Stable? Steady? That’s a good combination for Cleveland’s commercial real estate market
By Dan Rafter, Editor
Stable. Resilient. And steady. That is how commercial real estate professionals describe Cleveland’s CRE market today, even when faced with the challenges of higher interest rates, the work-from-home movement and a slowdown in investment sales activity.
And that resiliency? It’s not a new feature for Cleveland. The CRE pros Midwest Real Estate News spoke with agreed that Cleveland’s commercial real estate market has long benefitted from developers who don’t overbuild and lenders who don’t make unwise loans.
Kevin Malinowski, executive managing director with the Cleveland office of Colliers, said that higher interest rates have impacted Cleveland much like they have all markets: They’ve slowed investment sales and mostly halted new development in the city and its nearby suburbs.
This is slowly changing, though, Malinowski said. Developers and investors are slowly getting used to today’s rate environment. They are gradually accepting the new normal of doing business.
“Everyone was hoping that the Fed would lower interest rates,” Malinowski said. “The thing that we are seeing in 2024 that we didn’t see last year is that in 2023 everyone felt that the Feds were going to make a change. This year has brought the new reality that interest rates will most likely stay where they are at.”
And where rates are at? Malinowski said that it isn’t necessarily a bad place. The low interest rates that the country saw during the COVID years were the exception. Today’s interest rates aren’t too far off from where they were before 2020.
“People are hopeful that the Fed will drop its interest rate. But when they do that, it creates an artificial environment,” Malinowski said. “To say that rates are high today isn’t quite right in my opinion. It’s about getting back to a more normal environment.”
Grant Fitzgerald, vice president and regional manager with the Cleveland office of Marcus & Millichap, agreed that Cleveland’s commercial real estate market has
CLEVELAND (continued on page 20)
DETROIT
Detroit’s resiliency in full effect as local CRE market remains healthy
By Dan Rafter, Editor
It wasn’t too long ago that the news coming out of Detroit was always negative. Today, though? There’s plenty of positivity surrounding Detroit, its suburbs and the region’s commercial real estate market.
That’s largely because the Detroit real estate market has proven to be remarkably resilient, even as high interest rates throw challenges its way.
Just ask the commercial real estate pros working this Midwest market.
DETROIT (continued on page 24)
Photo courtesy of Pixabay.
Stable? Steady? That’s a good combination for Cleveland’s commercial real estate market: Stable. Resilient. And steady. That is how commercial real estate professionals describe Cleveland’s CRE market today, even when faced with the challenges of higher interest rates, the work-from-home movement and a slowdown in investment sales activity.
Detroit’s resiliency in full effect as local CRE market remains healthy: It wasn’t too long ago that the news coming out of Detroit was always negative. Today, though? There’s plenty of positivity surrounding Detroit, its suburbs and the region’s commercial real estate market.
Kansas City region’s positives helping it work through challenging economic times: Like in most major Midwest cities, Kansas City’s commercial real estate professionals continue to navigate the challenges of higher interest rates. But unlike CRE professionals in other markets? Those working in the Kansas City region have an advantage: They benefit from the many positives of the Kansas City area.
Greater Cleveland Partnership: Allin for economic growth in Northeast Ohio: The Greater Cleveland Partnership, an economic development corporation serving Cleveland and its surrounding community, is in the middle of its All In Plan, a plan designed to attract new businesses to the region and promote job growth.
Sports entertainment districts? Columbus mastered the model nearly 25 years ago: Sports and entertainment districts are big draws today, with cities across the Midwest either opening or planning these mixed-use developments centered around sports arenas. But the concept, though often successful, isn’t new. Just look at the city of Columbus, Ohio.
Detroit Industrial Summit:
Manufacturing still the star of Detroit’s CRE market: The sweet spot in Detroit’s commercial real estate industry? Manufacturing. As the real estate pros working this market will tell you, the manufacturing business in the Detroit area remains strong.
Panelists at Kansas City Industrial Summit: Expect an even stronger 2025 for this still-strong sector: More than 120 attendees filled Park 39 in Kansas City, Missouri, for the third annual Kansas City Industrial Summit held Aug 8 by Midwest Real Estate News.
Chicagoland property managers pivot to meet new demands: Property management in the Chicagoland area is evolving rapidly, influenced by the influx of Generation Z into the workforce and the ongoing presence of Millennials. This shift is reshaping office design and management, presenting both challenges and opportunities.
Multifamily sector’s bright future: Chicago’s multifamily real estate market is showcasing resilience and growth, outperforming national averages despite economic uncertainties. The multifamily sector remains a stronghold in the city’s real estate landscape.
West Michigan industrial market still strong despite economic turmoil, high interest rates: The industrial vacancy rate in the West Michigan region stood at an impressively low 2.5% as of the end of the second quarter.
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Coresight Research: More retail store closings than openings so far in 2024
By Dan Rafter, Editor
Yes, retailers are closing a larger number of their physical stores today. But, no, that doesn’t mean that the retail sector is in the middle of a slump. In fact, many retailers are thriving today.
Some of the gloom surrounding retail comes from a recent report highlighting the disparity so far this year between store closings and openings.
The number of store closings in the United States has outpaced the number of openings through early August of this year, according to a new report from Coresight Research. These closings have been fueled by a rise in bankruptcy filings by retailers.
According to the Aug. 9 report, 4,548 stores had closed so far this year. That number slightly beats the 4,426 announced store openings during the same period.
Coresight Research runs a weekly tracker charting the number of store openings and closings in the United States. The Aug. 9 report marked the first time this year that retail store closings are outpacing openings.
One big reason for the higher number of closings? This most recent Coresight report included the news that Columbus, Ohio-based Big Lots plans to close 302 stores in 2024.
Other big-name companies announcing store closures this year include Conn’s
HomePlus, Rue21, Express and restaurant chain Buca di Beppo.
The Conn’s closures are significant. The furniture chain filed for bankruptcy protection in July and announced that it plans to close more than 500 of its stores. Family Dollar, though it has not filed for bankruptcy protection, plans to close 620 stores this year, while national pharmacy chain CVS says that it plans to close 315.
These store closings don’t mean that we are entering a retail apocalypse. After all, the number of closures this year is far smaller than what the industry has seen in the past. Consider 2020, the height of the COVID-19 pandemic. In that year, retailers closed 9,698 stores while opening just 3,704, according to Coresight.
In recent years, though, retailers were opening more stores than they were closing. Coresight reported that in 2023, the country saw 5,843 openings of retail stores compared to 5,548 closings.
Retail, though, remains in a far better place than where it sat during the early days of the COVID-19 pandemic, when many retailers were unsure if they would survive. Today, retailers that offer experiences along with merchandise are drawing a steady stream of customers. And this trend isn’t slowing, as consumers continue to spend their dollars not only online but at physical stores, too.
Photo courtesy of Pixabay.
Kansas City region’s positives helping it work through challenging economic times
By Dan Rafter, Editor
Like in most major Midwest cities, Kansas City’s commercial real estate professionals continue to navigate the challenges of higher interest rates, high construction costs and economic uncertainty.
But unlike CRE professionals in other markets? Those working in the Kansas City region have an advantage: They benefit from the many positives of the Kansas City area.
Those positives include an ideal location in the center of the country, a strong highway and rail infrastructure, an educated and skilled workforce and state and local governments that actively support economic development and the commercial real estate industry.
Just ask Tina Chace, executive director with the Platte County Economic Development Council, the EDC serving Kansas City, Missouri, and its surrounding areas. She’ll tell you that while economic challenges are hitting the region, Kansas City is equipped to make it through these tough times with its characteristic resilience.
“Kansas City is centrally located in the heart of America,” Chace said. “We take great pride in the fact that we have the ability to reach 90% of U.S. markets in a couple of days’ drive. This makes Kansas City an excellent choice for companies. We also have that strong infrastructure and supply chain, another big factor for companies looking for new homes. If you are exporting or importing products, this is all a key.”
In another positive? The new terminal project at Kansas City International Airport is now complete. The new terminal modernized the local airport, another key factor for companies considering the Kansas City region.
“That new terminal couldn’t have come at a better time for the Kansas City market,” Chace said. “We were coming out of a bit of uncertainty with COVID. When we rolled out the new terminal, that gave Kansas City a lot of
new looks based on the newness and the exciting add-ons that most airports don’t have.”
The new airport terminal played a key role in Eastern Airlines’ decision to move its headquarters from Wayne, Pennsylvania, to a site near the Kansas City International Airport at the end of 2023.
Chace said that when Eastern Airlines came to Kansas City, it brought about 165 employees with it. The airline cited Kansas City’s central location and strong workforce-development programs as two key reasons for its decision, Chace said.
That labor force is a key for most companies that move to Kansas City. Companies can pull workers from both
the Missouri and Kansas sides of the Kansas City market, Chace said.
It helps, too, that Kansas City boasts a diverse labor pool and companies that work in a diverse array of industries, Chace said. If one business sector is struggling? Kansas City boasts companies from enough different fields to absorb the downturn in another industry.
In another big workforce move, the Platte County Economic Development Council worked with Western Governors University to bring a nursing simulation and learning laboratory to the college’s Leavitt School of Health in Kansas City.
As Chace says, the country faces a shortage of nurses. The nursing simu-
lation can help train nurses to work for Kansas City’s healthcare providers.
“Healthcare is a very important industry for us,” Chace said. “It’s important for us to always be thinking of that workforce component. Bringing in a training facility that you wouldn’t normally see in the state let alone the region was a big step.”
Of course, Kansas City remains a strong industrial hub. Chace pointed to the KCI 29 Logistics Park by Hunt Midwest. This park spans 3,300 acres and ranks as the largest contiguous shovel-ready site in Missouri. Ace Hardware is opening a distribution center in the park.
Chace said that Ace plans to hire 250 employees by 2026. The Platte County Economic Development Council is working with Ace to help make sure that it can find the right employees for the site.
Manufacturing and data centers are key economic drivers in Kansas City, too, and Chace says that she doesn’t expect the demand for such facilities to wane.
“There has been quite a bit of reshoring across the country,” she said. “We are trying to get more manufacturing in the Kansas City region. We see great value in that. We already have a diverse set of manufacturing companies here. It helps that we have Ford and GM in the region to drive some of those other manufacturers here.”
Another big win for Kansas City? This year, CPKC Stadium opened in downtown Kansas City. This stadium is home to the Kansas City Current of the National Women’s Soccer League.
“Having a new soccer stadium is a big boon for the downtown,” Chace said. “It puts you on a different stage than you get with baseball. We are fortunate: Not only are we reaching an international market with this stadium, that it is also the only female-owned team and female-owned stadium is a one-of-a-kind situation. That has been a source of pride for us in Kansas City,
46 Penn Centre in Kansas City. (Photo by Block Real Estate Services.)
KANSAS CITY
that we were able to accomplish something like this.”
A resilient market
Another reason why so many businesses are moving to the Kansas City area? The region has proven resilient in the face of high interest rates and inflation.
Aaron Mesmer, executive vice president and chief information officer of Block Real Estate Services in Kansas City, said that the Kansas City region is starting to see more commercial transaction activity now that interest rates have fallen slightly.
Activity, though, is still down from the highs the region saw in 2021 and 2022. Mesmer said that the development pipeline is relatively stifled now in all sectors. That’s partly because of higher interest rates. But higher construction costs have played a key role in slowing new development, too, Mesmer said.
And while commercial leases and sales are still happening, they are not happening at nearly the same pace the region saw two years ago.
“We are seeing a lot of sellers sitting on the sidelines,” Mesmer said. “Some of the activity of the past was driven by sellers who were earning crazy profits. Unless sellers get to a certain number, their motivation to sell is lower.”
On the positive side? Mesmer said that he is seeing more transactions now that longer-term interest rates have come down slightly. The region is also seeing a bit more refinances close thanks to the same factor, he said.
On the negative side? Like most markets, Kansas City is seeing a jump in distressed office assets. The work-from-home movement and higher interest rates are hitting the office sector hard, with vacancies rising. Many companies, though they have brought their employees back to the office at least on a part-time basis, don’t need as much office space today. That has resulted in an increase in office properties, especially older ones, that are struggling to attract enough tenants.
Kenneth Block, managing principal of Block Real Estate Services, said that when looking at the entire Kansas City real estate market, it’s clear that the region is still strong. He pointed to the industrial market, which continues to thrive, and the multifamily sector, which is holding steady today.
“Office is struggling here, but it is struggling everywhere in the country,” Block said. “The people with the rightsize spaces are doing better. Most of the consolidation has come with the bigger, national companies. They are shrinking down to reduce their expenses. But overall, the market is doing very well.”
Block said that he hasn’t been surprised by the slowdown in new development. It’s difficult to develop property when interest rates are higher, he said. And when you add in higher construction costs? That makes new development even more of a challenge.
“It’s difficult to make the numbers work,” Block said. “The banks are not loaning as much. If they do loan, the terms are not that attractive. We see build-to-suits working. With buildto-suits you can gauge where your numbers are. There is little to no risk. But spec construction is just not happening much today.”
Is there any good news in the office sector? You have to squint to see it. But Block said that office space located in mixed-use projects is performing well. Older office buildings that lack amenities are struggling.
And building new office properties? That isn’t happening in Kansas City, just like it’s not happening across the country.
Mesmer said that the flight to quality is real. It’s why newer office properties in mixed-use developments are doing better.
“There have been a lot of good tenants
moving into those locations to be in that setting,” Mesmer said. “They are willing to pay more to be in those spots. That has been a positive. For the office market overall, though? I’d estimate that we are at least 10 years away from the next speculative office building.”
Block said that the most difficult office buildings to sell are those not located in mixed-use areas, those sitting off by themselves.
“They are empty. Empty buildings like those are like the plague,” Block said. “You can’t do anything with them. It’s a scary situation if you have a location that is not in a mixed-use area. The value of that office building has gone down tremendously.”
A solid retail sector
Mesmer said that the Kansas City region is seeing strong retail fundamentals today. That hasn’t changed the misperception that some investors have of where the retail sector is, he said. Too many investors still believe that brick-and-mortar retail is struggling. What’s actually happening, though? In Kansas City, those retailers that are creative, including those that are bringing experiential retail to the market, are thriving.
Mesmer says that Block Real Estate Services’ retail developments are seeing strong leasing activity today.
“We are excited about this category type,” Mesmer said. “We will continue to invest in retail. It’s sort of flying under the radar. But if you are in the real estate business, you know that now is a great time to be buying retail.
Outside the business, a lot of people have a negative impression of retail. We are working diligently to see how many deals we can land in this sector before those others figure it out.”
