2015 Okaloosa & Walton County Business Journal by Rowland Publishing, Inc.

SPECIAL REPORT 2015 OKALOOSA & WALTON COUNTIES

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Okaloosa County Keeps Flying High Military-related spending pours billions into the region By Tony Bridges

amouflage isn’t the only thing green about the military in Okaloosa County. National defense dollars flow into nearly every corner of the local economy, accounting for about two-thirds of production and spending in Okaloosa. The money comes in through Eglin Air Force Base and the complex of defense 54

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contractors that surround it, as well as nearby military installations and a community of military retirees who call the area home. Together, they’re responsible for $7.5 billion in economic impact. Military realignments 10 years ago contributed in part to that robust defense spending in Okaloosa. Now growth is leveling off and the Department of Defense

is making additional budget cuts, so military spending is expected to decline. However, local economic leaders expect the losses to be mitigated somewhat by the nature of the military mission at Eglin and by growth in other industries such as aeronautics. “It’s not going to feel like it did a couple of years ago,” said Rick Harper, an economist with the University of West Florida who has studied defense spending in Florida. “I don’t see anything in the near-to-medium future that would threaten the vitality of military spending in Okaloosa County.”

Thousands of Airmen, Soldiers and Sailors The military has a huge presence in the Florida Panhandle and nowhere more so than in Okaloosa County.

In addition to the two major Air Force installations, Okaloosa also serves as a base for the 870th Engineering Company of the Florida National Guard and U.S. Coast Guard Station Destin. Spreading out from either side of Okaloosa, there are Navy installations in Escambia County just to the west and Air Force and Navy bases in Bay County to the east. “You add all that up and you have one heck of a center of gravity for military activity,” said Sal Nodjomian, retired commander of the 96th Test Wing, current member of the Niceville City Council and executive vice president of Matrix Design Group, an engineering firm that does work for the DoD.

Drawn to the Bases

PHOTO COURTESY OF U.S. AIR FORCE PHOTO/SAMUEL KING JR.

Maintainers and aircrew load luggage onto a B-1B Lancer prior to the aircraft leaving Eglin Air Force Base and returning to its home station.

Eglin Air Force Base is the largest military installation in the United States and is home to nearly 10,000 service members, 4,000 civilian employees and nearly 3,000 contractors. The base covers more than 640 square miles, according to the Department of Defense. Among the units at Eglin are the Air Force’s 96th Test Wing and 33rd Fighter Wing (Joint Strike Fighter training), the Army’s 7th Special Forces Group and 6th Ranger Training Battalion and the Navy’s Explosive Ordnance Disposal school. Next door to Eglin is Hurlburt Field, where the 1st Special Operations Wing is based. According to the Department of Defense, there are another 8,000 service members and 2,000 civilian employees at Hurlburt.

Nodjomian said the military missions associated with Eglin and nearby bases are incredibly diverse, from air and ground training to high-tech and research to special operations. That, and the sheer size of the military presence, has helped build a robust community of defense contractors in the county. There are more than 300 defense contractors located in Okaloosa County, including seven of the 10 largest in the country, according to Nathan Sparks, executive director of the Economic Development Council of Okaloosa County. They include Boeing, Lockheed Martin and L-3 Crestview Aerospace, with a combined 2,000 employees between them. In fact, five of the 10 top employers in Okaloosa County are major defense-related businesses working on DoD projects. Nodjomian said there are three factors that draw the defense industry to Okaloosa County: proximity to the military units that need their products and services, the low cost of doing business in a military-friendly state and the labor pool. He said many service members — like him — choose to spend the last years of their careers in the Panhandle and then stay on after retirement because of the quality of life. That makes for a “fabulous labor pool” from which defense contractors can easily draw. Total number of military and militaryrelated jobs in Okaloosa County: more than 70,000, according to Sparks, with the EDC.

