Q & A with Pete Hegener, Core Communities president

By Robin Pollack BJ contributor
May 5, 2003

Booming St. Lucie County is at the forefront of growth along the Treasure Coast, and much of that is because of Core Communities. The Port St. Lucie firm, which specializes in master-planned communities, has done much to put St. Lucie County on the map as a major residential area.

Its St. Lucie West project is the prime reason the area's housing starts by far outnumber residential growth in neighboring Martin and Indian River counties. Now, the development company has turned its eye to Tradition, its community that will boast about 6,500 homes, schools, a town center, retail shops and commercial endeavors. Tradition stands to help St. Lucie County become not only a major population center, but also a corridor for research and development and a significant employment hub, Pete Hegener, Core Communities' president predicts.

Core Communities, a subsidiary of Fort Lauderdale-based BankAtlantic Corp., also stands to receive a shot in the arm with plans by the $3 billion thrift to spin off Core Communities, along with homebuilder Levitt & Sons, into a separate public company. Such a move is expected to help Core Communities raise more cash for expansion across Florida.

Hegener spoke recently about Core Communities and its role in developing St. Lucie County with Robin Pollack, a Business Journal contributor and business writer for Scripps Treasure Coast Publishing Co. The following is an edited transcript of that interview:

Q: You're touting Tradition as a mixed-use development with housing, retail and office space. Why do you think that concept will work here?

A: Tradition is more than just a mixed-use development: It's a major master-planned community that combines very large-scale residential, corporate park activity, job formation, schools — a lot of social infrastructure. How do I think it's going to work? Based on the success we've had at St. Lucie West, I think Tradition will be more successful than St. Lucie West.

We currently have 4,000 acres at Tradition, and we have an additional 5,000 acres under contract. So, should we proceed to acquire the balance of that property, Tradition could become a major master-planned community that could create a major job corridor along I-95 for the Treasure Coast. The opportunity exists for local government to work together with the developer to create that job corridor. That's kind of exciting — that great potential for long-term job growth in our area.

Q: It seems as if St. Lucie County is much more accommodating to that kind of development than other counties along the Treasure Coast.

A: St. Lucie County, I think, has come to grips with some major issues. St. Lucie County, seven or eight years ago, had one of the worst unemployment rates and one of the lowest median household incomes in the state of Florida. St. Lucie County very aggressively took measures to correct that situation. Probably the single biggest thing that occurred at that time was Florida Atlantic University coming together with Indian River Community College to create a joint campus. That's been enormous in attracting major businesses to the county. There's no doubt in my mind that a dramatic effort has been made to produce jobs in the area, to change the quality of life for the residents who are here, and of course, in doing that, to create a huge tax base. At St. Lucie West alone, there are 150 businesses that employ 5,000 people just within the confines of our 46 acres.

Right now, Port St. Lucie has changed from what was a retirement community under the old General Development Corp., to what's become really a bedroom community where most people are migrating to their jobs. They are getting on the Turnpike or I-95 to get to work, and they are living in Port St. Lucie. Probably the single biggest factor to bringing businesses here is the population that currently exists within Port St. Lucie and St. Lucie County. I'm sure that's why QVC came here, because there was a ready supply of well-educated folks who were driving 60, 70 miles to their jobs. Now, they can work where they live.

Q: Why did you select St. Lucie County for Tradition, rather than another part of Florida?

A: We've had tremendous success with St. Lucie West over the years. We have an office in the Tampa area right now, and we have a very successful project that's going on in Hillsborough County, but we also have an excellent relationship here with St. Lucie County and the city of Port St. Lucie. So, it made sense for us to go with the government that we were used to working with. From the point of view of government, it's an opportunity for government to work with a known entity. So, we both have common goals.

Q: What are your projects along the Gulf Coast.

A: We have a 1,400-acre project in Hillsborough County that we have just sold the residential components of. It's located in what we call the new Tampa area, in northeast Tampa. And, we are constantly looking for other projects, either in Tampa or Orlando or the Jacksonville areas.

Q: Although St. Lucie County has more residents than its Treasure Coast neighbors, Martin and Indian River counties have had more success attracting commercial and retail development.

