Thursday, May 14, 2009

Talking real estate in the Capital


Mark Thomton, the editor of Illinois Real Estate Journal, recently traveled to Washington D.C. and the mid-year conference of the National Association of Realtors. Here's a taste of what he found there.

I recently spent a few days in our nation’s capital, rubbing elbows with members of the National Association of Realtors at the group’s Mid-year conference.

The conference is a weeklong affair, but I was only able to attend the first few days. The fireworks really kicked off Tuesday morning when NAR hosted its first Real Estate Summit. The association of 1.2 million members was able to pull in some heavy-hitters for the occasion: Patrick Buchanan; former U.S. Secretary of Labor Robert Reich; Secretary for Housing and Urban Development Shaun Donovan; Harold Ford Jr….and that was just the morning session.

I was unable to catch the afternoon session (had to catch a plane), but in attendance were Alan Greenspan and Sheila Baer, chairman of the Federal Deposit Insurance Corp.

Needless to say, the place was packed.

I wish I could say it was a light affair and that the mood was upbeat, but the frustration that permeated throughout the room full of Realtors (overwhelmingly residential) was almost palpable. Who can really blame them? This is the worst housing market since the 1930s (which we were all reminded about several times throughout the morning).

It seemed that the repeating theme expressed by Realtors as they approached microphones to question the speakers was the extreme lack of liquidity in the market. Realtors (and taxpayers) want to know why banks aren’t lending the bailout money the government signed off on in February.

Multiple times, an exasperated and visibly upset real estate agent would approach the microphone and say something along the lines of, “I can find creditworthy borrowers, but the lenders who used to work with me are no longer issuing loans.”

They all wanted to know when the money would start to trickle into the market again.

Unfortunately, no one in the morning session was able to give a solid answer.

One member of the morning panel discussion (a 14-member panel discussion, mind you) asked the room to “put on their lender hats.” He noted that if prices were still declining and would probably decline for the short-term, would any of them be eager to loan money out?

He had a point.

There were other highlights as well…

Secretary Donovan got the biggest reaction out of the crowd when he announced that the $8,000 homebuyer tax credit will soon be eligible to use at the point-of-purchase for down payment purposes. That got the place rocking.

One of the biggest problems with the lack of liquidity is lenders are unwilling to lend to parties with little cash equity. This could solve that problem, and banks may be more willing to hand out loans.

Robert Reich was very funny and upbeat, despite labeling himself an economic soothsayer and saying that the economy had another 18 months of stagnant or recessionary activity before things began to turn around.

“The economy is not falling off a cliff anymore,” said Reich. “It is now slowly rolling down a grassy hill. That’s not as bad, right?”

He said that he is very positive about the country’s future and that four to five years from now, the United States would be in a very good place.

Here is to that sentiment.

Tuesday, May 12, 2009

Some good news for commercial construction

Tired of reading the bad news about the commercial construction industry? I'm tired of writing about it, so I can only assume that you're equally sick of seeing all those grim statistics and predictions staring back at you.

But, and this is a bit of a change of pace, there have been some encouraging signs for the commercial construction industry lately.

The Commerce Department in early May reported that spending on construction projects increased in March by 0.3 percent to $969 billion. That may seem like a minor increase, but it represents the first increase in commercial construction of any kind in six months.

According to the Commerce Department numbers, while residential construction spending was still down, certain nonresidential projects looked strong. Spending was up, for instance, on government structures and power plants.

There is hope that these projects will continue to increase as the federal government continues to distribute dollars from its economic stimulus packages passed earlier this year.

Let's hope this is just the beginning of the good news.

Monday, May 11, 2009

Still waiting for the bottom?

We're getting ready for the June issue of Midwest Real Estate News. As we put the issue together, I've interviewed several commercial real estate pros across the Midwest, and I always make sure to ask their opinion on whether they're seeing any signs of a rebound in the commercial real estate industry.

So far, commercial real estate pros have suggested that there may be a glimmer or two of hope out there. But for the most part, they say, business is still incredibly slow. The big problem, of course, is financing. It's a huge struggle, still, to get any.