There is one slice of the retail sector that is facing challenges today: highend, sit-down restaurants. Block said that the owners of these restaurants are struggling to determine how to open new locations. That’s largely because the cost of building new properties has become so expensive and rental rates have risen, too. Tenant-improvement packages also cost more.
“Every part of the deal is tougher than it was before,” Block said. “A lot of the groups in this market can’t find the right location with the right economic package. In really good times, there have been a half-dozen new sit-down restaurants that open. In times like we are in, everything has to be perfect for a new opening.”
A solid industrial sector
Scott Bluhm, senior managing director and principal with Kansas City’s Newmark Zimmer, specializes in the industrial and logistics sector. And this slice of Kansas City’s CRE market? While it’s not booming like it did in 2021 and 2022, industrial remains a steady and attractive sector in the Kansas City region, Bluhm said
He pointed to the second quarter of the year. The industrial sector in the Kansas City region saw about 2.3 million square feet of positive net absorption during the quarter. That was a big jump from a sluggish first quarter, even if it isn’t quite as high as what the region saw during the height of COVID.
“We don’t have the dips and highs that coastal markets have,” Bluhm said. “But we still have some significant highs. The fourth quarter of 2022 set a high-water mark for our region. Then 2023 was a year of adversity. But we are recovering, and we are seeing strong demand for industrial space. Because we don’t have those big lows, we don’t have to pull ourselves out of anything too severe. We are not an overbuilt market.”
Despite high interest rates and construction costs, major industrial developments are still happening in the Kansas City region. One of the biggest is Panasonic Energy Co.’s construction of a lithium-ion battery manufacturing plant in De Soto, Kansas
CityPlace in Overland Park, Kansas. (Photo by Block Real Estate Services.)
This $4 billion facility is expected to bring about 4,000 jobs to the region
Bluhm said that the Panasonic project isn’t the only industrial construction taking place across the region. He said that developers, even if they aren’t acting yet, are considering sites for new speculative and BTS projects. They might be a year out from breaking ground, but developers are making plans again
“Developers are optimistic enough now to start pursuing sites,” Bluhm said. “They are making a bet that by the time they are ready to break ground they will be doing so in a more friendly environment for development. Based on my conversations, we have hope that we will see more spec development kick off starting in the first quarter of next year.”
Today, though? Most new industrial developments are build-to-suits that come with far less risk than do spec projects
Bluhm said that the second quarter’s net absorption of 2.3 million square feet ranks as a solid number for Kansas City’s industrial market
“There was some optimism in the second quarter with what the Feds are saying about a possible interest-rate cut,” Bluhm said. “There is light at the end of the tunnel. Also, in an election year you usually see interest rates go down. People have been waiting for positive news. Tenant demand, then, was strong in the second quarter, especially after a first quarter in which we posted negative net absorption.”
Tenants looking for industrial space in the Kansas City area might struggle
KANSAS CITY
“We have hope that we will see more spec development kick off starting in the first quarter of next year.”
depending on what type of facility they are seeking, Bluhm said. He pointed to Class-B and -C industrial properties. They typically have low vacancy rates today, making it difficult for tenants looking to set up shop in these spaces
A large portion of new Class-A industrial vacancies in the Kansas City market now are in buildings of 500,000 or higher square feet, Bluhm said. Industrial buildings of under 300,000 square feet tend to have more leasing activity and tenant velocity.
Certain submarkets are seeing lower industrial vacancy rates, too, Bluhm said. He cited the Johnson County submarket as one of Kansas City’s strongest. Lee’s Summit, KCI, and Liberty in Missouri and Olathe and Lenexa in Kansas remain strong markets
“We have always had a strong industrial market in Kansas City,” Bluhm said. “We have a great location in the center of the country. Our gross-up cost of occupancy, including taxes, insurance and rent, continues to be
Scott Bluhm (Photo courtesy of Newmark Zimmer.)
KANSAS CITY
very competitive for major metros. Our tax abatement efforts on both sides of the state lines are strong. We also have some strong developer talent here. We have several big-name developers in the region. We continue to put a solid Class-A product in good areas.”
Investment sales activity remains down in the Kansas City region in all sectors, including industrial. That’s to be expected with higher interest rates. Bluhm said that most industrial sales so far this year have been owner/ user sales.
New life in the construction business?
Sam Stahnke, principal and vice president of Riverside, Missouri-based ARCO National Construction, said that developers are still targeting the Kansas City region for new construction. That’s in large part to the region’s location in the heart of the country.
On the negative side? New developments that are slated for the Kansas City region are taking longer to come to fruition thanks to the challenges of
higher interest rates and economic uncertainty.
“In years past, those projects that we would see coming to town or when developers were looking at a certain region in the Kansas City market, there’d be a sense of urgency. They’d decide that this is where they need to go and they’d hit it,” Stahnke said. “Now everything requires a lot more questions and time. That can be be-
cause of interest rates or because people just don’t know yet where things are heading. No one likes the uncertainty.”
Like others in the Kansas City region, Stahnke is excited about Panasonic’s big project. It’s not surprising to him that Panasonic decided to build here. Both GM and Ford have auto manufacturing plants in the region. It makes sense that Panasonic would
want a battery plant close to these facilities.
Stahnke said that ARCO itself remains busy in the Kansas City area. That isn’t to say that higher rates haven’t brought some challenges.
“We do have the opportunity to work on some interesting projects,” Stahnke said. “We have a great client base that negotiates a lot of work for us. The interest rates are making everyone pause a bit, though. Everything is moving a little slower. Everyone is making sure that they are getting the best pricing and incentives. Everyone is dotting their ‘I’s and crossing their ‘T’s for fear of not being leased out and having larger carrier costs.”
But what if the Federal Reserve Board cuts its benchmark interest rate in September? Will that boost construction activity throughout the Kansas City market?
“If they cut the rate, it absolutely will increase activity,” Stahnke said.
In fact, Stahnke worries that a drop in interest rates might result in a flood
The Liberty Heartland Logistics Center is being developed by OPUS in Liberty, Missouri, and kicked off with an 870,000-square-foot build-to-suit for Hallmark cards. (Photo courtesy of Newmark Zimmer.)
of new construction activity. Many developers have been waiting to move forward with projects. A drop in rates might inspire them to move forward. That would be good news. But if there’s too much development activity at the same time? That could lead to longer-term problems in the region, Stahnke said.
“My fear, what keeps me up at night, is if that floodgate breaks and isn’t planned or managed well, we could get into another post-COVID resurgence where prices and labor rates go up,” he said. “No one wants that. Hopefully, there will be a measured approach to new construction even if the rates do go down.”
Fortunately, developers have not Stahnke said that the costs of ma- Is Stahnke seeing stronger construc-
KANSAS CITY
Stahnke said that the Lenexa and Overland Park submarkets are always strong and will remain so. He cited, too, the airport submarket as one that is seeing more activity today.
Like others working this market, Stahnke says that the renovations to Kansas City’s airport have had a positive impact on bringing new businesses and developments to the region.
“That airport is our front door for any site selection consultant flying into town,” Stahnke said. “Now we have a shiny new front door. What we had in the past was less than desirable. People flying into the airport can understand why Kansas City is such an up-and-comer, why it is a bigger force in the industrial market and the
Developed by Flint Development, the 1-million-square-foot Flint Commerce Center will be a 370-acre master-planned industrial park in De Soto, Kansas. (Photo courtesy of Newmark Zimmer.)
Greater Cleveland Partnership: All-in for economic growth in Northeast Ohio
By Dan Rafter, Editor
The Greater Cleveland Partnership, an economic development corporation serving Cleveland and its surrounding community, is in the middle of its All In Plan, a plan designed to attract new businesses to the region and promote job growth.
What does this plan include? What goals does the partnership have for the Cleveland region? And what makes Cleveland and its surrounding communities such good destinations for companies?
We spoke to Baiju Shah, president and chief executive officer of the Greater Cleveland Partnership, about these and other topics. Here is some of what he had to say about the future of the Cleveland region.
Can you talk a bit about what the All In Plan entails?
Baiju Shah: It’s prosperity-focused. It’s about setting a broad vision for the region. Our goal is to bring people together around that vision and then monitor the results.
The All In Plan is our latest strategic plan. We have set our sights on making Cleveland one of the fastest-growing regions of the Great Lakes when it comes to business growth, income growth and new jobs. In the last decade, we’ve been in the middle of the pack of the 11 metro areas in the Great Lakes when it comes to business growth. We’ve set our sights on being in the top four.
We are early in the process now. According to our latest data, we are fourth among the Great Lakes metro areas in business growth, fifth in income growth and seventh in jobs growth. It’s too early to tell how we’ll
do in the rest of the decade. But we like the trend we’ve seen over the last year. We’ve seen improvement already. But we must sustain it for the decade now. It can’t be about just having a single good year.
What are some of the reasons for the growth in new businesses and jobs that you’ve seen recently in the Cleveland area?
Shah: What has changed in greater Cleveland over the last two decades is that we are at a moment in time where our large and small businesses are thriving. Our biggest issue now is not having enough people living in the region. We are one of the many regions grappling with low unemployment and high business growth. It’s a problem that isn’t entirely bad to have. But it is one that is new to our area. It has been a long process over the last
decades to transition our economy to a more diverse one. We are seeing our employers embrace technology. That has led to innovation. We are seeing the positive result of that. Now we just need more people.
Does the Cleveland area need more residents or specifically more workers?
Shah: All of the above. But we need more workers in particular. With workers come more families. We need more workers at all levels, whether it’s super-skilled workers or entry-level workers. We need all of the above and more of them in greater Cleveland.
What steps are you and other organizations taking to attract more workers to the Cleveland area?
Shah: We want to retain more of
Sherwin-Williams is building a 36-story headquarters building in downtown Cleveland. (Photo courtesy of Sherwin-Williams.)
the graduates of local colleges and universities. We also want to increase the number of internships offered in the area so that these students can understand what working and living here looks like. We want to convince them to stay beyond their time in college. Today we retain about 50% of the students at our universities. Ideally, it’d be more in the 55% range. That is the benchmark for high-performing regions.
Secondly, we want to welcome in more migrants and refugees and get them to settle here. The history of Cleveland is that we have been a magnet for immigrants. That has fueled our growth. We need to reactivate that. We need more of that. We want people to settle here and tell others about living here. That will only attract more people and workers to the region.
Thirdly, we want to take that concept beyond the immigrant community. We want our entrepreneurs to spread the word about the benefits of living and working here. We want people who’ve succeeded here to spread the word about the quality of life in the Cleveland area. Getting that word out there is critical.
Is there a certain pride that residents of Cleveland take in living here? Do they spread that word?
Shah: Pride runs deep in our city and region. People walk around wearing Cleveland t-shirts when they live here. The companies that are here are not only thriving, but they are innovating and creating the future. We have a visual that we use that shows an electric vehicle. People usually see that and say that Tesla built that vehicle. Then we show them an x-ray view of the vehicle showing all the Cleveland companies that are involved in making that car. People don’t realize all the amazing things companies here are doing.
People know us for healthcare, but we are also very big in financial services. We are a major financial services hub. The fact that we have such a diversified set of companies is a benefit to our area.
How important is a strong downtown Cleveland to the region?
Shah: Downtowns are extremely important to the success of all regions. Downtowns are the front doors for regions and their visitors. Downtown
Cleveland is a key part of our region, a place to live and to work. Downtown is where the entire region comes to engage with each other. For that reason, having a vibrant downtown is critical to regional and economic development.
What makes Cleveland an attractive destination for companies seeking new locations?
Shah: Companies come here for a combination of reasons. What businesses love when exploring greater Cleveland are the highly skilled, highly dedicated workers here. We have that classic Midwestern work ethic. There’s also the lower cost of living and the high quality of living. That becomes increasingly important in a talent-scarce country. The Cleveland area is also a place where people want to live. The quality of public schools is important, too.
We talk to people who live in highpriced coastal areas. They have great amenities. But the access isn’t always there, whether those amenities are too expensive or it takes too long to get to them. If you get stuck in a traffic jam every time you try to get to an amenity, you stop taking advantage of it. That is something that stands out to companies: In Cleveland, you get those high-quality amenities and they are accessible to everyone.
Are people surprised when they discover just how many amenities that Cleveland offers?
Shah: The best ambassadors for our region are the people who move here. They are stunned at the world-class amenities we have, whether it be professional sports teams, arts-andculture organizations, the visual arts,
theater and music or the restaurants. We have an incredibly eclectic and creative and award-winning restaurant scene. And you can get a table at our restaurants. It’s not a place where you have to wait two months to make a reservation. Then there are our healthcare options and the high-quality colleges we have in the area.
Are there any new developments coming to the Cleveland market
that you are especially excited about?
Shah: The biggest news from our region is Dan Gilbert and Bedrock having a $3.5 billion vision for new properties on the riverfront. Bedrock just struck a deal with Cleveland for more than $1 billion in incentives toward that development. These will be mixed-use facilities with a lot of residential units, some additional businesses and retail space. Plans also include a new facility for the Cleveland Cavaliers and a sports performance center at the Cleveland Clinic.
Many other developers are bringing projects to the riverfront. NRP Group has 600 units of multifamily housing under construction. They should be ready for leasing early next year.
Then there’s the Sherwin-Williams development, the biggest commercial real estate development in our region. That will be a 36-story headquarters building in downtown Cleveland. Sherwin-Williams will take occupancy of that building next year.
Baiju Shah, president and chief executive officer, Greater Cleveland Partnership. (Photo courtesy of Greater Cleveland Partnership.)
Sports entertainment districts? Columbus mastered the model nearly 25 years ago
By Dan Rafter, Editor
Sports and entertainment districts are big draws today, with cities across the Midwest either opening or planning these mixed-use developments centered around sports arenas.
But the concept, though often successful, isn’t new. Just look at the city of Columbus, Ohio. Nationwide Realty Investors’ Arena District will celebrate its 25th anniversary next year. And for more than two decades, this district has been a focal point in Columbus, hosting major sporting events and drawing a steady stream of restaurants, retailers, multifamily apartments and visitors to this slice of Columbus.
The Arena District was a $2 billion development on Nationwide’s part. It includes 2.1 million square feet of commercial space and 300,000 square feet of retail, restaurant and entertainment venues.
It is also home to the NHL’s Columbus Blue Jackets, AAA baseball’s Columbus Clippers and the Columbus Crew of Major League Soccer. The Arena district also boasts 1,100 residential units and a series of parks, bike trails, dining and entertainment options.