A: Part of that was due to the fact that Port St. Lucie was designed by GDC, so there was no real planning given as to how commercial and industrial uses should work together. Now, you're starting to see more retail coming into the area. We've got a Home Depot here, and a super Wal-Mart that just started down the street. We have a Rave Cinema with lots of restaurants located around it. And so, Port St. Lucie and St. Lucie County are getting their own identity, and they're getting the attention of the major retailers that they never got before.

Q: And it's getting more attention from the home building sector as well.

A: Absolutely. . . and that's being driven by three different markets. One market is from Palm Beach and Broward counties, people who are escaping crime and congestion and high prices. There's also a market that's moving off of the beach, and they're in the position where the value of their homes has inflated tremendously. They're able to sell and take their equity, and leave behind higher taxes and higher windstorm insurance. They can move inland into a nicer home, a larger home, for a fraction of the price. And, you still have the snowbird market from the North that comes in during the winter looking for second homes or a retirement community. That market, I think, has really sustained Florida over the years, and will probably continue to do so.

Q: St. Lucie County doesn't have a shopping mall. Why is that, and when might that change?

A: People who make location decisions for major retail make it based on Census data. They were using 1990 Census data, which was ridiculous. It shows Port St. Lucie with 40,000 people in it, and now you have a city that's bigger than West Palm Beach. Should we get a mall? Yes. I think we will become one of the major transportation corridors in the state with Florida's Turnpike and I-95, and what I think we're going to see are malls that locate close to those major transportation corridors. My guess is that it will be at the heart of the Treasure Coast, by I-95 and Tradition Parkway, which will be the name of the western portion of Gatlin Boulevard.

Q: What are the major differences between St. Lucie West and Tradition?

A: We came here in 1992 or 1993, and a lot of the infrastructure in St. Lucie West was in place, so . . . we had to work around what was already there. In the case of Tradition, we're able to plan it from the ground up. So, the major differences are a whole series of connectivity between areas of Tradition. As an example, Tradition will feature parks, some of which are as big as the park in Winter Park (north of Orlando.) It will feature a trail system that will meander through the entire community, and will link one residential community to another. It will feature active waterways so you can canoe and kayak. It also will feature one of the most advanced telecom systems that's ever gone into a residential community.

We'll also have a road system that connects Tradition to an expanded PGA Village, and an expanded PGA Village probably brings with it a major full-service hotel and conference facilities. We think that connection to PGA Village will help us market to a corporate client that's interested in coming to our corporate park. And obviously, the proximity to FAU and IRCC's joint campus will, we think, be a huge attraction for the area. Not only will it offer all of the children who live on the Treasure Coast the opportunity to get a four-year degree, but that four-year degree makes it attractive for a major employer to come into the area. That could be our single biggest attraction.

Q: Will Tradition have more residences than St. Lucie West?

A: Tradition is a 4,500-acre Development of Regional Impact that will have about 6,500 homes. That means single-family homes, townhomes and apartments. It also will have a significant amount of retail space.

Q: How many residences does St. Lucie West have?

A: St. Lucie West was originally envisioned to have 18,000 homes, and we changed that to not-to-exceed 12,000. The reality is we won't exceed 7,500.

Q: Why did that number go down so much?

A: The market demand was for single-family homes, not for condominiums or apartments. People are more interested in acquiring single-family homes on a larger lot, so you don't get the density that Tom White originally had envisioned.

Q: Yet, there are several apartment complexes coming on line in St. Lucie County.

A: There are two apartment complexes. On one, the first phase is completed, and the second phase is under way. And, the other is almost completed. Both of them are doing very well, in terms of occupancy. There's a market for apartments: As I mentioned earlier, there are 5,000 employees working at 150 different places, and in some cases, these are young people on their first or second jobs who are going to gravitate toward apartments. Also, a lot of people rent apartments for a year while they make up their minds about where they want to live.

Q: How much attention will be paid to rentals in Tradition?

A: All the residential land in St. Lucie West has been sold. There are really only about 35 acres of industrial land left in St. Lucie West. There are some office parcels and some retail parcels left. But, there's really no more opportunity for apartments in St. Lucie West. At Tradition, we're going to focus on having a mixture of residential projects: traditional single-family homes in traditional neighborhoods with front porches, and we'll have what I would call conventional homes on cul-de-sacs. We'll have townhomes, we'll have duplexes, we'll have rental apartments, and they all will circulate around the village center, which will be a town square. It will have retail offices. It will be a miniature town center.

