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.
Tuesday, May 12, 2009
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.
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.
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.
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.
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