And today, the Arena District is still booming. You might argue that it has become an even more popular
destination for major sporting events. Columbus hosted the 2023 NCAA Division I Men’s Basketball first and second rounds and 2024 U.S. Figure Skating Championships. Columbus hosted the 2024 MLS All-Star Game in July and is scheduled to host the 2027 NCAA Division I Women’s Basketball Final Four.
Brian Ellis, president and chief operating officer of Nationwide Realty Investors, recently looked back at the development of the Arena District, its major victories and its future as it prepares to celebrate its 25th anniversary next year.
How were the Arena District and Nationwide Realty Investors formed? Why would Nationwide Insurance get involved in arena development?
Brian Ellis: When I was hired at Nationwide in 1989, the company had been in and out of the real estate development business for many years, going back as far as the 1950s. Nationwide wasn’t actively developing in ‘89, but we had some legacy assets in the portfolio. In 1996, I put together a business plan for what would become Nationwide Realty Investors. The board approved the creation of NRI effective January 1st of 1997, and I was elected President and COO.
Huntington Park in the Arena District in Columbus. (Photo courtesy of NRI.)
Contrary to popular belief, Nationwide Realty Investors was not created because of the arena. It was, however, a case of excellent timing. Columbus had applied for an NHL expansion franchise, but the May 1997 sales tax levy that would have financed a publicly owned arena and soccer stadium failed. Nationwide’s CEO at the time, Dimon McFerson, immediately began talks with local leaders about the possibility of putting together a privately financed arena. We viewed this as a once-in-a-generation type of opportunity: a potential catalyst to kickstart downtown development. There was very little development activity and very little growth in the downtown core at the time and we saw this as a chance to change that. In fact, Columbus was still the largest city in the country at that time without a downtown arena.
By June of ‘97, we were in front of the Columbus City Council with a proposal to build the arena and the Arena District around Nationwide’s downtown headquarters. The NHL awarded Columbus a franchise on June 17 and the pressure was on to build an arena in a short time frame. That was the beginning: an opportunity that would shape
the course of Nationwide Realty Investors’ future and, more importantly, a transformative moment for the City of Columbus.
Was it always part of the vision/master plan to have three stadiums in the Arena District?
Ellis: No, what you see today is a
series of opportunistic and visionary decisions that all started with Nationwide’s investment in downtown and, of course, the arena. The original master plan was 75 acres with the arena
Our vision is to be the highest-value provider of global construction services and technical expertise while we make a difference in the lives of people, customers, the community, and the environment.
An aerial shot of the Arena District. (Photo courtesy of NRI.)
positioned as an iconic centerpiece, integrated into this well-planned, pedestrian-friendly, mixed-use, urban neighborhood. Today the Arena District has expanded to more than 200 acres. We have 2.1 million square feet of commercial space, about 1,200 residences, dozens of bars and restaurants, and three world-class stadiums lining Nationwide Boulevard.
From the beginning, we wanted to build a downtown environment that draws people in 24/7/365. The arena’s the anchor, but we also needed well-appointed streets, restaurants, residences, best- in-class office space, riverfront connectivity, and green spaces to build this major-league city where people want to live, work, and play. Following the success of Nationwide Arena, adding Huntington Park and then Crew stadium years later just took the great energy and synergy to an unprecedented level.
Huntington Park, home of the Triple-A baseball Columbus Clippers, opened in 2009 on a 7-acre site. The ballpark has been enormously popular. It’s frequently voted best minor league baseball stadium in the country. Both the ballpark and the team are owned by Franklin County—so it’s both literally and figuratively a community asset. Lower.com Field, home of the MLS Columbus Crew opened in 2021 and has hosted numerous major soccer events including the 2023 MLS Cup, from which they emerged champions, and recently the 2024 MLS All Star game.
These are the types of events that create global exposure for the city.
Why is Columbus and the Arena District experiencing such a notable spike in national sports event hosting and activity?
Ellis: I think the world is recognizing what a dynamic downtown environment we have here in Columbus now. The vision we started 25 years ago is on full display. Case in point, we were recently ranked 10th on Sports Business Journal’s list of best host cities in the country.
We have outstanding facilities capable of hosting major sporting events, world-class entertainment, and national conventions. And it’s all within walking distance of great restaurants, park spaces, and hospitality. We have a lot of high-quality hotels, including the Nationwide Realty Investors-owned Hyatt Regency connected to the Greater Columbus Convention Center, and the newly expanded Hilton, which is the largest hotel in Ohio. Also, we partner closely with nearby Ohio State University, which has incredible athletics facilities and a top-notch staff specializing in premier NCAA events.
The Greater Columbus Sports Commission, which is an LLC of Experience Columbus, our city’s visitor’s bureau, has also done some outstanding work over the years raising the profile of Columbus as a sports city. The commission’s executive director, Linda Logan,
deserves a great deal of credit. Under her leadership along with the Board of Directors, which I’ve been a part of since its inception, we’ve secured events like the U.S. Figure Skating Championships, which took place at Nationwide Arena in January and drew more than 60,000 fans. It’s those types of events that put Columbus on the national stage.
I’ve heard the women’s free skate competition alone generated well over 2 million TV viewers. It’s really been an incredible year. The Columbus Fury, our women’s pro-volleyball team, kicked off their inaugural season at Nationwide Arena earlier this year. We’ve also hosted the NCAA and U.S. Fencing Championships, USA Volleyball National Championships, the annual Arnold Sports Festival, Savannah Bananas, and most recently, the MLS All Star game at Lower.com. Next year, Columbus will host the NHL Stadium Series, where the Blue Jackets will play the Detroit Red Wings at Ohio Stadium. Then in 2027, we’ll host the NCAA Women’s Final Four at Nationwide Arena for a second time.
The exposure from these high-profile events is key — the word is out that Columbus is a great host city.
How has the Arena District evolved over time to be a good fit to host such large-scale sporting events?
Ellis: The evolution is really the result of decades of thoughtful and inten-
tional master planning and development. Every element of the Arena District has been additive, synergistically contributing to the whole. Nationwide Arena, Huntington Park, and Lower. com field are all outstanding places to watch a game or catch a concert. The Convention Center is fundamental to Columbus’ thriving tourism industry. But you also need exceptional infrastructure – both physical and experiential - to support a large influx of fans and visitors. It’s worth noting that the same infrastructure has been critical to driving the significant office and residential populations we have here. More than 100 businesses call the Arena District home. Many of those are Central Ohio’s top employers.
To support that level of density, we have a significant amount of structured parking within our projects, and it’s easy to get in and out of our downtown neighborhood whether you’re driving or walking. The Arena District is easily accessible from every Central Ohio freeway and it’s within about 10 minutes of John Glenn International Airport. Another key component - before the game starts and after the last whistle blows - we have the kind of dining and entertainment options that give locals and visitors a reason to want to come downtown.
The Arena District celebrates its 25th anniversary next year. Has it met your expectations? Where do you see things in another 25 years?
The Arena District during the NHL All-Star Game in 2015.
Ellis: It’s fair to say that the Arena District hasn’t just met expectations, it’s exceeded them to a staggering degree. We started with a blighted site with dilapidated buildings, a crumbling 150-year-old penitentiary, and a sea of surface parking. Today, we’ve generated more than $2.5 billion in development activity in and around the district. It’s an economic engine for the city with spaces, places, and experiences that attract people and dollars. Today, there’s so much development activity and momentum downtown and the arena was really the catalyst. Now, with the addition of high-profile neighboring developments like our Grandview Yard project, the footprint of downtown Columbus is expanding.
One of the things I’ve been most proud of in the 25 years since we built the arena and every sequential phase of the Arena District, is the transformative impact it’s had on the city. People want to live here. World-class companies and top talent want to work here. National conventions, NCAA tournaments and All-Star games are drawn here, generating hundreds of millions of dollars in visitor spending and greatly improving the quality of life for the people who live here.
COLUMBUS
“We started with a blighted site with dilapidated buildings, a crumbling 150-yearold penitentiary, and a sea of surface parking.
Today, we’ve generated more than $2.5 billion in development activity in and around the district.”
As far as the next 25 years, we’ve always stayed very well-leased, both from an office and residential standpoint, easily outpacing the market. I think you’ll see the residential growth continue both in the Arena District and throughout downtown for the foreseeable future. We’re currently under development on another apartment project along
our northern edge called 220 Vine. It’s an exceptional project that’ll bring our total residences to more than 1,200 in the neighborhood.
Residential is a key contributor to our 24-hour energy; and proximity to high-quality residential is extremely important to our office tenants
– helping major employers and big brands attract and retain talent. Also contributing to the synergy in the Arena District are our great restaurants, walkable streets, expansive park spaces, riverfront connectivity, and 3 world-class stadiums. It’s a win-winwin for Columbus.
being done,” he said. “And hopefully, there is a light at the end of the tunnel coming soon.”
been resilient even with the challenges of high interest rates.
“As is always the case, Cleveland is a market that rarely booms and rarely busts,” Fitzgerald said. “We have faced the same economic challenges that every other market in the country has faced, though, during the last couple of years. But Cleveland is consistently doing OK. There are still sales and leases happening.”
Of course, those sales and leases are happening at a slower pace than what Cleveland saw in its recent peaks, especially when you compare today’s commercial real estate activity to the amount of sales and leases here in 2021 and 2022.
That said, Fitzgerald says that Cleveland’s CRE market remains stable.
“There is a steady amount of business
That light? It might come in the form of the Federal Reserve Board cutting its benchmark interest rate. But Fitzgerald warns not to expect too much of a surge in sales activity from a single rate cut.
“An upcoming rate cut is somewhat priced in and expected already,” Fitzgerald said. “Certain lenders are tightening their risk spreads a bit in anticipation of a September rate cut. The first cut won’t make a gigantic difference. But it might bring a sigh of relief, maybe a boost to people’s psyches. And if further rate cuts come? That could bring the local and national market back to life a bit. People are waiting to do something. They are looking for a reason.”
The Cleveland commercial real estate market has handled the jump in interest rates well, Malinowski said. That’s
largely because Cleveland isn’t a boom or bust real estate market. Developers don’t overbuild here, something that protects the market when the economy slows.
Malinowski said that he describes Cleveland as a bond market, not an equity market. Cleveland is steady. It doesn’t offer real estate investors the soaring high-water returns they might get in more volatile markets. But it doesn’t come with the risk of big drops in value, either.
“What did happen in Northeast Ohio, though, was that as cap rates were shooting down and the larger markets got so aggressive, all of a sudden Cleveland became attractive to investors,” Malinowski said. “You can chase a 6% cap rate in Northeast Ohio as opposed to a sub-5% cap rate in other markets. That has brought new investors to Cleveland.”
Real estate owners in Cleveland, though, face the same challenge as
they face in other markets. Owners might have a loan with an interest rate of 4% or 4.5% that is now coming up for refinancing. Because interest rates are so high today, the market value of many of these properties isn’t supporting that refinance if the owners don’t put up cash.
Office market isn’t struggling everywhere
Rico Pietro, principal with Cushman & Wakefield|CRESCO Real Estate, said that the Cleveland office sector today is a tale of two different cities. Office leasing activity is far stronger in the suburbs than it is in Cleveland’s CBD.
And to further break that down, those office properties that can accommodate smaller leases of 3,000, 5,000 or 10,000 square feet are seeing the most leasing activity today.
“The softness of the market comes from buildings that are offering big blocks of space,” Pietro said. “We are
CLEVELAND (continued from page 1)
200 Public Square in downtown Cleveland. (Photo courtesy of Colliers.)
seeing far less activity from bigger companies that made the decision to let a good portion of their workforces work from home. Those jobs haven’t come back to the office yet, the callcenter-type jobs. That could be a permanent issue for the office market. Those larger blocks of space are a tough piece of meat.”
Higher-quality office space is attracting more tenants, too. This flight-to-qual ity is not just a Cleveland trend, of course. Buildings with a greater num ber of amenities are attracting more tenants across the country.
“Companies want office space that motivates senior employees to come into the office,” Pietro said. “They want amenities and spaces that help employees be more productive. When employees come into the office, there’s more time for mentorship, which younger workers need. It cre ates a better company culture.”
In addition to qualify space and ame nities, companies are also looking for predictability from their office space, Pietro said. Companies want to work with landlords that can provide them with solutions. If companies want to build out more space, for instance, they want their landlords to offer them ways to do this efficiently. They want landlords who can provide them with test layouts.
to come up with the right rent,”
“Companies right now are looking for a partner rather than just a landlord that’s developed a financial equation
the vacant spaces are in 20% of the properties,” Pietro said. “That drags up the overall vacancy rate. If you are looking for 3,000-square-foot or 4,000-square-foot office spaces on Chagrin Boulevard you won’t have more than a few options.”
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Pietro
Office investment sales activity is down “I can’t tell you that there is an appetite
Crocker Commons, a retail power center in Westlake, Ohio, sold recently by the Patton Wiles Fuller Group of Marcus & Millichap. (Photo courtesy of Marcus & Millichap.)
suburban offices with a mix between 1,500-square-foot and 15,000-squarefoot spaces can offer returns that can’t be matched by any other asset mix right now. There will be some clear winners who are willing to buy into the office sector.”
And how are other sectors performing?
Not all sectors are performing equally well, of course. Fitzgerald said that multifamily, retail and industrial are seeing the most activity today. Office, as it is across the country, is facing challenges, he said.
There is variance, too, in how different submarkets are performing in each commercial asset class. Fitzgerald pointed to the multifamily sector. Vacancy rates tend to be lower in the suburban areas than they are in Cleveland’s CBD, he said. It’s not that the multifamily sector in Cleveland’s CBD is in dire straits, Fitzgerald said. But suburban markets are simply even more attractive to renters today.
“The downtown apartment market is not in peril,” he said. “But the suburban markets are outperforming it today.”
As Fitzgerald says, there remains a
shortage in the number of single-family homes for sale in the suburbs. That has persuaded many suburbanites who might have otherwise bought a home to rent for a year or two longer than they normally would have.
At the same time, housing prices remain high. Higher mortgage interest rates also make it more challenging for renters to make the move to owning, so many are continuing to rent apartment units.
“If you are looking to become a homeowner, and you are looking at the interest rates and cost of houses? That is an equation for staying a renter longer,” Fitzgerald said.
As with other markets, the office sector in Cleveland is seeing the most distress today, thanks to both high interest rates and the lingering work-from-home movement.
In good news, though, for Cleveland? Cleveland is one of the top markets for office-to-multifamily conversions. That is taking some of the older, obsolete office spaces off the market, raising the demand for the office space that remains.
