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Transit Tax Would Spike Commercial Leases, Inhibit Tampa’s Competitiveness

December 26, 2018 - 6:00am
Jeff Vinik
Jeff Vinik

Sharon Calvert exposed for the first time the impact of the All For Transportation tax hike on commercial leases. What are some of the implications for the owners and renters of commercial buildings? Let’s take a look.

A recurring theme the last few years around Tampa is the desire for corporate headquarters to relocate here, particularly to downtown Tampa. Tampa Bay did not make the short list for Amazon HQ2, but things move on.

Jeff Vinik and his team have been working since 2014 to land a corporate headquarters for his Water Street Tampa development.

TBBJ: "After the initial 2014 announcement of your real estate plans, there was a major focus on your efforts to attract a corporate headquarters to the district. There’s been significantly less chatter on that front in recent years — what is the status of that initiative?"

Vinik: "There are many conversations behind the scenes. These things take time, probably more time than I would have imagined in 2014."

"We do have a good amount — a major amount — of interest in the district, and we’ll be talking about that in the years ahead, but we’re still in a full-court press for bringing a corporate headquarters here. I personally believe it’s a matter of time, and probably some of those decision makers want to see buildings come out of the ground before they approve that kind of commitment. But as we improve ourselves as a community, it’s going to get noticed."

TBBJ: "So it’s taking longer than you expected?"

Vinik: "Yes, but maybe I just had unrealistic expectations. But when we’re done with this whole thing seven years from now, and we’re done with half of it three or four years from now, it’ll still be one of the fastest, largest urban development jobs that’s ever happened."

TBBJ: "You’re going forward without an anchor tenant in place? I know the goal was to get a corporate headquarters as an anchor."

Vinik: "We have a good amount of office demand, so buildings will go forward because we have the demand."

Demand is there, so the development is there. A couple of recent HQ relocation successes include the Mosaic Company relocating to Tampa, since most of its employees are already in Florida at its phosphate mines.

"Bank of America Plaza in downtown Tampa will be the new corporate headquarters of the Mosaic Company, the first Fortune 500 firm to relocate to the Tampa Bay area."

"The phosphate mining giant announced in May that it was moving its corporate offices from Minneapolis to Hillsborough County but the exact site had not been known until today."

"Banyan Capital, owner of the 42-story tower at 101 Kennedy Boulevard, said Mosaic will rent 20,000 square feet on the 25th floor. The move-in date has not been announced nor has the number of employees who will work out of the space."

Unfortunately for Vinik, Mosaic did not choose Water Street Tampa.

Also, AxoGen is moving to Heights Union, a new office building near Armature Works.

"Coming soon from the developers who brought you the Armature Works: Heights Union, two high-end office buildings next door to the trendy food hall, event space and co-working complex overlooking the Hillsborough River."

"Developers said Friday they plan to go in for city permitting on the $102 million project in coming days. The equity and financing are in place. Construction is scheduled to start by the end of the year. Occupants — including a publicly traded regenerative medicine company, AxoGen, which is taking a quarter of the space — are expected to move in the first quarter of 2020."

"That schedule would deliver Heights Union ahead of other Class A office projects recently  announced at Water Street Tampa and Midtown Tampa, two other ambitious mixed-used projects."

Unfortunately for Vinik, AxoGen did not choose Water Street Tampa.

Demand is increasing, rents are rising for Class A office space in Tampa.

"Rents for Class A office space during the second quarter of this year were up 4.5 percent in the Tampa Bay area compared with the same three months last year, the real estate firm Cushman & Wakefield reported this week."

"Asking rents for Class A office space averaged $28.07 per square foot in Pinellas and Hillsborough counties and were as high as $39 per square foot for so-called “trophy” buildings — typically, the tallest, best-appointed downtown office towers."

"Meanwhile, Hillsborough County’s overall office vacancy rate has fallen over the past year to 10.9 percent, its lowest level since the end of 2006.
And the county’s Class A vacancy rate is down to 7.8 percent — the lowest rate in more than 20 years."

"Cushman & Wakefield analysts project that rents for Class A office space could rise to the $33- to $35-per-square-foot range within the next eight to 12 months, which could strengthen the case for financing new construction."

“One of the interesting things about the Tampa Bay market is the vacancy rates are now at a level that indicates to developers that the market can sustain new speculative construction,” said Chris Owen, Cushman & Wakefield’s director of research for Florida.

