Power Lunch: Is Columbia still business friendly?

Development executives stress need to keep existing businesses happy

Kristi Ray has heard the crack all over town.

The city government is no longer friendly to business, owners and managers tell the Chamber of Commerce vice president during her periodic visits to member businesses.

“What we’re hearing from a lot of our members is that the city has to get back into practicing how to say ‘yes’ instead of saying ‘no,’” Ray said during the CBT’s lunch forum on economic development at the end of August. “We’ve kind of gotten to the point where, if businesses want something done, the answer is no — so much so that I had a member tell me the other day the city staff is now saying you might as well get a lawyer to get it done.”

Ray said whether it’s a rezoning request or an expansion project, “Our businesses feel like, if there is a chance to grow or expand, it’s definitely not going to be easy.” The city, she added, should be able to preserve the quality of life in Columbia but also “make things happen.”

Mike Brooks, the city’s new economic development director, and Mike Downing, director of Connecting Our Regional Economy, or CORE, told forum participants that the city needs to nurture homegrown businesses because their health is critical for economic growth.

“In most communities, 80 percent of your new jobs will come from existing employers,” Brooks said. “They don’t come from the attraction projects. A lot of time attraction projects come in with a small number of jobs, and over the years they will develop and become retention and expansion projects.”

“The most important part of economic development is keeping your existing businesses thriving and happy,” Downing added.

Ray did acknowledge that that the City Council made a business-friendly decision recently by allowing property tax breaks known as Tax Increment Financing to be used for the renovation of the historic Tiger Hotel and for the construction of a multi-story, multi-use building downtown.

And Ray was careful to exclude the two City Council members participating in the lunch forum, Laura Nauser and Jason Thornhill.

“We’re preaching to the choir, with our two city council people here,” Ray said. “I wish you could have brought in a couple of others.”

Nauser said she hears the “unfriendly” complaint, too, but the City Council’s 5th Ward representative responded with a complaint of her own: it does no good to make a generalized criticism of her colleagues on the council or government administrators.

“I hear that we are not business-friendly, but nobody ever quantifies how it is that we’re not business friendly,” Nauser said. “I can’t solve a problem if I don’t have specifics. There have been a lot of projects that we’ve approved that I would consider as business-friendly. Unless we have more specifics from people within the community, we can’t start addressing them.”

Nauser pointed out that under City Manager Bill Watkins’ initiatives, the municipal government has streamlined its process for approving permits.

But a few stories of specific problems did emerge during the discussion.

Ray quoted an executive as telling her recently that the company’s construction of two new stores was behind schedule because the city “is making us jump through some hoops that we don’t have in other towns.” She said companies are willing to follow the rules “but at the same time we don’t want to make it too hard. We still have to find a way to make it easy and still preserve what we want to preserve.”

(Ray told the panel the name of the company based outside of Columbia but didn’t want it made public.)

To illustrate one example of “what a smaller business has to go through,” Bob Black, chairman of Regional Economic Development Inc., or REDI, recounted a conversation he had the previous night with the owner of a local restaurant that’s been operating more than 30 years.

“He said, ‘Well, I want to put in a new (ventilation) hood, and I thought I would probably need to be shut down for a couple of days to do that. I found out that with all the inspections and everything I’m probably going to have to be closed 10 days, and I can’t afford a $40,000 hood and lose 10 days of business.’”

State Rep. Chris Kelly, a former Boone County commissioner, said those kind of specific problems are what elected officials need to hear.

“To have people complain in general is annoying and unhelpful because you can’t get your hands around anything,” Kelly said. “We all know the climate of the council is actually pretty good. Watkins is pretty good. But down lower in the bureaucracy, there are people who want to get their jobs done and they want to comply with the law. They’re not thinking big picture, that it’s my job to help this town grow.”

Housing market hits bottom, slow, bumpy climb ahead

Rob Wolverton, president of R. Anthony Development, said the words that might best describe the residential real estate market are “uncertain” and “fragile.” But the market analyst also finds confidence in Boone County’s relative stability.

“I feel like we’ve found our bottom,” Wolverton said during CBT’s Aug. 27 Power Lunch on Economic Development, where he outlined his mid-year real estate market report. “We’ve found our stability, and we’ll just kind of bump along for a little bit.”

Wolverton said the market for new construction “has suffered tremendously” and estimated there will be no more than 200 building permits issued this year, compared with about a thousand in 2005, and in 2006, an 80 percent decline.

“The compounding affect is when we have fewer building permits and we have less fees being paid to the city of Columbia to support our public works department, less construction building materials being sold and less sales taxes.”

Wolverton warned that there are “problems on the commercial side of the industry now,” exacerbated by tougher lending regulations. “Last year there was a fallout in the mortgage industry; this year we will see some fallout in the commercial side.”

The following is a condensed version of Wolverton’s report analyzing the real estate market in Boone County at the mid-year mark:

The Boone County residential real estate market peaked between the years 2004 and 2006 at unsustainable levels. The market began its correction in July of 2006, and we have now endured three consecutive years of downward correction. This leads to the following three questions:

1. Is our correction over, and have we stabilized?
2. Is today’s market the new reality from which we need to base our projections?
3. Or, have we corrected to a level that is less than what can reasonably be sustained and we are poised for the market to increase over the next few years?

