March April 2022 Midwest Real Estate News

Rising interest rates? A lack of new supply? Omaha’s CRE market still a resilient one

By Dan Rafter, Editor

These aren’t easy times for developers and commercial real estate investors. Interest rates remain high, and the Federal Reserve Board has shown little inclination to stop boosting its benchmark rate higher. That makes it more challenging for developers to build and investors to close CRE deals.

But certain markets are working through these challenges better than are others. One of those? Omaha.

This Nebraska city has long boasted a resilient commercial real estate market. Commercial real estate deals

and development, for instance, continued throughout even the dreariest days of the COVID-19 pandemic. And while today’s higher interest rates might have slowed activity in this Midwest city, they haven’t brought it close to a standstill.

What is Omaha’s secret? Why is its commercial real estate market so steady? The CRE professionals working here point to the presence of Fortune 500 companies, a government willing to work with developers, the city’s conservative approach to new development and the

OMAHA (continued on page 20)

MULTIFAMILY FINANCE

Nothing normal about today’s market: Higher rates put brakes on multifamily finance requests

By Dan Rafter, Editor

A normal market? Finance experts say that today’s multifamily market is far from one of those.

The reason is obvious: High interest rates have squelched the number of sales in the multifamily market. And as sales have slowed, so have the requests for multifamily finance.

We spoke to three multifamily finance experts serving the Midwest about today’s challenging market. How much of a dip has the number of

MULTIFAMILY (continued on page 24)

Noddle Companies’ the Builder’s District is a key new development in Omaha

Rising interest rates? A lack of new supply? Omaha’s CRE market still a resilient one: These aren’t easy times for developers and commercial real estate investors. Interest rates remain high, and the Federal Reserve Board has shown little inclination to stop boosting its benchmark rate higher.

Nothing normal about today’s market: A normal market? Finance experts say that today’s multifamily market is far from one of those. The reason is obvious: High interest rates have squelched the number of sales in the multifamily market. And as sales have slowed, so have the requests for multifamily finance.

New industrial buildings rising in Ohio’s biggest cities? It’s time to turn to property managers Demand for industrial properties continues to rise in both Cincinnati and Columbus. And as developers build new warehouse, distribution and manufacturing space, more industrial property owners are turning to property management firms to better manage these facilities.

Milwaukee’s CRE markets resilient, but not immune to, the impact of rising interest rates: Like in all major cities, Milwaukee’s commercial real estate investors, developers and owners have faced challenges in 2023. And the big one? Rising interest rates. It’s resulted in a slowdown in new developments, leases and sales throughout the Milwaukee market.

Quality matters. Industrial might have peaked. And investors are still sinking their dollars in multifamily:A continued flight to quality office assets. A slowdown in demand for industrial properties. A multifamily sector that remains the darling of investors. These are some of the highlights from Colliers’ Global Investor Outlook.

Is fear of making a mistake

what’s behind the slowdown in multifamily deals? The multifamily market remains a darling of commercial real estate investors. Even with rising interest rates, the fundamentals of the sector remain strong. And investors are increasingly broadening their search to sink their dollars in Class-B apartment buildings.

The future of healthcare real estate is increasingly in or near residential developments Healthcare real estate remains one of the strongest commercial sectors. And one growing trend? People want to live in dense multifamily communities that are located near these medical providers.

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A key tool for making sure PPE reaches healthcare providers quickly? Reshoring Manufacturers learned a big lesson during the COVID-19 pandemic: They couldn’t make all their products overseas and expect them to arrive fast enough for U.S. consumers.

How strong is demand for medical office space in the Midwest? Demand for medical office space remains high throughout the Midwest. And there are few signs that this demand will lessen any time soon, especially as the country’s population ages and a growing number of patients seek medical care outside of hospital campuses.

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

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Work-from-home still making life difficult in the office sector

By Dan Rafter, Editor

No commercial sector was hit as hard during the COVID-19 pandemic as was office. And the owners of office properties are still dealing with the impact of the work-from-home movement today.

Companies are still determining how much office space they need as more of their employees work at least part of the time remotely. Will companies need less square footage in the future? It’s looking that way.

And the space that companies are taking? More often it is on the higher-end, typically Class-A. The theory is that if companies don’t need as much space, they’re more likely to invest in higher-quality space, getting more amenities for the same money they would have spent on leasing a greater amount of lesser-quality space.

At the same time, companies are struggling to bring many of their workers back to the office. After three years of working from home, many employees are reluctant to head back to their cubicles and conference rooms. And even fewer are ready to return to the office five days a week.

This has all led to uncertainty in the office sector, something we see in the Midwest markets we are featuring in this issue. Omaha and Milwaukee, for instance, are seeing solid activity in the industrial, multifamily and retail sectors, even with the impact of higher interest rates. But in office? Activity is sluggish.

