October 2024 Midwest Real Estate News

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OCTOBER 2024 VOLUME36 ISSUE6 CRE MARKETPLACE PAGE 44:

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A cut in interest rates? It’s boosted optimism in the industrial sector across the Midwest

By Dan Rafter, Editor

A rendering of the build-to-suit project that Zilber Property Group is taking on for Saputo Cheese in the Caledonia Corporate Park in Caledonia, Michigan. (Photo courtesy of Zilber.)

A

dash of optimism. That’s what industrial brokers and developers say that the Federal Reserve Board’s September interest-rate cut brought to their commercial sector.

least provide an impetus for some momentum to continue in the market. Except for a recent successful portfolio sale in late summer 2024 – which was great real estate -- there has not been much institutional activity.

Yes, the industrial real estate sector had been holding steady, even with higher interest rates. But higher rates did slow investment sales and new development. Many markets also saw leasing activity dip from the highs of the COVID days.

And if the Fed continues to reduce its benchmark interest rate? That could help unclog the pipeline of industrial deals, Disser said.

CRE pros working industrial markets across the Midwest now hope that the cut in rates will provide a boost to industrial sales and development. It won’t happen overnight, these professionals agree, but if the Fed cuts rates even further? That could lead to more industrial sales and construction activity in 2025 and beyond.

A prediction of better times in Illinois R. Kelly Disser, executive vice president with the industrial services group at Oakbrook Terrace, Illinois-based NAI Hiffman, said that the Fed’s rate cut will provide at least a mental boost to developers and investors – to at

“There has not been much new development in the industrial sector in our market recently, nor new land purchases for additional development,” Disser said. “We are seeing roughly a third of what was constructed at our high point after the pandemic – 14M sf under construction now with roughly half spec, compared to 40M sf plus coming out of the pandemic. If the interest rate cuts continue, that should help spur new development and increase investment sales. But for now, that first rate cut helps mentally and we need to continue to see demand, continued leasing absorption.”

Even with the slowdown in investment sales and new INDUSTRIAL (continued on page 18)

ST. LOUIS

St. Louis remains a resilient market

By Dan Rafter, Editor

Yes, St. Louis has faced its own challenges during this time of higher interest rates and economic challenges. But the city’s commercial real estate sector has remained resilient, too.

What’s behind this resiliency? A diverse economy helps, as does St. Louis’ location in the center of the country. A strong labor force and a pro-business government have long provided a boost to commercial real estate activity here.

And while these remain challenging economic times, St. Louis’ commercial real estate market is showing signs of increased leasing and sales activity.

ST. LOUIS (continued on page 14)

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4 | Midwest Real Estate News | October 2024 | www.rejournals.com

FEATURES 10 The Midwest’s commercial real ­estate publication, providing useful, unbiased and accurate coverage of the industry and its professionals since 1985.

WWW.REJOURNALS.COM Publisher | Mark Menzies menzies@rejournals.com 312.933.8559 Editor | Dan Rafter drafter@rejournals.com ADVERTISING Vice President of Sales & MW Conference Series Manager | Ernest Abood eabood@rejournals.com Vice President of Sales | Frank E. Biondo frank.biondo@rejournals.com Classified Director | Susan Mickey smickey@rejournals.com

1

A cut in interest rates? It’s boosted

The Twin Cities’ office sector? It’s

Occupancy, rent growth and long-

24 a complicated one: When US Bank

31 term demand on the rise in medical

across the Midwest: A dash of optimism.

moved out of the Meridian Crossings office

office space: As the healthcare delivery

That’s what industrial brokers and

development in Richfield, Minnesota, it

system continues to shift toward outpatient

developers say that the Federal Reserve

left behind 340,000 square feet of now-

care, a mid-year medical office review by

Board’s September interest-rate cut brought

vacant office space. And that move is one

The Laramar Groupbrings positive news for

to their commercial sector.

major reason for the rough second quarter

this sector.

optimism in the industrial sector

Marketing & Events Coordinator | Allison Kim Allison.kim@rejournals.com

Midwest Real Estate News brings real ­estate leaders together to explore the challenges and opportunities unique to their markets.

experienced by the Minneapolis-St. Paul

1

St. Louis remains a resilient

office sector.

market: Yes, St. Louis has faced its

own challenges during this time of higher

Varsity Theater and Bookman’s Alley

Experiences still matter when it

32 comes to retail success: Consumers are increasingly seeking experiences from

interest rates and economic challenges. But

26 mixed-use development poised for

the city’s commercial real estate sector has

success in Evanston: Some developments

rising demand for mixed-use developments

remained resilient, too.

just mean more to a community. The

that offer a live/work/play environment.

their living environments, which means a

former Varsity Theater and Bookman’s Alley

8

Suburban multifamily? It’s still a

adaptive-reuse development in downtown

strong performer: It wouldn’t be

Evanston is an example.

accurate to call the Detroit multifamily market a booming one. Yes, demand from

COLUMNS/DEPARTMENTS 6 Editor’s Letter

Inflation? High interest rates?

renters remains strong. But multifamily

28 Nothing is slowing the luxury

33 Commercial real estate has reached a

investment sales are sluggish thanks to

retail market Persistent inflation and

positive turning point

higher interest rates. And while monthly

higher interest rates might be worrying to

rents continue to rise on a year-over-year

consumers. But that hasn’t stopped many

36 The Detroit region’s $17 million

basis, that growth has slowed.

from making big-ticket retail purchases

weapon for proactive industrial site

this year. Need proof? JLL says that the U.S.

preparation

So many hurdles: Lack of affordable

10 housing remains a serious problem

luxury retail sector recorded more than $75 billion in sales last year.

37 Leasing trends of 3PLs in Indianapolis

for Twin Cities renters, buyers: The United States doesn’t have enough housing. And it

38 Managing sustainability and cost

certainly doesn’t boast enough affordable

30 shows that U.S. employers,

Harmony at last? Unispace survey

housing. Not surprisingly, the same can be

employers find middle ground on hybrid

concerns

said of the Minneapolis-St. Paul market and

work: After years of conflict and tension

its suburbs.

around return-to-office mandates and

39 Here’s how embedded GenAI can

hybrid schedules, the latest annual survey

radically transform the way users interact

from design-build firm Unispace shows that

with software

amid increasingly complex environmental

U.S. employees and employees have finally found an acceptable middle ground.

41 Counselors of Real Estate 2025 prediction? Plenty of uncertainty 44 August Marketplace

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Current and back i­ssues and additional resources, including subscription ­request forms and an editorial calendar, are available on the internet at rejournals.com.

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6

FROM THE EDITOR

Midwest Real Estate News | October 2024 | www.rejournals.com

Berkadia report: Multifamily operators turning to concessions to attract renters

By Dan Rafter, Editor

Photo courtesy of Pixabay.

E

very commercial sector has faced challenges during the last two years. This isn’t surprising: The Federal Reserve Boad began increasing its benchmark interest rate in 2022. Since then, life has become more complicated for commercial real estate professionals, no matter in which sectors they work.

Relief does seem to be coming, though, now that the Fed has enacted one rate cut and is expected to take on additional cuts in the coming months.

The number of investment sales and new developments will take time to rise, though, even with the Fed’s rate cut. An increase in activity won’t happen overnight.

For a look at how the challenging economy has impacted one of the strongest commercial sectors? Just look at the latest research on the concessions that

apartment owners are offering today.

During the days of soaring demand for multifamily space, owners and operators could get away with offering fewer concessions such as free months of rent or free parking for six months.

Today? Concessions are once again an important tool for multifamily owners and operators.

U.S. apartment owners and operators face increasing competition today from new multifamily properties and the lure of single-family housing. To attract renters? Many of these owners and operators are turning to concessions.

That’s the takeaway from the latest research from Berkadia.

According to Berkadia’s apartment concessions report released in October, more than one out of every five professionally managed apartment units across the United States offered

concessions in the second quarter of 2024.

While that figure represents an increase over recent concession activity, it remains lower than what the industry has seen in the past. Berkadia reported that from the third quarter of 2009 through the third quarter of 2019, an average of 28.1% of U.S. apartment units came with concessions.

And from the third quarter of 2002 through the third quarter of 2007, that figure averaged an even higher 41.3%.

From the third quarter of 2020 through now, though, an average of just 15.2% of all apartment units in the United States came with concessions.

What has increased is the value of these concessions when compared to asking apartment rents.

According to Berkadia, from the third

quarter of 2020 through the second quarter of 2024, concessions averaged 5.2% of asking rent. That is up from an average of 4.6% from the first quarter of 2010 through the fourth quarter of 2019.

It’s little surprise that the amount of concessions has increased as vacancy rates have also risen.

Berkadia said that the multifamily occupancy rate in the second quarter of 2024 stood at 94.2%. That is a dip of 50 basis points when compared to the same quarter a year earlier.

In good news for apartment operators, though, Berkadia predicts that the national multifamily occupancy rate will increase 20 basis points by the end of this year and continue to rise to 94.8% by the fourth quarter of 2025.

And that increase in occupancy should correlate to a dip in concessions.

8

MULTIFAMILY

Midwest Real Estate News | October 2024 | www.rejournals.com

Suburban multifamily? In the Detroit market it’s still a strong performer

By Dan Rafter, Editor

I

t wouldn’t be accurate to call the Detroit multifamily market a booming one. Yes, demand from renters remains strong. But multifamily investment sales are sluggish thanks to higher interest rates. And while monthly rents continue to rise on a yearover-year basis, that growth has slowed.

Still, the fundamentals of the multifamily sector in Detroit and its suburbs remain strong. Greg Coulter, founder and managing member of Bloomfield Hills, Michigan-based Income Property Organization, said that this is especially true in Detroit’s suburban areas, where a growing number of renters want to live.

We spoke with Coulter about the resilience of the Detroit-area multifamily market and what he expects to see in this sector in the future. Here’s some of what he had to say.

It looks like the suburban markets are performing better for multifamily today. Is that accurate in the Detroit area, too?

Greg Coulter: It is. We haven’t transacted a multifamily sale in the city of Detroit itself in probably 18 months. The suburban areas, though, are seeing more activity.

Overall, the vacancy rate for multifamily for the Detroit MSA is about 7%. In most suburban locations, that rate is below 5%. In Plymouth and Livonia, places like that, it hovers near 4.3%. We still have low vacancy rates in the suburbs, especially for Class-A properties.

What about rental growth? Are apartment rents still rising throughout the Detroit market?

Coulter: We are seeing rental growth at about 3% or so. Rent growth was a bit stagnant last year. The pace of rental growth has slowed. We are seeing a little bump in some markets, though. In places like Dearborn and the Downriver region, we are seeing rent growth of as high as 5%.

How about leasing activity? Is there still a steady demand from renters for apartments here?

Photo by Houzlook.

“In the last 12 months, we’ve seen nearly 1,800 new apartment units in the suburbs. In the next 12 months, we should see another 2,000 units delivered.”

Coulter: In the suburbs, the leasing activity lead time has gotten better.

In 2022, we could lease something in a matter of an hour or a day. Last year, we were filling units in two to four weeks. On average now, we are leasing units in two to three weeks. Things have gotten a little better, then, when it comes to the speed of leasing units.

There is a tale of two different markets here, though. The vacancy rates for apartment units in the city itself are about 10% in Class-B and -C properties and about 25% in Class-A buildings. A lot of the trouble is still stemming from the COVID years. We had a big increase in delinquencies

and the court system is slow. Changing those units over took a long time.

It has taken a while to fill those units with qualified tenants.

The vacancies in the Class-A buildings are higher mostly because of an increase in deliveries while there was a slowing demand. You can point primarily to the amount of new construction for the higher vacancy rates in the Class-A market.

And during the past 12 months, the city as a whole has seen negative rent growth. Once again, the new deliveries and softening rental market are to blame.

Why are apartment rents so much stronger in some of Detroit’s suburban communities?

Coulter: In some of the markets like Macomb County and Downriver, apartment rents were below the average to begin with. They are catching up now. These older markets still have more room to expand.

Because of COVID, a lot of younger kids who moved into the cities moved back to the suburbs. The kids moved to the city for the nightlife and to be around other people. When everything shut down because of COVID, that nightlife and entertainment dried up. That

MULTIFAMILY 9

www.rejournals.com | October 2024 | Midwest Real Estate News played a part in people moving back to the suburbs. That might reverse itself as time goes by.

Coulter: There is a shortage in certain suburban locations. In the city of Detroit, we have to shore up the vacancies first and get these new developments online.

I don’t know if I could advise someone to put up additional units in the city now.

Maybe the lag time in filling the units in the city is because so many are online in such a small space. Most of those city developments are done within one square mile or a mile-and-a-half. It’s not a big area where all this multifamily development is taking place.

Have the challenges of buying a single-family home played a part in the continuing demand for rental units in Detroit?

Coulter: The single-family market challenges have a lot to do with it. It is difficult to get into a single-family home with the high costs and interest rates. A lot of young people want to be mobile, though, too. They want to move around. Renting is very popular with that type of person. New apartment construction is being absorbed.

It’s a little more difficult to absorb new construction in the city. But in the suburbs, new units are being gobbled up.

Are you still seeing a steady amount of new apartment deliveries in the market?

Coulter: In the last 12 months, we’ve seen nearly 1,800 new apartment units in the suburbs. In the next 12 months, we should see another 2,000 units delivered. They should be absorbed quickly. They don’t compete

Coulter: Last year, the market as a whole was down 70% to 75% from 2022. That year, though, was an extreme high. This year will be better than 2023. Our third and fourth quarters of this year will be the best two quarters we’ve seen in the past two years. As I mentioned, though, we have not closed a multifamily sale in the city of Detroit since January of 2023. That’s significant when city sales typically make up 15% to 20% of our multifamily transaction volume.

Will an interest rate reduction help?

Greg Coulter

(Photo courtesy of Income Property Organization.)

with older stock. There is such a delta between the new amenities versus the older 1980s buildings with no amenities. It’s such a gap. New developments compete against themselves. And in the suburbs these new developments are spread out enough so that they are absorbed quickly.

In the city, we’ve seen 1,402 units delivered in the last 24 months. Those units don’t get absorbed as quickly.

Is there still a multifamily shortage in the Detroit market?

What kind of amenities are renters looking for in new apartment developments?

Coulter: There is an emphasis on higher-end workout facilities. Basic amenities like WiFi are important, too. Most new buildings come with a pool. Those make for great pictures, but I don’t know if they are a must-have amenity like they used to be. I don’t see a lot of people using the pools. The workout facilities are used quite often, though.

I know investment sales are down throughout the country. Are you seeing many multifamily sales yet in the Detroit area?

Coulter: We have already seen some downward movement in our rates. We are at sub 6% for agency loans, which we haven’t seen for a couple of years.

So we are already seeing the effects of lower interest rates in our world. That’s why we are seeing a bit of a pick-up in sales activity now.