That helps explain the announced office space developments such as Water Street Tampa, Midtown Tampa, Heights Union, and redevelopment around Westshore Plaza Mall.

However, there has been a little change recently that has been underreported until now that may impact these plans: the increase in the commercial lease tax in Hillsborough from 6.7 percent to 8.2 percent due to the 1 per cent All For Transportation tax hike and half-percent additional tax for education.

What are some implications to the office space development market due to this tax increase? Let’s start off with some math, based on a corporate HQ relocation needing 100,000 square feet of Class A office space.

At $30 per-square foot per month, a 100,000 of Class A office space runs $3,000,000 per month. A ten year lease is $360,000,000.

At the current tax rate of 6.7 percent, the monthly tax due is $201,000. At the new rate of 8.2 percent, the monthly tax is $246,000, or a monthly increase of $45,000. That adds up to $5,400,000 tax increase over a 10-year lease that the lessor has to pay, collected from the tenant.

For most businesses, $5.4 million is real money, even if spread out over 10 years. But it is especially important in the competitive commercial real estate markets.

Corporations seeking to relocate headquarters will be searching several locations regionally if not nationally. They will have many evaluation criteria, but one certainly is overall cost to the business. If all criteria being equivalent between say, Tampa and Orlando, but Tampa is $5.4 million more expensive over 10 years, which one will win the new HQ?

But then what happens after a couple of “Lost Another Headquarters” headlines?

How long will it be before the development community will start lobbying the Hillsborough BOCC for tax breaks to compensate for the lack of competitiveness due to the tax hike? Billion dollar subsidies turned out to be a big component of Amazon HQ2 decision to settle in high tax locations. Recall locally the millions in subsidies for Bass Pro Shops… and Jeff Vinik’s Water Street Tampa.

Or, will developers re-evaluate their plans for this speculative developments? They develop economic models to recapture their capital investments based upon the rents they forecast. Now they have to consider the negative impact of an additional 1.5% of costs they may not be able to recover from their tenants. This means the payback for the capital will take longer, and be more costly. Most of these developers are leveraged, so time is literally money. This will likely reduce development, and hinder Hillsborough’s ability to attract corporate headquarters and other major company operations.

The Tampa Bay Partnership, which donated $250,000 for the All For Transportation tax hike, recently released its 2nd annual Regional Competitiveness report. Yet somehow it overlooked the negative competitive impact of the tax hike.

Ironically, Jeff Vinik, who funded the All For Transportation tax hike for nearly a million dollars, still has not reported any tenant for his Water Street Tampa office space.

He’s not making it any easier for himself.

Mark Calvert is a conservative activist and with his wife, Sharon, writes the blog Eye on Tampa Bay. This story was reprinted with permission from Tampa Bay Beat.



Way too late to correct the lack of foresight and incompetence of Tampa City government over the last 40 or 50 years.

To preface I am a very conservative Republican, but I voted for the tax because people like you have no answer to the congestion in this county. Our Republican commissioners only have hurt our community with sprawl. While you may be correct that the tax will increase the out of pocket for rent, you don't mention that we still will have much lower overall costs then most other major cities. You also don't mention that most major companies would not locate to a city that horrible mass transit. Get over it, the people of Hillsborough voted for this..

Did you read the results in the TBT about the Regional Competetiveness Report? If you did then you will see they talked people into voting against their own interests. Our workforce, low in skills, education, inventions are almost zero, low income people into this tax. I find them talking them onto this tax slimy and evil. They only had a decade to come up with something to show us before they asked us to vote. There is nothing to get over but more of the same out of the same players that spent all the CIT tax we are still paying they and could not find money to fix our dangerous roads in a decade. You don’t sound a bit conservative, usually a bit more business savy and more respect for taxpayers money. The reason businesses do not come here is the housing and the educted, skilled workforce is not here.

Did you read the results in the TBT about the Regional Competetiveness Report? If you did then you will see they talked people into voting against their own interests. Our workforce, low in skills, education, inventions are almost zero, low income people into this tax. I find them talking them onto this tax slimy and evil. They only had a decade to come up with something to show us before they asked us to vote. There is nothing to get over but more of the same out of the same players that spent all the CIT tax we are still paying they and could not find money to fix our dangerous roads in a decade. You don’t sound a bit conservative, usually a bit more business savy and more respect for taxpayers money. The reason businesses do not come here is the housing and the educted, skilled workforce is not here.

