The Real Deal

By Sharman Egan

Lagniappe columnist

Several months ago, the Downtown Mobile Alliance commissioned a study on the market potential for housing in downtown Mobile. The results of that study were released last month by Zimmerman/Volk Associates (ZVA), a consulting firm based in New Jersey that specializes in this type of research. ZVA concluded there was demand for up to 250 new households per year for the next five years in downtown. What does this mean? Is it good or bad, optimistic or pessimistic?

First, a little background. The study defined “downtown” as the area inside the Hank Aaron Loop: south of Beauregard Street, west of Water Street, north of Canal Street and east of Broad Street. This area currently has about 1,500 residents (note: this figure is residents, not households). About 200 more housing units are under construction or planned, not including the proposed Water Street Landing condominium project. So 250 new households per year is a lot.

It’s important to note the ZVA analysis looks at market potential – what could happen, not what will happen. In other words, they are saying if you build it (250 new homes that are “appropriate” for the market), they (buyers) will come. The purpose of the study is to convince prospective developers to build more new homes downtown and to provide guidance on what they should build and at what price level.

How did ZVA arrive at their numbers? After spending several hours pouring through the 182-page report, it looks like black magic to me. It seems they started with data from the IRS, sprinkled in more data from the U.S. Census Bureau, applied a target market model from another company (Claritas), stirred it all up in a big pot, baked it for a few months and out popped the results. But ZVA does provide a huge amount of data (albeit confusing data) to back up their conclusions, and they have a great deal of experience in doing this type of market study. So it’s not as if they just make this stuff up.

One of the nice things about writing this column is I get to express my own opinion (some might even say pontificate). And I don’t have to back it up with a lot of data. I can just pull it out of … well, let’s just say thin air and leave it at that. I think ZVA’s analysis is a little long on data and a little short on gut feel.

So here’s my long-on-gut-feel, short-on-data opinion. I think downtown Mobile could support 2,500 new housing units over the next five years, or twice as many as ZVA concludes. But remember: like ZVA, I’m saying if we build it, they will come.

Here’s why I think ZVA’s projection is too pessimistic. First of all, they started with IRS data for the period 1999 to 2003 (2003 is the latest year available). That may be consistent with good market analysis practice, but it doesn’t lead to an accurate projection, in my never-to-be-humble opinion.

Anyone who has lived here in the last three years knows Mobile has changed dramatically, even ignoring the Katrina effect, which proved to be temporary. There’s an energy in the air that can’t be quantified. And that energy is what makes markets take off. Of course, there’s also a lot of new economic development happening in Mobile that is quantifiable, and much of it has started in the last three years. I don’t see any indication ZVA has factored this into their analysis.

Second, the study appears to underestimate the effect of people moving to the city of Mobile from outside Mobile and Baldwin Counties. The study uses a figure of just 31 percent. I think it will be much higher than that over the next five years, because of the reasons outlined above. In my opinion, residents who are new to the area make up the group most likely to want to live downtown. Let’s face it; if you’re moving from in-town Atlanta (for example), you’re not likely to think the crime in downtown Mobile is a big deal. Again this is gut-level thinking, and it’s not based on any hard data.

The study also gives other insights into the market. For example, ZVA concludes there is a gap of $25,000 on average between the cost of converting existing buildings into new housing and what the market would be willing to pay for that housing. If so, that’s a problem. But I think they are off base on this as well. Again, they are underplaying the out-of-towner effect. New residents moving from larger cities where housing, especially downtown housing, is very expensive will be willing and able to pay more than the ZVA analysis indicates.

ZVA’s report concludes with a number of specific recommendations on steps the city (and to a lesser extent, developers) can take to ensure that enough housing is built to meet the demand in downtown.

What you think about the firm’s conclusions? Too optimistic? Pessimistic? E-mail me at sharman@sharmanegan.com and let me know what you think. Regardless of what you think, if you’re interested in residential development downtown, the ZVA study is a must read. Contact me, and I will e-mail you the executive summary.

Sharman Egan covers real estate and business for Lagniappe. E-mail her at sharman@sharmanegan.com

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