proposed Marriott. The hotel is expected to open in 2011 with a $190 average daily room rate, 50 percent higher than six comparable local hotels.
■ Occupancy is projected at 59 percent when the hotel opens and will stabilize at 71 percent in five years.
Condominiums: The 91 residential condos will be priced significantly higher than the existing market. The report says units will be an average of 2,700 square feet and priced between $500 and $600 per square foot, but it says the average condo will be priced at $1.2 million. The Nunn Building Lofts, in comparison, were priced between $212 and $235 per square foot when put up for sale. CentrePointe buyers will have an average household income of $220,000.
■ The study predicts that 50 percent of the units will be sold before construction starts, and they'll be completely sold in three years.
Retail and restaurants: The retail and restaurant space will add "upscale flair" and diversity to retail now available in the area. Space is expected to lease at a premium, approximately 35 percent higher than other downtown retail spaces. The Johnson report expects 85 percent of retail space to be leased the first year.
Office: The market is "positive" for more Class A office space downtown. The last major downtown office development was the Lexington Financial Center in 1987. At least 90 percent of the space will be leased two years after CentrePointe opens.
Economic and fiscal impact: Construction of the downtown project is expected to generate $49 million in indirect and induced spending, $45 million in increased earnings, more than 1,100 jobs and $10 million in state and local tax revenue.
■ After opening, CentrePointe will generate $95.8 million total spending annually, $38 million in increased earnings and 850 jobs. State and local tax revenues will be $8.6 million.
Parking: The 580-space underground parking garage will be fully used because of a strong demand for downtown parking. The parking rate, although not specified, will be at the "top of the market."
On Page D2: Projected operating income for CentrePointe.

The Johnson report concludes that there is "strong market demand" for the development in the heart of downtown.

Some financial analysts and local real estate experts, though, said they are skeptical of the analysis.

Rod Petrik, a lodging analyst with Stifel Nicolaus & Co., said that in the current economic climate, "all your demand drivers for hotels are negative," with consumers reluctant to spend money.

"Right now, lodging demand has fallen off the table," he said. Whether demand will rebound by 2011, when the CentrePointe hotel is scheduled to open, is difficult to predict, he said.

The 35-story tower to be built at 100 West Main Street would include a 250-room J.W. Marriott Hotel, 91 condos above the hotel, 33,000 square feet of Class A office space, an 8,800-square-foot specialty restaurant, 14,000 square feet of retail space, a 6,000-square-foot entertainment venue and a 580-space parking garage.

Construction cost for CentrePointe is $282.5 million, a figure that includes demolition of the 14 buildings that were on the site, construction, finishing interior spaces and furnishing hotel rooms and common areas. That will put the building in move-in condition, Dudley Webb said.

He said the financial assessment of CentrePointe took into account dire economic conditions in the nation, but he said Lexington has been protected from the worst of the downturn because of its broad-based economy.

"We have a diversified economy, everything from state government to being the medical, educational, cultural center for the eastern half of the state, to a base of diverse companies. We've been insulated from the worst of it," he said.

Based on his experience with recessions in the 1980s and 1990s, Webb said, he expects the economy to be on the rebound by 2011, the projected date for opening the hotel and condos.

C.H. Johnson Consulting, which performed the financial analysis, has done work in the Lexington market before, including a financial analysis for a proposed hotel project at the Kentucky Horse Park that was eventually canceled by the state. Johnson is also conducting an economic study for a possible new downtown arena in Lexington.

Webb said the CentrePointe building will appear to be completed at the time of the Alltech FEI World Equestrian Games in 2010 because the contractor has been directed to have the exterior finished.

Webb said it was unlikely the hotel or condos would be ready for occupancy at that time.

"I'm hoping the restaurant and retail spaces around the perimeter will be open. That's what we're aiming for," he said.

Few million-dollar sales

To Lexington real estate agent Jim McKeighen, who specializes in selling downtown properties, the prospect of selling 91 million-dollar condos looks daunting. "Those figures seem very optimistic to me. There is no track record for that kind of investment in Lexington."

However, McKeighen said, "I certainly hope if they build the condos, they sell quickly. That would speak well of our market."

Figures from the Lexington-Bluegrass Association of Realtors showed 31 million-dollar residential properties on the market at the end of 2008, said McKeighen, who sells for Turf Town Properties.