I think better times for the multifamily sector are ahead. Barring some macroeconomic disaster, we should see more activity in the near future. The market loves stability. I don’t think the market foresees interest rates going up anytime soon. That’s what investors are looking at.

10

AFFORDABLE HOUSING

Midwest Real Estate News | October 2024 | www.rejournals.com

So many hurdles: Lack of affordable housing remains a serious problem for Twin Cities renters, buyers

By Dan Rafter, Editor

T

he United States doesn’t have enough housing.

And it certainly doesn’t boast enough affordable housing. Not surprisingly, the same can be said of the Minneapolis-St. Paul market and its suburbs.

Renters and buyers alike are struggling today to find affordable housing in their communities.

Blame it on the high prices for single-family homes. The higher mortgage interest rates aren’t helping, either. Both are preventing many renters from making the leap to homeownership. This only increases the demand and need for more multifamily housing.

But when this housing is built? It’s often targeted to wealthier renters.

That’s because it’s so difficult for developers to recoup their money on affordable housing. They simply can’t charge high enough rents to offset their construction and operational costs.

What are the solutions? Midwest Real Estate News spoke with two affordable-housing advocates about the challenges in this arena and about what can be done to increase the supply of affordable multifamily units in the Twin Cities market.

Here is some of what they had to say.

Anne Mavity Executive Director Minnesota Housing Partnership St. Paul Can you tell our readers a little about what the Minnesota Housing Partnership does?

Anne Mavity: Our mission is to make sure that everyone in Minnesota has a home. We conduct housing research and use that research for policy development. We help lead coalitions

Sound on 76 in Edina. (Photo courtesy of Aeon.)

dedicated to bringing more housing to the state.

We are a hub in the state for driving affordable-housing solutions at the state level and in the state legislature. We provide direct technical assistance for rural communities and Native American communities across the state. We provide housing experts for communities that are too small to have that expertise.

We help communities identify solutions to their housing needs and help them write applications for new housing.

How hard is it for renters and buyers to find affordable housing in Minnesota today?

Mavity: Across the country we do not have enough housing. We are seeing this in Minnesota, too. In every county in Minnesota, we need more housing.

We need housing of every kind in every corner of the state.

The Twin Cities area is a hub of the state. It’s also a hub that showcases the disparities of what people can afford and how much housing costs.

We track several data points to understand when people are paying too much for housing. Overpaying for housing is a big issue in the Twin Cities. It doesn’t just stress a family’s budget. It stresses our larger community, too. When people are spending too much on housing, they don’t have enough money for transportation and healthcare. That makes it hard for kids to thrive in schools. It makes it hard to develop a good workforce.

It makes sense that those with lower incomes are the most stressed. In the Twin Cities market, 83% of low-income people are paying more for housing than they can afford. That is a stunning statistic.

Why is the problem so severe today?

Mavity: We are in this mess because of things that happened almost 20 years ago. We are still trying to make up for the collapse in the production of new housing units that happened during the recession in 2006 through 2008. We are trying to catch up to that housing gap. The housing gap is particularly acute with our lowest-income households. It’s difficult for them to find rents that they can afford.

We track the most in-demand jobs.

Where is job growth happening? This is the first year in which those working in the higher-paying jobs were not earning enough to afford a basic two-bedroom rental apartment. This is the first year in which a registered nurse is not earning enough to access homeownership.

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AFFORDABLE HOUSING

Midwest Real Estate News | October 2024 | www.rejournals.com

Whether we are looking at homeownership or rentals, we are not producing enough homes. The squeeze is happening both in single-family and multifamily homes.

How have higher interest rates and construction costs exacerbated the problem?

Mavity: It’s tightened the flow of capital that can go into projects. Everything costs more because of higher labor costs, materials costs and property insurance. Property insurance is a big one.

There is a nervousness in the housing market. There are all these higher costs and not as much money flowing from the banking system because interest rates are so high. Everything has slowed down.

In Minneapolis, part of the slowdown is also because of the court review and hold on the 2040 plan. That plan gives the city the tools it needs to increase density in certain neighborhoods and build more housing. The Minnesota Court of Appeals earlier this year reversed a decision by a lower court to put a hold on that plan. It’ s good that the city can move forward on that plan now. Minneapolis was a leader in creating units of housing. That ruling by the lower court froze hundreds of housing units that were in the pipeline. Minneapolis is such a driver for what is happening in this region. If housing is slowed in Minneapolis, it impacts the entire region.

Do developers need financial assistance from government and public sources to build affordable housing?

Mavity: There is a book called Homelessness is a Housing Problem (by Gregg Colburn and Clayton Page Aldern) that says that of all the factors that people think cause homelessness none of them are as statistically significant as the supply of available housing. The supply of housing is the biggest determinant of homelessness.

The problem here is that the market can’t produce enough housing, with all the costs that it takes to produce that housing, for what someone working a full-time minimum-wage job can afford to pay. That is the gap that needs to be filled.

Yes, developers do need assistance to build these projects. But it’s more than just that. We are losing the

Goldenrod Glen in Big Lake. (Photo courtesy of Aeon.)

battle to create these homes project by project. The neighbors might say that a project doesn’t fit the character of their community. That sort of neighborhood opposition is one of the barriers that is preventing the market from unleashing market innovation and production to address this housing shortage. Our whole system is set up in a way that gives the power to stop a project to the person down the block.

The Minnesota Housing Partnership is helping to convene a statewide coalition, a multi-sector coalition of people to help address the housing supply and remove barriers that add time and cost and, frankly, often stop good projects from happening. We are working on zoning and land-use reforms at the state level. It’s about trying to ensure that communities can guide and steer their vision but also make it easier to release market innovations that result in more housing.

Are there any positive signs in the affordable-housing market?

Mavity: Housing is now recognized as a top-tier issue in the state. If Minnesota wants to be the best state in the nation for children to thrive, we need more homes. If businesses want to expand, they need housing for their workers.

Bringing more affordable housing to the state has support on a bipartisan level. People want to solve this issue.

Here is one easy solution: If an area is already zoned for commercial use, allow multifamily housing to be built there. There is no reason not to allow for that.

There are three big levers that we can use to find solutions. First, we can make land-use and zoning reforms so that it’s easier and faster to get approval for a project. Second, we need robust resources to fund housing solutions for the next generation.

If we want housing to be affordable, we need public subsidies to bridge that gap. The third area is rental assistance. Low-income people need help to pay their rents. We helped create a rental assistance program last year in the metro area through the metro sales tax. We have to make sure that gets funded statewide.

Eric Anthony Johnson President and chief executive officer Aeon Minneapolis Can you gives us an explanation of what Aeon is?

Eric Anthony Johnson: We provide affordable housing. We have about 6,000 units of affordable housing that we have provided in the Minneapolis area. Aeon has been around close to 40 years. It came to be when the convention center was built and displaced so much housing. Our mission was to provide housing for the people who were losing their homes. We focus on everything from tax credits and supportive housing to seniors housing. We have about 1,000 affordable units in downtown Minneapolis. We also have units in Brooklyn Park, Edina and Bloomington. We are constantly looking at ways to address affordable housing issues here.

We operate heavily in what is known as naturally occurring affordable housing. These are older buildings built in the mid to late 1960s. We preserve that housing, maintain them and often renovate them.

These properties usually come with significant capital-improvement needs. Private investors often buy them, fix them up and raise the rents.

We buy those properties when we can. We try to fix them up with the goal of preserving them as affordable housing.

How difficult is it to provide affordable housing in today’s market?

Johnson: There is a supply and demand disconnect. For years, there wasn’t enough housing being built.

The shortage is a significant one.

We have to build at least 18,000 new units a year just of regular, market-rate housing. Then you drill down further. By 2030, there is a need in the Minneapolis-St. Paul region for 38,000 more units of affordable housing. Some progress is being made, but the challenge is daunting.

There is a significant disconnect between the incomes that people here are earning and the cost of housing in this region. Some would argue that we have an income problem. People don’t make enough to pay housing costs.

Part of the problem is that everyone treats this as a zero-sum game. It’s a fight, with developers vs. the community and the community vs. the government. We need to reset how we engage with each other to find solutions to this housing challenge.

www.rejournals.com | October 2024 | Midwest Real Estate News That is the big challenge that we are facing. The impact of not having enough housing is so significant.

It impacts the economy. It impacts the health of individuals. We have to break free of this zero-sum-game thought pattern so that we can work together in a more creative way. We must create new strategies.

have to remove some of the subjective nature of this conversation.

We must show courage in coming up with new ideas. Let’s try some pilot programs. Let’s educate people about the link between affordable housing and economic stability. Let’s identify developer partners and align our resources to get this done. The numbers are staggering, but the way in which we have been attacking this problem is by doing the same things over and over.

What are some of the more creative approaches that developers, communities and governments can take to solve the housing shortage?

Johnson: We are dealing with a housing system that has been static. On the affordable housing beat, we have a few select tools. We can turn to the Low-Income Housing Tax Credit. But that’s a very competitive process. It’s a limited tool. There’s also the public housing system. Those systems that are still operating have significant backlogs. The bulk of public housing is moving more toward a voucher system. What is left is for local governments to use their limited money to subsidize developers. Unfortunately, there are not enough subsidies to adequately address the need for more housing.

AFFORDABLE HOUSING 13

Eric Johnson (Photo courtesy of Aeon.)

We are in this age of change and disruption, yet there is a serious lack of creativity in the affordable housing space. We have restrictive zoning. We have high land costs and construction costs. We have high labor costs. We face NIMBYism. We have not come up with creative solutions. What we need is a whole other level of education. Policymakers need to work with communities and up our game when it comes to educating people about the benefits of affordable housing. We

You mentioned NIMBYism. How serious of a problem is this for affordable housing?

Johnson: NIMBYism can stop projects in their tracks. People worry that affordable housing will lower their property values. But there is no research that shows that affordable housing will lower the value of your property. NIMBYism can be a very loud voice. Without us educating people, it’s difficult for elected officials to wade through this. Neighbors need to understand that the people who need affordable housing are working at the hospital. They are working regular

jobs. For some reason, the narrative around affordable housing is so skewed. The idea of it scares people.

Are the challenges in the single-family housing market putting additional strain on the existing multifamily properties in the Twin Cities?

Johnson: Given the price of a single-family home in the Twin Cities area, I don’t know how people with low to moderate incomes can ever afford to buy a home, unless there is some massive subsidy involved. That says to me that we are going to need quality multifamily units that rent at a price point that people can afford. If you can’t provide that, you will see an increase in homelessness.

There are increased costs to build housing. Insurance costs are going through the roof. Material prices are high. All these issues are making it more difficult to sustain the affordable housing we have and to build new. We hope interest rates will go down. But that’s not guaranteed. You travel all over the country and you’ll see the same thing over and over.

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ST. LOUIS

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“Every part of the country needs more affordable housing, and that includes St. Louis. Our definition of affordable, though, is different than the rest of the country’s. A lot of the multifamily housing in the St. Louis market is considered naturally occurring affordable housing by Fannie Mae and Freddie Mac.” ST. LOUIS (continued from page 1)

We spoke with two commercial real estate professionals working this market about the retail and multifamily sectors in St. Louis. Here is some of what they had to say.

John Morrissey Principal Broadmoor Group, St. Louis Leasing demand still strong in St. Louis-area multifamily market: Demand for multifamily units in our market is still strong. Absorption has

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slowed a bit, though. In my opinion, this is entirely supply related. The demographic that wants to rent is growing in St. Louis. But the amount of supply that has been delivered in the past two years has impacted our market. There is so much new supply that the absorption of units has gotten a little softer over the past six months, more than it has been for most of this real estate cycle since we came out of the Great Recession.

The amount of new apartment units that has been delivered in the city of St. Louis is higher than what we historically have seen. In St. Louis County, it’s different. That is a mature market. It is challenging to find a developable site in the county. A lot of multifamily projects in St. Louis County are doing well.

They are not dealing with the same supply surge that the city has faced.

More choices: The consumer has more choice today when it comes to finding an apartment unit. We are seeing a lot of renters touring four months before their existing leases are expiring so that they can get an idea of not only what community they want to live in but what submarket. Some might be moving from the city to the county.

Others might be moving in the opposite direction.

On the other end, we have people who are looking and leasing quickly. Maybe they did a lot of their diligence online.

They already know what they want.

They come in, look at the property and sign a lease that day. A lot of the concessions being offered today are

look-and-lease specials. Consumers are jumping on that. Some owner/ operators might say that consumers need to decide in 24 or 48 hours if they want the concession. It’s a way to drive consumers to make a decision.

What renters want: When renters are looking at a new apartment building, they want in-unit laundry. That is one thing everyone wants. And they want full-size washer and dryers. It’s harder to put that 24-inch-wide 2-in-1 washer/dryer in a unit to save space. Renters don’t want that. The consumers want full-size units. That is what we provide in all our projects now.

In the kitchens, they want stone countertops. They want nice cabinets with soft-close doors.

We are seeing more creativity when it comes to community amenities. There is a demand for speakeasies. It’s not enough to have the bar. Residents like hidden speakeasies that they can use or book. Another community put in a putting green in one of their courtyards. The pools are seemingly getting nicer and more creative. Spas are also coming back. Developers are returning to them to sell the sizzle during the lease-up period. Golf sims are popular. There are a lot of grab-and-go or mini-markets, especially in properties that are not mixed-use. It gives the residents the ability to walk to the first floor and grab a drink and relax. That’s a big plus for residents.

The affordable-housing challenge: Every part of the country needs more

ST. LOUIS 15

www.rejournals.com | October 2024 | Midwest Real Estate News affordable housing, and that includes St. Louis. Our definition of affordable, though, is different than the rest of the country’s. A lot of the multifamily housing in the St. Louis market is considered naturally occurring affordable housing by Fannie Mae and Freddie Mac.

Photo by Matthias Cooper

We did a value-add acquisition in Eureka in southwest St. Louis County.

We renovated the units to a Class-A finish and raised the rents to market value. That property is still considered affordable by the agencies. That type of housing is not in abundance in the St. Louis market but it is available.

It’s true, though, that we certainly need more affordable housing. It is a very challenging product to get to pencil right now. I’m alluding to the scarcity of land in St. Louis County. Land is typically too expensive to make affordable housing work. If you can put affordable housing on a lot, then market-rate housing probably works there, too. The market-rate developers are willing to pay more for the land.

You generally need some form of tax abatement. Along with a development

partner, we are building 187 apartment units in the city. It was hard to get that deal to pencil even with a tax abatement. Absent that, the deal wouldn’t have worked. We are dealing with high interest rates still. Construction costs

have seemed to stabilize, but they are still high and they certainly haven’t gone down. That makes it difficult to build affordable housing without government incentives.

The potential impact of lower interest rates: The Fed’s rate cut should help boost activity in the multifamily market. Some of the construction projects that have been on the sidelines might finally get going. One of our main lend-

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ers is prime-based with how it prices.