Q: It sounds like you're trying to cater to everybody.

A: What we're trying to do is to create something totally unique to Florida. I mean, there's been attempts to do this in other places in Florida, like Celebration, and to a certain degree, Abacoa. I think what we've got is a hybrid . . . of what we would call a traditional neighborhood development with conventional types of residential, with an effort to link them together with telecom, walkways and active waterways. It will be easy for people to walk from their home to the office. It's a hybrid of residential projects, where we have different products for different folks.

Q: What about the Core/Levitt situation, with BankAtlantic spinning off its subsidiaries like Levitt & Sons and Core Communities into a separate company. How will that affect Core Communties?

A: Should that occur. . . what I believe it will do is help subsidiary companies like Core to gain access to more capital markets. It should help us in our plans for additional acquisitions and expansion. But, all of that will take a while.

Q: Obviously St. Lucie West and St. Lucie County are booming areas, the hottest thing happening on the Treasure Coast. Lots of people are coming here. What else does the area need?

A: We can put together the infrastructure that would allow the Treasure Coast area to have a first-class corporate park, something you might find in Atlanta or Denver or Irvine, California. We can also create . . . a technology park, and the university could produce research and attract venture capital for products to be developed. So, in the long haul, I think the strategic relationships and partnerships that the university and the community college will have with Harbor Branch (Oceanographic Center) or Scripps (Treasure Coast Publishing Company) are really important, because the products that their research develops will attract the venture capital that will enable that research to produce the product that will create the jobs. You used to see that when IBM was in Boca Raton, and all of the so-called information technology companies sprung up around IBM. In Seattle, you're starting to see that with biomedical research, with companies which do nothing except research pharmaceutical drugs. So, I think oceanographic research, combined with what FAU is doing, is going to bring scientists to the area, and will eventually produce products. That will potentially make I-95 the center, the corridor, for research and development.

Q: How did you get involved in Core Communities? What's the history behind it?

A: In late 1992, I was recruited by Thomas White Jr. and his bankers to take over the St. Lucie West development and to restructure and reposition it. We put together a team of well-qualified young people who are now operating Core Communities. We restructured St. Lucie West and got it moving again. In the course of doing that, we attracted the attention of BankAtlantic, and BankAtlantic acquired what was then called the St. Lucie West Holding Corp. We then changed the name of the holding company to Core Communities, because we. . . acquired the land that is now Tradition, and moved into Hillsborough County with Live Oak Preserve. So, it made sense to have a name change from St. Lucie West Holding Corp. to something that more appropriately described what we do, which is building master planned communities.

Q: Where do you see Port St. Lucie and St. Lucie County 20 years from now?

A: I think what you're going to see in St. Lucie County is a continued development of a higher education system, and more money, more attention, directed at the school system. Because, it now has a major educational system where our kids can go from grade school right into community college or university. I think you'll see a major job corridor developed along I-95 between St. Lucie West Boulevard south to the Martin County line. I think that job corridor is going to include a corporate park, a regional mall, a technology center and probably a distribution center. It will become the major employment area of significance north of Palm Beach.

Q: There's been much speculation about an impending real estate bubble. What's your take on that?

A: The only thing I see for a so-called real estate bubble is in speculative real estate, where people buy condominiums that are pre-built at pre-construction prices and sell the condominium before it's completed, Or, buying three lots at a resort project and hoping to sell two and keep one, based on the promise or expectation that the price will increase. That concerns me, because that's the same mentality of the investor who was investing in all of the high-technology stocks and telecom stocks three years ago. That bubble is out there.

Am I concerned about that happening in Tradition or St. Lucie West? No, because they're based on sound fundamentals, and those are job growth, wages and significantly low interest rates, that, even if the rates increase to what they were four or five years ago, are still going to be awfully low. So, we're looking at interest rates that I don't think anybody has seen since the 1960s. I think as long as we have significant job growth, you're going to continue to see a significant expansion in real estate.

In a major master-planned community where you have a balance of jobs and employment centers and retail centers, medical, banking, social fabric, you create a desirable place for people to live that's different, unique, from what they've experienced before. Hopefully, we'll be very successful.

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