What is interesting, though, is how the remote-work movement has impacted the coworking side of the office sector. To put it simply, the number of coworking spaces across the country is on the rise as more workers skip the commutes into a centralized office location.

As more workers gain the freedom to work from wherever they’d like, the number of coworking spaces across the country continues to rise, with a new report showing that the number of such working spaces in the United States has now surpassed 5,600.

CoworkingCafe reported that the number of coworking spaces in the United States hit 5,612 as of March of this year. And these spaces are no longer confined to urban cores. Coworking spaces are now opening in busy suburban areas, too.

According to CoworkingCafe, coworking space stock added up to more than 113 million square feet across the country as of March. That’s good for 1.67%

of the total office space in the United States.

Compare that to 2010: Back then, JLL reported about 12 million square feet of coworking space across the nation. That equals a tenfold growth of this sector during the last 12 years.

Much of this coworking space, of course, is clustered in Manhattan, Los Angeles, Washington, D.C. and Boston.

But cities in the Midwest and Texas are seeing a rise in coworking spaces, too.

CoworkingCafe reported that the Minneapolis-St. Paul market had 74 coworking spaces as of March for 1.39 million square feet, while Kansas City’s 52 coworking spaces took up 1.37 million square feet. Nashville was home to 68 coworking spaces for 1.42 million square feet.

Chicago, of course, had the greatest number of coworking spaces in the Midwest, with CoworkingCafe reporting 235 spaces for 6.24 million square feet.

Coworking spaces are common in Texas, too. CoworkingCafe reported that the Dallas-Fort Worth market had 225 coworking spaces for 4.34 million square feet, while Houston had 180 for 3.67 million square feet. Austin’s 71 coworking spaces covered 1.62 million square feet.

How much do these coworking spaces cost? CoworkingCafe reported that the national median rate for open workspaces stood at $134 a month as of March, while dedicated desks went for a median rate of $326 a month.

“Chicago, of course, had the greatest number of coworking spaces in the Midwest, with CoworkingCafe reporting 235 spaces for 6.24 million square feet.”

New industrial buildings rising in Ohio’s biggest cities? It’s time to turn to property managers

By Dan Rafter, Editor

Demand for industrial properties continues to rise in both Cincinnati and Columbus. And as developers build new warehouse, distribution and manufacturing space, more industrial property owners are turning to property management firms to better manage these facilities.

Why? Property management firms can identity problems with an industrial property quickly and resolve them before they require more expensive fixes. The property management team is available 24/7 to respond to late-night water leaks or schedule emergency snow-plowing services. These teams can help building owners meet new safety and environmental standards. The best teams forge relationships with the tenants in an industrial property, making sure that they are both happy and treating the property well.

And a professional property management team can help owners attract and retain the best tenants to their industrial properties.

Midwest Real Estate News spoke with Carrie Szarzynski, senior vice president of the Midwest region at Hiffman National, about the growing need for industrial space in the Cincinnati and Columbus markets. Szarzynski spoke, too, about the benefits that property management teams can bring to these industrial properties.

Here is what she had to say.

How much demand are you seeing for industrial space in the Columbus and Cincinnati markets?

Carrie Szarzynski: Demand is growing in both markets tremendously. A lot of our clients from Chicago are looking to invest in both of those markets, and in Indianapolis, too, another of the markets we cover. That’s why we have done so much hiring in all three of those cities. We need to support the clients we have.

Industrial users are looking for locations that provide quick access to

different areas of the country. These locations – Columbus, Cincinnati and Indianapolis – make it easier for industrial tenants to get their products out to other cities. That’s one of the main reasons why we are seeing more demand for industrial space in those cities: They are hubs.

Have higher interest rates slowed the demand for this industrial space?

Szarzynski: Not in industrial. A couple of our clients said at the end of 2022 that they would pause their activity at the end of the first quarter and wait to see what happened with interest rates. But it didn’t end up being the first full quarter of the year. We saw clients picking their activity back up after just a few weeks.

Most of our clients are not pausing right now. The consensus was that many would start 2023 with a pause. That didn’t last long. When you have money that needs to be spent, you can’t just stand still. They are more willing to spend than they are to keep their money sitting in the bank. They’re about getting that money reinvested, keeping it moving.

We are hearing more about property owners hiring property managers for their industrial space. Why is this?

Szarzynski: A lot of it is the push for ESG, the environmental, social and governance aspects of sustainability. Property owners want to work with property management teams that have an understanding of the environmental improvements they need to put in place at their facilities. It could be something as simple as changing the lighting so that their buildings consume less electricity. It could be about supervising the type of plants and landscaping that are being installed at their properties. It all makes a difference when it comes to sustainability.

This used to be something that was just important for office clients. But we are seeing more of our industrial clients looking for green certifications, too. We have clients who are gathering information for their industrial tenants on how to reduce utility bills in industrial spaces. They need property management teams to help collect and organize that information.