Every time the Fed cuts its rate, that is less interest that we must pay. We need a few more rate cuts to really get things going. That will help new construction get off the sidelines. It will help with investment sales, too.

Experiential retail remains popular, too.

We see people getting creative with the less-desirable boxes or oversized spaces, considering those alternative uses. There is still a desire for that kind of user.

Photo by Nick Haynes

We also see a lot of activity from fitness users. Crunch Fitness is entering our market, absorbing a 40,000-squarefoot Best Buy Box at the Manchester Highlands development in Manchester. Crunch Fitness has multiple other leases that are in the queue. Planet Fitness is active in our market, too. It absorbed a former Best Buy location in Brentwood.

Any cut will be positive as long as it isn’t the result of a recession.

Working through high construction costs: The higher construction costs make developing new multifamily products very challenging. I wouldn’t say there is one silver bullet to work around those costs. You just must be creative throughout the process. You need to make sure that your business plan is sound and figure out ways to get creative on revenue.

Fast-food players are still active in our market. We are seeing growth from chains such as Chick-fil-A, Chipotle and First Watch. Grocery users are active. Meijer is opening its first store in our market in the Orchard Town Center development in Glen Carbon, Illinois, which will be followed by another new store in O’Fallon, Illinois. These are exciting additions to our area.

Kate Grewe Milford Vice president of brokerage Pace Properties, St. Louis A resilient retail market: The St. Louis retail market has been resilient, not just from the perspective of rental rates, but also from the standpoint of vacancy rates. Vacancies remain low in our shopping centers that are anchored

by Class-A properties. It is competitive for tenants looking for space in those centers.

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Space is being absorbed in Class-B centers, too, but they are often being filled by alternative users. You have pickleball centers and entertainment concepts filling those spaces. We’ve seen self-storage concepts absorbing those bigger Class-B boxes. There is still demand for Class-B space. That’s been a positive for the St. Louis retail market.

The challenges of high construction costs: While there is a strong level of leasing activity, the low vacancy rates are being kept low, too, by high construction costs. Those costs continue to be a hurdle preventing a lot of new retail development. There is little new inventory in our market, which is also helping to keep vacancy rates low. That discrepancy between what retailers can pay and what it costs to build remains a paint point.

We aren’t seeing the same type of escalation in construction costs today.

There is more consistency. But the costs remain high. That is still a primary concern for developers here, unfortunately.

Some retailers are doing better than others: Grocery-anchored retail continues to do well in our market. Many of our strongest centers are anchored by grocery stores. Really, any developments anchored by a large retailer, such as Walmart or Target, is where we see the strongest performances.

Urban retail: Target already has many locations in the St. Louis market, but this summer it opened its first urban store in our market. That’s a smaller version of a Target that caters to urban shoppers. That’s a fun new addition from a retailer that we have known and loved. Interestingly, Target is also introducing its largest store in our area at the Market at Olive development in University City. Target is co-anchoring that development along with Costco.

Target just closed on that site in August.

I think we will continue to see retailers experiment with different store sizes.

It’s the right-sizing of retailers. Look at Burlington. They are looking at some of their existing stores in our market and right-sizing them. In Fairview Heights, they are re-tenanting a Bed Bath & Beyond box of more than 45,000 square feet. Burlington is taking a portion of that while the other half is being absorbed by Golf Galaxy. Burlington is reevaluating many of their stores here.

This strategy is top of mind for property owners who are dealing with higher vacancies. They can get more juice out of their properties by right-sizing them and dividing them up for more than one tenant.

The omnichannel approach: The omnichannel approach remains a common one for retailers today. They

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“Grocery-anchored retail continues to do well in our market. Many of our strongest centers are anchored by grocery stores. Really, any developments anchored by a large retailer, such as Walmart or Target, is where we see the strongest performances.” are focusing on both their online sites and their physical storefronts. Customers can order online and pick up in a physical store. They can order online and then return what they buy to any store in that chain. Retailers are enjoying ushering people into their stores.

That way, they can capture additional, last-minute sales. Whatever can get bodies into stores, they are doing it.

The fast-casual restaurants are a good example of how innovative retailers are becoming. Panera Bread opened a new prototype here. You order your food in an app. You then pick it up in a drive-through lane. There’s not even a drive-through window that you can use to order from your car. It’s like the Chipotlane concept from Chipotle.

So, yes, omnichannel is a focus. But retailers still want to get the bodies in physical stores. People are all about convenience, doing things efficiently. That will remain at the forefront. Whatever retailers can do to boost the convenience of their customers, they’ll focus on taking those steps.

The positive impact of lower interest rates: Lower interest rates will absolutely have a positive impact on retail development and investment sales. As we see borrowing become less expensive, there should be an uptick in the investment market. If there are future interest rate cuts, that will provide an even bigger boost. The easing of interest rates will loosen things a bit on the investment side.

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INDUSTRIAL (continued from page 1)

construction, Disser said, the industrial sector in the Chicago market remains a healthy one. It’s not fair to compare the industrial market today to what the sector saw in 2020 and 2021, years that count as boom times for development and sales.

Today, the sector’s fundamentals remain sound, and demand for industrial space is still solid from tenants. Disser said that Chicago’s industrial market has fared well when compared to many other major U.S. markets. That’s partly because developers here didn’t overbuild – except perhaps for one submarket.

“Industrial real estate and our economy have taken some massive shocks to the system, starting with all the increased activity coming out of COVID and then the increase in interest rates starting in 2022,” Disser said. “That increase in rates which started in 2022 essentially shut off the development pipeline for the last 24 months. Fortunately, we didn’t overbuild in Chicago, and part of that was due to the timing

of interest rate increases and correlated disruption in cap rates and capital markets. We didn’t get as hot as some of the other markets, but we haven’t experienced the extreme slowdowns that some of those markets are going through now.”

“We have major players across different sectors within the spectrum of industrial,” Disser said. “The demand from users has remained relatively stable. Different components of the industrial spectrum have had different levels of activity.”

Why has the Chicago-area industrial market been so resilient? Disser pointed to the diversity of the market.

Chicago is home to a wide range of businesses and industry types. That helps during challenging economic times. If one industry is struggling, the odds are high that another is doing well. That keeps the Chicago-area industrial market from experiencing a sector-wide slowdown.

Disser also credits the restraint shown from developers and owners during the boom times. Despite an increase in industrial construction during and after the latter days of the pandemic, Chicago’s industrial market still wasn’t overbuilt. Disser said that developers added about 41 million square feet of new industrial space at the peak of the recent construction boom.

As an example, the trucking and transportation sectors have struggled the last 24 months. But during this same time, manufacturing, packaging and food-related deals are helping to carry the Chicago-area industrial market.

Disser said that the Chicago market is blessed with a strong manufacturing base, a thriving food industry and a steady demand for distribution space.

Now that the construction pipeline has largely shut down, the market has reacted quickly, with tenants absorbing a good chunk of Chicago’s remaining industrial space.

Disser said that leasing demand is probably down about 50% from the record levels the Chicago market saw in 2021 and 2022. Leasing activity today is similar to what the Chicago industrial sector saw in 2018 and 2019.

“The leasing fall-off is drastic if you compare it to the recent boom period,” Disser said. “But appears healthy when you compare it to a normal historical backdrop.”

Disser said that the current industrial sector reset is necessary. As he says, the industrial sector is regulating itself and finding a new base level. The pace of investment sales and construction in the pandemic years wasn’t sustainable, Disser said.

Disser added that the Chicago industrial sector is poised to see a rebound in leasing activity and construction soon.

He said that developers have a significant amount of land under contract in the Chicago area. Many are tentatively planning to break ground in 2025.

Certain Chicago submarkets are performing better than others. Disser said that the Central DuPage submarket has performed well with industrial vacancy rates still under 3%.

“Vacancy rates are still relatively low,” Disser said. “But the vacancies that exist are taking longer to lease. If you have a building that is leased, you are

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Todd Battle (Photo courtesy of Zilber Property Group.)

John Boyd (Photo courtesy of Signature Associates.)

Zach Hubbard (Photo courtesy of BRES.)

Adam Kaduce (Photo courtesy of R&R Realty Advisors.)

probably seeing high rents and loving life. If your building is vacant, you might be a little nervous. In good news, though, the leases that are being signed are still seeing great numbers.

Rental rates haven’t softened at all.

They are maintaining in most submarkets.”

Milwaukee market. But that boost won’t happen immediately, he said.

influences industrial development and sales, the Milwaukee area boasts other positives that have helped this sector remain stable even during economically challenging times.

Battle said. “There have been factors that have been positive for domestic manufacturing and industry. Because of this, this sector has held up well when compared to other product types.”

“The change in rates will take a little time to cycle through,” Battle said. “In terms of the cost of capital coming down, it definitely will provide some relief and help in terms of demand, transactions and activity level.”

A resilient market in Milwaukee Todd Battle, director of industrial investments with Milwaukee’s Zilber, said that the Fed’s rate cut will provide a boost to the industrial sector in the

Even with the higher interest rates of the last two-plus years, the Milwaukee-area industrial market has proven resilient, Battle said. That’s because while interest rates are one factor that

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Battle points to the strong industrial base throughout the Midwest, Milwaukee’s location in the center of the country, its strong labor base and its proximity to Chicago as factors that have helped this market weather higher interest rates.

This isn’t to say that activity isn’t down somewhat in the Milwaukee industrial sector. Battle said that leasing activity is below the peak levels that this sector saw in 2020, 2021 and much of 2022.

New construction starts are also down.

“This is a dynamic industrial market,”

But Battle says that there is still a

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Center Pointe Warehouse is one of R&R Realty Advisors’ newest industrial deliveries in the Des Moines market. (Photo courtesy of R&R Realty Advisors.)

reasonable amount of leasing activity throughout the market when you compare 2024 to pre-pandemic years.

Like other parts of the country, the Milwaukee area and Southeast Wisconsin saw a significant amount of new industrial construction in 2020, 2021 and 2022. Much of this new product rose along the Interstate-94 corridor in the Kenosha County area.

In good news, tenants filled most of this new product, Battle said. That high demand led to even more product. The more recent industrial deliveries in the market are still attracting leasing activity. But vacancy rates in these newest properties are slightly higher.

“That is why we are seeing a little bit of a slowdown in new construction,” Battle said.

Industrial vacancy rates throughout the Southeast Wisconsin market remain low, though. Battle says that vacancy rates throughout the market fell to 4% to 6%. More recently, industrial vacancy rates have ticked up

to 10% to 12% in the Kenosha County submarket, Battle said, with most of these higher rates tied to newer and larger industrial product delivered on a spec basis. Those spaces have yet to be absorbed, which is impacting the area’s vacancy rates.

Will that space get filled? Battle says it will.

“That space will definitely get filled,” Battle said. “There is probably more demand today by users seeking a smaller footprint. Some of these big buildings of half-a-million square feet are seeing a slowdown. But there is a lot of leasing activity among tenants looking for 50,000 to 100,000 square feet.”

Developers and owners might have to divide their larger buildings and go the multi-tenant route, Battle said. But those larger spaces, too, will fill up, he said.

“It will be interesting to see in the next couple of years how this gets worked out,” Battle said.

Battle said that the actions of one big industrial player have also made an impact on the industrial market in Southeast Wisconsin. Uline, a distributor of shipping and packaging materials that is headquartered in Pleasant Prairie, Wisconsin, has long been one of the dominant leasers of space in the market. Recently, though, Uline has invested in acquiring land and building industrial properties that are Uline-owned and -operated.

Uline, then, is vacating a sizable portion of industrial space that it previously leased, Battle said, returning that product to the market and impacting current vacancy rates.

Overall, though, Battle said that several submarkets in the Milwaukee area remain strong when it comes to industrial leasing activity. The greater Milwaukee market has held up well, he said. The Airport South submarket has also performed well, a submarket that includes suburbs such as Oak Creek, Franklin and Caledonia.

Battle said that he expects even bet-

ter times for the industrial market in the future. That’s largely because the Southeast Wisconsin industrial market has long been a strong one. Part of this is because of the state of Wisconsin’s favorable business climate.

Business owners recognize Wisconsin as a good place to operate. They also know that they can select workers from a strong labor pool.

Then there are taxes. They are lower here than they are across the border in Illinois. Businesses can locate in Southeast Wisconsin to gain quick access to the Chicago area, without paying the taxes and higher operating costs that go with locating in Illinois.

The Southeast Wisconsin area is also benefitting from a large investment

by Microsoft, which plans to build a massive data center in Mount Pleasant, Wisconsin. These investments include $3.3 billion in cloud computing and AI infrastructure and the creation of the country’s first manufacturing-focused AI co-innovation lab.

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www.rejournals.com | October 2024 | Midwest Real Estate News And while spec development remains a rarity today, Battle said that build-tosuit projects continue to happen. Zilber, for instance, is constructing a buildto-suit 311,000-square-foot industrial facility in the Caledonia Business Park in northern Racine County.

An increase in inquiries in Kansas City Zach Hubbard, senior vice president with Kansas City, Missouri-based Block Real Estate Services, said that he is already seeing some impact from the Fed’s rate cut: more inquiries from buyers considering purchasing industrial property.

Of course, inquiries don’t always translate to sales. But the rate cut, and the promise of future rate cuts, should be a positive for the Kansas City industrial sector.

“Inquiries are preliminary, of course,” Hubbard said. “Most of the people I speak with expected that half-point move from the Fed. It wasn’t a surprise.

It’s hard to judge what the impact of the cut will be after such a short period, but the market expects more rate cuts.

These cuts should help increase activity.”

The big question facing Kansas City’s industrial market: How can developers create more inventory for smaller users? Hubbard said that bulk and mid-bulk industrial product is overbuilt today in the Kansas City market. That’s because leasing volume has dropped in that slice of the industrial sector.

But tenants looking for smaller industrial space have fewer options in Kansas City and its surrounding communities.

Hubbard said that there is little industrial inventory under 50,000 square feet available in the Kansas City market. And for tenants seeking industrial spaces of 20,000 square feet or less? That’s even more difficult to find today.

“With a few exceptions, developers haven’t built much of what was the breadand-butter product of this market just 15 years ago,” Hubbard said. “When the market moved to more of a bulk-distribution market, the developers were looking for a little more meat on the bone. They were looking to maximize the return on their efforts and gravitated to bulk and mid-bulk development projects.”

The hope is that if interest rates contin-

“That space will definitely get filled. There is probably more demand today by users seeking a smaller footprint.” ue to fall, the cost to develop smaller industrial buildings will also fall. Developers and owners will then be able to charge lower rents, because their building costs would have fallen, for new smaller industrial space that tenants can afford.

“I don’t think that first half-point cut is going to get us there,” Hubbard said.

“But it is a step in the right direction. If we get more cuts, what you’ll probably see is the developers behind smaller developments dust off their underwriting. Can we make this work? If we see another quarter-point cut and any future cuts, capital will become cheaper.

