BusinessTrends 2019 – The Good, the Bad, and the Unknown
A Summary of the Panel Discussion
On Wednesday, October 16th, Trenam Law presented our annual panel discussion and networking event—BusinessTrends—this year entitled “The Good, the Bad, and the Unknown,” at the Tampa River Center.
WUSF’s Morning Edition Co-Anchor, Bradley George, moderated the discussion among panelists Tim Bogott, CEO of TradeWinds Island Resorts; Scott Curtis, President of Raymond James Private Client Services; and Tony DiBenedetto, serial tech entrepreneur and former CEO (and Co-Founder) of Tribridge Capital.
Mr. George began the discussion by setting up the following conditions:
The Good: According to recent economic reports, the good news about the economy is that businesses are hiring, unemployment is hovering around 3% nationally (and 3.1 % in Florida), household and consumer retail sales are strong, inflation is flat, GDP remains around 2.1 %, and the Fed recently cut rates by a quarter percent to keep credit flowing and spending on track.
The Bad: However, future economic indicators appear to point towards a slowing global economy, with uncertainty regarding U.S. trade policies – particularly with China – that will impact GDP in the next few quarters; business investment remains weak (despite the 2017 tax cuts) with many large corporations sharply lowering their plans for capital investments and sales expectations; and Brexit’s potential impact on the UK and the EU as well as the very real possibility of a recession in Germany, making markets and national economies nervous.
The panelist were then asked about The Unknown, based on the foregoing.
Mr. DiBenedetto, viewing the world through his tech lens, stated he doesn’t distinguish between local and national or international economies because most of the companies he is engaged with are part of the global market. He acknowledged that events occurring in China, Germany, Greece, or elsewhere tend to have an impact on what’s happening in the U.S., albeit indirectly at times. He shared the following observation: “Many times it looks like we’re headed to negative future, but we continue to outperform. It’s confusing. Things seem ok in the short run, but the long term remains uncertain.”
Indicating that investors are somewhat concerned, Mr. Curtis has observed that there is a lot of money flowing into shorter term investments that yield less but minimize risk and provide certainty on principle. He said that investors are interested in economic and investment certainty. He stated, “Everyone is focusing on diversification to stay invested; to keep up and outpace inflation with equities. Blended portfolios rule the day, but more discretionary money is flowing to investments that are shorter-term, guaranteed types of investments, than we’ve seen in last 5 years.” As a frequent traveler, particularly throughout the U.S. and Canada, he has noticed there is, with little exception in metro areas, no pullback in the rates being charged by property owners for real estate. Yet there is great demand for space, especially by tech companies, who oftentimes lease space in anticipation of future growth. This is putting pressure on other businesses that also may want to lease in downtown areas. He acknowledged that this may be a long term trend, but currently it appears to be a definite short term trend, as urban areas are increasing in population and suburban areas declining. Mr. Curtis noted “This may also be a generational trend as more young people prefer to move to cities more.”
Mr. DiBenedetto noted that, in addition to Mr. Curtis’s observations on investments, he was also starting to see pushback in the tech/private equity space, particularly in terms of valuation. “Even with recurring revenue and a growth outlook, valuations are still becoming tighter. There is concern in the field and valuations are starting to pull back.”
Drawing Mr. Bogott into the discussion, Mr. George questioned how technology, which is seen as disrupting just about every industry in some fashion, was directly impacting tourism and the hospitality industry specifically, citing the recent collapse of the Thomas Cook Group travel agency in the UK.
“Tech is definitely disrupting the hospitality industry, particularly with companies like AirBnB,” stated Mr. Bogott, who then provided the following statistics and analysis:
“In 2018 – there were over 15.5 million visitors to Pinellas County. Nearly 3.2 million of them stayed in hotels, with another 2.1 million staying with friends or relatives, and an estimated 1 million opting for vacation rentals like AirBnB. Four or five years ago, that number was in the hundred-thousand range. So we’re seeing that every home, every building, is all of a sudden available for rent, and we don’t like that.”