This was not the only transportation funding solution proposed. Another funding solution was proposed to the county commissioners in April that does not require a massive tax hike: The then county commissioners, including Pat Kemp and Les Miller, all voted to have this proposal reviewed by the Citizens Advisory Committee at the June 6th BOCC meeting, the week before the All for Transportation tax hike petition drive started. Unfortunately, local media suppressed this information and did not consider it "newsworthy". All for Transportation was not truthful when they said they had the only transportation plan - they never called it a tax - in Hillsborough County. They refused to debate anyone who opposed their tax hike because they would have to defend their massive tax hike against another proposal that did not require a tax hike. If they weren't truthful about such important information, what else were they not being truthful about?

Ask yourself this question. Why did it take so long for this other funding solution to come about? If you believe that this option would have been enacted you are leaving in a dream world. The county commission has been by Republicans for as long as I can remember. Their answer to our gridlock has been to keep letting developers build further and further out and paying low fees. Then using our tax dollars to widen roads that are obsolete before they are finished because all the new developments off those same roads. I travel extensively and ride rail often. I talk to people on the trains and see all the economic development around those stations which brings in tax revenue and doesn't put more burden on our services. BTW if you question my political affiliation it's easy to look me up and see I'm a registered Republican and even been on campaign staffs in the past.

This AFT plan actually reduces the mobility fees developers/new residents pay. The effect is the regressive sales tax -- paid mostly by those who are already here -- will now replace much of the mobility fees. I also travel extensively, and have noted some TOD, but also transit blight. If you really research the matter, most of the so called transit oriented development is either treated with some subsidies or tax incentives, or zoning restrictions, or it would have occurred regardless, if in some other location or different form. Its not like Tampa or Hillsborough is starving for new development. How many more retail and restaurants and bars do we need? They seem to be building out just fine... AFT screwed up royally since they did not attempt to capture the increased tax revenue from increased property value from their plans. Either they were ignorant, or they don't believe their plans. Just because you're a registered Republican does not make you an authority on this issue.

you all sound like Hilary supporters whining that the election was stolen from her and she she be President because she won the popular vote. You should be ashamed

How specifically will this $16 Billion tax hike reduce traffic congestion over 30 years in Hillsborough County? All for Transportation spent almost $4 million marketing lots of promises their massive tax hike will reduce congestion and fix the transportation issue - for 30 years. Where's the engineering, data and evidence they provided you to support all their promises? Certainly All for Transportation provided voters all the pertinent information, including all the impacts of the tax, to make an informed decision and didn't expect voters to have to vote for the massive 30 year tax hike to then have to find out what exactly it's paying for - and not paying for.

I guess you didn't read the MPO report. What is your answer to decrease congestion? I agree that there are a lot of questions that were not answered. I am not a fan of increasing bus service. To me it actually adds to gridlock on roads with the bus halting traffic on some roads at it's stops. I am all for a rail line from USF through downtown to the airport as well as from Westchase via Busch Blvd (with connections to USF) to downtown (connections to Westshore and TIA ). Explain to me why you don't believe those rail routes wouldn't take thousands of cars of the roads.

If you've read the MPO LRTP, it states that it's plans will do little to relieve congestion. With the population increase, Hillsborough is too far behind already. It will be a decade or more before much improved transit or rail will even be deployed in Hillsborough, and even then it won't make any difference. It will stay in the low single digits as percentage of the population -- just like everywhere else. In the mean time, HART is looking at adding more bus lines.. fine with that.. but they will be on the same already congested roads that will only get worse over the years, and AFT restricts new road capacity. How's that going to work? Even in municipalities that have much more built up transit infrastructure and more congestion that Hillsborough, it still takes twice as long to commute via transit as it does with a car, and you'll be lucky to get to 10% of the jobs in the area in an hour via transit vs. nearly 100% via a car. These two stats are backed up from the census data, but the transit activists won't tell you that. We have issues with the Republicans who dawdled around one the years... mostly with transit plans, BTW, and doing little with roads. Perhaps we can't pave over everything, and no one says we should. But the AFT plan restricts road funding while 700,000 people are moving in with their cars. Just like everywhere, else, the majority will continue to use their cars - because it's more convenient, faster, and more comfortable. To not fund new road capacity as the AFT plan does is a disaster.

The politicians and the citizenship which keep electing idiots are a lost cause and have been out of their minds for way too long. No left wing excessive idiotic idea they cook up will ever shock reasonable people again.

And he consistently makes it worse for the rest of us

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