If that happens, it’s more likely that developers will return to creating smaller industrial properties.”

The market could change quickly, though, Hubbard said. While it’s true that there is an oversupply of larger industrial product in the Kansas City market today, that might not be the case for too long.

Most new construction has been put on hold during the last two years, largely because of the increase in interest rates and construction costs. If the existing bulk buildings in the market that do have higher vacancy rates today get filled – which could happen next year – there might also be a shortage of bulk or mid-bulk space because of the shutdown of new construction.

Even if developers start building new product next year, the longer construction periods of today mean that tenants might struggle to find modern industrial space in the Kansas City market if lower interest rates encourage more companies to seek new warehouse, distribution and manufacturing space.

For now, though, the Kansas City industrial market is dealing with not only a slowdown in investment sales and new construction, but also in leasing activity.

“There has been a massive lull in bulk

tenant demand that started in the third quarter of last year,” Hubbard said. “There has been a 9- to 12month significant lull.”

Kansas City’s build-to-suit market is stronger, though. Hubbard said that the local market has seen the recent construction of build-to-suits focused on the food and beverage industries.

“It’s obviously a positive to have these build-to-suit projects. But we still aren’t seeing speculative industrial construction,” Hubbard said. “People read about these food-and-beverage developments, and they think the industrial market here is on fire.

For those specific types of users, the market is strong. But most of our market isn’t booming today.”

Even with today’s challenges, though, Hubbard said that he isn’t worried about the long-term health of the Kansas City industrial market.

The market’s fundamentals are too strong.

Hubbard points to the ongoing rise in ecommerce. This will help keep the industrial market strong, he said.

“That transition from brick-andmortar to ecommerce is still in the first inning,” Hubbard said. “it has so much further to go.”

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“It’s never a smooth curve. There are always ups and downs. But the inflation-fighting measures have produced the desired effect so far. The rate cuts should provide some relief to commercial real estate.”

At the same time, the industrial market is benefitting today from reshoring, with a growing number of companies bringing more of their manufacturing work back to the United States.

And the growth of data centers and cold-storage – both niches of the industrial market – is only going to continue, another positive for the industrial market’s future.

Overall? Hubbard sees a positive future for industrial, both in Kansa City and across the country.

“My personal belief is that the Fed’s inflation-countering measures have been somewhat successful,” Hubbard said. “It’s never an exact science, but it seems like those measures are working.

It’s never a smooth curve. There are always ups and downs. But the inflation-fighting measures have produced the desired effect so far. The rate cuts should provide some relief to commercial real estate.”

A return to a normal market in Des Moines Adam Kaduce, president of R&R Real Estate Advisors in West Des Moines, Iowa, said that the Des Moines industrial market has returned to what feels like a normal market today following the boom times it saw during the COVID pandemic.

Kaduce said that consumer buying habits shifted so quickly during the pandemic that companies had to scramble for more distribution and warehouse space. Commercial real estate brokers knew that this demand wouldn’t last forever.

And it hasn’t. Today, companies aren’t seeking as much new warehouse space. That combined with higher interest rates and construction costs

have slowed new leases, construction and sales in the Des Moines industrial sector.

That doesn’t mean that the Des Moines industrial market is struggling. Kaduce said that the sector remains solid, boasting strong fundamentals.

“We have returned now to what feels like a normal market in terms of demand,” Kaduce said. “During COVID, we saw 100,000-square-foot-plus deals. That is atypical for this market.

Now we are seeing a return to 25,000, 40,000- and 60,000-square-foot leases. We are seeing more of that activity now, which is more typical of Des Moines.”

large spec spaces to the industrial supply.

It’s easier for owners to chop up second-generation product to fulfill the needs of tenants seeking a smaller amount of space, Kaduce said.

“If you start to see a couple of deals happen and that vacancy rate starts to drop down, then you’ll see some new development,” Kaduce said. “For right now, space is not coming off the market at a high enough rate to make new development make sense.”

“This market has more of that second-gen product available,” Kaduce said. “We’ve seen some of those smaller deals. We’ve seen deals in which existing buildings have been broken up into smaller spaces.”

The good news? Kaduce said that he is seeing an increase in the showings of industrial space. Kaduce says that he expects that first and second quarter of 2025 to see more industrial leasing activity in the Des Moines market.

It gets more challenging for users seeking spaces of 7,000 to 12,000 square feet, Kaduce said. Those spaces are limited in the Des Moines market.

“I’d love to say that we’ll see a big pickup in leasing, but we are a slow and steady market,” Kaduce said. “We are starting to see some good activity. But it will take a while to work through the pipeline before we kick off any construction.”

And new industrial development?

Kaduce said that the Des Moines market won’t see much new industrial construction until leasing activity picks up. There is simply too much available space now for tenants to spur new construction.

Kaduce says that if the Fed continues to cut its benchmark interest rate, it could provide a boost to development activity in the Des Moines market. But interest-rate cuts alone won’t be enough to unclog the new-construction pipeline, Kaduce said.

“We have second-generation availability in this market,” Kaduce said. “Tenants looking for a new-development product must be willing to take space at a higher lease rate. It takes a more institutional-grade customer to lease new product versus second-generation space. There are two different types of users: Some want that new product.

They need the clear heights and the amenities. But in the Des Moines market, we are seeing more activity in that second-generation market.”

“The biggest driver for our market is going to be leasing activity,” Kaduce said. “We need to see our vacancy rates come down more before we see new development. There is enough existing product that has been delivered here.

Developers are going to want to add new product in markets where there are more tenants seeking space. We must see some buildings get leased up before we see more new construction or sales.”

As Kaduce said, few developers want to develop 200,000-square-foot spaces and then divide them into 20,000- and 30,000-square-foot spaces. That helps explain why the construction of new bulk space has slowed here. With the market stronger for tenants seeking smaller spaces, it often doesn’t make economic sense for developers to add

The industrial vacancy rate is somewhere near 10% to 8% in the Des Moines market, Kaduce said. That’s far from a terrible rate. In fact, Kaduce said, it is probably a healthy one.

Kaduce said that some developers have plans for new industrial product here.

But they are waiting for the right time to start construction.

Developers are also watching construction prices, Kaduce said. If construction prices, which have mostly leveled off, start to fall, that, too, could help spur new development activity.

Like other CRE professionals across the Midwest, Kaduce is confident in the strength of Des Moines’ industrial market. Even with challenges, this local market remains a strong one, he said.

Part of the reason? Des Moines’ location in the center of the country. As the crossroads of Interstate-80 and -35, Des Moines remains a strong distribution market, Kaduce said. As he says, trucks can travel coast-to-coast and border-to-border on these interstates.

The second main positive of Des Moines? Its strong labor supply, Kaduce said.

“Whether drivers or warehouse employees, we have people available,” Kaduce said. “We also have that pro-business culture here. Companies

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www.rejournals.com | October 2024 | Midwest Real Estate News find Des Moines to be an opportune place to locate businesses and distribution centers. It’s an attractive place to do business.”

Strong fundamentals in Detroit John Boyd, executive vice president and principal with Signature Associates in Southfield, Michigan, said that the industrial market in the Detroit area remains active, even with higher interest rates.

This doesn’t mean, though, that investment sales and new construction are happening at the same pace as the Detroit market saw in 2020 through much of 2022. Boyd says that transactions and construction have slowed here as they have across the country thanks largely to higher interest rates. The impact of the coming presidential election has also slowed industrial transactions, as it does every four years, Boyd said.

But even with this slowdown, the fundamentals of the Detroit-area industrial market remain strong, Boyd said. Leases are still being completed in this sector.

And tenants continue to seek out distribution and manufacturing space.

“Just look at the for-sale market,” Boyd said. “We are seeing a smaller number of transactions. But the prices of industrial properties that have sold are significantly higher than they were during the last several years. These increases are mostly mirroring the increase in construction costs.”

The biggest factor impacting the local industrial sector, Boyd said, is high construction costs.

These higher costs have contributed to the slowdown in new industrial construction throughout the Detroit market, Boyd said. When tenants move out of an existing building, they are finding fewer industrial buildings available to them. These tenants must often instead look at existing industrial space, even if it isn’t a perfect fit for their needs.

“The demand for existing industrial space is strong in our market,” Boyd said.

As in other markets, Boyd said that it’s more difficult for tenants to find space in smaller industrial properties, especially those offering from 10,000

to 15,000 square feet. This is especially true in Detroit’s suburban markets, Boyd said.

“That goes for buildings from the inner ring to the outer ring suburbs of our market,” Boyd said. “It’s not easy to find smaller industrial properties in an inner-ring area like Redford Township or Oak Park up to the far exurbs of Rochester Hills or Orion Township.”

When does Boyd think new industrial construction might pick up in the Detroit-area market? Not for a while.

Boyd said that new construction starts should pick up again once spring arrives in 2025. By then the weather will be warmer in Michigan and the presidential election will be settled. The Federal Reserve Board might also have enacted more rate cuts, all factors that could boost construction activity.

The most significant industrial construction project taking place in the Detroit-area market today is GM’s 700,000-square-foot facility in Auburn Hills. This facility will supply materials to an existing plant dedicated to building Chevrolet Silverado elective vehicles.

Spec development, though, has dwindled in the local industrial sector. This isn’t a surprise. The same thing is happening across the Midwest and the country.

Investment sales have slowed, too, thanks largely to higher interest rates. Boyd said that users are willing to pay more for industrial space than are investors.

Despite the temporary slowdown in new construction and investment sales, Boyd says that the Detroit-area industrial sector still boasts solid fundamentals. Boyd said that Southeast Michigan remains an attractive market, too. For one thing, it boasts one of the largest concentrations of engineering talent in the country.

It also has many strong healthcare jobs.

“And that’s not even mentioning the billions of dollars that have been invested recently in downtown Detroit,” Boyd said. “There’s a strong technology base in this region that makes the area very attractive for end users.”

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24

OFFICE

Midwest Real Estate News | October 2024 | www.rejournals.com

The Twin Cities’ office sector? It’s a complicated one

By Dan Rafter, Editor

North Loop Green is an example of a mixed-use development with a successful office component. (Photo courtesy of North Loop Green.)

W

hen US Bank moved out of the Meridian Crossings office development in Richfield, Minnesota, it left behind 340,000 square feet of now-vacant office space. And that move is one major reason for the rough second quarter experienced by the Minneapolis-St. Paul office sector.

In its second quarter Minneapolis-St. Paul Office Market trends report, Newmark reported that the local office market saw negative absorption of 498,187 square feet from April through the end of June. Much of that negative figure, of course, came from the space left behind by US Bank.

US Bank’s move, though, doesn’t account for all the Twin Cities’ office woes. Newmark reported that office leasing activity in the Minneapolis-St.

Paul market slowed to 886,793 square feet during the second quarter. That is down significantly from an average of 1.6 million square feet a quarter during the previous five quarters.

During the early years of the COVID-19 pandemic, tenants were closing sixmonth or 12-month office leases. Many of those companies are now ready to sign longer-term leases and end their string of shorter-term office leases.

The reason? Newmark said that most companies are reducing the amount of office space that they occupy. They are also making longer-term decisions by either committing to new office spaces or renewing leases for longer terms.

Jim Damiani, executive managing director with the Minneapolis office of Newmark, said that despite these numbers, leasing activity remains resilient in the Twin Cities market. That’s especially true in the region’s higher-quality office spaces.

“What we are seeing, though, is that people are taking less space,” Damiani said. “We are still seeing leasing

As Damiani says, tenants were “kicking the can down the road” instead of making long-term decisions during the pandemic. That has changed, and a growing number of companies are ready to lock into long-term leases today.

Jim Damiani (Photo courtesy of Newmark.)

activity. But because companies are leasing less space, our absorption for the entire office market is negative right now.”

Damiani, though, said that office leasing activity might be rising soon.

“We are going to see a lot of lease expirations coming at the same time,” Damiani said. “That is good or bad, depending on who you are.”

Newmark reported, too, that now that the North Loop Green mixed-use development is complete, there is no new office space under construction in the Twin Cities market.

OFFICE 25

www.rejournals.com | October 2024 | Midwest Real Estate News But what about the future? Newmark predicts that office vacancy rates throughout the Twin Cities market are expected to continue to rise through 2028. Newmark forecasts that the local office vacancy rate will top out at more than 30% at this time.

“They are thinking out of the box,” Damiani said. “They are coming up with new, creative ways to make the office experience that much better.”

The newly completed North Loop Green is a good example of an office property that is designed to attract both tenants and employees. The property contains a hotel with a rooftop pool and fitness center. Office tenants in the building get access to these amenities. North Loop Green also offers parking, another key perk for employees today.

Not all office properties will experience the same challenges, though. Damiani said that higher-quality office space with modern amenities is attracting more tenants. It’s the older properties that don’t boast modern amenities that are struggling the most.

Damiani said that he sees this trend in downtown Minneapolis. He pointed to the recently completed North Loop Green mixed-use development. The office component of this project is doing well, attracting a steady stream of tenants.

10 West End in St. Louis Park boasts a high walkability factor, located close to restaurants and retailers, another perk that is attractive to both tenants and their workers. 10 West End also offers free parking while its interiors are flooded with natural light, creating a healthier working environment.

Then there’s the 10 West End office development in suburban St. Louis Park. This new office property is filling up quickly, Damiani said. Demand here is so strong that the property’s owners have been able to charge higher-than-expected rents.

“Those office properties that give companies a chance to offer their employees the best experiences are doing well right now,” Damiani said. “We are seeing a demand for quality office space. If companies can now fit into 20,000 square feet when before the pandemic they needed 50,000, they can now spend more per-square-foot and take the nicest space in town.”

And what about the workforce? Are employees more likely to commute to their Twin Cities-area office if the space in the building is of a higher quality? Are they more likely to come into the office at least on a part-time basis if they are commuting to a building with on-site healthy food choices, a high-end gym and comfortable collaboration spaces?

Damiani said that they are.

“You have to ‘earn the commute,’ as they say,” Damiani said. “You want to make sure that you can give your employees something that they can’t get at home. Maybe they don’t have that walkability at home. They can’t walk to a coffee shop or restaurant. If you move your company to an area with walkability, that might be something you can give your employees that they currently don’t have access to.”

But what about older office buildings that lack these amenities? What is happening to them?

Office space is filling quickly at North Loop Green. (Photo courtesy of North Loop Green.)

“Those office properties that give companies a chance to offer their employees the best experiences are doing well right now.”

Damiani points to the building from which he works. The property has a large third-floor space with couches, fireplaces and a rooftop deck. It’s a nice place to get away for an hour to catch up on emails.

Damiani said that some office building owners are getting especially creative when it comes to creating spaces that will entice employees into the office and tenants into their buildings.

“The hybrid work schedule is here to stay,” Damiani said. “You need to find some way to bring your employees back to the office at least on a hybrid schedule. These amenities are one way to do it.”