CBRE reported in April that 11% of Cleveland’s office inventory is either being converted or is being planned for conversion to multifamily. CBRE also reported that 119 office conversions as of April were either underway or already completed in 2024.
Malinowski said that the office-to-apartment conversions have helped lessen the challenges faced by Cleveland’s office sector.
“If that activity had not occurred, we would not have an office market here that is as stable as it is,” he said. “I won’t tell you that it’s all roses in our office sector. It has challenges. But it could have been even worse without the conversions.”
Malinowski said that there are several factors fueling the boom in office-to-apartment conversions. First, with interest rates high, many families that might have purchased a single-family home are now renting instead. That increased demand means that Cleveland, like many markets, needs more multifamily space.
Secondly, Cleveland has invested heavily in its downtown, making it
more attractive to potential residents. The office-to-apartment conversion activity here means that Cleveland’s downtown apartment supply has grown from 10,000 to 12,000 units to now more than 20,000. And city officials expect that downtown Cleveland will have somewhere around 30,000 apartment units by 2030.
“Cleveland has a well-designed downtown that is very walkable,” Malinowski said. “It is safe and has good amenities. And when you have more residential units, it helps the restaurants and shops that are nearby. Retail is all driven by demographics. It is a very mathematical model.”
The flow of new residents into downtown Cleveland is a steady one, too, Malinowski said. Young professionals move downtown when starting their careers. Many eventually migrate to the suburbs when they start a family.
But many choose to return to downtown Cleveland once they become empty nesters, Malinowski said. They no longer need a three- to five-bedroom home. Instead, they downsize and move to downtown Cleveland to enjoy the experience of walkable, urban living.
Image by John B from Pixabay.
This steady stream of residents coming into the market has also helped fuel the office-to-multifamily conversion trend, Malinowski said.
The challenge with conversions, though, is that they require the perfect property in an ideal location. In most cases, it’s simply too expensive to convert an office building to an apartment development, Fitzgerald said.
“People do talk about conversions,” Fitzgerald said. “Conceptually, it is a nice idea. But it can be extremely expensive. In most cases, it is cheaper to demolish a building and rebuild it as an apartment.”
Where conversions do work well?
When developers save and renovate an historic office building, one that has the character that renters will like. A good example is the Standard, a former union headquarters in Cleveland that was turned into 287 apartments that began leasing to residents in 2019.
“That conversion made sense,” Fitzgerald said. “But that was a very specific project. It wasn’t a 1980s-era square
office building. The Standard had more character and flavor to it. In situations like that, conversions can work. But for most office buildings, the juice isn’t worth the squeeze.”
The industrial sector is solid in the Cleveland market, too, Malinowski said. Northeast Ohio has long benefited from the Amazon effect, he said. COVID required companies to boost their distribution networks and open-
ing new warehouses and distribution centers in Northeast Ohio made sense.
The reshoring trend has helped Northeast Ohio’s industrial market, too. Cleveland has long been a manufacturing-based economy. Reshoring has only brought even more demand for industrial space in Northeast Ohio.
Fitzgerald said that Cleveland’s retail sector is performing well, too. Multi-
tenant strip centers are especially strong, he said.
“That has become a popular product type in the last two or three years,” Fitzgerald said. “They are performing well and are favored by investors. I have no sensational stats to give you, but from an investor standpoint, those multi-tenant strip centers are a popular segment of the retail industry.”
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Grant Fitzgerald (Photo courtesy of Marcus & Millichap.)
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Dennis Bernard, president of Southfield, Michigan-based Bernard Financial, said that overall Detroit’s commercial real estate market remains mostly healthy. This is good news and, in some ways, unexpected.
“I say that a little cautiously and with a little bit of surprise,” Bernard said. “Metro Detroit often suffers when the economy is challenging. Today, though, both statistically and feel-wise, we are doing better than many other cities.”
Andy Gutman, president of Farmington Hills, Michigan-based NAI Farbman, said that he agrees that Detroit’s commercial real estate market has been especially resilient today.
“This is the best I’ve ever seen Detroit hold when the economy is struggling,” Gutman said. “Historically, Detroit has been ground-zero for distress. It is a statement on the strength of Detroit today that it is not in any level of distress.”
Gutman points to other major Midwest cities that are seeing bigger slowdowns
in commercial real estate sales and leases, cities such as Chicago. Detroit is an outlier in that its commercial real estate market has not seen a big drop in activity.
“Detroit is strong today,” Gutman said. “It’s a testament to the turnaround that we’ve seen in the city over the last decade.”
Why has Detroit been so resistant to the country’s economic challenges?
Gutman said that the amount of public and private investment in the city is a major factor. Local government officials are focused on bringing a string of new businesses, restaurants, entertainment venues and other tenants to the city, Gutman said.
The government has also invested in infrastructure so that when new businesses target Detroit, they have easy access to travel, power and water.
“There was a time when you never knew if the streetlights would turn on,” Gutman said. “The mayor and the local government have done a fantastic job of making Detroit a place where people want to go. We have also benefitted from several billionaires who have
invested heavily in Detroit, the Dan Gilbert effect. The Ilitch family, too. It has brought attention to the city. We have a lot of outside money coming in. We are still not Silicon Valley or New York City, but Detroit now has cache.”
Holding steady in the office sector
This doesn’t mean that the Detroit region’s commercial real estate market doesn’t face challenges. The office market is still suffering a hangover from the work changes that resulted from COVID. This means that office vacancies are up. But they haven’t soared like they have in some cities, Bernard said.
“Downtown is still strong,” he said. “No office buildings in downtown have been given back. Some of our suburbs such as Birmingham are doing better than ever. We do have some office buildings that are struggling. Those are mostly the ones that offer bigger floor plans. The ones that are high-rise or mid-rise buildings, those are doing OK.”
Like other CRE markets, the Detroit-area office sector is seeing a flight to quality, with tenants seeking out
higher-quality office space with more amenities. Because of hybrid work schedules, these tenants are willing to pay more per square foot for higher-quality office space while renting a smaller amount of square footage.
This gives these tenants higher-quality space without boosting their overall rent expenses by a significant amount.
Bernard said that older office buildings or those whose owners have not invested in improvements are discounting their rents. Higher-quality office buildings? They are able to increase their rents, Bernard said.
Bernard said that his company provided financing for a client purchasing an office building in Troy, Michigan, for close to $140 a square foot. The reason for the high price? The office building was of a far higher quality.
“We continue to finance office,” Bernard said. “But it’s the larger offices that have 200,000- to 300,000-square-foot floor plans that are suffering today.”
Gutman said that while Detroit’s office sector does face challenges, it is
DETROIT (continued from page 1)
Photo courtesy of Pexels.
DETROIT
performing better than many others. Gutman points to the high number of office properties falling into foreclosure in Chicago as an example. Detroit’s office sector isn’t experiencing the same trend, he said.
Part of the reason? Detroit’s office sector was not overbuilt before COVID hit.
“Our market is pretty right-sized,” Gutman said. “We are not seeing that level of distress that you are seeing elsewhere.”
Industrial still strong
Bernard pointed to Detroit’s industrial market as one sector that remains especially strong. The only difference today? Industrial activity isn’t booming quite as much as it did during the height of the COVID-19 pandemic.
That’s not surprising. During COVID, companies rushed to build or fill warehouses and distribution centers to serve customers who, stuck at home, wanted their products delivered as quickly as possible. Today, with most people out and about again, the demand for quick online delivery has lessened a bit, as has the demand for new industrial space.
“Now we are back to the market where it should be ... our industrial market is still a very strong one.”
Bernard, though, said that the Detroit-area industrial market is still seeing both high occupancy rates and strong rents. Those rental increases and occupancy rates just aren’t quite as strong as they were back in 2020, 2021 and 2022.
The biggest problem in industrial might be one of perception, Bernard said. During COVID, the industrial sector was seeing rental increases that were, as Bernard calls them, ridiculous. As Bernard says, developers could build any industrial product and it was leased before construction finished.
That has now changed, Bernard said.
“Now we are back to the market where it should be,” he said. “We got spoiled by the rental increases and demand during COVID. Now industrial space will sit for a little bit before it is leased. But it will still get leased. Again, our industrial market is still a very strong one.”
Gutman said that when people refer to the industrial market as being choppy because it has vacancy rates of 4% to 6%, it’s a testament to how strong the Detroit-area industrial market has been for so long.
“We didn’t overbuild in industrial, either,” Gutman said. “We have good
access to roads and waterways. We have infrastructure that is strong. Our industrial market has been incredibly strong and robust. During a time when we had an opportunity to build and build, Detroit didn’t overbuild. We are in a good place here.”
While it’s true that developers did build a larger number of industrial properties during the height of COVID, they still didn’t add too much supply to the Detroit market.
“We didn’t add enough to hijack the market,” Gutman said. “The brokers who are smiling today? They are the ones working in industrial.”
Image by Mohtashim Mahin from Pixabay.
And the retail sector? That’s strong in the Detroit market, too, with one exception.
“In retail, as long as you are not a mall, you are doing just fine,” Bernard said.
Bernard said that grocery- and restaurant-anchored retail centers are doing especially well, and that many of the area’s power centers have restabilized. And while several Rite Aid drugstores have closed throughout Detroit – as they have across the country – tenants are filling these empty spaces quickly, Bernard said. That’s because these Rite Aid stores were usually in good locations.
A looming threat in the multifamily sector
The multifamily sector is performing well, too, Bernard said. Monthly rental rates in this sector are still growing, though the pace of that growth has slowed. This isn’t unusual: Cities across the country are reporting the same thing.
Multifamily property owners, though, do face a challenge. Several properties were developed at low cap rates, with their owners borrowing money at low interest rates. Now that interest rates have risen, many of these owners are struggling to refinance their loans.
“That has led to a situation in which some multifamily properties that are full are also on their way to foreclosure or are being listed for sale because they were not bought or built or initially financed properly,” Bernard said.
Gutman said that while multifamily is still an attractive sector, for both renters and investors, the higher interest rates today pose a big problem for the owners of apartment buildings.
Many investors purchased multifamily buildings at 3% interest rates and many developers built properties while borrowing money at the same rates. Unfortunately, rates are far higher today. If owners have to refinance to a new loan with a higher interest rate, they might no longer be able to afford to hold onto their multifamily properties.
“A lot of multifamily owners are kind of stuck,” Gutman said. “It could have been even worse had interest rates
continued to rise. Fortunately, they have started to fall. But even so, if you are a multifamily owner with a loan at 3% interest and you have to refinance to a new loan with an interest rate of 8%, what do you do? I think we will see some level of foreclosure and some drop off in multifamily development.”
The hospitality sector is another that is growing in the Detroit market. There is a shortage of hotel rooms especially in downtown Detroit, Ber nard said.
“Depending on the night, downtown Detroit hotel rooms might be renting for $400 a night,” Bernard said. “Who would have ever thought we’d see that?”
The good news? More hotel rooms are coming to the city. Some developers are converting multifamily properties into hotels.
“There is a lot of energy downtown,” Bernard said. “Many of the compa nies, led by Rocket Mortgage, are getting people back into the office at least part of the week. But our night life in downtown Detroit is incredible. The number of restaurants and enter tainment options in Detroit at night is incredible.”
Gutman agreed that the positive mo mentum in downtown Detroit contin ues today.
Gutman said. “We have award-winning restaurants, and we have new ones popping up every day. There is a true desire among people to live, work and play in the city. There are
more entertainment venues. Having all our sports teams in downtown has helped. Detroit itself is a great place. There is so much to do in the city of Detroit now.”
“I am a big believer in our downtown,”
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Detroit Industrial Summit: Manufacturing still the star of Detroit’s CRE market
By Dan Rafter, Editor
The sweet spot in Detroit’s commercial real estate industry? Manufacturing.
As the real estate pros working this market will
tell you, the manufacturing business in the Detroit area remains strong, a fact that was cited several times by the commercial real estate experts speaking at Michigan Real Estate
Journal’s second annual Detroit Industrial Summit held Aug. 1.
The event, held at The Community House in Birmingham, Michigan,
attracted a full house of more than 200 attendees. These attendees gathered to hear the thoughts of the area’s top industrial real estate specialists.
The event began with the Detroit Industrial Real Estate Market Overview, a panel during which speakers emphasized that the local industrial market is meeting its challenges head-on and working through today’s challenging economic times. Participating in this panel were Jeffrey Lemanski, Vice President, Signature Associates; Emily D’Agostini, Principal, D’Agostini Companies; moderator Elizabeth Rogers, Partner, Taft; Ryan Brittain, Vice President, Colliers; Sean Cavanaugh, Executive Vice President, JLL; and Jared Friedman, Executive Vice President, Friedman Real Estate.
The Industrial Development, Design and Construction panel followed, with speakers focusing on the challenges of developing new industrial spaces today and the amenities that occupants want today in their industrial spaces. Speaking on this panel were Mitch Hudepohl, Business Development, ARCO National Construction; Jack Oliver, Vice President, Oliver/Hatcher Construction; Kyle Morton, Vice President, Ashley Capital; Danny Samson, Chief Development Officer, Sterling Group; Marc Werner, Regional Vice President, NorthPoint Development; and moderator Christopher Martella, Member, Dawda Mann.
More than 200 CRE professionals attended Michigan Real Estate Journal’s second annual Detroit Industrial Summit.
Speakers participating on the Industrial Investment Climate and Capital Markets Update panel said that these are challenging times for industrial sales activity. The participants agreed that the Federal Reserve Board could provide a boost to investment activity by cutting its benchmark interest rate. Speaking during this panel were Luke Timmis, Principal, Investment Division, Signature Associates; Steven Chaben, Senior Vice President, Marcus & Millichap; Jeffrey Schostak, President, Schostak Brothers & Company; Anne Galbraith Kohn, Senior Vice President, CBRE; moderator Steven Sallen, President and CEO, Maddin Hauser; and Dave Dismondy, Managing Director, District Capital.
And the message that these speakers delivered? Yes, these are challenging times. But Detroit’s industrial sector remains a strong one.
As one speaker said, there has been no softening in Detroit’s manufacturing space, with non-obsolete buildings being bought or leased
The Regional Economic Development Opportunities for Developers and Investors panel closed the event with a focus on the opportunities that exist in Detroit and its surrounding areas for both investors and developers. Speakers were Tyler Rossmaessler, Executive Director, Flint & Genesee Economic Alliance; Kurt Brauer, Partner, Warner Norcross + Judd; Shannon Selby, Vice President of Real Estate, Detroit Regional Partnership; Paul O’Connell, Vice President of Real Estate Development, Michigan Economic Development Corporation; and John D’Addona, Brownfield Program Manager, Downriver Community Conference.
before shovels are even in the ground. Another speaker referred to Detroit’s industrial market as one of the tightest in the country, with
lower vacancy rates than many of its Midwest neighbors.