James McShane, chief executive officer of Rosemont, Ill.-based The McShane Companies, summed it up this way for me:

"The good news is that we are not overbuilt in most categories. The bad news is that the economy is still not growing. There just is no need for a lot of new construction. We think that the spiral will come to a stop some time in the fourth quarter. But we are all interested in seeing what will be the first industries to come out of this recession."

There is a lot of uncertainty out there in commercial real estate. And it doesn't look to be going away any time soon.

Friday, May 8, 2009

Midwest cities dominate list of most affordable

Take it however you want, but the Midwest is apparently a pretty cheap place to live.

According to the latest rankings from the Center for Housing Policy, the 10 cheapest cities to own a home in the United States are all located in the Midwest.

Saginaw, Mich., and Youngstown, Ohio, ranked in a tie for having the most affordable housing. The median price of a home in these two cities stood at $73,000 in 2008. Next came Lima, Ohio, and Wheeling, located in parts of both Ohio and West Virginia, where homes had a median price of $75,000.

Battle Creek, Mich., and Springfield, Ohio, came in next, each with median housing values of $77,000.

The most expensive cities on the list are no surprise: San Francisco, where the median housing price came in at $575,000, topped the list. New York City was second with its median housing price of $455,000.

You may view the Midwest's affordability as good news. But let's be honest: The reason so many of these cities, especially those clustered in Michigan and Ohio, have such low housing values is because unemployment is sky-high in those areas. There aren't jobs there, and not much reason for people to live there. The unemployment rate in the Youngstown, Ohio, area earlier this year, for instance, was higher than 12 percent.

Housing values in these cities won't increase until jobs find their way back. And that's really not good news.

Thursday, May 7, 2009

An innovative solution to cash-flow difficulties


We have some pretty smart people write for Midwest Real Estate News, Illinois Real Estate Journal and Minnesota Real Estate Journal, commerical pros who really understand the ins and outs of the challenging commerical real estate business.


Our columnists are one of our greatest assets. The information they provide can be invaluable.


William Cotter, a partner with the law firm of Coman & Anderson, PC, in Lisle, Ill., is one of these commercial industry experts. You can check out his column on the power of master leases on the REJournals.com Web site.


A master lease is a creative tool that owners can use to help shore up a cash-flow shortfall at their commerical projects. It's a complicated issue, and one that I can't do justice to in a blog post, but here is an excerpt from Cotter's column that explains it better than I can:


"In general terms, the master lease is simply a lease of all or some portion of a commercial project by a creditworthy 'master tenant.' This legal structure provides supplemental or secondary rent stream for the project. The master tenant will usually be the project owner, or an affiliate of the project owner (for example, a member in the owning LLC, or a subsidiary company). The obligations under a master lease are assigned to the lender as collateral."


Master leases can be used in a couple of ways. Property owners seeking to finance a commercial project, always a struggle these days, can use the master lease as a credit enhancement. Property owners can also use the master lease as a financial inducement to a buyer.


Like I said, Cotter explains it in far more detail. Check out his column: A master lease might be a tool that you can use.

Wednesday, May 6, 2009

Where are all the college graduates? Indianapolis


It's tough being a recent college graduate. You're barely making any money. The odds are you're working a job that requires the brainpower of a monkey. There are days you wake up and wonder what happened to those good old college days.

(When I first graduated from college I worked at a community newspaper and made a whopping $12,600 a year. Let the good times roll!)

But there are certain cities where it's easier to be a recent college grad. And top of the list, according to a recent survey from Apartments.com and CBcampus, is our own Midwestern city of Indianapolis.

Indianapolis, with an average rent of $625 a month for a one-bedroom apartment, topped the list. But it wasn't the only Midwest city on it: Cincinnati, with an average monthly rent for a one-bedroom apartment, of $691, was fourth, while Chicago, with its average rent of $1,133 for a one-bedroom unit, ranked ninth.

The survey considered both the jobs market and the cost of living in cities across the country.

Three cities in the top 10? That's not a bad haul for the Midwest.

Monday, May 4, 2009

The struggle to finance projects

It's become a standard part of just about any interview I have with a commercial real estate broker or developer: The complaints about how hard it is to get financing for new developments these days.