He said that some building owners are adding pickleball courts to their properties, while others are adding hotel rooms in their buildings to accommodate workers that might be flying in from out of town.

Damiani said that some of the older office stock in downtown Minneapolis has been converted to multifamily residential. The problem with this solution is that so few office buildings work for conversions: They need the right floorplate and location. Not every outdated office building, then, can be converted to a different use.

And some of the most troubled office properties in the Twin Cities region are large suburban office campuses, which can’t be easily converted to multifamily use.

“You used to get 5,000 people into these campuses. Then COVID hits and only 100 people are coming in. That’s a big challenge,” Damiani said.

While many of these larger suburban office complexes aren’t prime candidates for conversion, Damiani did point to the former Prudential office campus in Plymouth. The Plymouth City Council earlier this year approved plans to turn the office campus into a mixed-use development that will include multifamily properties, healthcare uses and a grocery store.

“Mixed-use developments are very successful today,” Damiani said. “The live/work/play concept is popular. It’s just an example of how creative developments can succeed today, even with the challenges developers face.”

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REDEVELOPMENT

Midwest Real Estate News | October 2024 | www.rejournals.com

Preserving the past while building a new future: Varsity Theater and Bookman’s Alley mixed-use development poised for success in Evanston

By Dan Rafter, Editor

Photo courtesy of Varsity Theater, LLC.

S

ome developments just mean more to a community. The former Varsity Theater and Bookman’s Alley adaptive-reuse development in downtown Evanston is an example.

The building at the center of this development once housed Evanston’s beloved Varsity Theater. After redevelopment, the project, spanning 1706 to 1712 Sherman Avenue in downtown Evanston, is now home to a 33-unit multifamily property, 8,500 square feet of ground-floor retail and two live-work units.

The project will also include the redevelopment of Bookman’s Alley, a space that long held the Bookman’s Alley Bookstore opened by Roger Carlson in 1980. That store closed in 2013.

JLL is handling the initial leasing at the Varsity Theater and Bookman’s Alley.

Guzman y Gomez will open a location at the Varsity Theater at 1710 Sherman Ave. as the first retail tenant.

Steven Rogin, owner of the former Varsity Theater, along with his partners, Campbell Coyle, DMA and BVI LLC, have led the redevelopment of

the theater and adjacent Bookman’s Alley. The goal was to save as much of the character of the former theater, which opened in 1926 and closed in 1984.

Rogin said that he and his partners spent long hours crafting a redevelopment plan that would keep the spirit and feel of both the Varsity Theater and Carlson’s bookstore.

The redevelopment of Bookman’s Alley will include new lighting, public art and outdoor seating to support street-level commercial at the space.

The plan is to turn the alley into an activated community space with entertainment and retail. It’s a trend that many cities are embracing, including Detroit, which has activated several alleyways as part of its downtown rejuvenation.

“Between the history of the theater and the institution that Roger Carlson built over time with his bookstore, this is an extremely important spot in Evanston,” Rogin said. “We hope this new development will continue to be a cherished space for the Evanston community. It has always been a cherished space, and our goal is to build upon the tradition.”

www.rejournals.com | October 2024 | Midwest Real Estate News

Photo courtesy of Varsity Theater, LLC.

Rogin said that the Evanston community did not want a new development on this site that did not preserve the theater and bookstore feel. That led Rogin and his partners to focus on an adaptive reuse here.

“The community is interested in maintaining the character of the old structures in Evanston,” Rogin said. “Combine that with the attachment people have to the theater and the bookstore, and an adaptive reuse made the most sense.”

In a statement, Steve Schwartz, JLL senior vice president, said that JLL’s leasing data show that demand is strong for downtown retail housed in revitalized historic spaces.

“Varsity Theater and Bookman’s Alley presents a unique opportunity for retail businesses in the food, entertainment and retail sectors to provide an unmatched experience serving Evanston and the surrounding communities,” said Schwartz, who represented The Varsity, LLC in its deal with Guzman y Gomez.

Paul Zalmezak, economic development manager with the City of Evanston, said that the Varsity Theater project also fulfills a bigger need in the city: There isn’t enough housing in Evanston to meet the demand for it.

The addition of any housing, then, is a positive.

At the same time, the Varsity Theater/ Bookman’s Alley project will provide yet another boost to Evanston’s revitalized downtown.

REDEVELOPMENT 27

Photo courtesy of Varsity Theater, LLC.

“The conversion of the Varsity Theater in Downtown Evanston couldn’t come at a better time,” Zalmezak said in a written statement. “More people living In downtown means more shoppers and diners. It is terrific to see how this redevelopment strikes a balance between preserving the building’s character and meeting the current and future needs of our community.”

Rogin agrees with this, and is happy to help bring more housing to downtown Evanston.

“You create vitality within a downtown community by bringing in more residential,” he said. “How do you bring more people into downtown beyond the 9-to-5 workday to support the businesses and create vibrancy? By adding more residential.”

Rogin and his partners kept much of the character of the Varsity Theater with their new residential development. The entire fourth floor of the building is exposed to the original infrastructure of the theater. Some of the apartments on the second and third floors feature original ceilings from the theater building.

Contractors are refurbishing some of the cameras from the theater and much of its plaster work. They are retaining the ornamental grates that covered the radiators at the Varsity Theater for use within the project.

The first residential tenants moved into the multifamily residences in August.

“Mixed-use developments like this are

very successful today,” Rogin said. “The idea of being able to live, work and play in a single development has always been attractive. Mixed-use developments are especially attractive in communities like Evanston where you have mass transit. And here we also have access to Lake Michigan, Northwestern University, major medical facilities and other cultural institutions. When you bring both residents and businesses together, it creates dynamic space.”

As the rapid growth of cities and the urban middle class gives rise to a new “experience economy,” JLL’s (NYSE: JLL) 2024 Global Consumer Experience Survey finds consumers are increasingly seeking higher-quality experiences from the built environment – ones that combine human-centric design with spaces that foster a strong sense of community, belonging and connection. The global survey captures data from over 3,200 global respondents to understand how stakeholders involved in creating, owning and managing corporate real estate can adapt to shifting consumer expectations to unlock greater value in their portfolios.

Findings from JLL’s survey are unveiled through a series of articles that explore the opportunities to create stand-out consumer experiences in buildings, venues and the spaces in between. The first article, launched today, explores the top five priorities consumers are now seeking in urban living environments, including: creating “destination” spaces; integrating experience across real estate developments; connecting the physical and digital; focusing on human-centric design;

and understanding the value drivers of shared experiences.

“It’s people we ultimately build places for, and understanding what they need first is imperative,” said Lee Daniels, JLL Global Growth and Innovation Lead, Work Dynamics. “By developing comprehensive experience strategies that encompass multiple dimensions, we recognize that it is people who transform places and spaces, while experiences and interactions ultimately shape people.”

With most consumers willing to pay more for higher quality experiences, tapping into this need for connection and community can play a differentiating role in the future success of real estate developments.

Purpose of real estate shifts as consumers increasingly seek higher value, in-person experiences The experience economy will play a key differentiating role in the evolution of urban developments as consumers demand greater value and quality from their in-person experiences. The majority of respondents across generations and regions consider experience important in choosing where and how they spend leisure time and their related purchasing, from a desire to travel to new places, wanting unique urban experiences, and prioritizing in-person activities. Respondents also share they are willing to pay a premium for this quality, especially among Millennials (80%).

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Midwest Real Estate News | October 2024 | www.rejournals.com

Inflation? High interest rates? Nothing is slowing the luxury retail market

By Dan Rafter, Editor

Image by gonghuimin468 from Pixabay

P

ersistent inflation and higher interest rates might be worrying to consumers. But that hasn’t stopped many from making big-ticket retail purchases this year. Need proof? JLL says that the U.S. luxury retail sector recorded more than $75 billion in sales last year.

And this year? JLL says that 2024 should be another stellar year for luxury retailers.

Luxury retailers, as the name suggests, are those brands that specialize in highprice items. Think Louis Vuitton, Versace and Dior.

In its 2024 luxury retail report, JLL said that from 2020 to 2023, luxury retail sales in the United States saw a compounded annual growth rate of 8.6%.

The future looks bright for this segment, too. Citing statistics from Statista, JLL predicts that U.S. luxury retail sales will hit $77.3 billion in 2024 before rising to $83.3 billion in 2028.

With numbers like that, it’s not surprising that many luxury retailers saw notable revenue gains last year.

JLL pointed to LVMH, the company behind brands such as Louis Vuitton,

Dior, Fendi and Tiffany and Co., which saw $85.483 billion in revenue in 2022.

That figure jumped to $95.095 billion last year. The brand also boosted its number of stores to 6,097 in 2023, an increase of 7% from a year earlier.

Richemont, the company behind Cartier, Van Cleef and Piaget, saw its 2023 revenue jump 6% from 2022, hitting $22.755 billion last year. Prada Group revenues jumped 13% to $5.2 billion in 2023.

Of course, some markets are more likely to attract luxury retailers. JLL said that New York City and Los Angeles

remain preferred U.S. destinations for such high-end brands. Both markets accounted for a combined 36.9% of new luxury openings from July of 2023 through the same month this year.

And while headlines consistently state that large indoor malls are struggling – and it’s true that many are – these retail centers remain coveted destinations for luxury brands. These malls must be of the high-end variety, but those that are see a steady stream of new luxury retailers.

According to JLL’s research, malls accounted for nearly half of all new

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www.rejournals.com | October 2024 | Midwest Real Estate News

“Some markets are more likely to attract luxury retailers.

JLL said that New York City and Los Angeles remain preferred U.S. destinations for such high-end brands.

Both markets accounted for a combined 36.9% of new luxury openings from July of 2023 through the same month this year.” luxury store openings from July of 2023 to July of 2024. Class-A malls also boast higher occupancy rates, with an average vacancy rate of 5.8% in the second quarter of 2024.

presence and physical storefronts.

Many luxury brands use their storefronts as ways to entice consumers to later make a purchase at their online store.

Luxury retailers are similar to others when it comes to success today.

Those that are thriving are focusing on the omnichannel approach, putting money into both their online

Just consider this stat from JLL’s report: E-commerce’s share of total retail sales rose to 16% in the second quarter of this year. That, though, is below the pandemic high of 16.4%

in the second quarter of 2020. More than 80% of retail sales, then, still occur in physical stores.

JLL also cites another interesting trend: Because of a lack of desirable retail space, luxury brands are reinvesting in their existing flagships to personalize the in-store experience.

For example, retailers are taking advantage of rising consumer travel by

partnering with hospitality operators to improve the in-person experience.

JLL points to Louis Vuitton, which will open its first Louis Vuitton hotel in 2026 on the Champs-Elysées in Paris, marking a significant hospitality investment that will offer consumers a personalized travel and retail experience.

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Harmony at last? Unispace survey shows that U.S. employers, employees find middle ground on hybrid work

By Unispace

A

fter years of conflict and tension around return-to-office mandates and hybrid schedules, the latest annual survey from design-build firm Unispace shows that U.S. employees and employers have finally found an acceptable middle ground.

According to the report, From Restrictions to Resilience, 98% of employers in the region are happy with their current hybrid working arrangement, while 90% of employees feel the same. In fact, American companies and workers demonstrate more harmony on this issue than their global counterparts at 95% and 87% on average, respectively.

U.S. employees are currently in the office 3.8 days per week, a slight increase from 2023 (3.6 days).

While the amount of time spent in the office hasn’t changed dramatically in the past year, employers’ attitudes about the return-to-office (RTO) have evolved.

Last year, 80% of employers in the U.S. mandated their employees to return to the office. However, they acknowledged that employee retention and attraction suffered as a result – half (50%) of these employers experienced higher turnover than normal, and more than a quarter (27%) found it harder to recruit. When you consider this was the general sentiment just over a year ago, the current mutual contentment around hybrid schedules is even more notable.

“For years, U.S. employers have been experimenting with the carrot vs. stick approach when it comes to RTO. This year, it’s firmly in the carrot’s favor as evidenced by the mutual agreement on hybrid work schedules,” said Albert DePlazaola, Senior Principal, Strategy, Americas at Unispace. “Employees’ goodwill must continue to be earned, however. To ensure the office continues to work for employees, organizations must offer quiet workspaces that enable focused, heads down work in a shared space.”

ly understand these employees’ needs in order to create an office environment that works best for them.”

Creating welcoming spaces that inspire

The survey data puts a finer point on this. While employees emphasize that “building social connections” and “face-to-face collaboration” are top office benefits, they also expect to have the opportunity to do focus work so they can “feel more productive” – and this is where the current office is missing the mark.

Striking the balance between concentration and connection While face-to-face collaboration remains a top incentive for coming to the office, U.S. employees spend most of their time (60%) at their desks, doing focused work. Unfortunately, they’re finding that limited space options, noise and in-office interruptions often disrupt their focus. The difficulty in doing heads-down work is just one of several challenges highlighted in the survey results.

ployee work styles, enabled by a phone app that allows staff to conveniently book a desk when they need to do focus work.

With pioneering organizations like Bread Financial leading the way, U.S. employee and employer harmony on hybrid is notable compared to their counterparts in other regions. They’re among the most likely to say that their workplace enables employees to be innovative (80% vs. 76% globally).

Narrowing generation gaps in the office Younger generations (ages 18-34) prefer remote work compared to their older counterparts. But their response to prized office ‘perks’ intended to entice them back to the office is the highest of all generations.

To mitigate these challenges, the report recommends a combination of furniture and workplace configurations that cater to various tasks and working styles. Employers should consider designating quiet, peaceful spaces for concentration or rejuvenation, as well as more dynamic areas for connection and teamwork.

For example, younger generations see the most benefit from mentorship, and 79% of U.S. employees would be happier to spend more time in the workplace if they had access to it. And the vast majority of them said they would happily spend more time in the office if their employer provided subsidized travel (86%) or access to amenities like a gym (86%).

For example, Columbus, Ohio-based Bread Financial, a leader in data-driven payment, lending, and saving solutions, created ‘zones’ to support varying em-

“Clearly, investments in the office and incentives—not mandates—drive Gen Z office occupancy,” said DePlazaola.

“It’s strategic for employers to explicit-

To enhance the office’s appeal for all generations, the report notes that spaces must foster a sense of employee belonging and identity, reflect organizational values, and allow for flexible start times. In fact, nearly three-quarters of employees (71%) in the U.S. say they would be happier to spend more time in the office if their workplace had spaces that connect them to the organization’s brand, culture, and values.

People want to work in spaces that are bright, inviting and engaging, and that celebrate not only the organization, but the diverse individuals it comprises.

For example, Downstream, Unispace Group’s experience design agency, recently transformed the employee experience within the New York headquarters for Google’s Global Business Organization in St. John’s Terminal. The new office includes a mix of spaces, enhanced by sculptural elements, QR code-driven story plaques, and advanced workplace technologies, to foster DEIB (diversity, equity, inclusion, and belonging) and accelerate innovation.