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Panelists at Kansas City Industrial Summit: Expect an even stronger 2025 for this stillstrong sector
By Dan Rafter, Editor
More than 120 attendees filled Park 39 in Kansas City, Missouri, for the third annual Kansas City Industrial Summit held Aug 8 by Midwest Real Estate News.
And what did these attendees hear from the top brokers, developers, economic development officials and
lenders who spoke during the event? Only that the Kansas City industrial market remains strong, despite the economic challenges facing the country.
Yes, higher interest rates have slowed the number of industrial investment sales in the Kansas City region. But speakers said that the fundamentals of the industrial sector remain strong.
Companies still need more industrial space. And many of these end users are choosing Kansas City thanks to its central location in the country, strong workforce, business-friendly government and access to highway and rail infrastructure.
Speakers did say that industrial activity in the region has slowed since the boom days of 2020, 2021 and 2022.
Last year was a challenging year, as higher interest rates slowed both new industrial development and sales.
But the future? Speakers agreed that it remains bright. Demand remains strong for industrial space, and Kansas City remains an important industrial hub.
Speakers were optimistic about the state of Kansas City’s industrial sector during the event’s opening panel, the Kansas City Industrial Real Estate Market Overview. Participating in this panel were Mike Bell, Hunt Midwest; Scott Blum, Newmark Zimmer; Ben Whetstone, CBRE; Zack Hubbard, Block Real Estate Services; Ben Boyd, Colliers; and Alec Blackwell, Cushman & Wakefield.
Participants in the Industrial Investment Climate and Capital Markets Update panel were Scott Bluhm, Newmark Zimmer; Tina Chase, Platte County Economic Development Council; Eric Gromacki, Flint Development; Sam Stahnke, ARCO National Construction; Mike Stromberg, Opus Development; and Brandon Brensing, Ryan Companies.
More than 120 Kansas City real estate professionals crowded Park 39 for Midwest Real Estate News’ third annual Kansas City Industrial Summit.
Speaking during the Industrial Development, Design and Construction panel were Alec Blackwell, Cushman & Wakefield; John Hassler, Newmark Zimmer; Matt Wozniczka, Bremer Bank; Aaron Mesmer, Block Real Estate Services; and Tom Kennedy, NAI Heartland.
Market Position: Close Cousins, Natural Tensions: Investor Relations and Public Relations
By Margy Sweeney
Public relations—especially live interviews—can be risky, it’s true. But many times, investor relations professionals concerned with reducing risk may be so risk averse that they sacrifice long-term reputation building. Conversely, public relations professionals are generally inclined to put executives in front of the media—even though not doing the interview is sometimes the wiser choice. Rarely is there a single right answer to a media opportunity, which is why it’s vital that both investor relations (IR) and public relations (PR) functions sing to the same sheet of music.
Whether you are with a publicly traded company, a privately held firm with SEC-regulated funds, or have other compliance guardrails you need to live by, it is legally and financially critical to ensure your PR and IR functions trust one another. Trust is essential because while IR and PR have distinct responsibilities, there are always grey areas where all parties must come to the table and identify the best way forward.
To support rapid, best-informed decisions in the moments that separate media risk from reward, start here— with a few tips learned in the trenches to help build a bridge between IR and PR.
IR and PR benefit equally from collaboration
By respecting the roles and talents of each discipline, members of each team build trust and enjoy shared success. Investor relations professionals are adept at making sure investors have the information they need, expect, and are entitled to. IR pros are also great at reducing risk and detailing what cannot and should not be said to external audiences. On the other hand, PR pros are experts in building a company’s reputation long-term—the foundation that will ensure if ever things aren’t going well and investors have tough questions, there is an environment of
trust between the company and its stakeholders.
The key is to help IR and PR pros realize how their differing experiences and insights complement each other—and inspire them to act on that knowledge. We recommend building trust between the functions by facilitating regular touchpoints that keep all parties informed and enable them to share input on each other’s activities. For example, PR should be able to contribute edits to earnings releases, even though those are clearly driven by IR. IR should understand PR strategy so investor calls can include messaging that is aligned with overall company messaging.
Compliance matters to everyone, all the time
Compliance can be fun…said very few people, ever. But what’s less fun is finding out just before you put out a press release or publish an article that your company is in a quiet period, or the SEC fundraising guidelines won’t allow what you’ve written. The key to avoiding missteps is education. Professionals in the IR function are uniquely positioned to educate PR professionals on how to avoid common mistakes that can result in real financial, legal, and regulatory issues. It can start with actions as easy as clear communication about quiet
“When everyone has a distinct role to play, the results will sing. Balancing and clarifying roles and responsibilities is critical.”
periods. More broadly, we also suggest making sure every external spokesperson—whether they are doing thought leadership interviews or leading investor calls—undergo media training. That training should be informed by your company’s compliance requirements and reviewed by the Legal and IR teams before the PR team delivers the training, either on their own or in collaboration with an IR professional.
Synch your calendars
Critical IR dates can—and should— drive the PR calendar for the entire year. We recommend PR and IR leaders meet before each year to put a strategic plan in place that sets a calendar for key communications. While it will evolve throughout the year, an effective calendar clearly defines quiet periods, fundraising activity dates, quarterly messaging and PR priorities, and other critical dates and deliverables. Without a clear calendar, it’s easy to go off-track.
Be clear who owns what
When everyone has a distinct role to play, the results will sing. Balancing and clarifying roles and responsibilities is critical. While IR will always lead on investor reports and earnings releases, PR should have input. Conversely PR is better positioned to lead on executive
positioning and thought leadership—in a way that complements investor messaging. While this sounds simple, many companies struggle with “who owns what,” and this lack of clarity can result in missed opportunities.
Don’t fool yourself!
When you are communicating with the public, you are communicating with investors—and vice versa. The best interests of the company and the investors are always going to benefit from collaborative IR and PR teams who understand each other’s schedules and activities. Together, the teams can coordinate messages, tone and timing in harmony—an ideal scenario for all ‘relations.’
Margy Sweeney is the Founder and CEO of Akrete, the nation’s #2 independent public relations firm for real estate finance and development and is passionate about expanding economic opportunity for women and minority-owned businesses. Based in Chicago, she leads a national team and has been in commercial real estate marketing and public relations for private and publicly traded companies since 1995. She is also the Chairman of the Board of Directors of SomerCor, a leading SBA Certified Development Company lender based in Chicago.
Margy Sweeney
Chicagoland property managers pivot to meet new demands
By Brandi Smith
Property management in the Chicagoland area is evolving rapidly, influenced by the influx of Generation Z into the workforce and the ongoing presence of Millennials. This shift is reshaping office design and management, presenting both challenges and opportunities.
“The influx of Gen Z into the workforce, along with Millennials, continues to reshape office design in Illinois and across the country,” said Amy Hall, COO of Caton Commercial. “This generation values flexibility, sustainability and technology integration, driving the demand for adaptable and eco-friendly workspaces.”
“Gen Z is the first generation that has always had the internet, and now, they demand seamless connectivity as they consume data, communicate via apps and move throughout spaces,” added Suzanne Hendrick, executive vice president of Xroads Real Estate Advisors, noting that property managers must adapt office spaces to meet their expectations for flexibility, sustainability and technology integration. “Landlords should rank Gen Z satisfaction as high as the ‘C-Suite’ or ‘decision makers.’”
To cater to this generation’s preferences, new office buildouts are designed with a casual, collaborative vibe featuring technology-friendly amenities such as WIFI, remote video conferencing ca-
pabilities and interactive building apps.
“Building amenity areas are extremely important as tenants rely on them to attract and retain talent,” said Hendrick.
Balancing the needs of different generations of tenants presents significant challenges for property managers as well. Hendrick stressed that delivering a quality office experience for various generations is always evolving, but all generations appreciate sustainability features and a focus on occupant wellness, such as building and event programming, health screenings and fitness-related amenities.
“We created an outdoor amenity space at one of our north suburban properties,” Hendrick mentioned as an example. “Tenants can now walk around in a natural setting, eat in the picnic area or congregate around the fire pit and enjoy the building’s colorful mural.”
Hall highlighted similar challenges and solutions. Technology expectations vary, with some tenants potentially struggling with new technology while others expect cutting-edge solutions.
“We offer technology training sessions to help less tech-savvy tenants adapt to new technologies,” said Hall, adding that Caton Commercial also guides clients to invest in sustainable practic-
Photo courtesy of Caton Commercial.
es like energy-efficient lighting and green building certifications.
Both Hendrick and Hall emphasized the transformative impact of technology on property management. Hendrick noted that cloud-based platforms and tenant apps have made communication with tenants much more efficient.
“They also lend added convenience for the tenant for everything from placing work orders to registering visitors to accessing building-related news and event programming,” said Hendrick.
Xroads Real Estate Advisors has implemented Building Hub, a customizable, cloud-based property management platform.
“We provide online portals for building services, maintenance requests and client/tenant updates. Mobile apps offer real-time notifications, booking systems for shared spaces and virtual concierge services,” said Hall, mentioning that Caton Commercial utilizes platforms like AppFolio and virtual tour software like Matterport
to streamline communication and offer immersive leasing experiences.
Looking to the future, both Hendrick and Hall see a promising role for AI and emerging technologies in property management. Hall predicted that AI will revolutionize property management and tenant engagement.
“From forecasting maintenance issues
and reducing downtime to improving client and tenant satisfaction, AI-driven analytics can provide insights into tenant preferences, allowing our clients to offer personalized services and amenities,” said Hall.
“AI will be most impactful when it replaces tasks – not communication or people. Property management is so dependent on building personal
relationships, so as AI matures, we will be evaluating tools that allow us to be more productive without losing that human touch,” Hendrick added.
As Hendrick aptly put it, continuing to communicate with tenants to better understand their needs is crucial and smart property managers will incorporate key findings into their business plans.
Photo courtesy of Caton Commercial.
The multifamily sector’s bright future
By Brandi Smith
Chicago’s multifamily real estate market is showcasing resilience and growth, outperforming national averages despite economic uncertainties. With a stable job market, diverse housing options and a focus on strategic investments, the multifamily sector remains a stronghold in the city’s real estate landscape.
According to CoStar data, the Chicago apartment market saw a 2.7% increase in asking rents year-over-year as of the first quarter of 2024 with vacancies hovering around 5.6%. These metrics are indicative of a healthy market driven by strong job opportunities and varied rental options.
Ralph DePasquale, managing director of investment properties at Berkadia, emphasized the overall strength and demand in Chicago’s multifamily market.
“Of all the various property types within the market, multifamily is by far the top sector, both in terms of operations and investor demand,” DePasquale said. “The overall market for multifamily is very strong with low vacancy and strong rent growth across all classes from A through workforce, and really throughout the state.”
Workforce housing has long been a cornerstone of the Chicago multifamily market, offering durable demand and
reliable cash flow for investors. These properties, often older and more affordable, remain attractive due to their proximity to job centers and transportation hubs. DePasquale noted that investor interest in workforce housing is particularly strong due to its consistent performance and lower vacancy rates compared to higher-end properties.
Location remains a critical factor for multifamily investments. DePasquale emphasized the importance of proximity to job centers and transit-oriented developments as key criteria for promising investment areas.
“You still need to follow the jobs or at least, the most cost-effective and ef-
ficient way to get to those jobs. Areas with good job growth and relatively low vacancy rates are usually at the top list,” he said.
In response to changing renter preferences, property owners in Chicago are getting creative with space planning. Older buildings with formal dining rooms are being reconfigured to add bedrooms, home offices, or larger kitchens.
Sustainability trends are also influencing development projects with features like smart thermostats, recycling and outdoor spaces.
“Having the ability to offer a ‘green’
Photo by Expect Best.
project has become more important to younger renters,” DePasquale noted.
Shifting demographics, including a growing senior population and increased demand from millennials, are shaping housing options. The emergence of Build-to-Rent (BTR) communities is a notable trend, according to DePasquale.
“The emergence of BTR communities has been a recent sector of the multifamily market, appealing to both older empty nesters and younger families that want or need more space and a yard,” he said.
The Federal Reserve’s decision to keep interest rates elevated to control inflation has posed challenges for multifamily investors. However, those with long-term, low loan-to-value loans and higher debt service coverage ratios are well-positioned to navigate these economic shifts.
“The only thing that dampened investments over the last 18 to 24 months has been the rise of and unpredictability of the capital markets. Interest
“I believe that multifamily will continue to be the darling child of the real estate industry as demand for housing continues to increase and a slowdown in construction over the next few years.”
rates paused investment transactions as both buyers and sellers navigated through pricing,” said DePasquale, adding that for investors with over-levered, variable-rate debt, refinancing might require additional capital or asset sales, potentially creating opportunities for well-capitalized buyers.
Despite the unpredictability of the capital markets and rising interest rates, the fundamentals of Chicago’s multifamily market remain strong. With a continued demand for housing and a slowdown in construction, the outlook for the sector is optimistic.
“I believe that multifamily will continue to be the darling child of the real estate industry as demand for housing continues to increase and a slowdown in construction over the next few years,” DePasquale concluded. “This will bode well for Illinois and throughout the Midwest.”
Development Partners Wanted
NAI Wisinski: West Michigan industrial market still strong despite economic turmoil, high interest rates
By Dan Rafter, Editor
The industrial vacancy rate in the West Michigan region stood at an impressively low 2.5% as of the end of the second quarter, according to the latest research from NAI Wisinski of West Michigan.
That should be cause for celebration, right? Not necessarily. The West Michigan industrial market’s vacancy rate was an even lower 1.8% in the second quarter of 2023.
In its second quarter industrial report, NAI Wisinski writes that while a vacancy rate of 2.5% remains historically low, any increase in vacancy rates in this market needs to be
monitored. Even if that vacancy rate is still under 3%.
Another potential trouble spot? NAI Wisinski reported that some larger industrial spaces of 60,000 square feet to 180,000 square feet have hit the West Michigan market for sublease. Again, this is not an emergency. But NAI Wisinski brokers say that it is another possible market shift to watch.
What is fueling the overall strength of the West Michigan industrial market? In its report, NAI Wisinski points to the continued strength of e-commerce, distribution and logistics-related uses. Another bright spot? Reshoring and nearshoring.
NAI Wisinski reported that industrial sales activity has slowed in the West Michigan region, as it has across most of the country. You can blame higher interest rates on that. But while demand has reduced slightly, it is still higher than the supply of available industrial space. That has kept industrial values strong in the region.