Mr. Bogott went on to explain that with 800 rooms, the TradeWinds Island Resorts is a good indicator from both a leisure and a group house perspective. From his perspective, the hospitality industry in Pinellas is currently strong and having an overall good year from a revenue standpoint, especially compared to last year which was particularly bad due to the red tide conditions. “We never had it [red tide] until late in the year, but because of perception and media promotion of red tide, it affected us throughout the season,” he said.
In terms of the overall economy, Mr. Bogott saw both positives (low unemployment) and negatives (regulations, climate change impact, etc.). “I think the negatives are not going away anytime soon and when they do, they will be replaced with others, which will be the norm for some time in the future… we are 11 years into the recovery and expectations are that we have to have some sort of pullback, which may be the most probable reason we’ll have one – because of expectations and nothing else.”
The panel discussion then turned to the topic of workforce quality, referencing a recent survey by the Florida Chamber of Commerce where 27% of employers in the Tampa Bay Metro region identified the issue as their top concern.
Mr. Curtis wholeheartedly agreed, stating that Raymond James has “350 to 400 open positions we are trying to fill globally, with the majority in our St. Petersburg headquarters. Most are skilled positions, but some are entry level and yet still difficult to fill.” Mr. Bogott also agreed, adding that, “Hiring is our biggest problem… the ability to access and retain quality employees.”
Mr. DiBenedetto provided a broader assessment, stating:
“Yes, workforce quality is definitely a global problem in tech and the startup space. Locally, we don’t have a dearth of talent on the tech side, so we have to import a lot of folks. There is tremendous pressure. Problem is, there isn’t enough talent out there… most people don’t sell tech only in their back yard; sold broadly the competition for talent is global, resulting in wage increases in the tech sector. I’ll look at jobs posted four or five years ago and today those command wages at 40-50% increase. There’s basically negative unemployment in tech because so many jobs are not being filled. It’s a high growth industry but with lack of talent, so we resort to pulling from other industries…
There’s also competition for location [versus Silicon Valley, other tech centers] so we often pitch more than just good weather and the cost of living. We pitch the vibrant business community that supports startups and the tech industry. I’ve been in this market over 30 years, and it has changed dramatically. We support entrepreneurs more now than we ever have; there’s more capital, more resources, more jobs. For tech people, if it doesn’t work out with one startup, you move to another. And there are also medium and larger firms in the area they can join. It’s a great ecosystem right now. There are a lot of young people, which is positive for the tech industry.”
Mr. George asked if the number of openings at Raymond James was driven by people accepting offers elsewhere or other factors. Mr. Curtis offered the following:
“Growth of the firm is the primary reason. Most are Technology or Risk management roles, or other administrative roles in operations which, as the firm grows and adds advisors, is a natural need. While we invest in tech, it still requires a human hand or voice with knowledge on the other end of the phone or email to assist clients properly. It may also be firm specific, as we’ve had the same rough number of jobs open over the past four or five years. There aren’t that many other financial services providers in the area. So when they come to Raymond James, they stay. When we recruit from NY or other major metropolitan areas with significant financial industry presence, we promote the good weather, cultural opportunities, etc. here. But it’s the cost of living that has been a surprise in the last few years. The cost of housing is more expensive than expected.”
Pivoting off of Mr. Curtis’s comment, the moderator asked the panel what are the most significant challenges in terms of housing and transportation.
Mr. Curtis identified transportation or access to transportation as his top concern. “Where Raymond James is located, most employees have to have a car to get to work. In fact, we just built out another parking lot to house up to 300 employee vehicles because all our other lots are full.” He said that, from his perspective, when it comes to the location of the most attractive places to work and what attracts candidates to specific places, a “short commute, followed by affordable housing; particularly those looking to purchase property when supply is low.”
According to Mr. Bogott, tourists rank four factors when considering where to spend their vacation dollars: 1) Outdoor amenities and activities (in our case, the beaches); 2) Quality of accommodations; 3) Cultural activities; and 4) Sports (professional and amateur) activities. Any negative perceptions in these areas will impact tourism.
