5Qs for GBT’s Jeff Pape on the travails of new construction
When it comes to developing retail real estate, Jeff Pape has been around.
During his three decades in the profession, he served as VP of development at North American Properties and VP of investments for Regency Centers.
More recently, he led his own company, D&A Development, before leaving to take over as the chief development officer at GBT Realty, just outside of Nashville. The company has developed 40 million sq. ft. of real estate in 31 states—nine million of it single-tenant net lease delivered since 2012.
Chain Store Age recently had the opportunity to sit down with Jeff to hear what a long-active developer and builder had to say about the chances of new construction getting going during the age of tariffs.
GBT has been very active in new construction in the Sun Belt. How are you dealing with high costs for labor and equipment?
Labor costs are very market dependent. That said, there’s been an overall softening of labor costs in markets where new construction starts are down. In those areas, the labor pool is hungry for work and willing to be more competitive to win the job.
Materials are a different story that’s being driven mostly by the concern over tariffs. We’ve been told to plan for at least a 10% increase in materials costs for anything not sourced domestically. For us, any line item related to steel is the most concerning given our country’s reliance on China for steel.
Looking ahead, we expect the 10% increase in material costs to result in little less than a 5% increase in overall costs and, in tight labor markets, lower labor costs could offset that increase even more. But most contractors and suppliers are unwilling to price anything beyond 60 days due to the current economic uncertainty.
Tell us about your new build in the Brick and Mortar District outside of Austin.
It’s a master-planned, mixed-use project approximately 20 minutes outside of Austin in Kyle, Texas. We’re bringing the necessity retail component to this community with Sprouts anchoring a lineup that is already 90% leased. There will be 2,500 homes going up over the next five years or so.
Leases are already signed with Playa Bowls, Skip’s Wine and Liquor, Square Nails Austin, and Perspire Sauna Studio. And we’re pursuing a couple of restaurants that we think will be well-received by the community once the shopping center is completed later this summer.
There have been quite a few major liquidations in the market of late. Has that second-generation space loosened things up?
Now that we’ve all realized that physical stores can successfully co-exist with online shopping, the retail market has loosened slightly. Most of the available second-generation space is from the restaurant and drug store categories, so it’s no surprise that more relevant restaurants, dollar stores, and coffee shops are absorbing what’s out there. However, we still see a solid need for ground-up development in smaller markets.
Most new construction is focused on the Sun Belt. Do you think we’ll see more new projects being planned up north?
Given how few new construction projects have happened in that region, I do think we’ll see an uptick in retail construction in the north. But those projects will continue to be on the smaller side due to limited land availability and the overall maturity of those markets.
GBT is currently active in 16 states, working with financially strong retail partners with consistent sales growth, primarily due to their smart expansion strategies. That includes some grocery, some discount, and some triple-net lease projects.
For us, as we look for the next opportunity, it’s about remaining adaptable to market conditions and flexible enough to respond to market demands. We’re always looking to pencil in a project that is not only beneficial for GBT and our investors, but also good for our retail partners and the communities where we are.
What retail categories are sustaining the retail asset class?
Fortunately for retail, it’s a substantial and growing list. Without a doubt, those that are keeping the industry as strong and active as it is in large-format categories are grocery, farm supplies, and home goods.
For the smaller footprints, its uses that are, for the most part immune to online shopping: C-stores, automotive service and tire stores, car washes, fast-casual restaurants, banks, dentist and vision offices – to name a few.