Dollars Follow the Military The economic impact of all that defense activity is enormous. There is the direct influx of Department of Defense dollars, the money spent on paying salaries to service members and civilian employees, paying out retirement and disability benefits to veterans living in Okaloosa, and buying supplies and services from local businesses and military contractors. In 2011, that alone amounted to $2.9 billion, according to a report by the Haas Center for Business Research at the University of West Florida. The lion’s share — $1.2 billion — went to procurement, which could be everything from purchasing light bulbs for the base to paying for parts for the F-35 fighter. Another $884 million went to pay service members and civilians. And $883 million went to retirees and disabled vets. But that direct money is only part of the story. Those 70,000 service members, civilian workers and defense contractor employees all need places to live, food to eat and all the incidentals of life like car repairs, home furnishings and entertainment. Most of the money they spend for those things goes into the Okaloosa economy. There’s also the dollar value of the goods produced for and because of the military by defense contractors and local businesses, as well as the dollar value of all the various services provided. Add to that items exported and imported into the county to meet military demands and investment dollars brought in because of the military. Taken all together, it adds up to about $7.5 billion in gross regional product, or the total of goods and services provided in the county. That is roughly 65 percent of Okaloosa’s total economy, according to the Haas Center report. “Okaloosa is the most defense-dependent county in the state,” said Harper, the UWF economist. The amount of DoD money flowing into Okaloosa, and the higher wages of defenserelated jobs has led the county to have much higher per-person incomes than neighboring Panama City or Pensacola, he said. 850 Business Magazine

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WHAT’S NEXT DOESN’T HAVE TO BE A MYSTERY. A 96th Aircraft Maintenance Squadron Blue F-16 Fighting Falcon team lifts up an AIM-9X missile onto their aircraft during the annual weapons load crew of the year competition at Eglin Air Force Base.

Eglin also extends into neighboring Walton County, but the military’s impact there is significantly less, accounting for just 9 percent of Walton’s economy, according to the Haas report. Steve Jaeger, executive director of the Walton County Economic Development Alliance, attributes this to the fact that Walton is not a center for defense contractors and serves mainly as a bedroom community for Eglin. “Okaloosa County is really where the jobs are stationed and headquartered,” he said.

PHOTO COURTESY OF U.S. AIR FORCE PHOTO/SAMUEL KING JR.

Decline in Spending In 2005, the Department of Defense initiated the Base Realignment and Closure process. While military installations shrank and closed all across the country, Okaloosa County received great news: Eglin would grow. The Army sent the 7th Special Forces group from Fort Bragg to Eglin, and the Air Force opened the Joint Strike Fighter program — training pilots to fly the new F-35 — at the base. The moves meant thousands of new military and civilian jobs. That caused a rise in spending, both by DoD and by the newly arrived soldiers and airmen and their families. But once the new units were settled in and the Air Force began phasing out the F-15 fighter, spending began to decline. The 2013 Haas Center report projected a decrease in military-related gross regional product to $6.9 billion by this year. Additionally, government sequestration and proposed budget cuts have reduced Department of Defense spending in recent years. Nodjomian said he can’t put a dollar figure on the impact, but between the leveling off of BRAC-related spending and DoDwide cuts he said it would be reasonable to think it has had an impact on Okaloosa. In fact, he said he’s heard from other defense contractors that there has been a tightening effect locally. Sparks, with the Okaloosa EDC, said he doesn’t expect the budget contractions to have serious repercussions for Okaloosa. While “it’s a difficult environment” in terms of allowing an enterprise to plan future revenue growth, Okaloosa’s defenserelated businesses are in a good position because many of them are “tip of the spear” businesses supporting critical missions such as the F-35 and special operations. They are still going to be a priority for DoD, he said.

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Maintainers from the 33rd Aircraft Maintenance Squadron, attach the fuel hose to an F-35A Lightning II during a hot pit session on the 33rd Fighter Wing flightline at Eglin Air Force Base.