Construction costs are high, too, something that has helped slow the development of new speculative industrial facilities. As NAI Wisinski says, developers are building very few spec industrial properties in the West Michigan region today.
The West Michigan region saw some sizable industrial deals in the second quarter. NAI Wisinski pointed to a 110,200-square-foot industrial lease at 1120 36th St. in Wyoming, Michigan; a 116,480-square-foot sale at 6030 Clyde Park Ave. SW in Byron Center; and the sale of a 101,648-square-foot industrial property at 4949 Greenbrooke Drive SE in Grand Rapids.
And in good news for the West Michigan market, Gentex Corporation is advancing its plans for a Grand Rapids manufacturing plant and office space on a 6.4-acre site at 1639 Madison Ave. The facility will produce automotive mirror devices, employing more than 100 in production and technology jobs.
Photo by Pixabay.
The next generation of real estate leadership: Young leaders taking the reins at ULI St. Louis
By Steve Houston, former ULI-St. Louis communications chair
Dynamic change, generation to generation, often accelerates with a spark. In the case of the Urban Land Institute – St. Louis (ULI), the unrest in Ferguson, Missouri, 10 years ago and the landmark Ferguson Commission report sparked a profound shift in the delivery of ULI’s mission in our community.
This was an opportunity for those with the biggest stake in our future – ULI’s younger members – to take the lead in expanding and refining the mission of the organization. It ultimately led to ULI having its youngest and most committed local leadership team ever.
The release of the commission’s report galvanized ULI leadership. At the time, Ann Althoff and Chip Crawford were ULI chair and chair for mission advancement (vice chair), respectively. Both were Boomers from Forum Studio (now Lamar Johnson Collaborative or LJC). Kacey Cordes – a Gen Xer and vice president, affordable housing, at US Bancorp CDC – was on the ULI leadership team and had read all 189 calls to action in the Ferguson Commission report, strategically highlighting where ULI could assist.
“I know some will say ‘that’s not your lane,’ but this organization has the expertise to address some of the Commission’s recommendations related to real estate,” Cordes said.
ULI’s mission to shape the future of the built environment for transformative impact in communities worldwide calls on the real estate industry to innovate and embrace new ideas to benefit our cities. Althoff was leading ULI with an eye on the promise of our region, connecting people across generations. Crawford led with a practice of venturing out on ideological “thin branches,” pushing beyond comfort zones, to explore all possibilities.
Together, they recognized the opportunity Cordes presented with the
Commission’s report ¬– an opportunity for ULI to dig into its history and the real estate industry’s past harmful practices, join with new partners in this work, and begin to repair those harms in St. Louis.
Working alongside ULI’s leadership was Kelly Annis, ULI St. Louis executive director since 2012. Annis was a quiet constant among ULI’s leaders, supporting the shifts to expand its work and mission.
What followed was a deep dive into the racial disparities in city building and a focus on three of the Commission’s calls – prioritizing transit-oriented development, building healthy affordable housing, and stabilizing middle-market neighborhoods. With a passionate membership full of urban planners, financiers, architects, real estate developers, legal and accounting professionals, and builders, ULI identified where it could help.
This passion sparked ULI’s Equitable
Communities Initiative, which became the foundation for some of its most impactful work today. Led jointly by Crawford and Cordes, this initiative bridged generations, provoked important conversations about race and equity, and generated an enthusiastic response among ULI’s next generation.
With the assistance of the Clark-Fox Foundation, ULI created a community development ecosystem map, which sparked conversations with place-based organizations and those
A look at ULI St. Louis’ leaders shows the youth of the leadership, including those leading and serving committees. (Photo courtesy of ULI St. Louis.)
traditionally disconnected from land use decisions. Another map, this one geographically based, detailed TIF districts, public transit routes, greenways, and commercial developments and layered in demographic data, which exposed the historic land use inequities in our region. The maps helped ULI, its partners, and friends host challenging conversations about where and how investment in has occurred and where and how it should occur going forward.
“We began thinking differently about the concept of optimizing a return on investment for development,” noted John Langa, vice president, economic development, Bi-State Development. Langa, a veteran of the industry, co-chairs ULI’s Technical Assistance Panels (TAP) with Cristen Hardin, a young planner at PGAV, to help communities tackle specific land use challenges.
Development works best when investments are optimized and the community benefits from the work. Blending racial equity with real estate development was a new concept for many in St. Louis real estate circles, and ULI recognized the need to engage in deep conversations, meet people – real estate professionals and community members – where they are, to find a path forward together.
“Blending racial equity with real estate development was a new concept for many in St. Louis real estate circles, and ULI recognized the need to engage in deep conversations.”
That path launched two new ULI education programs – UrbanPlan and the Real Estate Diversity Initiative (REDI). UrbanPlan puts high school students in the role of developer, where students navigate community requests, municipal requirements, and investor returns. REDI engages women and professionals of color in the fundamentals of real estate development in a real-project scenario in the community.
Taught by ULI members and partners, both programs deepen ULI’s connections into the community and help
2024 St. Louis
ensure that the progress in St. Louis’ neighborhoods can be led by the people living there. Both programs were also gaining traction in other US cities, but the work in St. Louis that intentionally centered racial equity became a new standard for ULI nationally.
Nandan Kelotra, 32, participated in the 15-week REDI program in 2020 after joining Trivers Architects as an associate. With a master’s degree in architecture and construction management from Washington University, “REDI introduced the real estate eco-
system, including financing, to me,” said Kelotra. “As a multi-family designer, I can now identify ways to optimize a project with design that takes the pro forma into account and makes the development better for the community it serves.”
Kelotra’s enthusiasm for REDI and astute approach caught the attention of ULI’s leaders, prompting a request that he serve as a REDI design mentor. Following three years as a mentor, Kelotra now chairs the REDI program.
ESTATE summit
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Crawford’s term as ULI chair, with Cordes as vice-chair, helped ULI find footing that appealed to established circles while also attracting next-gen talent. A compelling blend of their leadership styles evolved: pragmatic yet visionary; design-thinking that makes practical sense; and always supportive, collegial, smart, and fun.
This approach drew deep thinkers and doers to ULI in a way not seen before. In the early days of the Covid-19 pandemic, the two established a cadence of Zoom meetings that were inspiring and insightful, keeping the work of ULI running while also exploring the plans now on the table from St. Louis Development Corporation, Downtown STL, and the newly formed Greater St. Louis, Inc.
Cordes soon took the reins as ULI chair while Crawford remained deeply involved as governance chair. The two added Aaron Williams, the Penn Services professional who was instrumental in launching ULI’s UrbanPlan program, to ULI’s leadership mix as Cordes’s vice chair. Today, all three serve on a national ULI council that studies and advances public private partnerships across the US – work that has translated into their actions across our region.
Professionally, Williams helped build the world’s first fully built smart and sustainable city district – Msheireb Downtown Doha, Qatar. He also completed projects for St. Louis-based BJC Healthcare and Washington University, Ballpark Village, and others. Williams is a community builder and leading voice advancing cultural preservation in communities like The Ville in North St. Louis. His work in The Ville aligned with ULI’s evolving mission, and the three –Cordes, Crawford, and Williams – led the organization through the pandemic with even stronger relationships across the real estate landscape and a super-charged collegial approach that continues to be attractive to the next generation of leaders. In 2022, Williams succeeded Cordes as ULI chair.
“Regardless of age, ULI continually seeks engaged people who are active and effective and really care about all of St. Louis,” noted Williams. That same approach led the organization to tap Christie Brinkman, director, design/ build, Castle Contracting and steadfast ULI Programs Committee member, as Williams’ vice chair.
“Chip, Kacey, and Aaron have been the heart and soul of our leadership and evolving mission,” notes Brinkman.
“Their inspiration evokes the age-old wisdom, ‘if not, me, then who; if not now, then when.’” ULI’s expanded mission particularly resonated with Brinkman as it aligned with her time on Castle’s Veterans Community Project, a development of small homes for homeless veterans. This summer, Williams passes ULI’s leadership baton to Brinkman.
Hallie Nolan joined ULI in 2019 and dove into the work of the young leaders (those under age 35) locally and nationally. “I joined ULI to better understand how development evolves and identify how my urban planning perspectives can support and positively influence future development,” said Nolan, who is an associate at LJC after working at Trivers Architects.
“Joel Fouss, at Trivers, and Chip Crawford encouraged and helped me explore my ideas. They saw ULI as a place where a progressive vision of urban planning and development can flourish.” Nolan, age 30, has been tapped as ULI’s next vice chair and chair of mission advancement – the youngest ever for that position.
This year, ULI reorganized its 10 member-led volunteer committees to broaden participation from its young leader ranks. Beth Letscher, who succeeded Kelly Annis as executive director in 2023 noted, “There is an unbelievable energy across our committees driving new ideas to the forefront and helping us better serve our community.”
Among those ideas is innovating ULI’s TAP work to be more proactive in identifying development challenges, engaging directly with neighborhood stakeholders, and crafting actionable ideas that communities can take to the market. ULI recently collaborated with Greater St. Louis Inc. and the St. Louis Development Corporation to evaluate the city’s Gateway Mall and its potential as a “more-vibrant, people-centric hub” that spurs more activity downtown.
Among the recommendations for the city’s central business district was to shift instead to a “central social district” focused on drawing people downtown to play, dine, and socialize. The recommendations also centered racial equity, outlining a plan to build Black, Indigenous, people of color (BIPOC) equity in the
downtown real estate market and provide space for incubating and promoting diverse entrepreneurs and market makers.
ULI is focused on real estate and the built environment – from skyscrapers to home repair and everything in between – yet it is the people, the leaders across generations, and the organizational culture that refines ULI’s mission and influences how the organization shows up today. Communicating and translating that culture from leader to leader is a very thoughtful and intentional practice that ULI continues to embrace from chair to vice chair to members and to the community.
St. Louis stands to benefit from this organization’s leadership and its influence on the real estate landscape. As one of ULI’s leaders recently noted with regard to his professional work and its tie to ULI, “I’m so proud of this team… and the inspiration I get from you to focus on meaningful work!”
Steve Houston is the former ULI-St. Louis communications chair and principal of Compass Communications, LLC.
Past and Future Leadership shows the steady transition to youthful chairs. Left to right are, Aaron Williams, the outgoing ULI St. Louis chair, Kacey Cordes, who preceded Williams as chair, Hallie Nolan, who will become chair in two years, and Christie Brinkman who just took the reins as the current chair of ULI St. Louis. All are prominently mentioned in the article. Basically, the transition to youthful leadership began with Cordes, followed by Williams, then Brinkman and Nolan when she takes the reins of chair in two years. (Photo courtesy of ULI St. Louis.)
Dynamic interdependencies: Constructing the North American EV supply chain
By Aaron Walsh, market leader, automotive at Alberici
As automakers race to produce the next generation of electric vehicles, the EV supply chain is growing at a dramatic pace. Never have we seen this level of complexity in terms of concurrent design, procurement, fabrication and construction at this scale.
According to a 2022 report from Reuters, the world’s top automakers are planning to spend nearly $1.2 trillion through 2030 to develop and produce millions of electric vehicles, along with the batteries and raw materials to support that production. These new investments are largely in North America and will establish a new supply chain linked by very large and novel facilities to source raw material and manufacture EV batteries.
There is ample opportunity for contractors to create value when design-building these novel manufacturing facilities. Partnering with the right collaborators is paramount.
Trade partners must have the appetite, resources and competence to skillfully navigate dynamic interdependencies.
North American EV production is ramping up amid a host of constraints such as labor and equipment shortages, lack of advanced manufacturing experience and movement toward fast-track delivery to expedite speedto-market.
Historically, expertise in battery production has been centered in Asia, which adds language barriers to the list of challenges, as well as reconciliation of import and domestic standards. The convergence of the above factors allows construction managers and general contractors to facilitate ontime project delivery because of our position at the center of the project team.
Alberici has developed delivery strategies by coordinating scope alignment across trade partners and offering depth of professional staff and
self-perform craft labor. We are optimizing supplier relationships and leveraging our experience in other markets such as medical manufacturing, as well as our OEM automotive project experience, fabrication capacity and in-house, design-assist capabilities.
People resources are the primary challenge and the industry’s top constraint, whether they represent skilled trades or construction professionals or designers. Below is a contextual roadmap based on experience for how we are overcoming challenges and helping clients build North America’s EV supply chain.
A new evolution: Advanced Manufacturing facilities
In the U.S., federal incentives announced in 2022 are designed to lower the cost of electric vehicles and charging infrastructure while stimulating EV adoption. The U.S. alone aims to increase EV sales to 50 percent of all new auto sales by 2030.
The result for automakers is movement further into the advanced manufacturing space, long occupied by the pharmaceutical-, aerospace- and medical-manufacturing industries, where technology considerations are inextricably woven into each facility. They house massive “clean” and “dry” rooms with highly controlled air pressure and humidity, respectively.
Material and equipment selection optimizes air ionization and uses grounding conductors to prevent static charges from damaging semiconductors. Building these advanced manufacturing facilities requires specialized trades in significant quantity, and experience is being developed at a rapid pace as projects are completed.
If you picture a Venn diagram, with traditional auto manufacturing on one side, and advanced manufacturing on the other, the overlap in the middle is currently widening with EV battery production kicking into high gear. More than $52 billion of North Amer-
Photo courtesy of Alberici
ican EV manufacturing facilities have been announced since 2020.
‘Billion-dollar landscape’
Historically, battery-manufacturing resources and expertise come from China, Japan and Korea. Raw materials, processed materials and finished lithium-ion batteries used in American cars are still predominantly sourced from Asia, but that will soon change and reduce the cost of battery manufacturing, making electric vehicles more affordable. Tax incentives correspond to percentages of battery components sourced, processed and assembled in North America.
If you look at a map of North America today, you will need to drop at least 33 pins to account for each of the multi-billion-dollar megaprojects underway to feed current and future EV production. Like energy production, its three-prong supply chain is comprised of upstream, midstream and downstream modalities. Each of the projects underway will result in a facility specifically built to support one of them.
These facilities have no direct analog in the automotive industry’s long history, which is why automakers like Stellantis (Chrysler/Fiat) and GM are partnering with Korean technology companies like LG Energy Solution and POSCO Future M. Innovative partnerships are also required on the design-build side to bring the right people to our project teams when delivering these facilities.
Rapid delivery
The North American EV market competes for expertise with phone and tablet manufacturers worldwide. It demands skilled labor specifically with “Advanced Manufacturing” experience, and it vies with virtually every industrial and commercial market for building infrastructure such as air-handling units, transformers and electrical switch gear.
