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Pensacola’s Palafox Makeover

• Blue Commercial Properties • Season 2 • Episode 7

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A resurfacing budget doesn’t usually change a city’s future—unless you turn it into a catalyst. We break down how Pensacola leveraged utility work to reimagine Palafox with ADA-correct sidewalks, traffic calming, elevated crosswalks, and long-overdue drainage upgrades, creating a safer, more walkable corridor that supports stronger retail and restaurant performance. From the first boarded-up buildings to today’s momentum, we trace the path that brought downtown to this moment and what it takes to push through the hard part: construction.

We talk frankly about the numbers most people whisper—20% to 50% revenue hits while the street is torn up, and the lingering 10% to 20% drag as customers relearn routes. Then we map the solutions that actually help: strong contractor incentives to finish early, a backstop that shifts bonuses to retailers if deadlines slip, city-backed free parking, and a clear market-wide call to dine and shop the construction zone. For owners and asset managers, we share our playbook for temporary rent relief, deferrals, and win-win term extensions, plus why proactive outreach can preserve tenancy and protect valuations.

What excites us most is the value you can’t see in a rendering. Narrower lanes mean safer speeds. Better drainage protects inventory and capital investments. True ADA access widens your base and keeps customers returning. Pair that with a cohesive streetscape and you get a destination where people linger—and spend. If you invest, lease, or operate in commercial real estate, this is a field guide to surviving the dip and capturing the upside when the barricades come down.

Enjoyed the conversation? Subscribe, share with a friend who’s navigating construction, and leave a quick review to help others find Blue Dirt. Got a question or a topic you want us to dig into next? Send it our way.

Learn more about Blue Commercial Properties on our website.

Michael Carro:

Welcome to Blue Dirt, the podcast that digs deep into the foundation of commercial real estate investing. Unlike most real estate shows that focus on deal making and market trends, Blue Dirt gets into the nuts and bolts of what truly builds long-term value, the building itself. We break down how to spot deferred maintenance before it costs you, why a solid preventative maintenance program is a game changer, and how triple net leases can maximize your investment returns. We'll also explore the importance of strong landlord-tenant relationships and how they drive stability and growth in your portfolio. Whether you're a seasoned investor or just getting started, Blue Dirt gives you the practical knowledge to make smarter, more profitable decisions in commercial real estate. It's time to get your hands dirty and build value from the ground up. Let's dig in. Welcome to Blue Dirt, where even idiots can make a killing in commercial real estate. I'm Michael Kiro with Don Redhead. We are going to be talking about a little bit about our hometown, Pensacola. And uh what we want to chat with today is we have a downtown project that is going to help transform several blocks in our key portion of our community. And we want to kind of talk through as a landlord and as a tenant and shop owners and retail and restaurants, what they have to go through, what's not, what's common, what's not common. And just thought we'd just kind of uh discuss it and just see what comes up.

Don Redhead:

Yeah. Yeah, it's it's something that it's one of those those things, especially as as property owners, you're you're looking at that. It's going to be a great addition to the community. It's going to ultimately yield uh great results for for many years to come. And it's really because of that, that work on the front end that has been happening for you know 15 plus years in our community that has driven demand for this. And now that demand is here, right? Right. The downtown has has done so great. Uh there's shops, there's restaurants, great food, great, you know, nightlife, great environment uh to bring your family. And now uh we've created the situation where we want it even better, and it's and it's really the right time.

Michael Carro:

So let's kind of talk a little bit of history because you know it's really interesting to see Pensacola. So I think I made my first downtown purchase maybe 13 years ago. So it hasn't been that long. Uh maybe it's been 14, I can't really remember. But I bought uh a property on the corner on of Palafox and Main Street. And so it was a boarded up building, uh, about 5,500 square feet. And what was interesting is the two buildings on the both the northeast corner and the northwest corner were also boarded up, and the southwest corner was a piece of vacant land, raw dirt. So, so this was really early on, and we're talking it's only been maybe 12, 13, 14 years. So Pensacola at the time was offering a what they called was a facade improvement grant, meaning if somebody took one of these dilapidated buildings, they would contribute towards the uh at least the structure being looking good with um some supplies, uh uh and supply costs offsets and stuff like that. I think we got a total of maybe $50,000 in some type of credit. So fast forward, a lot of investors bought a building here, building there, and then no one person can do it all, but uh, but we've had some significant investors come into our communities and really, really do more than their fair share. And they've done a great job, but but by all in all, it it takes an entire community to to make these investments. And so over time, um, those two buildings I mentioned on the northeast and northwest corners got purchased, rehabbed, beautified, and it really went all the way up Palafox. So we have about six blocks roughly that I'm gonna call our core downtown. And uh, and so all of these started getting filled up over the years, and and really just our community just has been thriving, but one at a time. And so um we shifted our political governance to a strong mayor format. And so we've had these uh mayors come in, uh, and I think we're on our third strong mayor, and um and they they each do their own thing. And but for the most part, it's been really, really positive. Um, all three mayors that we've had so far have have have had backgrounds in in real estate and and development and things like that. So they really understand uh growth. Um and so now we're at this, we're at this head where um whenever you do a construction project in front of somebody, there is absolute pain. It's not a made-up pain, it's real pain. Um and so, of course, when when the mayor announced this reimagine Palafox campaign, those in the affected area, rightly so, had concerns. And I'm talking about the shopkeepers, because by and large, the property owners, of course, are wildly in favor of it because their long-term uh investment is should go up and be more positive. But the shop owners, the retailers, the restaurants, the bars, they're gonna have a period of time where their business is going to be affected and it's gonna be negatively affected. And and I can talk about this in a different way because anytime you have a restaurant on any road, and of course everybody's focused on downtown Pensacola, but if you have restaurants on the outside streets and the DOT, the Department of Transportation comes in and chops up your road, you're gonna suffer a loss during that construction. It can be as as little as 20% or as much as 50%, but it's typically in that range. We used for for our restaurant group, we we've always figured about a 35% hit during that period of time. And sometimes those times can last years. So it's not a good thing. And then if they do the renovation and they put up a median that wasn't there, well, you're gonna have a loss permanently. It may be, it does, it usually doesn't stay at those high levels, but because people, when when the construction goes away, they kind of learn new traffic patterns. But you typically are gonna take a 10, 20% loss permanently until you rebuild your business, you know, over the long time. So just want to lay that foundation. But when you have a concentration of downtown business owners that have the ear of politicians, it becomes it, it feels like a bigger thing, but it's really no different than all the other roads that have construction for periods of time. However, in a positive thing, all of the uh concerns were well heard by our mayor and our governance. And so they put um carrot and stick scenario in place for the contractors. So there is a significant upside payment if the contractor finishes early, like a four-month project. And so if they finish in a in about four months, I think five months, something like that, there is an $800,000 plus or minus bonus payment to the contractor. So that's a little bit of the setup that I wanted to share. And so, Don, why don't you just share your thoughts on the various things as well?

Speaker 1:

Yeah, the kind of rewinding a little bit to to um obviously the property owners that they do love it. The there was a challenge that I think kind of sparked this and and really made it make even more sense was uh here being Pensacola, uh, obviously coastal hurricane susceptible. Uh Florida Power and Light spent you know probably a couple of years doing the underground infrastructure. And ultimately there was an agreement. And I don't know all the exact details, but hey, if you don't do the permanent uh repair, save that money and let's let's offset some you may know more about it.

Michael Carro:

Let me go back to that. Yeah. So Don's right on the underground project from FPL. To finalize their project, FPL was going to do a complete overlay of the streets, just take up the old asphalt, go over it, and and uh and so there was uh maybe three and a half million dollars budgeted for that project. It wasn't a huge project, but it was there. Our current mayor, DC Reeves, um, said, hold on. We have this once-in-a-generation opportunity to take that three and a half million and parlay it into something bigger. And so he said, What do we need? Well, all of our sidewalks were not really good ADA compliant sidewalks. Well, guess what? If we if we think bigger, we can fix that. We uh this street had a lot of, you know, it it wasn't it was a little bit larger than it needed to be. So that means when it streets are wider, people go faster. So there was an opportunity to skinny the streets up to bring the speed down, because this is a very slow, meant to be a slow area. And these these uh uh walkways or or or crosswalks could be elevated. And so that also slows down traffic. And and so he went through all of this stuff. So this three and a half million that was going to be contributed by Gulf Power, or I'm sorry, Florida Power and Light, it was a started off as a Gulf Power project. Um he said, let's make it better. Well, in addition, we have we have a need for more drainage to solve for our long-term flooding problems in this particular area. So he's solving all of these problems that are still would be pervasive if if we did not do anything. And so he really wrapped it up into one big beautiful package and allowed us to go in and the the final product visually is going to be unbelievable, but he's also solving a lot of problems at the same time. So we pick it up from there.

Speaker 1:

Yeah, no, that's that's it. I mean, that was that was just a really smart way to look at, yeah. Hey, because realistically, right, we would have wanted this type of project in the very near to short term. As a community, it's it really makes the downtown much more desirable, walkable, accessible, um, like you're saying for for ADA compliance. So just now's the time. Yeah, it is it is gonna be a short-term pain. Um but why I thought, yeah, as I was kind of ruminating on this, it was a very relevant, it's it's definitely city infrastructure being completed, but it it's it really goes to kind of what we as property owners do. You know, you have to be mindful of how it's gonna be impacting your tents. You have to be mindful, hopefully it's positively impacting your property. But a lot of times we have to be out there in the community, sitting on boards, participating in an active way and giving back to the community in some sort of stewardship. Um, because we are representing tenants, we're representing ourselves or our our clients, all these different ways. And just having a better community uh tends to increase long term for the businesses, for the property owners, just makes your your entire area just a much better place to live. So yeah, I think now is the time. Um, no time like the present, but the part that we're gonna have to now navigate a little bit. Fortunately, we don't have any tenants in the immediate construction area, but we have tenants kind of in the outlying areas, um, and and it's it's already getting a little bit of rumbles, you know, how are we gonna navigate this? So fortunately, the city's done a great job communicating different resources, they're promoting their their marketing, and really just pushing this project forward, you know, on a on a very steady, you know, basis. It's just um right.