Looking Outside of Defense

Total Department of Defense direct expenditures in Okaloosa County in 2011 » $1.2 billion for procurement of goods and services

At the same time, the smart money » $884 million for is looking for ways to diversify. salaries to service Nodjomian said his engineering members and firm is doing well because it is civilian employees heavily involved in other industries » $883 million for and doesn’t have “all its eggs in the payments to retirees DoD basket.” The key, he said, is and disabled vets staying flexible so your business Source: Haas Center, can move between markets, for University of West Florida example from defense to municipal contracts. Total military and Many local defense contractors civilian employees are looking toward the aerospace at Eglin Air Force market, Sparks said, particuand Hurlburt Field larly with Airbus about to begin » 17,557 military production of its A320 in nearby » 6,006 civilian Mobile. The plant likely will need Source: Department of Defense support from local manufacturers. Greg Britton, CEO of Fort Walton Machining, said he has made a deliberate effort to move away from reliance on DoD-related projects. At one point, about 60 to 70 percent of his business was defense-related. He’s gotten that down to about 50 percent, with a goal of reducing it another 10 percent. “We’ve had to look at the commercial aerospace field, and oil and gas,” he said, including potentially seeking to get involved with Airbus production. But that’s not necessarily the right direction for every defenserelated business in Okaloosa, Britton said. “There’s no one-size-fits-all for business,” he said.

PHOTO COURTESY OF U.S. AIR FORCE PHOTO/SAMUEL KING JR.

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Renting the Coast With few big hotels here, most visitors stay in privately owned houses and condos By Rebekah Sanderlin

nlike resort areas in other parts of the United States, there are few large hotels in Walton and Okaloosa counties. The 4.5 million visitors who travel to the Emerald Coast each year tend to stay in houses and condominiums owned by private individuals and typically managed by local firms. These vacation rentals run the gamut from being just a place to stay to providing a nearly allinclusive resort experience. “Our story has really resonated with consumers,” said Scott Russell, a partner in Russell Vacation Rentals, which specializes in vacation condos and homes near Destin and South Walton. “Being in a vacation rental allows you to fully immerse yourself in the destination. You can unwind, relax and explore the community. When people leave here and go back to their homes, they truly feel like they’ve been on a vacation.”

Selling the Coast “Right now the demand is high and supply is low,” said Dana Fairchild, a Realtor with Beach Properties of Florida. “Gulf-front property is selling really fast. We’re on track to do better this year than we did in 2013 and 2014.” Most Emerald Coast vacation-home owners buy here because they want to use the property themselves at least some of the time. Many choose to rent their property out to guests when they aren’t using it themselves to help their budgets, which is exactly what Emerald Coast vacation rental pioneer Jeanne Dailey, the founder and CEO of Miramar Beach-based Newman-Dailey Resort Properties, recommends. She’s been managing properties in the area since 1983. “Find a location that you love and would want to stay in as a vacationing guest,” Dailey said. “People buy homes in this area because they want the American Dream, they want to own a second home. Being on a rental program gives them a way to generate the income to afford that dream.” 60

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With 100 miles of beautiful beaches to choose from, where should someone who wants a vacation home start looking? It all depends on one’s budget and interests, Fairchild said. Prices range from about $400,000 to nearly $12 million for a Gulf-front location. But a place that isn’t on the water can be found in the $200,000 range. Many owners have found that owning beach property here almost, if not completely, pays for itself when the owner commits to sharing his or her home with paying guests. The process is fairly simple: A prospective owner, working with a Realtor, finds a property he or she is interested in purchasing and, as often as not, the Realtor recommends a management company. The management company submits a projection of the rental income the potential owner can expect, allowing the buyer to decide if the home is affordable. Amanda Ferguson, director of the rental management program for Sandestin Golf and Beach Resort, said her team talks at length with potential buyers to find out what they want from their property. Their goals will determine which properties they’re shown. “If someone just wants an investment, we steer them to areas with amenities and conference potential,” Ferguson said. “Those generate more year-round business.” Other owners, she said, might plan to spend the entire winter in their unit and then rent it out during the summer, in which case there are other properties they’re more likely to find appealing. Ferguson said that she’s able to provide owners with a detailed analysis of how much similar properties are earning. It’s important for prospective vacationhome owners to know what they’re getting before making such a large investment, said Ashley Hamm, the CEO of 360 Blue, a management company that works primarily with properties along the Scenic Highway 30A corridor. “A homeowner should look for a 7 to 10

ResortQuest by Wyndham Vacation Rentals features this coastal rental home, called Our Blue Bonnet. Located in Inlet Beach it features a Gulf view along with four bedrooms and a loft to sleep 12.