These facilities require three to four times the amount of mechanical and electrical systems of a typical manufacturing facility. Lead times can grow beyond 60 weeks to meet the massive demand of a single project. And any of these challenges can create delays.
Meanwhile, project delivery is no longer composed of rigidly delineated phases, which magnifies the need for ready solutions to the challenges
“Never before have we seen this level of complexity in terms of concurrent design, procurement, fabrication and construction, where everything is happening at once.”
above. Each phase overlaps the next. Funding continues even as schematic design commences and our construction team is assembled. Supplier selection takes place concurrent to design documents being formalized, which is concurrent to construction sequencing.
When the facility roars to life and outputs its first products, our construction teams will still be on site to make any needed refinements. Never before have we seen this level of complexity in terms of concurrent design, procurement, fabrication and construction, where everything is happening at once.
Strategies for navigating dynamic interdependencies
Alberici builds facilities to serve each modality of the EV battery supply chain and has generated strategies for navigating dynamic interdependencies. Our strategies have developed in a relatively short time through our focus on removing or mitigating uncertainties. These strategies have proven effective for projects such as NextStar Energy’s 4.5-million-square-foot midstream facility and GM/POSCO Future M’s upstream facility.
Trade partner needs
Regional labor markets vary greatly. Self-perform capacity can remove labor uncertainty, especially when meeting aggressive schedules such as those at NextStar Energy’s plant in Windsor, Ontario. The project started in 2022, celebrated 30 percent completion in November 2023 and is expected to produce its first modules in the first half of 2024. To effectively divide project scopes, we qualified
multiple subcontractors with the right experience and combined them with self-perform to meet the needs of this mega-project.
Scope alignment and change management
Given the size and diversity of our project teams, in terms of languages and standard operating procedures, communication channels need to be inclusive and established early on. Changes are almost a certainty as the project progresses and they can ripple in all directions from design and construction to procurement and funding.
Alberici continually updates cost estimates as projects advance from phase to phase, and our estimates for specific scopes have at times changed by 20 percent or more because scope has grown or quantities have changed. We meticulously curate organizational charts separately for pre-construction and construction to rigorously define channels of information. In effect, we are generating scope alignment between all parties, ensuring clear communication of expectations.
Balancing risk and reward in contract
Ultimately, due to the size, scale, and “known unknowns,” the contract model used for these projects — between contractor and owner as well as contractor and subcontractor — has been widely variable. Whether influenced by cost, schedule, quality or management expertise, the contract is carefully considered to align desired outcomes among all parties.
A lump-sum or fixed-price contract carries the greatest risk on the contractor side for scopes with the
greatest uncertainty, but it can make sense for earthwork, architecture and landscaping scopes that are unlikely to change significantly. A Cost-Plus agreement carries less risk for the contractor and can make sense for scopes that anticipate limited change such as concrete and foundation work. A time and material (T&M) contract carries the lowest risk for MEP contractors, who agree to perform the scope of work, knowing that labor and material costs will change.
Moving forward
Even as EV sales have slowed recently, momentum continues to support a societal shift to reduce carbon emissions and embrace electric vehicles. Establishing a North American supply chain will continue to rely on specialized facilities regardless of political environment. Construction partners who understand and leverage these integrated supply chain tactics are a must to deliver these projects on time and with best value.
As Market Leader for construction company Alberici’s automotive market based in Detroit, Aaron Walsh is responsible for overall operations, client satisfaction, and the financial success of his business unit. He drives strategy and builds relationships with clients and trade partners to lead successful pursuits.
Since joining Alberici 13 years ago, Walsh has steadily advanced through various roles including Project Manager and served as Director of Operations prior to assuming his current role. From equipment installation to new building construction and the emerging battery manufacturing market, Walsh has managed work across North America.
Northmarq research: Struggles continue for single-tenant net lease investment market
By Lanie Beck
At mid-year 2024, the overall single-tenant net lease market continued to struggle with reduced investment sales activity.
Office volume was down approximately 43% from last quarter, and retail property transactions fell 56% in the last three months. The 17% boost in quarterly industrial activity was only enough to push the combined volume to $8.8 billion, making it the second slowest quarter of sales activity in over ten years. At this time, and without an uptick in volume during the second half of 2024, it’s likely the market will fall short of matching last year’s stunted totals.
Even with one or two interest rate cuts this year, which are still far from guaranteed, the market will need time to react and adjust. Activity is not expected to balloon overnight, although transaction volume will almost certainly increase somewhat in response to more affordable debt. Rather, investment sales between now and year-end will primarily be driven by upcoming loan maturities, opportu-
nistic acquisitions of distressed assets, 1031 exchange activity and other tax-motivated investment decisions. Elevated interest rates, coupled with the upcoming U.S. presidential election, have created a muddy, uncertain environment that many investors are simply waiting out if they have that luxury.
With today’s shifting market conditions, property values have dropped. Average cap rates for the overall net lease market have been on an upward trajectory since bottoming out in third quarter 2022. In the last seven quarters, cap rates have increased 93 basis points to the current average of 6.57%. While the last three months saw a decline in average cap rates for the single-tenant office and industrial sectors, further reductions are not expected. Instead, cap rates across all net lease sectors may experience
some fluctuation quarter to quarter, especially if transaction volume remains slow.
Q2 2024 Single-Tenant Office
Following first quarter 2024’s impressive performance, the single-tenant office sector saw transaction volume return to levels more in line with recent quarters. With $2.02 billion logged during second quarter, the market is set to outpace last year’s activity, even if second half office volume remains muted, which is expected.
With very few high-priced trades, the majority of investment activity over the last three months occurred in sub$10 million assets. Healthcare properties, including dialysis facilities, imaging centers and physicians’ offices, were among the more frequently sold asset types. Several portfolios were
Lanie Beck
NET LEASE
also traded. Among the higher profile transactions were Novant Health’s 16-property medical office sale-leaseback and the $60.7 million sale of the Class A headquarters campus of Blue Cross Blue Shield of Minnesota.
After a 12-basis point jump in first quarter, the average cap rate for single-tenant office receded slightly, ending mid-year at 6.75%. This is still elevated from the 2023 year-end average and further reductions are not anticipated. What’s more likely is that the market will see additional small upticks in the final months of 2024 to continue the general upward trend seen since mid-2022.
Buyer distribution for the first half of the year remains deviated from recent years. While institutional investors continue to represent roughly one quarter of the active buyers, REIT activity has become more prominent. With 27% market share, REITs were the most active buyer type for single-tenant office in the last six months. Private buyers, which have captured up to half of the market in the last two years, now only represent 25%. In the second half of 2024, watch for net lease healthcare transactions to continue buoying the market, which could result in a greater number of private investors becoming active in the sector.
Q2 2024 Single-Tenant Industrial
The single-tenant industrial market was the only sector to report an increase in sales volume from first to second quarter 2024. Despite the 17% uptick, transaction activity is still comparatively low to totals seen in the last few years. With $4.95 billion closed in the last three months, the sector still isn’t on pace to match last year’s performance, and a significant rebound in activity by year-end is not likely given that interest rates remain elevated. Still, investors continue to seek out industrial properties, especially in markets with extremely low vacancy and slow levels of new construction. Tenant demand in these areas that lack supply is helping to drive rents up, which is attractive for investors seeking yield.
Similar to the single-tenant office market, the industrial sector reported a jump in average cap rates at the beginning of the year, with a 16-basis-point jump from year-end 2023. Rates then declined in second quarter by five basis points to the current average of 6.46%. Given the large in-
Photo by Proxyclick Visitor Management System.
“The single-tenant industrial market was the only sector to report an increase in sales volume from first to second quarter 2024.”
crease in such a short period of time, it’s possible industrial cap rates could fluctuate in the remaining months of 2024. Any declines, however, are likely to be insignificant and short-lived, as the general trend has been increasing since cap rates bottomed two years ago.
Buyer activity for single-tenant industrial product has been extremely consistent in the last several years. In the first six months of 2024, private investors continue to be the most active buyer group with 37% of the market. They are followed by institutional investors at 24% and REITs at 12%. International investors have been more active this year than historically, but the breakdown is extremely similar to overall ratios witnessed this decade. This suggests investors remain com-
mitted to their strategies of including industrial assets in their portfolios.
Q2 2024 Single-Tenant Retail
With $1.82 billion in transactions reported during second quarter 2024, the single-tenant net lease retail sector posted its slowest quarter since 2011. This is only the third time in 13 years that quarterly activity has failed to exceed the $2.0-billion mark, but with rapidly rising cap rates, it’s been challenging to get buyers and sellers to agree on pricing. High interest rates have exerted pressure on transaction activity as well, and portfolio volume – which has historically contributed significantly to retail sale volume totals – is down more than 49% yearover-year. The market has relied on smaller priced individual asset sales
to drive activity levels, which simply don’t add up to impressive totals. With fewer than 300 transactions in second quarter, the net lease retail market is certainly facing its challenges.
Despite the seemingly dismal outlook, expectations call for increased activity in the second half of the year. We regularly see fourth quarter as the strongest and most active for the retail sector, especially as many yearend transactions are motivated by tax savings strategies. Furthermore, if interest rate cuts occur at any time this calendar year, the retail market is positioned to benefit.
International capital remains absent from the net lease retail market, but buyer distribution metrics reflect other noteworthy trends. In the last six months, REIT activity has been noticeably stronger than in recent years. With 38% market share, compared to 19% in 2023 and 15% the prior year, REITs have used current market conditions to their advantage. Conversely, private investors, which comprised 60% to 70% of the retail buyer pool in the last two years, represent less than half the active buyers. Watch for these ratios to adjust as the year progresses, however. With a meaningful uptick in transactions, especially during fourth quarter, it’s likely those tax-motivated private and individual investors will recapture some of today’s market share from the REITs.
Collaboration is the key to solving the workforce housing crisis
By Donald Bernards and Jolena Presti
The United States is experiencing an affordable housing crisis.
The U.S. needs 5 million more homes than it currently has. And even those who have homes are struggling, as 40% of renters are cost-burdened, while housing prices are rising faster than wage growth in 80% of U.S. markets, according to the Kenan Institute of Private Enterprise.
People may disagree about what the path forward looks like, but any path forward must include cooperation. The federal government, state governments, local jurisdictions, the private sector, not-for- profit organizations – there is plenty of opportunity to work together to manage the housing crisis. Yet, there is no one-size-fits-all solution. Collaboration between the housing industry and all levels of government remains the key to determining a tailored solution to the housing emergency facing each individual community.
“A city can have hundreds of schools, daycares, entertainment complexes and restaurants, but if the workers have nowhere to live nearby, then there will always be a workforce shortage.”
Examining a critical connection
Understanding the relationship between the workforce housing crisis and local economic development needs is an important first step toward ultimately developing a plan, policies and solutions to bridge the gap and provid-
ing housing options for our workforce.
If communities do not have sufficient housing for their workforce, there will be an ongoing challenge to achieve economic growth.
At a high level, cities need affordable,
available housing to attract workers to their community in the first place. A city can have hundreds of schools, daycares, entertainment complexes and restaurants, but if the workers have nowhere to live nearby, then there will always be a workforce shortage.
AFFORDABLE HOUSING
The workforce housing crisis, as we see it.
Baker Tilly has the advantage of being able to view the workforce housing crisis from two distinct perspectives: our public sector practice and our housing development practice. Our specialized teams understand and empathize with communities that are rapidly trying to come up with answers amidst unique situations, seeking to digest and manage all the complexities related to housing development, including site reuse and redevelopment for housing, public sector programs and incentives, project financing, construction risk management and every aspect of real estate.
The intersection of these firm specializations viewed through a workforce housing crisis lens can employ solutions to create a road map for longterm success.
Understanding the specific issues within your community:
1. Recognize that housing is part of economic development. While most people in the economic development industry are focused on growth strategies and re-development planning, it is common for people to lose sight of the housing element. Approaches for community growth in terms of economic and redevelopment strategies and incentives programs can lead the path forward.
“While most people in the economic development industry are focused on growth strategies and redevelopment planning, it is common for people to lose sight of the housing element.”
2. Engage with your employers. An underrated strategy for creating jobs in your community is to organize an open forum that encourages local businesses to talk about what they need.
3. Study the housing market. A thorough housing assessment (including a gap analysis) should help further highlight the current state of the region
developers can take to turn the community’s issues into action.
5. Determine the funding options. Configuring your ability to leverage different funding options is like solving a puzzle. You must get creative and examine every alternative to maximize your funding options.
6. Prepare the developers for success. Along with clear processes, communities can also set the stage for workforce housing development through updated zoning codes and considering ways in which higher-density housing and other factors play a role in increasing development.
Communication-based solutions
1. Community awareness. Housing professionals should sound the alarms throughout the community, making it clear that a lack of workforce housing will ultimately result in fewer jobs and less growth in the community.
2. Strategic networking. Staying connected with economic developers is a necessary step. If you make a concerted effort to bring them into your community, you’ll quickly find that economic developers have many similar interests.
3. Connect with statewide housing agencies. Statewide housing agencies are a key resource for connecting the state and local governments with the economic developers in the region.
Next steps
These are basic ideas of how to get started, but obviously the workforce housing dilemma isn’t going to be solved with easy answers or simple steps. Connect with our specialized teams If you would like to discuss tailored solutions for your community and address your workforce housing challenges.
while determining what the community needs to do from a housing standpoint.
4. Establish a housing taskforce. This taskforce should include representatives from both the public and private sector and not-for-profit organizations. Together, the taskforce should form an action plan with specific strategies that the local government and housing
Donald Bernards is principal in the real estate group of Baker Tilly, working from the company’s Madison, Wisconsin, office. Jolena Presti is managing director with Baker Tilly’s public sector advisory practice and works from the company’s Milwaukee office.
Image by F. Muhammad from Pixabay
MARKET REPORT
CORFAC members report steady market activity in first half of 2024
Despite inflation and economic uncertainties, transaction volume and market activity held steady in the first half of the year for CORFAC International’s global members.
A recent survey of the independently owned brokerages comprising the network revealed 31% of respondents said deals have remained the same, 31% said volume has slightly increased and 10% said it has significantly increased.
Another highlight: More than 50% of respondents reported in-bound referrals from existing clients or local allied service providers. This underscores the organization’s strong reputation for service and local market expertise, particularly during times of market volatility. The strength of collaboration between members was also evident, as nearly one-third of respondents reported transaction activity that originated as a referral from a fellow CORFAC member.