This came up again last week when I was interviewing commercial real estate professionals doing -- or trying to do -- business in Iowa. Acquiring financing is still a major hurdle here. And there are no signs that it's going to get any easier in the near future.

You've heard this before, undoubtedly. If you're in the commercial real estate business, you've probably heard this sentiment expressed a lot less delicately.

Kurt Mumm, president of Des Moines-based NAI Ruhl & Ruhl Commercial, went the more delicate route when we spoke. But that doesn't mean he wasn't accurate:

"We continue to see a lot of the same things that are happening with larger markets. It's all about the constraint in the credit markets," Mumm said. "There is a lack of equity and capital out there for so many of these real estate projects. It's putting a real strain on a lot of our local developers."

It's a shame, really, that developers are struggling so much to gain financing. It's hard for an industry to work its way out of a slump when there just isn't any money flowing into it.

Friday, May 1, 2009

Recession not hitting all areas equally


For the May/June issue of Midwest Real Estate News, I'm working on a feature story about the impacts of the recession on the commercial real estate market in Des Moines.

The brokers I've spoken with have said that this Iowa city is suffering the same way most of our Midwest markets -- cities like St. Louis, Chicago, Milwaukee and Cleveland -- are. The lack of available financing has killed so much activity.

But the recession isn't dragging down the economy of every Midwest city. Mark Thomton, the editor at Illinois Real Estate Journal, has written this story about Peoria. Turns out there is still some nice building activity going on in the city. And back in March, I wrote this story about a new mixed-use lifestyle center being developed in East Peoria.

Check out the stories. Sometimes it's nice to end a workweek with some good news. We all certainly could use some.

Thursday, April 30, 2009

Does green construction make economic sense?


It seems that every press release we get at Midwest Real Estate News these days touts some sort of energy efficient or environmentally friendly feature of a new retail center, medical office or multi-family building.

Everyone wants to be "green." And they're not shy about promoting that fact.

The big question, though, centers on economics: It's one thing for municipalities, for instance, to want their administrative offices to earn LEED recognition. But what about other property owners? Will we continue to see retail giants, hospitals or corporations continue to clamor for green stores, facilities or headquarters?

I have a feeling that we won't unless green building makes economic sense. In other words, will the green features of a building -- which certainly add to its cost -- have enough of a payback in reduced energy costs so that they make economic sense?

Scott Pickands, executive vice president of Chicago-based Reed Illinois Corporation, tackles this issue in a column he recently submitted to Midwest Real Estate News. Pickands, though, looks at green building in the healthcare field. It's an interesting subject because healthcare construction is one of the few commercial sectors doing fairly well these days. According to Pickand's numbers, healthcare construction accounts for more than $17 billion annually and nearly 10 percent of the total dollar amount of all construction completed in 2008. Because of this, Pickand says, the healthcare community has the opportunity to play a key role in the green movement.

Pickands brings up the obvious, though: This won't happen unless the members of the healthcare community understand that green features, though more costly upfront, have a huge payback. Pickands writes that sustainable design elements usualy add 5 to 8 percent to the cost of a building's construction. The energy savings over the life of the building, though, can reach 25 to 30 percent.

For the rest of Pickands' column, be sure to check out the May/June issue of Midwest Real Estate News. In the meantime, let's hope that the healthcare community truly does embrace green building. And if you're a contractor? Better brush up on your green skills.

Tuesday, April 28, 2009

So, how much blame do Realtors deserve for the mess we're in?


ActiveRain is a great resource for anyone interested in what troubles concern the men and women who sell real estate for a living.

Lately, at least ever since the housing slump started dragging down the rest of the U.S. economy, the Realtors posting on ActiveRain have been a obsessing a bit about how they've viewed by the general public.

I guess this makes sense. The public has put a lot of blame on real estate agents, along with mortgage loan officers and real estate appraisers, for helping to cause the housing industry's collapse. The reasoning goes like this: appraisers valued homes too high, largely at the insistence of mortgage loan officers who needed residences to come in at certain values for their deals to close. Real estate agents, goes the theory, did little to prevent their clients from overpaying -- sometimes immensely -- for these homes.