Michael Carro:

Well, and they've done other things as well. They've uh they reached out and said, what would help you? Um and so they um the retailer said, Hey, free parking. So now free parking is downtown uh until the construction is over. We have um uh if the if the contractor does not finish early and get their big bonus, the city is committed to distributing that bonus to the retailers. So if the contractor doesn't get it, the city still has agreed to pay it, but they're gonna pay it to the retailers to help offset uh some of the pain. Um and so they're really working hand in glove. They're doing a great promotional campaign that says, hey, listen, while Palafox is under construction, please can, you know, please really go visit our downtown businesses. And I know that we personally as a family have decided, hey, we're gonna go eat, drink, shop as much as we can in those areas, maybe more than we normally would. You know, we're we live downtown, so we're a little bit different. We're always downtown eating and drinking and and shopping as well, anyways. But if we can do that an extra couple of times a month, that's what we're here to do. We're here to, we're gonna eat out anyways. So instead of going someplace else, let's just go to our affected neighbors. Um, as a landlord and tenant, you know, you really can help work a hand in glove with them if there's a way to reduce the rent for a period of time or, you know, just to give some type of relief. And now, as a landlord, if I give relief, I typically will ask for something on the back end, maybe extended term, because that's I'm in the, I'm in the I'm in the landlord business. So, but I will tell you, it's no different than COVID. Um, you you may have heard me say this in the past. When when COVID hit, all of our restaurant tenants were suffering greatly. I didn't wait for them to come to me hat in hand. I went to, I went to my bankers first and said, hey, listen, I want to go to the lowest possible rate I could pay per month. And they worked with me on all those properties. And without my tenants asking me, I went directly to them and said, Hey, listen, I'm dropping your rent from X to Y. I mean, some rents went from $10,000 a month to $2,000 a month because the bank worked with me. So it does, you can, you can be a good steward and good partner. And I didn't ask for anything in return from my from my tenants because guess what? We were all going through a lot of challenges. And that's when we all have to step up and help each other. So there's no different than here. And we've had great landlords step up and say, you know, some landlords went so far as to say, I'm gonna not gonna charge my tenants any rent during this period of time. Uh other landlords said, I'll give my tenants a loan during this period of time. So, you know, that's really where a great community comes together to help ensure that everybody can be successful, especially during a certain period of hardship.

Speaker 1:

Yeah. Yeah, that's that's we're ultimately in the same boat. You know, so if if these guys don't survive the storm, it's only going to what do you think your chances of releasing that during this, right?

Michael Carro:

It certainly ain't gonna get released during it, but I will tell you, after this is over, this street is going to be unbelievable. I mean, the renderings, the design, it's so fantastic. And but more importantly, is what you don't see, the infrastructure that's going in there is so desperately needed. And so that's what we need, anyways. We needed the new, uh, the new um overlay. We needed underground uh sewer pipes, we needed better ADA uh, you know, uh ramps and stuff throughout the the throughout that entire street. We needed better streets and and slower. So it's accomplishing so many different things. And as opposed to piecemealing it, this one and then this one, and you know, great cities are built over time. And this is just one of those times in a in hopefully less than six months that we go into a transform in into a transformative street that has already been named one of the top streets in the country on numerous occasions. Pensacola beach is was named this year by Condoness magazine as the number one beach in the country. This it beat out all the Hawaiian beaches. So Pensacola is such a special place, and now we have a downtown uh that that matches all of our greatness.

Speaker 1:

Yeah. Here we go, Adam post some photos. It's kind of interesting looking down the street with, I mean, there's just backhoes everywhere.

Michael Carro:

Yeah.

Speaker 1:

So it's it's hopefully they knock it out.

Michael Carro:

Yep. Hey, well, anyways, that wraps up another episode of the Blue Dirt podcast where even idiots can make a killing in commercial real estate. That's a wrap for this episode of Blue Dirt. We're here to help you build smarter, invest wiser, and create long-term value in commercial real estate. One solid foundation at a time. If you found today's insights useful, be sure to subscribe so you never miss an episode. And if you know somebody who could benefit from these discussions, share Blue Dirt with them. Got questions or topics you'd like us to cover? Reach out. We'd love to hear from you. Until next time, keep digging deep. Stay sharp and remember real value is built from the ground up. See you on the next episode.

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Don Redhead

Host
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Michael Carro

Host