“We’re pleased to hear from our members that deal volume is trending positive and that referrals continue to be an important source of new business,” said 2024 President David Boyd, CCIM, SIOR, Principal of Boyd Commercial/CORFAC International in Houston, Texas. “Our network is built on the valuable cross-market connections between members, their clients, and trusted local service providers.”
Industrial Drives Business Activity
The industrial sector continues to generate the greatest share of business activity for respondents, with 62% citing warehouse/distribution as a top driver and 58% citing industrial/ manufacturing. Office transactions, investment sales, and retail deals rounded out the subsectors fueling the pipeline for member firms.
One Midwest deal mentioned by a member was the moving of the Door. com (formerly Latch) headquarters to St. Louis into a 48,000+ square foot space.
CORFAC members also shared the bright spots they’re seeing across other markets. The top three factors positively influencing local CRE market activity are population migration to their markets (59%), employers’ return to office requirements (48%), and stabilizing interest rates (48%). The growth of healthcare real estate is another cause for optimism mentioned by multiple respondents.
“We’ve had activity from doctors looking for owner-occupant space as well as expanding medical groups,” explained one member.
Economic Concerns Center on Inflation and Interest Rates
Still-high interest rates and inflation are having the most negative effects on transaction activity and temper-
ing overall business optimism for 83% of survey respondents. Even so, some industry players seem to have adjusted to this environment: “Some investors are stomaching higher interest rates, and some banks are thawing their lending practices.”
Yet, the amount of time deals take to complete is wearying some brokers. “Transactions seem harder to conclude and each project needs more time and effort on our side,” said one respondent. Another added, “Clients are waiting for ‘things to get better’ to make decisions.”
These headwinds reinforce the importance of working with a collaborative and flexible network like CORFAC. With deals taking significant time and effort to conclude and uncertainty around securing financing, deal participants need real estate advisors who can navigate the ins and outs of their local markets and bring buyers and sellers to a satisfying agreement.
Image by Pexels from Pixabay
ASSET/PROPERTY MANAGEMENT FIRMS
ALVAREZ & MARSAL PROPERTY SOLUTIONS
205 W Wacker, Ste 516 Chicago, IL 60606
P: 312.606.0966
Website: ampsre.com
Key Contacts: Kevin Halm, Managing Director, khalm@ampsre.com; Pete Kontos: Managing Director, pkontos@ampsre.com
Services Provided: AM-PS provides property management, project management, and brokerage services to owners and occupiers of office, retail, and industrial real estate. Company Profile: AM-PS was born out of the desire to take the strategic mindset and processes of the renowned business restructuring firm Alvarez & Marsal and reframe them for the commercial real estate world. Our approach solves problems, improves performance, and unlocks value for our clients. Our work has positively impacted real estate and those who interact with our properties nationwide.
AREA REAL ESTATE ADVISORS
4800 Main Street, Suite 400 Kansas City, MO 64112
P: 816.895.4800
Website: openarea.com
Key Contact: Tim Schaffer, Founder & President, tschaffer@openarea.com
Services Provided: Office, Retail & Industrial Landlord and Tenant Representation; Multifamily Brokerage; Property Management; Project Management; Investment; Research Analytics and Consulting.
Company Profile: AREA Real Estate Advisors is a full-suite commercial real estate firm in Kansas City. AREA is the hometown team that plays in the big leagues. Our size and scope allow us to be nimble and apply a team-driven approach while providing best-in-class service. At AREA, we deal in real estate, but our business is relationships. We are committed to meaningful partnerships with our clients to ensure that their goals are achieved. Our goal is to exceed our clients’ expectations.
Notable Transactions: Ocean Prime / Prime Social, Visiting Nurse Association, American Trailer & Storage, Ryan Lawn & Tree, Five Below, Strang Chef Collective, Professional Engineering Consultants, Vytelle, Inspired Homes, CentiMark, Clairvaux, Santa Fe Village Apartments, Arvest Bank, Arborwalk, Higher Ground Education.
MID-AMERICA
One Parkview Plaza, 9th Floor Oakbrook Terrace, Illinois 60181
Key Contacts: Dan Hanson-Illinois, dhanson@midamericagrp.com
Brandon O’ Connell-Minnesota, boconnell@midamericagrp.com Jim Vaillancourt-Wisconsin, jvaillancourt@midamericagrp.com
Services Provided: Mid-America provides strategic consulting services that maximize net operating income, net cash flow, and accelerate property appreciation. We provide property and construction management, leasing, due diligence, and market analysis. Additionally, we offer MA Building Services, a self-performing porter and maintenance company offering our clients cost savings and improved accountability for related services.
Company Profile: Mid-America Real Estate is #1 in retail real estate services in the Midwest, with full service offices in Illinois, Michigan, Minnesota, and Wisconsin. Our exclusive focus on retail property, combined with cutting-edge technology and unsurpassed service, distinguishes Mid-America within the industry and provides clients with a competitive edge. The total consideration value of leasing and investment sales transactions facilitated in 2023 was $1.2 billion. Mid-America leases and manages more than 60 million square feet of retail space, and represents over 270 retailers and other tenants. For more information, visit www.midamericagrp.com
OUTLOOK MANAGEMENT GROUP, LLC AMO
S74 W16853 Janesville Road
Muskego, WI 53150
P: 414.369.3511 | F: 414.435.0251
Website: outlookmgmt.com
Key Contact: Ray Balfanz, President/Partner, ray@ outlookmgmt.com
Services Provided: Full service property and asset management services, financial analysis and reporting; budget preparation and expense reconciliations; lease administration; construction management; preventative maintenance and consulting services.
Company Profile: Outlook Management Group, LLC AMO provides comprehensive property and asset management services for all asset classes in multiple states and markets.
Notable Properties Managed: Washington Corners, Naperville, IL; Ironwood Office Park, Glendale, WI; Wood River Condominiums, West Bend, WI; Seven 10 West Luxury Apartments, Chicago, IL; MDJD Aesthetic MOB, Rockford, IL, Ascension Health MOB Milwaukee, WI; Henry Ford Health Systems Pharmacy
Services Building in Rochester Hills, MI; Henry Ford Medical Center in West Bloomfield, MI; Baptist Medical Center South, Montgomery, AL; and Lee Memorial Health Systems Building in Fort Myers, FL.
BROKERAGE FIRMS
GOODMAN REAL ESTATE SERVICES GROUP LLC
25333 Cedar Road, Suite 305 Cleveland, OH 44124
P: 216.381.8200 | F: 216.381.8211
Website: goodmanrealestate.com
Key Contacts: Randy Goodman, President, Randy@goodmanrealestate.com; Richard Edelman, Senior Vice President/Principal, Richard@goodmanrealestate.com
Services Provided: At Goodman, we combine experience, technology, a large support team and hard work to provide exceptional service to its clients in national investment sales and financing, tenant and buyer site selection, property marketing, leasing, sales and disposition.
Company Profile: Goodman is a leading commercial brokerage firm based in Ohio specializing in national investment sales, tenant and buyer site selection with over 100 companies represented and marketing over 12 million square feet of retail properties for lease and development.
SHAWVER GROUP COMMERCIAL REAL ESTATE
1440 Erie Street, Suite B North Kansas City, MO 64116
P: 816.213.9578
Website: shawvergroup.com
Key Contacts: Joanna Shawver, Principal and Founder, joanna@shawvergroup.com; Erin Green, Marketing and Operations Director, erin@shawvergroup.com
Services Provided: Shawver Group provides a variety of commercial real estate services for our clients and customers. Tenant representation, landlord representation, development leasing, investment sales, new store site selection, lease renewals and consulting services. We deliver for both new businesses searching for a space and national brands entering the Midwest market.
Company Profile: Shawver Group is a Kansas City-based commercial real estate brokerage firm delivering strategic solutions and successful client results across the Midwest in commercial leasing and sales transactions. Our industry connections, experience and lasting relationships create opportunities for our customers, clients, property owners, investors and developers.
CONSTRUCTION COMPANIES/GENERAL CONTRACTORS
MERIDIAN DESIGN BUILD
9550 W. Higgins Road, Suite 400
Rosemont, IL 60018
P: 847.374.9200 • F: 847.374.9222
Website: meridiandb.com
Key Contact: Paul Chuma, President; Howard Green, Executive Vice President
Services Provided: Meridian Design Build provides construction and design/build construction services on a national basis with a primary focus on industrial, office, medical office, retail and food and beverage work.
Company Description: With a team of in-house professional project managers, Meridian has extensive experience coordinating the design and construction of new buildings, tenant improvements, and additions/renovations from 15,000 square feet to 1,000,000+ square feet. Meridian Design Build has been a Member of the U.S. Green Building Council since 2007. Notable/Recent Projects: Venture Park 47, Huntley, IL - 729,800 sf speculative industrial facility for Venture One Real Estate. Lion Electric, Joliet, IL - 928,500 sf electric bus / medium duty truck assembly plant for Clarius Partners. Greenwood Truck Terminal, Greenwood, IN125 door truck terminal on 43 acres for Scannell Properties.
PRINCIPLE CONSTRUCTION CORP.
9450 West Bryn Mawr Ave., Suite 120 Rosemont, IL 60018
P: 847.615.1515 | F: 847.615.1598
Website: pccdb.com
Key Contacts: Mark L Augustyn, COO, maugustyn@pccdb.com, James A.. Brucato, President, jbrucato@pccdb.com
Services Provided: Principle specializes in commercial and industrial property and is committed to providing clients with the highest level of design/build construction services with an absolute dedication to each project.
Company Profile: Design/Build General Contractor established in 1999 specializing in the design and construction of Build-to-Suit, Speculative, Retail, Food Processing, Expansions/ Additions, Tenant Improvements, & Specialty Facilities. Principle also has extensive experience in interior improvements, site evaluation, due diligence, and value engineering. Recently Completed Projects include:
• 282,588 SF dry-cleaning facility for Tailored Brands, at 2000 Deerpath Rd. in Aurora, IL.
• 31,200 SF facility for Alvil Trucking, at 2570 Millenium Dr. in Elk Grove Village, IL
• 6,200 SF Warehouse for Superfast Trucking, at 1001 Raddant Rd. in Batavia, IL
VICTOR CONSTRUCTION
2000 Center Dr., Suite East C219 Hoffman Estates, IL 60192
Services Provided: Victor Construction Co., Inc. manages projects from ground-up site developments to interior buildouts, specializing in retail, industrial, and commercial markets. Company Profile: Established in 1954, Victor Construction Co., Inc. is a third-generation general contractor that specializes in commercial, industrial, and retail construction. Victor Construction is known as one of the most efficient and dependable general contractors in the Chicago metropolitan area and has earned the reputation due to meticulous project management, cost-effectiveness, budget awareness, and prime first-rate workmanship. Commitment to the clients’ goals is what keeps satisfied customers returning to Victor Construction for all their construction needs-- We Build for Your Success!
Recent CRE Activity: Double Track Northwest Indiana: $1.6 Billion development reducing train travel to Chicago to 60 minutes; The Franklin at 11th St. Station: $100 Million Development with Residential & Retail Space; “You are Beautiful”/SoLa: $311 Million MixedUse Multi-Family Development with 235 boutique hotel rooms & 174 Luxury Condos; Burn ‘Em Brewing: $3 Million Expansion project with 30 new jobs.
VILLAGE OF HUNTLEY
10987 Main Street
Huntley, IL 60142
P: 847-515-5268
Website: huntleyfirst.com, huntley.il.us
Key Contact: Melissa Stocker, Development Manager, mstocker@huntley.il.us
Services/Demographic Info: Huntley, a northwest suburban Illinois community of greater than 29,000 residents, is conveniently located at the crossroads of Interstate 90 and IL Route 47. Proximity to the interstate and to international and cargo airports in Chicago and Rockford make Huntley an ideal location for businesses looking to escape the congestion of more populated areas while reaping the benefits of a Chicago market location. Village of Huntley staff provides comprehensive services including site selection assistance and demographic resources, visit huntleyfirst.com to start the search for your new home for business. Residential construction continues with three subdivisions actively building. Huntley is home for your business, and home to the right employees for your business.
Population In Primary Trade Area: 97,283
Incentives: TIF District, Fast Track permitting and development approval process
CRE Activity: Huntley is home to leaders in business. Join Weber, Northwestern Medicine, Amazon and many others that chose Huntley as their home for business. Hampton Inn recently opened in Huntley. Amazon has begun operations in two Huntley facilities.
E-Logistics firm headquarters are underway. Speculative development is underway and available near the tollway. Multiple retail strip centers are in the planning and construction phases. With land available for custom-tailored facilities, businesses seeking sites recognize Huntley as a prime location for operations.
REAL ESTATE LAW FIRMS
REINHART
BOERNER VAN DEUREN S.C.
1000 N Water Street, Suite 1700 Milwaukee, WI 53202
P: 414.298.1000
Website: reinhartlaw.com
Key Contact: Joseph Shumow, Shareholder, jshumow@reinhartlaw.com
Services Provided: Reinhart is a full-service, business-oriented law firm that delivers innovative, value-added solutions for today’s most important real estate needs, including land use and zoning; tax incremental financing; tax credits; leasing; construction; and condemnation and eminent domain issues.
Company Profile: With the largest real estate practice in Wisconsin and offices throughout the Midwest and across the country, Reinhart’s attorneys offer clients customized real estate insight rooted in broad knowledge and deep experience to help you capitalize on opportunities no matter where you do business.
WORSEK & VIHON, LLP
180 North LaSalle Street, Suite 3010 Chicago, IL 60601 P: 312.917.2307 P: 312.917.2312 | F: 312.596.6412
Website: wvproptax.com
Key Contacts: Francis W. O’Malley, Managing Partner fomalley@wvproptax.com; Jessica L. MacLean, Partner jmaclean@wvproptax.com
Services Provided: Worsek & Vihon, LLP represents tax payers in Illinois by limiting their property tax liabilities through ad valorem appeals. We have over 40 years of experience and can handle basic to the most complex assessment issues while offering the dependable, personalized attention our clients deserve. We have experience representing owners of all property types. In addition to filing thousands of appeals with the Cook County Assessor, we have been involved in numerous proceedings before various Boards of Review, the Illinois Property Tax Appeal Board, and the Circuit Court of Illinois, and have appeared before the Illinois Appellate and Supreme Courts.
Company Profile: Worsek & Vihon LLP, is a team of experienced attorneys singularly focused on real estate tax law. The firm is dedicated to minimizing property tax liabilities through strategic tax portfolio management, well-researched, creative appeal preparation and aggressive advocacy.