The importance of creating a workplace that fosters belonging and identity cannot be understated.

When asked what elements U.S. employees would like to see in their “future workplace” (i.e. the office in five years), a workplace that fosters belonging and identity remains in the top three responses, along with access to a “tech-enabled workspace” that provides advanced collaboration tools and smart features, as well as flexible schedule options such as compressed workweeks.

www.rejournals.com | October 2024 | Midwest Real Estate News

MEDICAL OFFICE 31

Laramar Group report: Occupancy, rent growth and long-term demand on the rise in medical office space

By Laramar Group

A

s the healthcare delivery system continues to shift toward outpatient care, a mid-year medical office review by The Laramar Group, a national real estate investment firm, shows a positive outlook for occupancy, rent growth and long-term demand.

These market conditions are generating positive momentum in several Midwest markets such as Chicago, Indianapolis and St. Louis.

An aging population and shifting healthcare delivery dynamics have pushed medical office properties to the forefront for many investors looking for stability and long-term growth. The number of people who are at least 80 years old is on track to increase by 50% during the next decade. This dynamic is expected to create rapid growth in outpatient volume and drive investor demand for medical office properties.

“The long-term outlook for medical office properties is favorable, given the continuing shift toward outpatient locations that provide proximity and convenience to support the aging population,” said Ben Slad, Senior Vice President of Investments for Laramar, which has corporate offices in Chicago and Denver.

“We expect to see continued growth and demand in the medical office sector.”

In the Midwest, St. Louis ranked as the eighth top market for medical office construction, with nearly 1 million square feet delivered in 2023, according to research from Colliers and Revista. There was 10.8 million square feet of medical office space delivered across the country in 2023, up from 10.3 million square feet in 2022.

Madison, Wisconsin, had the highest share of medical office buildings under construction when compared with total inventory, reaching 16.2%. St. Louis had a 6.7% share of buildings under construction.

Yankee Doodle Medical Center, a 24,000-square-foot facility in Eagan, Minnesota, owned by Laramar Group.

(Photo courtesy of Laramar Group.)

Average net asking rents in this sector reached a record high of $24.37 per square foot in 2023 with the Chicago market ranking ninth with approximately $23 per square foot. Chicago also was the most active sales market in 2023, recording approximately $460 million in activity. The ninth market was another Midwest market, Indianapolis, which had approximately $220 million in sales.

Occupancy rates for medical properties have remained above 90% since the end of 2010, demonstrating the stability of this asset type.

The nature of most work done by healthcare professionals, including x-rays, blood draws, minor surgery and dental work, requires special equipment and facilities as well as patient in-person visits.

While more than 40% of information, tech, professional and business services employees now work from home, the vast majority of healthcare workers either work in a medical office or a hospital. According to the 2021 American Community Survey, just 10% of healthcare workers reported that they worked primarily from home. Medical office has not faced the structural

change occurring in the traditional office sector.

retention has averaged in the low 80% range and is currently 82.3%.

An additional demand driver has been the increasing share of the insured U.S. population. The share of the U.S. population that has health insurance has increased from 81% to 90%. The increase in the insured population continues to elevate demand for physician visits as uninsured persons typically do not visit doctors or seek medical care.

Lastly, on a national level, healthcare expenditures have been rising substantially since 1970. National healthcare expenditures as a percentage of GDP were 7.5% in 1970 and are projected to rise to 20% of GDP by 2030. The current share of healthcare spending is outsized for the 65+ age cohort, who comprise 18% of the population but account for 36% of medical expenditures annually.

Rising construction costs and interest rates have contributed to muted supply. While deliveries in 2023 were on par with 2022, construction starts fell nearly 45% due to elevated borrowing and construction costs, according to Colliers’ research. In 2023, new starts declined from 16.2 million square feet to 8.9 million square feet. At the end of 2023, 31.9 million square feet were under construction.

Despite a multitude of demand factors, future medical office deliveries are projected to remain below the 17year average. Because of the high cost to build out a medical office space and proximity to patients, medical office tenants tend to remain in the same space for longer, providing stable occupancy. Since 2009, medical tenant

Healthcare services remain essential regardless of economic conditions.

Demographic trends, muted supply and increased insurance coverage are driving long-term growth in medical office demand. These investments can offer strong returns, portfolio stability, and diversification across economic cycles, positioning this asset class as a strategic choice in the current real estate market.

Founded in 1989, Laramar Group is a national real estate investment corporation with a multi-billion-dollar portfolio. Laramar has a presence in more than 15 markets, with historical presence in 50+ markets, and maintains corporate offices in Chicago and Denver.

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Midwest Real Estate News | October 2024 | www.rejournals.com

JLL research: Experiences still matter when it comes to retail success

By Dan Rafter, Editor

Image by haim charbit from Pixabay.

C

onsumers are increasingly seeking experiences from their living environments, which means a rising demand for mixed-use developments that offer a live/work/ play environment.

That’s the key takeaway from JLL’s 2024 Global Consumer Experience Survey released this month.

JLL calls it the “experience economy,” commercial spaces that don’t just offer consumers products to buy or meals to eat. Instead, the top-performing retail spaces today offer consumers an experience.

What is the experience economy?

Think a home-goods retailer that offers cooking lessons or invites celebrity chefs to demonstrate their products.

Or bowling alleys and arcades pitched to adults hoping to rewind after a long work week. Or high-end movie theaters that serve chef-quality food during showings of their films.

JLL’s report found that not only do consumers desire these experiences, they are willing to spend more to get them.

“It’s people we ultimately build places for, and understanding what they need first is imperative,” said Lee Daniels, JLL Global Growth and Innovation Lead, Work Dynamics. “By developing comprehensive experience strategies that encompass multiple dimensions, we recognize that it is people who transform places and spaces, while experiences and interactions ultimately shape people.”

JLL surveyed more than 3,200 respondents across the globe. A total of 41% of these respondents strongly agreed with the statement “I am willing to pay a premium for high-quality experiences.” An additional 27% said that they agreed with this statement. Only 10% disagreed while only 10% strongly disagreed. An additional 12% said that they were neutral on the statement.

A total of 49% of respondents strongly agreed with the statement “Cities need

to provide new experiences to stay relevant.” An additional 27% agreed, while 7% disagreed and 4% strongly disagreed.

These responses indicate that a large number of consumers are eager for more opportunities to connect with others in meaningful ways, JLL says in its report.

“Forward-looking new development projects should consider how to enable greater social connectivity within individual buildings and throughout multi-building development campus locations,” said Peter Miscovich, JLL Global Future of Work Lead, Work Dynamics.

“For example, organizations can develop an integrated employee experience based upon leading consumer experience practices by treating their employees in the same manner as they would treat high-value customers.”

The most successful retailers will continue to focus on both their online and physical stores, JLL says.

According to the survey, 75% of consumers report feeling satisfied with online shopping experiences. But the survey also finds that people still enjoy shopping in a physical store.

A total of 64% of respondents said that they prefer shopping in-person versus online.

“Developers, investors and occupiers are seeing increased demand for ‘destination’ places and spaces, as consumers expect increased choice and quality in the places where they live, work and visit,” said Ruth Hynes, JLL’s EMEA Work Dynamics Research and Strategy Director.

“And this is where we are seeing increased demand for research and data in planning and development, to unlock insights into consumer expectations across real estate. In increasingly complex environments, research and data-driven strategies for human-centric developments are more important than ever.”

CRE 33

www.rejournals.com | October 2024 | Midwest Real Estate News

Integra Realty Resources: Commercial real estate has reached a positive turning point

By Integra Realty Resources

Image by Ronald Carreño from Pixabay

I

ntegra Realty Resources in its 2024 Mid-Year Commercial Real Estate Report said that the commercial real estate sector remains a resilient one despite the challenges of higher interest rates and construction costs.

In the report, Graziano said that the industry is seeing a stabilization in property prices and a modest increase in values this year. That, Graziano said, marks a significant turning point for commercial real estate and the professionals working in the business.

industrial. Interested in accessing the reports? You can find them at www.irr. com/research.

sectors are the least susceptible to economic volatility and work-fromhome trends.

Here are some key Insights from IRR’s 2024 Mid-Year Report, listed in an official press release from the company:

The report also points to a stabilization in property prices as another sign of better times to come in the CRE market.

“Our analysis highlights key trends such as adaptive reuse in the industrial sector, resilience in multifamily markets, innovations in retail spaces and the evolving dynamics in the office sector as it adjusts to new work patterns,” Graziano said.

OFFICE MARKET:

• Major Value Trends: Limited capital availability and significant value declines in large urban markets are driving down office property prices, with these prices sometimes nearing land value. Tenant improvement costs are reducing effective returns, and the market is facing challenges in pricing because of low demand. Institutional investors are exiting long-term office holdings, with a narrow buyer pool mainly consisting of private equity acquiring downtown buildings at steep discounts. New Class-A buildings, though, are leasing well, given the low supply pipeline.

“While the commercial real estate market continues to face challenges, our 2024 Mid-Year Report demonstrates the industry’s remarkable adaptability,” said Anthony Graziano, chief executive officer of Integra Realty Resources.

The mid-year release includes about 230 local reports covering nearly 60 U.S. markets across four property types: office, multifamily, retail and

• Elevated Vacancy Rates and Negative Absorption: Express this to continue across all regions, driven largely by remote work trends. Integra also said that businesses will continue to migrate to tax-friendly states.

• Resilience in Specific Sectors: Medical office and biotech in most regions are experiencing stability since these

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CRE

Midwest Real Estate News | October 2024 | www.rejournals.com

Image by Tom from Pixabay

• Investment Metrics from the second quarter of 2023 to the second quarter of 2024: o Cap Rates: Nationally, CBD Class-B properties’ cap rates rose to 8.68%.

Suburban Class A and B properties increased by 44 basis points. The East saw the largest increase for CBD Class B properties at 9.02%, while the South saw the smallest increase for Suburban Class A properties at 7.82%. o Market Rents: Nationally, Class A rents rose to $32.99, and Class B to $23.49. The South saw the highest growth for Class A properties at $28.83, while the West saw a decrease for Class B properties to $28.95. o Vacancy Rates: Nationally, Class A vacancy rates increased to 20.32%, and Class B to 20.96%. The West saw the highest increase for Class A properties at 20.63%, while the South saw the smallest increase for Class B properties at 21.30%.

MULTIFAMILY MARKET: • High Interest Rates: The sharp interest rate hikes in 2022 disrupted value-add buyers with projects based on low interest rates and aggressive rent growth. This led to a slowdown in new developments and investment volumes across all regions, even in high-demand markets like Chicago, Los Angeles and Atlanta.

• Strong Demand and Low Vacancy Rates: Many markets reported balance in upcoming construction supply and continued strong demand resulting in positive rent growth in cities like Grand Rapids, Detroit, Indianapolis, New Jersey, Philadelphia, Boise, Denver and Phoenix.

• Regional Resilience: The South and West are delivering major construction pipelines from 2021, but slower rent growth and higher vacancies are emerging. Markets with new supply exceeding 3% to 5% of inventory are expected to see unsustainable values in the short term. The market antici-

pates moderation in borrowing costs to address negative leverage on pre2022 deals.

the highest increase for Class A properties to 7.16%, while the East saw the smallest increase to 6.16%.

• Investment Metrics from Q2 ’23 to Q2 ’24:

• Market Cycles: Since the fourth quarter of 2023, the multifamily market has shifted from Hypersupply to Expansion and Recovery, especially in the Central and East regions, indicating improving conditions. The market expects 2025 to mark the end of significant multifamily deliveries exceeding 3% of existing supply.

o Cap Rates: Nationally, Urban Class A properties rose 42 basis points to 5.61%, while Suburban Class B properties increased by 37 basis points to 6.29%. The East saw the highest increase for Urban Class B properties at 6.48%, while the Central region had the smallest increase for Suburban Class B properties at 6.80%. o Market Rents: Nationally, Class A properties increased by 0.11% to $1,950, and Class B by 0.01% to $1,307.

The East saw the highest growth for Class A properties to $2,281, while the West saw a decrease for Class B properties to $1,736. o Vacancy Rates: Nationally, Class A vacancy rates increased by 75 basis points to 6.65%, and Class B by 55 basis points to 4.84%. The South saw

RETAIL MARKET: • Demand Mixed, changing with continued Low Vacancy Rates: Retail tenant demand remains robust despite challenges in high-supply markets for Big Box and Jr. Box stores. In contrast, newer urban centers, upscale mixed-use developments, and community shopping centers are thriving.

Markets like Chicago, Columbus, and Indianapolis report low vacancy rates and positive retail absorption, though consumer spending headwinds may impact the retail landscape.

CRE 35

www.rejournals.com | October 2024 | Midwest Real Estate News • Rising Rents are evident in the South (e.g., Atlanta and Miami) and select Western cities (e.g., San Diego and Phoenix) driven by population growth and increases in population density and higher earning migration.

• Mixed-Use Developments: Increasing in the Central and East regions, with cities like Kansas City, St. Louis, and Hartford focusing on diversified retail spaces and revitalization.

• Investment Metrics from Q2 ’23 to Q2 ’24: o Cap Rates: Nationally, Community Retail properties rose by 10 basis points to 7.25%, and Neighborhood Retail properties increased by 9 basis points to 7.26%. The East saw the highest increase for Community Retail at 7.40%, while the South saw a decrease to 7.19%. o Market Rents: Nationally, Neighborhood Retail rents rose by 0.83% to $19.86, and Community Retail by 0.69% to $21.98. The South saw the highest growth for Neighborhood Retail rents, up 1.18% to $17.43. o Vacancy Rates: Nationally, Neighborhood Retail properties increased

by 29 basis points to 10.89%, and Community Retail by 22 basis points to 10.32%. The Central region saw the highest increase for Neighborhood Retail at 13.17%.

• Market Cycles: Nationally, Expansion rose to 35.5%, while Hypersupply increased to 19.4%, Recession decreased to 14.5%, and Recovery dropped to 30.6%. In the East, Expansion fell to 0%, with Hypersupply rising to 38.5%, while the South saw Expansion grow to 59.3%. Demographic shifts into the South are driving retail expansions, although most regions are adapting retail assets to meet new tenant demands.

E-commerce continues to influence smaller in-store footprints but hasn’t diminished overall retail demand.

INDUSTRIAL MARKET: • Strong Demand and Rising Rents: E-commerce and supply chain needs continue to drive demand and push rental rates higher, particularly in Charlotte, Miami, Boise, and Phoenix although speculative construction and leasing velocity slowed in most markets

by Q1-2024. The strength of most industrial markets outpaced all other assets, including even multi-family, but the sector is not immune from volatility.

