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 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.