percent gross rental income based on the purchase price, before commission or maintenance,” Hamm said. “Higher than 7 to 10 percent is incredible; lower than that and it should be a property that the owner plans to primarily use for themselves.” Hamm said that 360 Blue charges owners 20 percent of the rental price as a commission. She explained that some companies might charge a bit less and some might charge more, depending on the amenities that are included. The amenities, particularly in homes along 30A, can be impressive. In some areas, guests and owners have access to golf, tennis, boating, beach clubs, child

care, preferred beach parking and special discounts in stores and restaurants. “Some places, you book a home, and a home is all you get,” said Dru Zeiset, the general manager of vacation rentals for the St. Joe Club & Resorts. “We’re trying to create more of a resort experience.”

PHOTO COURTESY OF RESORTQUEST

Making the Leap Once owners have found their vacation home, they have to decide whether to sign with a management company or to manage it themselves. Websites such as VRBO, Homeaway and Airbnb make it easy for owners to advertise, find renters and book their properties.

“A lot of people, when they look at a vacation home, they toss around the idea of managing it themselves,” Hamm said. “People don’t want to lose access to their home, and they’re skeptical of the wear and tear. We can’t promise or guarantee anything, but that’s why you have a professional management company.” Screening is a major service that management companies offer to owners. Lino Maldonado, vice president of operations for Wyndham Vacation Rentals and ResortQuest, said that his company’s call center staff is trained to note details about people who call to make a reservation.

Emerald Coast management companies all say that they screen guests a second time when the guests check in, which can take place either at the management company’s office or at the vacation home. However, properties along 30A and Destin aren’t as likely to attract the spring break crowd in the first place. “We’re working with very nice properties, so the price point alone helps us keep out the party crowd,” Zeiset said. Two years ago, some Seaside homeowners decided to create a third option: a hybrid of the self-managed and professionally managed models called Homeowners Collection. The 850 Business Magazine

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This four-bedroom penthouse with stunning views of the Choctawhatchee Bay is located in Bahia, which is part of a complex of four mid-rise condominium buildings within The Village of Baytowne Wharf at Sandestin.

PHOTO COURTESY OF SANDESTIN GOLF AND BEACH RESORT®

nearly 50 owners who have joined to date paid $5,000 upfront, said Amy Wise-Coble, the general manager of Homeowners Collection. The company also charges a 20 percent management fee. Those fees allow the owners to both maintain control of their own home and have the convenience of a professional management company. For guests, Homeowners Collection handles the reservation process, provides concierge services and assigns a cottage host to help guests with any other needs. “If the company makes a profit over the operating expenses, it will go back to the homeowners,” Wise-Coble said. “It’s a groundbreaking concept that could be duplicated in other communities. I think we’ll see more like this in the future.” Emerald Coast property managers contacted for this story all said they advertise their homes in the markets where most of their guests come from — which are the same markets where most of their owners

live: Atlanta, Nashville, Birmingham and Dallas. However, they all also said that most of their renters are repeat guests. “Because we don’t have high-rise hotels here and we do have so many vacation rentals, we’ve been able to really promote this area as being great for families,” Dailey said. “It’s a tradition for many families throughout the Southeast to come here year after year.” Maldonado said that ResortQuest, which manages more than 1,500 properties in the area, doesn’t use third-party websites to find bookings. However, other management companies say listing on third-party sites is essential for finding guests. “Guests may not even realize that they’re booking with us,” Hamm said. “They’re looking on VRBO or Homeaway and get directed to one of our properties.”