“Case in point, Pinellas beaches had a red tide problem last year and the 2010 oil spill about a decade ago. These obviously impacted tourism. In terms of quality accommodations, fights about land use rights and redevelopment have had a negative impact as well. As we demolish old hotels, etc., and create private housing, we are hurting our tourism industry… Cultural activities, museums, etc., are important because you have to have someplace to go after the beach and sunburn, which may also include sporting events. I would also add transportation, housing, and the promotion of the hospitality industry. For instance, the Lightrail from Miami-Dade to Orlando to Tampa should have been extended over to the beaches and it would have paid for itself and then some.”
Mr. DiBenedetto picked up on those comments to add his views on the challenges presented in marketing the qualities of the region. “We shouldn’t sell the weather… that used to be the main selling point. Historically, we have talked about no income tax, cheap labor, affordable housing, and great weather. That strategy doesn’t work anymore,” stated DiBenedetto. He explained that his experience has taught him to build things from a quality perspective. Therefore, we should be stressing the qualities of the area:
- We have a large metropolitan area that can be marketed as one region, as opposed to smaller cities competing against one another;
- The educational institutions in the region; and
- The entrepreneurial ecosystem – the collaborative spirit, start-up opportunities, and financial/private equity support that has developed in the region over the past few years.
In his opinion, when we emphasize and “sell” cheap – whether it be labor, housing, or other – both price and quality go down, and that is unsustainable. Rather, he believes we should sell the positive, unique features of the region, not those that are common throughout Florida [e.g., beautiful beaches, no state income tax] and other coastal cities that may be vying for the same candidates, business, etc. “We have to be a grown up city, pick a solid marketing point, and sell it well,” stated Mr. DiBenedetto. He said, “And we can’t sell affordable housing any longer because there no longer is affordable housing. There are lots of places that have cheaper housing than the Bay Area, so let’s stop saying that.”
Mr. Bogott interjected, advising that we do, in fact, have cheaper housing. But acknowledged it would be an hour or longer commute, to which Mr. Benedetto responded “I’d rather raise the jobs, salaries, etc., and let them afford the housing we do have.”
Providing his thoughts on the topic, Mr. Curtis referenced what he believes to be a strong differentiator for the region: the spirit of brotherhood and community in the region. But he acknowledged the difficulty in marketing that concept. “How do we tell/sell that story? You can sell whatever point you want; it’s getting people to believe it [that matters].” That, and having people overcome the preconceived, outdated, or flat out incorrect perceptions of the area.
The final question of the program was directed to Mr. Bogott and addressed the impact of new trends in the hospitality industry in the region. He discussed the density issues in both Clearwater and St. Petersburg, indicating his belief that as the local economy grows, those issues will be resolved or absorbed. Specifically for TradeWinds, Mr. Bogott discussed its immediate future plans. “We’re putting new capital into our 30 acres and with the resolution of the new density issue in St. Pete, we will now be able to add 800 new units. So bringing capital to the table to make these improvements and renovations is what’s directly ahead for us,” said Bogott. “The importance of redevelopment can’t be understated.”
Mr. Bogott then wrapped up his discussion with his views on the future of Visit Florida.
“Tourism accounts for $100 billion economic impact in Florida. $8.4 billion is spent in Pinellas alone. With tourism accounting for 10% of the economy in Pinellas, [tourism] is the largest industry by far in the state. For the Visit Florida agency, there were major cuts to expenditures, by about half their budget. The prior year, the legislature tried to eliminate it altogether. It makes no sense to take the primary supporter or the largest industry in the state and decimate its budget and effectiveness. Other states have gone through that, Colorado being a good example. They cut their program completely, saw their tourism revenues drop dramatically, and they have never recovered. We should protect tourism as much as possible in the state. Any decrease in tourism would have impact on other industries such as restaurants, shops, and even grocery stores who are supported by tourism as well. You may not realize the connections, but tourism is a major factor in the quality of life in the area.”
The program went on to a brief question and answer session, followed by a networking reception.