• Higher Vacancy Rates from New Supply: Prior increased speculative development has led to higher vacancy rates in markets like Chicago, Indianapolis, Dallas, and Los Angeles.

Conversely, areas with limited new construction, such as Cleveland and Detroit, maintain low vacancy rates and limited price volatility.

• Strategic Locations: Demand and rental growth are sustained by strategic locations and infrastructure improvements, especially in Chicago, Kansas City, Raleigh, and Northern New Jersey. Regions with industrial land constraints and a strong manufacturing workforce, like those benefiting from automotive and onshoring expansions, continue to thrive.

• Adaptive Reuse: The conversion of older industrial buildings and underutilized properties into modern industrial facilities is gaining momentum, driven by the scarcity of industrial land in major cities. This trend is helping to support market prices for remaining inventory.

• Investment Metrics from Q2 ’23 to Q2 ’24:

cap rates increased by 23 basis points to 6.42%, while Flex Industrial properties rose by 17 basis points to 6.93%.

The East saw the highest increase for Warehouse properties at 44 basis points to 6.92%, while the Central region had the smallest increase at 7 basis points to 7.13%.

• Market Rents: Nationally, Warehouse rents rose by 3.06% to $7.57, and Flex properties increased by 2.91% to $12.00. The East experienced the highest growth for Flex properties, up 3.88% to $13.02.

• Vacancy Rates: Nationally, Warehouse vacancy rates increased by 181 basis points to 6.30%, while Flex Industrial properties rose by 100 basis points to 6.96%. The West saw the largest regional increase for Warehouse properties, up 247 basis points to 6.49%.

• Market Cycles: Since Q4 ‘23, the national industrial market saw Expansion decrease to 45.2%, Hypersupply increase to 43.5%, Recession remain at 4.8%, and Recovery increase to 6.5%. In the East, Expansion remained stable at 38.5%, with a decrease in Hypersupply to 38.5%.

• Cap Rates: Nationally, Warehouse

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7:30am to 12:00pm 7:30am Registration, Networking, and Breakfast

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DETROIT

Midwest Real Estate News | October 2024 | www.rejournals.com

The Detroit region’s $17 million weapon for proactive industrial site preparation

By Shannon Selby, Vice President of Real Estate, Detroit Regional Partnership

T

he Detroit Regional Partnership has raised over $17 million to support site owners with the industrial site readiness program, the Verified Industrial Properties Program (VIP).

The support to site owners and their brokers is at no cost, ensuring that this program is open to owners of vacant industrial sites of 10+ acres across the 11-County region. A true game changer for the metro Detroit area, the VIP program is the envy of many economic development organizations across the country.

“Site consultants can search with confidence, knowing that all site data has been verified by an expert, third-party source.” nership have had high praise for the VIP program, saying that it saves them four to six months of time that would have otherwise been spent conducting site research.

With the VIP program, the region has the tools it needs to make sure it is ready for investment. The program reduces the industrial site readiness timeline by as much as 4-6 months.

The VIP program helps site owners and developers advance the site readiness of vacant industrial properties across the region through detailed due diligence reports hosted on a dedicated portal with drone video bringing the site to the viewer, extensive detailed maps, development process and timeline and local contacts in the municipality and portal access. The portal functions as a catalog for prospective companies considering moving into the area, offering crucial details like acreage and site studies at the click of a button. The site currently hosts 58 industrial properties, with plans to scale to 200 sites soon.

Relieving the Pain Points of Site Preparation The Detroit Regional Partnership’s VIP program alleviates much of the stress of site preparation from property owners, helping them bring their properties to the market in a timely manner and get them in front of the right prospects. The program helps cover the costs of site assessment, providing property owners with tens to hundreds of thousands of dollars of value throughout the process.

Once listed on the VIP portal, site owners’ properties are featured on a dedicated portal with a comprehensive list

Users can search for their desired property by category, such as brownfield or greenfield, or total acreage. The ability for site selectors to log in from anywhere at any time brings the Detroit Region to their fingertips.

Shannon Selby

(Photo courtesy of Detroit Regional Partnership.)

of relevant details. This includes everything from a description of the property and surrounding area, extensive maps, drone video, utility information, zoning and land-use information and details on site conditions to workforce data and available transportation information.

Within each site’s profile is a marketing flier that presents site selectors with all this information in an engaging format.

Combined with the site’s drone footage, this creates a dynamic experience for potential companies or their site consultants considering the market.

Brownfield or Greenfield: Weighing the Benefits The tradeoffs between brownfield and greenfield sites are an important consideration for site consultants and companies seeking a site.

The VIP program simplifies these considerations by providing specific details on what each site offers. Brownfield sites are often located in close proximity to necessary infrastructure and major roadways, though they can come with remediation costs. Greenfield sites, on the other hand, are less expensive to develop but are typically further distances from infrastructure and talent.

A Package for Every Property

Saving Time in the Site Selection Process Site consultants can search with confidence, knowing that all site data has been verified by an expert, third-party source. Several site selectors who have worked with the Detroit Regional Part-

The VIP program offers three levels of site readiness support: desktop due diligence, physical site studies and project support.

The desktop due diligence package – which creates an estimated $16,000

in value for property owners – pays for DRP’s approved civil engineering teams to evaluate properties in several key areas, including utilities, easements, zoning and environmental conditions.

Once the evaluation has concluded, the property will be featured on the VIP by DRP web portal, displayed alongside a custom drone video and the complete due diligence report. Sites receiving the desktop due diligence package can qualify for up to an additional $200,000 in further support.

This physical site studies support package creates an estimated $100,000 of value by expanding existing due diligence with a variety of on-site studies.

This includes a Phase I Environmental study, a flow test, wetland delineation, a geotechnical report and other assessments to help prospective buyers determine whether the site suits their needs.

VIP also helps site owners seal the deal with the project support package. Verified properties with committed buyers are eligible for up to $100,000 in support for projects that will demonstrably create new jobs in the metro Detroit region. These funds can be used to conduct additional site studies, create a site plan and even invest in project management as buyers begin to consider everything from incentives to utilities.

To receive support packages, industrial sites must be selected by the DRP during its quarterly, 11-County-wide search for vacant industrial properties primed to attract jobs and investment to the community. Each quarter, the Detroit Regional Partnership invites 13 vacant industrial properties to join the VIP program and receive the desktop due diligence package. Similarly, the DRP selects seven vacant sites each quarter for physical site studies.

Sound to good to be true? Learn more here: verifiedindustrialproperties.com/ site_owners/ Shannon Selby is vice president of real estate for the Detroit Regional Partnership.

LEASING 37

www.rejournals.com | October 2024 | Midwest Real Estate News

Leasing trends of 3PLs in Indianapolis

By Steve Schwegman, JLL Executive Managing Director

I

ndianapolis has long been recognized as a thriving hub for third-party logistics providers (3PLs). It stands to reason given the features that fundamentally attract all types of distribution and fulfillment operations: the efficient reach of the US population due to Indianapolis’ position on a map, the cross-country interstates that intersect the market, major parcel shipping hubs, a robust labor market, inexpensive real estate, and economic incentives.

3PLs have made a significant impact to the industrial real estate landscape since the 1990s. It’s difficult to accurately say how many facilities are actually operated by 3PLs in some capacity but we can measure how many facilities are leased by 3PLs on behalf of their underlying customer(s). Nearly 10% of the overall industrial real estate market is either leased or owned by 3PLs which is worthy of tracking their current leasing trends.

While there are several factors we could consider, we’ll focus on just three observations: 1. The migration and location diversification of 3PLs across Indianapolis submarkets, 2. Occupancy structures used to become more financially competitive and 3. Recent overall slow-down of leasing activity.

Migration In Indianapolis, the rise of the 3PL industry coincided with the spec development boom in/around Plainfield in the 1990s and 2000s. Therefore, many 3PLs set up their first operations in the Hendricks County submarket.

As those 3PLs continued to grow with new and expanding customers, that growth occurred in and around the same submarket. It made operational sense to keep facilities close to one another to share management/ labor and to offset customer space needs with counter-seasonal inventories.

Competition for labor wasn’t nearly as concerning then as the typical distri-

Steve Schwegan (Photo courtesy of JLL.)

note an increase in more creative and lucrative financial structures to gain a competitive edge over peers, increase profitability and provide customers with lower operating costs.

Purchasing (or having the ability to purchase) a facility for a dedicated customer contract has become a more popular request by 3PLs. The end game is not necessarily to own the facility long-term but rather a mechanism to create immediate upfront capital by securing a market purchase price and monetizing the value of a term lease with a credit 3PL tenant.

bution center was handling a less labor-intensive throughput and therefore didn’t require as many employees as the more sophisticated distribution and fulfillment centers do today.

While Hendricks County still boasts the most space occupied by 3PLs, a trend started taking place in the mid to late 2010s to diversify submarket locations primarily driven by labor needs. Of lesser importance, the occupiers were also drawn to geographic diversity for natural disasters as well as the ability to offer slightly different logistical priorities (e.g. having new locations closer to parcel shipping hubs or different interstates).

Moving into the 2020s, the preferred submarkets have spread more evenly across the Indy MSA with Hendricks County and Johnson County accounting for approximately 30% of new 3PL lease activity each followed

by Hancock and Boone Counties at roughly 15% of new 3PL leases each.

Conversely, the renewal lease activity in the same years is still highly concentrated in Hendricks County (60%) Outlook: We expect the submarket diversification to continue. Hancock County may be the biggest beneficiary due to the supply of available real estate and the (relatively) low competition for East Indy labor pools.

Occupancy Structures A traditional, direct lease with a developer/landlord has been and still is the most common structure for 3PLs in Indianapolis. That said, it is important to

This trend was certainly more feasible and lucrative when rental rates were rising, and cap rates were falling rapidly. From the time a building was placed under contract to the time a lease was signed and the building “flipped” to an investor, the profitability only got better. In other words, time was an ally, not the enemy.

Today, it’s become more difficult to underwrite this type of structure as both rental and cap rates have leveled, and vacant building shells are at elevated construction pricing.

Thus, a different type of structure has emerged: inflated tenant improvement allowances and/or other concessions.

We’re seeing a noticeable increase in requested (and achieved) TI allowance amounts. It has become more common by 3PLs to request to be able to use these allowances for relocation costs, personal property or even toward rent. This can benefit both developer and 3PL by holding rents firm and by offsetting startup costs, respectively.

Outlook: while a purchase/flip scenario might not be as feasible in the current climate, expect 3PLs to still request an option to purchase so they can capitalize on their tenancy when the time is right. Also watch for TI dollars to continue to climb on traditional lease transactions.

accounted for an average of 4.1 million square feet of new (non-renewal) leasing activity per year. The historical peak occurred in 2022 with just over 8 million square feet taken down by 3PLs. As of mid-year 2024, a mere 260,000 SF of new leasing activity has occurred with several spaces being vacated and/or offered for sublease causing negative net absorption within the 3PL vertical.

Much of the reason for the slowdown is that many 3PLs were compelled to accept space and term risk during the height of tenant demand. In other words, taking on more space or lease term than their anchor customer required. This caused “shadow space” meaning space that was under lease but not occupied by customers. 3PLs of every size have encountered this with the larger companies using the shadow space to fulfill other customers and many of the smaller companies giving space back in the form of sublease or default.

Because of the shadow space phenomenon, the 3PL activity may be materially understated as no new leases are being signed but new and expanding accounts may be filling these voids internally.

A less significant reason for the slower leasing velocity are the occupiers opting to sign their own leases but hire a 3PL purely for operations. In these instances, the 3PLs are still very much active but causes a perception of slower leasing activity simply because of the entity signing the lease.

Outlook: We expect to see a continued increase in leasing activity from 3PLs in Indianapolis. While the real estate market is cyclical, industry leasing trends tend to return to the mean. As shadow space voids are filled and the general market improves, it seems reasonable that we could see a jump to 3 to 4 million square feet of new leasing activity from 3PLs as early as 2025. Most importantly, Indianapolis’ fundamentals remain incredibly strong to support and grow major 3PL hubs.

Overall Leasing Slowdown Between the years 2020-2023, 3PLs

Steve Schwegman is executive managing director with JLL.

38

SUSTAINABILITY

Midwest Real Estate News | October 2024 | www.rejournals.com

Managing sustainability and cost amid increasingly complex environmental concerns

By Oliver Fox, Senior Director, MGAC

W

hile owners, developers, and builders overall continue to adopt more environmentally sustainable practices, they still need to be proactive and vigilant about ever-increasing scrutiny from both investors and regulatory bodies. Sustainable and responsible practices are worthwhile in themselves, of course, but especially in an era of increased ESG mandates they are crucial for ensuring profitable and successful projects.

From conception, owners and developers can evaluate design, engineering, and construction options from a range of angles, such as building costs, scheduling projections, and difficulty of execution. This involves hard questions, including some fundamental ones.

Image by PIRO from Pixabay

and punitive codes, as well as to ensure they’re future-proofed to the degree that’s possible.

It’s often said that the most sustainable building is the one you don’t build.

However, is it better to build a new Net-Zero building and tear down a poorly performing building, considering its embodied carbon? Or is adaptive-reuse the answer? Or is it better simply to bring specific aspects of a building within local codes? Where a project lives will also impact priorities from cost and sustainability perspectives—which is to say nothing of individual organizational goals.

Oliver Fox (Photo courtesy of MGAC.)

Ultimately, owners need to make decisions based on increasingly complex sets of data—and often need to navigate mandates that may appear at first to cross purposes, such as cost and sustainability. In other words, what is built and how it is built are one thing.

How much it costs and how it can be done most efficiently are usually quite another. Long after owners, architects, and engineers determine the environmental impacts of a project, there continues to be project risks and pricing concerns that are tied to decisions related to sustainability. A transparent, cost-effective, long-term project and cost management approach is crucial.

Each project presents a distinct set of environmental challenges, and while sustainability considerations are undeniably important, the financial feasibility of a project or property also remains of paramount importance. If a ground-up or renovation project doesn’t pencil out, its sustainability goals become moot because the project won’t move forward. At the very least, a building won’t maximize its utility across its lifecycle, which benefits neither the people who use it nor the owners and investors. Similarly, owners need to be intentional about upgrades to older buildings to meet increasingly stringent

Challenges include the financial burden on property owners, the need for innovative retrofitting solutions, and the pressure to maintain property value while complying with regulations. After the design and construction considerations are planned, there is still a significant effort needed to ensure that all sustainability goals are met, the project team is built to address them, and the schedule and budget can accommodate them.

A project needs to have clear benchmarks in mind and ensure that materials, building practices, and the finished product are aligned to hit compliance goals or incentive targets. From a carbon perspective, one approach is to interrogate carbon quantities to look for potential changes at the design stage to reduce the impact. For example: How many times will an owner or occupier need to replace the material? What is the anticipated maintenance schedule and costs?