Sealing the Deal Once the decision to purchase a property has been made and a management plan is

established, the process is fairly simple. An owner who plans to self-manage will need to get high-quality photographs of the interior and exterior, list the property on a website such as VRBO or Homeaway, and find housekeepers and possibly a handyman in the area. Gleaves said an owner who manages his or her own rental should expect to spend several hours each week updating the listing with rate information, responding to rental requests, confirming guests, collecting payments and managing housekeepers. An owner who lists with a management company won’t have to do any of these things — all of these tasks will be handled by the property manager. Whether you self-manage or list with a property manager, the experts all say the home should be well decorated and updated. “Think of the kind of place you’d want to stay in as a vacationing guest and furnish your place accordingly,” Dailey said. “Guests tend to take better care of places that are furnished nicer.” 850 Business Magazine

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Walton Tourism Breaking Records

n Walton County, nearly one of every four residents works in the county’s major employment sector — tourism and hospitality. Unlike neighboring Okaloosa, Walton County’s focus is on selling its 26 miles of beaches and 16 beach neighborhoods to visitors, hoping they’ll return on a regular basis and someday become permanent residents, perhaps even starting a new business. “Tourism is setting records every year. It’s a huge part of our economy,” said Steve Jaeger, executive director of the Walton County Economic Development Alliance. “We would just be another rural county in Northwest Florida if not for the beaches and the military.” In 2014, Walton was the third fastest growing county in the state, and the result is 64

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being seen in the spurt of new home construction in developments like Hammock Bay. The county’s largest employers are Sandestin Golf and Beach Resort, Hilton Sandestin and ResortQuest. They, along with other businesses catering to tourists, are experiencing a surge in popularity. “Last year our tourist numbers were up 7 percent over the previous year. And so far this year, we’re up 23.96 percent over last year,” said Jim Bagby, executive director of the Walton Tourist Development Council. “People don’t realize it, but we’re the ninth largest short-term rental destination in the state of Florida. We beat Pensacola, Jacksonville, everyone north of Orlando.” Last year, Bagby said, Walton County ranked as the top beach destination in Florida

By Linda Kleindienst

for the summer months. And as a summer vacation destination, it beat out everyone in the state except for Orlando. “There’s a lot of reasons for that,” he added. “We have gorgeous sand, two major subdestinations — 30A and Sandestin/Miramar Beach — and whatever visitors want they can find here. We’re a nature destination, a music destination, a culinary destination. Per capita, we have more Golden Spoon award winners than anywhere else in Florida.” The county is also selective in the types of visitors it wants to attract. Its primary target group is in the 35-to-64 year age range and has an annual household income over $175,000. The secondary target group is aged 65 and over and has a net worth of more than $1 million.

PHOTO COURTESY OF VISIT SOUTH WALTON

The tourist season and the number of visitors keep growing

“It’s a lifestyle difference,” Bagby said. “When you compare us to our neighbors, we get an entirely different demographic.” In recent years, county tourism leaders have put increased emphasis on the “shoulder seasons” of spring and fall. As a result, the popularity of those seasons — which feature a variety of cultural and culinary festivals — has grown twice as fast as the ever-popular summer season. The tourism council recently closed out its application process for events seeking county financial support in 2016. A total of 28 events, scheduled from Sept. 1 to May 31, asked for funding — almost one per week. The impact of these events is a huge boost to the local economy. For instance, the county’s $50,000 sponsorship of the 30A Songwriter’s Festival resulted in an economic impact of almost $4 million for one weekend. A national multi-million dollar ad campaign paid for by BP after the 2010 Deepwater Horizon oil spill helped to boost tourism along the Gulf Coast by allaying

fears of oil-soaked beaches. But visitation records kept getting broken long after the ads went off the airways. “It did help stop the bleeding and clear the airway, but the area has been growing for years and to say it is all a result of BP is a misperception,” Bagby said. While tourism remains Walton County’s economic bread and butter, Jaeger focuses (Above) Alys Beach is a luxury community located on 30A, where on attracting investment that vacationers enjoy rental homes close to the Gulf. (At left) The will diversify the economy and Hilton Sandestin Golf Resort & Spa. provide new jobs in areas like manufacturing. trial park near Freeport, Morgan’s Ice will be “There’s nothing wrong with tourism constructing a new facility that is expected jobs, but they can be seasonal and subject to to provide jobs especially geared toward high outside events,” he said. school and college students. At the county-owned Mossy Head Indus“It’s tourism related, but it’s a wonderful trial Park off I-10, trucking-related compaexpansion for us,” Jaeger said. “They’re nies are moving in and there are hopes of currently distributing ice from Atlanta and attracting a freight-handling warehouse in that’s a long haul.” the near future. At the county’s second indus-

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