After all, everyone made lots of money during the housing boom, right?

This all relates to commercial real estate in a big way. Once the housing market began collapsing, the commercial market wasn't far behind. After all, if no one's building big housing subdivisions, we don't need any new strip malls, either.

If you want to see what real estate agents think about all this Realtor-loathing going on now, check out this discussion on ActiveRain. It's really quite fascinating. There's a great back-and-forth going on between agents who say they've saved their clients tons of money over the years and consumers who aren't buying it at all.

Personally, I think there's plenty of blame to go around for the housing mess. Yes, some mortgage loan officers steered buyers toward crummy loans. But many of those buyers knew exactly what they were getting into. And, yes, some real estate agents probably never did warn their buyers that they might be overpaying.

But what about the media? We happily went along with the real estate pros on the housing-boom ride. It gave us plenty of fodder for stories and TV shows and breathless news reports.

So, yes, agents are partly to blame for the housing mess. But they have plenty of company.

Monday, April 27, 2009

Brokers in Detroit not as fazed by tough market?


I'm sure that most people look at Detroit and think that this Midwest city is one tough place to work as a commercial real estate broker.

They'd be right. But there's also an advantage to working in a city like Detroit: Doing well in it means that you've already mastered the difficult art of succeeding in a challenging market.

That's one of the factors that Steve Chaben, first vice president and regional manager for the Detroit and Grand Rapids, Mich., offices of Marcus & Millichap Real Estate Investment Services, points to when explaining why the commercial brokers in his office are not struggling quite as much as you'd expect during the real estate slump.

I interviewed Chaben for the upcoming issue of Midwest Real Estate News. Here's what he said about the resiliency his brokers have built up over the years in Detroit:

"Our market in Southwest Michigan has been struggling in terms of economic growth for several years now. My brokers here in Detroit have had to learn how to work and be successful in a difficult market. They've learned a lot in having to face those chlalenges. Much of the rest of the country was experiencing economic growth for the better part of the last decade. Now, the rest of the country is facing difficulties that it hasn't seen for some time. We, on the other hand, are several years into learning how to work in a difficult market."

You'll have to wait until the May/June issue of Midwest Real Estate News to read the rest of my interview with Chaben. But I thought you'd appreciate this teaser from it while you wait.

Tough market hits Chicago-based real estate, auction giant

There are some companies that you think are immune to even the worst slumps in the commercial real estate market.

Chicago-based real estate brokerage and auction firm Sheldon Good & Company was one of those companies.

During the real estate boom, Sheldon Good & Company soared. But during the slump, the company has struggled mightily. As you certainly know by now, the company last week filed for Chapter 11 bankruptcy protection.

This, unfortunately, is becoming routine. Giant real estate investment trust General Growth Properties also filed for bankruptcy earlier this month.

Sheldon Good & Company suffered a tragedy earlier this year when Steven Good, the company's former chairman, was found dead in January in what was ruled a suicide.

You have to wonder if the general public, and real estate professionals in general, are getting used to the bankruptcies of industry giants by now. Whenever I interview real estate pros these days, they're quick to tell me that the commercial industry has been through plenty of slowdowns before.

The good news is that the industry has survived each of these. The bad news? Well, more than a few commercial real estate professionals have told me that this recession, this slowdown, is a different beast than those others.

Anyone who's been watching the giants fall -- companies such as General Growth and Sheldon Good -- can't be surprised by that sentiment.

Will new LEED designation mean hardships for commercial developers?


We all think of green building as a good thing, right? And usually it is.

But what if the U.S. Green Building Council actually created a designation that would in some ways supersede the authority of municipalities? In other words, what if the U.S. Green Building Council could ultimately decide if a developer could build a retail strip center or high-rise multi-family building on a particular piece of land, regardless of whether a city or town was in favor of the project?

This sounds far-fetched, but on the REJournals.com Web site, Sean Suder, a real estate and land use attorney at Keating Muething & Klekamp PLL in Cincinnati, lays out a pretty convincing case that the new LEED-ND certification may give the U.S. Green Building Council more power than you'd expect.

You can read the story here. Be careful, though, it might spook you a bit.