The focus isn’t just on minimizing costs; it’s about more involved cost-benefit

analyses that assess the long-term financial implications of sustainable features. The approach should ensure sustainable options fit within the budget. This could involve evaluating construction methods that balance environmental benefits with cost-effectiveness, as well as lifecycle costing, which considers maintenance, repairs, and energy consumption.

Overall, resource and cost management are particularly important facets of managing projects compliantly and responsibly. This efficiency is crucial for property owners seeking to adopt sustainable practices without compromising the business side of a project.

Ultimately, sustainability and project profitability are intertwined. By overseeing the alignment of the project’s environmental goals and diligently managing compliance, owners and developers can mitigate risks and enhance the outcome of a project.

Oliver Fox, is a Senior Director based in MGAC’s Washington, DC office and has more than 20 years of experience providing pre-construction and construction project control services for a variety of project types and sectors including vertical and horizontal construction.

AI 39

www.rejournals.com | October 2024 | Midwest Real Estate News

Here’s how embedded GenAI can radically transform the way users interact with software

By Matthew Baird, AppFolio

Image by Pixabay.

G

enerative AI has outgrown its “buzzword” status—it’s already a boon for various financial, operational, and administrative tasks. Some estimates suggest it can boost individual productivity by at least 40%, and 91% of business leaders recently surveyed believe it can benefit the entire organization.

This is a phenomenal feat at the basic human level, considering it’s still a nascent technology with few initial “generations.” We’re still in the early innings.

Across real estate—and more specifically, property management—it’s supercharging UX and customer service: improving how users interact and converse with their technology (and yielding incredible time savings— around 12.5 hours per week, according to AppFolio data). With this AI, users are

no longer limited to navigating a tricky interface to get work done. Instead, it can learn key workflows, generate correspondence (emails and text messages), and leverage machine learning and wider business data to automate rote tasks. Recent qualitative research from AppFolio also shows that AI users in this space rely heavily on technology to communicate with their residents, including as a translation tool to help break language barriers.

less tech-savvy can all navigate these platforms to reap unique benefits.

AI emboldens real estate teams to do more—turning users into builders who can fine-tune inputs and gather insights instantly. Ultimately, it acts as a unifier in a way that other technologies simply cannot replicate.

Improving customer service, compliance

Here, I’ll explore what other vertical markets can learn from the innovation and adoption of embedded GenAI in real estate.

Since embedded GenAI platforms rely on natural language inputs, they’re incredibly user-friendly out of the gate.

Tech-savvy users and those who are

Matthew Baird (Photo courtesy of AppFolio.)

Unlike conventional software platform interfaces, GenAI’s conversational features foster engagement and comprehension. With interactions that rival human dialogue, users can quickly prompt their embedded AI to analyze troves of data that might take human teams days, even weeks. While estimates suggest that around 40% of working hours could be augmented or automated by GenAI, I believe that’s a fairly conservative number. Ultimately, for property management teams—or any teams for that matter—these savings unlock more time for strategic thinking or to more directly address customer satisfaction.

For instance, this AI—especially when embedded into industry-specific software like a property management

40

AI

Midwest Real Estate News | October 2024 | www.rejournals.com

Image by Joshua Woroniecki from Pixabay

system—can analyze large volumes of text to ensure compliance with local regulations. It can also automate the creation of (and ensure pinpoint accuracy of) legal documents and verify that all communications and operations adhere to relevant laws.

It can even drastically uplevel customer service: providing personalized and instant responses to resident inquiries, automating tasks like maintenance requests, and even absorbing portions of after-hours support (say, for scheduling purposes).

Across other verticals, outputs from embedded GenAI will directly drive innovation in fields such as robotics, while the capital increase spent on everything from research to new chips will have a halo effect for almost every sector in our economy.

Workflow automation: A closer look While I’ve mentioned that embedded GenAI can uplevel customer service, it’s worth noting how helpful it can be, particularly with incredibly time-consuming, often tedious, tasks. So, let’s explore a communications use case: In property management, it’s up to operators to keep their residents informed about planned maintenance, payment

preferences, or upcoming renewal dates.

That means it falls to staff to cue up messages to reach residents individually about, say, utility work happening on the grounds. Teams can prompt their embedded GenAI tool, which taps into business data/functions, to handle the drafting, identify the proper recipients, and automate the notifications moving forward.

Outside of housing, I foresee a space like healthcare experiencing similar benefits. In fact, providers—along with insurers—can use GenAI to synthesize and recommend tailored risk considerations for patients based on their medical history and existing medical literature. The AI provides an opportunity to cut administrative burdens and costs and becomes an incredibly strong resource that teams can use for tailored, impactful data.

No matter its use case, AI’s dynamic nature changes the way teams interact with their software, compared to more walled-off solutions, all without straining staff.

ingly just added to existing technology stacks for quick (but potentially complex or buggy) access to new features.

They’ve also relied on existing staff to do more or keep pace. But, neither scenario addresses longer-term needs.

This AI innovation, however, has proven that greater efficiency may not be out of reach.

Still, simply layering GenAI atop a fragmented data foundation will also lead to inaccuracies and complexity.

To benefit from its efficiencies, teams should consolidate workflows using an integrated platform, which will equip an AI tool with the data access it needs to operate.

AI’s minimal learning curve means that it no longer takes years of IT training to interact with technology, nor do users need to wrangle data across an enormous tech infrastructure to do something as simple as acquiring a vendor quote for a sink repair. Instead, AI users are “builders” with a sturdy data “foundation” and customizable features at their fingertips—all of which help slash burdensome tasks.

Undeniable advantages

Turning users into builders Business decisionmakers have increas-

The upside here is undeniable: Embedded GenAI portends a future where

users can ease and improve their workloads and productivity. In housing, its benefits trickle down to residents and can yield greater satisfaction and potentially more renewals or referrals.

GenAI’s impact will be felt across many other industries for similar reasons.

Again, this is just the beginning. We’ll witness ongoing product refinement and improvement, with more deep learning and natural language processing breakthroughs. The immense potential here excites me for the future, though I am equally impressed by what AI has already accomplished.

With it, SaaS tools have more agency to assist business users, who can expect unprecedented efficiency, customization, and insight.

Matthew Baird is Senior Vice President, Engineering, at AppFolio, responsible for empowering the company’s engineering team to execute product commitments with exceedingly high-quality, agility, and speed. Prior to his time at AppFolio, Biard was the Founder, Chief Technology Officer, and Vice President of Engineering for AtScale, Inc. He’s an accomplished thought leader who is a regular speaker at major big data events.

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www.rejournals.com | October 2024 | Midwest Real Estate News

Counselors of Real Estate 2025 prediction?

Plenty of uncertainty

By The Counselors of Real Estate

P

olitical uncertainty is the leading concern for top commercial and multifamily real estate advisors as 2025 approaches—but it has a lot of competition, according to the Top Ten Issues Affecting Real Estate®, a just-released annual report from The Counselors of Real Estate®, a global organization comprised of leading property advisors. Each year, the report poses potential solutions to the industry’s most critical challenges.

In addition to political uncertainty, the real estate industry also faces $1.8 trillion in commercial real estate debt set to mature before 2026; $380 billion in economic losses in 2023 due to extreme weather; soaring insurance costs; and persistent, still-elevated interest rates. On the bright side, interest-rate induced bleeding has slowed as deal volume has begun to stabilize heading into 2025.

“This coming year, elections in more than 70 countries could shake up an already volatile geopolitical landscape, and the U.S. elections in particular will have a significant impact on regulation, trade, corporate taxes, immigration policy and sustainability,” said Anthony DellaPelle, global chair of the Counselors of Real Estate®, in the Top Ten Issues report.

“The urgency of prioritizing sustainability and climate resiliency in real estate strategies has never been more apparent, as we saw massive economic losses last year due to extreme weather, which is also contributing to skyhigh insurance costs.”

The Counselors of Real Estate® is approaching the disruptions caused by this pervasive uncertainty with a focus on solutions, enhancing the industry’s understanding of how these issues will impact various asset classes within commercial real estate.

Top Ten Issues Affecting Real Estate in 2025 1. Political Uncertainty Pervades Every Corner – In 2025, the real estate

sector is navigating uncertainty due to elections in more than 70 nations including the United States, Taiwan and the EU. In the U.S., notable real estate-related issues to watch include potential rent caps for corporate landlords and modifications to the 1031 like-kind exchange. Globally, elections could affect trade and military policies, with repercussions for the U.S.

economy overall. This unpredictability complicates real estate transactions and real estate workouts for distressed assets, as investors seek clarity on economic growth, inflation, and interest rates.

2. Transactions Will Remain Tepid Amid High Financing Costs – While interest rates came down in September

2024, the financing markets remain challenged due to still-elevated rates.

As a result, deal assessments and market valuations remain complex. While transaction volumes are stabilizing, uncertainty still persists. Many owners are hesitant to sell, and potential buyers are wary of high prices, still expecting a surge in distressed asset sales due to upcoming loan maturities. The

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“A generational shift is happening in cities, as how people use offices stabilizes into a new paradigm—leaving many office buildings poised for adaptive re-use into residential, healthcare and educational uses with the potential to revitalize urban cores.”

Counselors’ report predicts that buyers will continue to adopt a cautious approach, focusing on higher cap rate deals, with a more aggressive market re-entry likely not materializing for another two years.

3. Commercial Real Estate Market on the Edge of a $1.8 Trillion Debt Cliff – The real estate sector faces a looming $1.8 trillion in commercial loan maturities by 2026. While lenders are increasingly extending these loans in hopes of better market conditions, this temporary relief may soon reach its limits as banks grapple with regulatory constraints and insufficient capital reserves. While forecasts suggest a decline in federal funds rates from 5.25– 5.50% to around 3.5–4.0% by the end of 2025, borrowers who secured loans at sub-4% cap rates may encounter debt service payments that are 75% to 100% higher. This increase, combined with a reset in property values, complicates refinancing efforts for many owners. The resolution of these maturing loans will significantly impact market dynamics in 2025, potentially triggering a domino effect that could alter competition and tenant retention across properties.

4. Expect Higher Cap Rates as Investors Price in Geopolitical Risks and Market Volatility – Ongoing geopolitical turmoil, from conflicts in Ukraine and Gaza to supply chain disruptions, is reshaping the real estate landscape.

This instability drives inflation, affects labor and housing affordability, and complicates monetary policy, all of which impact real estate pricing and risk-adjusted returns. Expect higher cap rates as investors price in greater risk. The current environment of

Anthony DellaPell

(Photo courtesy of The Counselors of Real Estate.)

“higher-for-longer” interest rates means returns must expand beyond the Treasury rate. In this type of disrupted market, it’s key for investors to tailor strategies to specific market conditions, as they can no longer rely on historical cycles.

5. Insurance Costs Soar as Natural Disasters Cause Hundreds of Billions in Losses– Towering insurance premiums, driven by inflation, increased property values and extreme weather, are hitting real estate owners hard. In 2023, natural disasters caused $380 billion in losses, with only 31% covered by insurance. Residential, hospitality, and senior living properties are particularly impacted, with rising claims and “runaway juries” inflating awards.

Government legislation, like California’s habitability lawsuits, adds further pressure. The old model of buying insurance is fading as owners focus on risk management, rightsizing coverage, and exploring alternative risk transfer solutions to control escalating expenses.

6. The Dream of Affordable Housing Slips Further Out of Reach – Housing affordability continues to worsen due to rising costs and a shortage of 4.4 million units. Multifamily rent growth has slowed, but rents have climbed 45% over the past 15 years. Despite increased construction, development is uneven, concentrated in major metros, and insufficient to meet demand. Nearly 54% of renters are now cost-burdened, spending over 30% of their income on housing. Declining multifamily construction and growing demand from younger renters suggest affordability challenges will intensify in 2025. Solutions require both building new housing and preserving existing affordable units, with private sector involvement crucial.

7. Artificial Intelligence (AI) Impact Hinges on Data Accessibility and Accuracy – AI’s role in real estate is rapidly evolving, with focus shifting to the accuracy, granularity, and timeliness of data inputs that drive algorithms.

While AI can optimize certain processes, commercial real estate still faces challenges with fragmented data and location-specific nuances. As AI algorithms demand significant computing power, data centers are booming, but advancements in algorithm efficiency could change their appeal as investment opportunities.

8. Extreme Weather Events Propel Need for Resilience and Regulation – Increased frequency of hurricanes, wildfires, and floods have caused billions in property damages. In Europe, new regulations like the EU’s Corporate Sustainability Reporting Directive and the U.K.’s Minimum Energy Efficiency Standards are setting strict

sustainability rules, while U.S. regulations remain fragmented. As extreme weather and investor demands grow, the business case for resilient properties is stronger than ever, driving a need for investment in green technologies and AI. 9. Office Vacancies Will Drive Adaptive Reuse in Urban Cores – A generational shift is happening in cities, as how people use offices stabilizes into a new paradigm—leaving many office buildings poised for adaptive re-use into residential, healthcare and educational uses with the potential to revitalize urban cores. U.S. office vacancy rates are expected to peak at 19.7% by the end of 2024, leading to lower occupancy rates and declining property values, particularly in cities like New York and San Francisco. This structural shift impacts tax bases, city finances, and the broader real estate ecosystem; however, while converting offices is a potential solution, it’s costly and complex.

10. Buyer-Seller Price Gap Narrows – Some good news amongst uncertainty: the divide between buyers and sellers on asset prices persists but is no longer widening. Pricing declines, especially in sectors like core business district (CBD) office, are slowing, providing hope for stabilization. Industrial real estate has been less affected, showing an 8.6% annual price increase. As interest rates stabilize, the worst of the pricing shock appears to be over. However, loan maturities could force sellers to adjust expectations, pushing more deals as refinancing pressures build. More declines in interest rates or stronger rent growth would also help further bridge the gap.

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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.

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.

MID-AMERICA

One Parkview Plaza, 9th Floor Oakbrook Terrace, Illinois 60181 Key Contacts: Dan Hanson-Illinois, dhanson@midamericagrp.com Brad Lefkowitz-Michigan, blefkowitz@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

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.

www.rejournals.com | October 2024 | Midwest Real Estate News | 45

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, IN 125 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 P: 847.392.6900 Website: victorconstruction.com Key Contact: Zak Schuttler, President, ZakS@victorconstruction.com 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!

ECONOMIC DEVELOPMENT CORPORATIONS ECONOMIC DEVELOPMENT CORPORATION OF MICHIGAN CITY

Two Cadence Park Plaza Michigan City, IN 46360 P: 219.873.1211 Website: www.edcmc.com Key Contacts: Clarence Hulse, Executive Director, chulse@edcmc.com Karaline Cartagena Edwards, Economic Development Manager, kcedwards@edcmc.com Services/Demographic Info: Up-to-date inventory of commercial buildings, site selection and orientation tours Incentives: Tax-Increment Financing, Façade Improvement Grants, Property Tax Abatements, Enterprise Zones, Job Training Programs 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.

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