There are an increasing number of developments going on around town, particularly in Midtown. All the entrepreneurs are banking on their projects will succeed not only because they’ve got a winning idea but because the economy will be there for them.
Unless it’s not.
Remember the Great Recession, the one that makes risk takers shudder when they hear someone mention the year 2008?
According to some surveys, Memphis remains one of the more economically distressed cities in the country. Still, there’s a spate of building going on and some notable companies are coming to town. There’s a lot of promise and people are banking on good times continuing.
But what if? Economies stumble for a variety of reasons and you can find plenty of experts saying warning signs are all around. Maybe another recession, maybe a natural disaster, maybe a war, maybe … well, pessimists can fill you in.
John Gnuschke is director of the Sparks Bureau of Business and Economic Research and the Center for Manpower Studies, and professor of Economics at the University of Memphis. He says that looking at the history of developments Downtown, “the state of the economy and the nature of the project are both determinants of the outcomes we can expect.”
He considers the planned move by FedEx Logistics to occupy the old Gibson Guitar Factory and the multi-billion-dollar strategic expansion plan by St. Jude Children’s Hospital as fairly well protected against an economic downturn. Housing construction is more subject to the fiscal winds. “It is evident that the interest in moving downtown by FedEx Logistics is not the same as a proposed riverfront development that is sensitive to the business cycle or the availability of financing,” he says. “Each effort like a St. Jude project is solid and will happen, but other more speculative projects like housing frequently fail the test of the economy.”
Developers know the economy is subject to fluctuation depending on the moment and they look at its overall direction. “The bigger the investment and the bigger the commitment,” Gnuschke says, “the more long-term that time horizon is. A downturn any time in the next year or two probably is not going to have a major impact on most of the downtown redevelopment. Clearly the FedEx commitment to downtown was very important and that’s a stable organization that’s in it for the long run. But we have seen hotels come and go and announcements be made and never completed, so hotels are a little bit more complex. But we are in desperate need of a major, major convention center hotel. We can’t possibly expand the convention or visitors business in Memphis unless we have a high quality hotel that comes on the market in the next few years. Nashville did it downtown, and their downtown is booming. We’ve got to take some of the lessons from them and apply them locally and maybe our success will follow.”
Gnuschke says that economic fluctuations are not about Memphis. “What it really says is something about the overall economy,” he says. “When the economy is strong, all of the venture capital is going to be out there trying to fund the projects. A lot of these projects depend upon that.”
Developer Henry Turley has been through it all. “We are expecting to suffer, you know,” he says. “We developers live something of a biblical career of feast and famine. And we try to stay prepared.”
Turley vividly remembers when the Great Recession messed with everybody’s plans. He had a handshake agreement with a bank for a 95 percent loan on a development. “And then the world went south, I mean it went south big time,” he says. “So bad that we all took a hit. I remember when the bank called me and said, ‘I’m sorry we can’t re-market your bond issue. So, we have to take it ourselves and if you look at the default provision your interest will triple,’ and so on and so forth. I wasn’t defaulting, it was my lender, the whole market.”
So he’s a veteran of what he calls the “terrible stuff.” “What we’ve got to do is keep the liquidity we’ve got, and we tried to do that,” he says. “We tried not to over-leverage. We’ve got to keep our friendship with our richer partners alive and well. Just handle stuff right, and manage it right and improve it every day.”