First, the fundamentals of our overall market have remained steady in some areas, but have eroded in the most critical statistic regarding home sales, and that is unemployment. The national unemployment rate has gone from 5.5 percent at this time last year to over 9 percent today and appears to be heading north of 10 percent. State unemployment was 5 percent at this time last year and is also above 9 percent. The Boone County unemployment rate as of the end of June (per the REDI Web site) was 6.8 percent as opposed to 3.5 percent at that time last year.

Home sales for the first half of the year are interesting and open to many interpretations. We sold 703 single-family detached homes through the Columbia Board of Realtors Multi-List System in the Columbia Public School District. In 2008, we sold 843 for the same period, which is a decrease of 16 to 17 percent in total sales from 2008 to 2009. New-construction homes sold in the same area for the same time period were 86 for the first half of 2009 as opposed to 137 for the first half of 2008, which represents a 37 percent decrease.

The answer to the first question is that our residential market has stabilized. Our total sales are down, but our inventory seems to be following the sales down. New construction home inventory is very solid, with less than 100 homes available, which is down from over 400 in our peak years.

The pre-owned market is a little overstocked, but such that, with one or two good months in a row, it will be very healthy. The two major threats to the residential market are unemployment and inflation. Tighter lending standards that have been imposed over the last 18 months knocked some buyers out of the market. Rising unemployment has knocked more out of the market. If we encounter significant inflation, which appears to be a near certainty at this point, even more buyers will be removed from the market. My view continues to be that a natural level of home sales per year in Boone County when the market is healthy is 1,600 to 1,800. We will very likely not achieve anywhere near that number for this year.

The answer to the second question is that I believe what we are experiencing is our new reality for the next year to 18 months. There is still significant uncertainty in the market, which has a negative influence on home sales. Thankfully, the stock market has begun to show signs of life, which is very positive. However, I personally believe there is another meltdown in one of our markets in store in the near future. Last year we saw the mortgage market undergo tremendous change and we saw the stock market plummet. Both of those markets seem to have stabilized. This year the commercial capital market is under tremendous pressure, and there is tremendous change under way.

The answer to the third question is that the market has corrected to a level that is below what I believe to be natural demand. I do believe we are creating a tremendous level of pent-up demand for homebuyers. Some growth in population has occurred, and student enrollment is up for yet another year. This bodes very well for the residential rental market and creates demand in the entry-level buyer market. I believe the lion’s share of our growth is students and people from some of the smaller agricultural communities that have little, if any, opportunity for the kids graduating from high school who do not want to go to college. Again, this creates bottom-up” demand, which is very good. It appears this demand fizzles at around the $300,000 home mark. The bottom line is that I see at least another 24 months before the pent up demand that has been created from September of last year to now is unleashed.

The big picture of our residential market in Boone County has shifted significantly in the last 12 months. Our level of sales is down along with our level of supply. We are still badly overstocked. However, our demand at this time last year was greater than the demand today, which has the net impact of increasing the number of months supply available. I do not see that there will be demand for any new residential development for the next 24 months, if not longer. If there is new construction in any residential market for the next 12 months, it will be in the rental market.

The commercial markets are extraordinarily difficult. Tougher lending practices and pressure from bank regulators has dramatically decreased the amount of capital available in the commercial lending markets. We are in the midst of a major correction in this market, and no one knows where the bottom of the correction lies. What we do know is that this correction at the national level absolutely trickles down to us at the local level and is having a major impact.

My view today is that the next six to eight months is critical to our overall economy in general and equally critical to our local real estate market. If we can avoid the loss of a major employer and avoid any further deterioration of our national markets, we will slog along for another year as we are doing today.

Power Lunch Participants

• Bob Black, Chair, Regional Economic Development Inc.
• Mike Books, Economic Development Director; President, REDI
• Craig Brumfield, Development Officer, The Callaway Bank
• Mike Downing, Executive Director, Connecting our Regional Economy (CORE)
• Rick Gohring, President, Callaway County Market, The Callaway Bank
• Bruce Hackman, President, Fulton Area Development Corp.
• Byron Hill, CEO, ABC Labs; Chair, Columbia Chamber of Commerce
• Chris Kelly, 24th District Representative, Missouri House of Representatives
• Debbie LaRue, Director Marketing and P.R., The Callaway Bank
• Gary Meyerpeter, President, Boone County Market, The Callaway Bank
• Karen Miller, District 1 Representative, Boone County Government
• Laura Nauser, 5th Ward Representative, Columbia City Council
• Kristi Ray, Vice President, Columbia Chamber of Commerce
• Bob Roper, Member, Water and Light Advisory Board
• Chrissy Smith, Loan Officer, The Callaway Bank
• Jason Thornhill, 2nd Ward Representative, Columbia City Council
• Matt Vander Tuig, Member Planning and Zoning Commission
• Rob Wolverton, President, R. Anthony Development