Does professional property management help industrial owners retain their tenants?

Szarzynski: Having a large property management team or professional property management company improves the tenant experience. When industrial is so busy, with properties

popping up everywhere, owners are trying to keep tenants in the buildings that they are already occupying. We are a part of that. When owners can say to a tenant that they work with a professional property management company, one with a long history of managing real estate, they have another factor to encourage those tenants to move to their facility or to remain in it.

The competition for tenants is high. People can move to different buildings. They are moving. They are considering their options. We are about making sure they have a positive experience, one that makes them less likely to leave a building.

What are some of the things that property management companies can do to keep tenants happy and to keep building owners informed about their properties?

Szarzynski: There are creative ways to connect with tenants. We have one person who does special days. He might bring hot chocolate to the tenants on a certain day. There is a National Animal Cracker Day each year. He’ll bring animal crackers on those days. Those are inexpensive ways to connect with tenants, to let them know that you are thinking of them.

We walk through our properties. We study what systems the buildings are using. We can recommend more efficient systems when necessary. We keep files on every vendor that goes into or out of that property.

We also take a layered approach. We have one leader above the property manager assigned to a property, maybe two. If that property manager wins the lottery and moves to Tahiti, the building owner is not left teaching a new property manager about the building and its systems. We have that covered with our layered approach.

What are property managers generally responsible for at industrial buildings?

Szarzynski: That has changed over the years. Back when I started in industrial, property managers made sure that tenants were doing what they were supposed to do, that they took care of what they were responsible for according to the lease. That has changed. Now we are responsible for most of the buildings’ care. We are usually responsible for landscaping,

roofs, the building structure, parking lots, snow removal, just about everything.

We are responsible for identifying capital improvements that need to be made. Maybe the building needs to be painted or the signage changed. We assist with this. We are responsible for figuring out what tenants are doing in their spaces to be environmentally friendly. We recommend steps to

tenants that they can take to lower the energy they consume. We are also responsible still for making sure that the tenants are doing everything that they are required to do according to the leases they signed.

Do property managers get many late-night calls about problems at properties?

Szarzynski: All the time. A lot of people think that office and industrial are very different. They are. But the basics don’t change. There are still emergencies. There are still calls at night. There are pipes that break. It might even be more challenging with industrial. If a pipe in an industrial building breaks, there is no labor there 24/7 like there might be in an office building. There is not an engineer or security guard keeping an eye on things. The water from a broken pipe might run longer in an industrial building. The emergencies are still the same, but the work needed to get the property back to where it was before the leak can be more challenging.

Are more industrial users turning to property management companies than in the past?

Szarzynski: Not so much with the big industrial boxes, but definitely in the flex space. Clients understand that managing 50 to 100 clients in a small flex property is more labor-intensive. More importantly, there is added risk if you are not watching that space closely. If you have a flex space with 30 tenants and not all of those tenants are doing what they’re supposed to be doing? That can cost you much more than hiring a property management company.

In 2022, we saw a huge increase in the amount of flex properties that we were managing. It’s important for industrial owners to make sure that their buildings are being maintained. That is an asset that the owner bought to make money from. Our job is to make sure they continue to do that successfully. You have to be more engaged with industrial tenants than most people believe to make sure that they don’t leave large costs behind for the owner when they move out.

Carrie Szarzynski

Milwaukee’s multifamily, industrial markets resilient, but not immune to, the impact of rising interest rates

By Dan Rafter, Editor

Like in all major cities, Milwaukee’s commercial real estate investors, developers and owners have faced challenges in 2023. And the big one? Rising interest rates. It’s resulted in a slowdown in new developments, leases and sales throughout the Milwaukee market.

This slowdown has even hit the area’s two strongest commercial sectors, industrial and multifamily.

There is good news, though. Two commercial real estate experts in the Milwaukee market told Midwest Real Estate News that though sales and development in the multifamily and industrial sectors have slowed, they haven’t come to a halt. These sectors remain resilient, they say, even as the country works through the uncertainty caused by higher interest rates.

Here, then, is a closer look at how Milwaukee’s multifamily and industrial sectors are faring today in a challenging economic environment.

Cooling off in the multifamily sector

A modest cooling. That’s how Katherine Bills, shareholder in the Milwaukee office of Reinhart Boerner Van Deuren, describes the impact that higher interest rates have had on commercial real estate sales and development in the Milwaukee market.

“I still see the market as a strong one, even with the hike in interest rates and the pace at which those hikes have occurred,” Bills said. “I’d say we are seeing a cooling of activity, not a slowdown.”

As Bills says, when sales, lease and development activity go up, they must eventually come down, too, at least

slightly. During the last two years, the Milwaukee commercial real estate market saw a steep rise in activity, not unlike most major markets across the country.

That level of activity was enjoyable, but it wasn’t sustainable.

“We have had an extraordinarily hot market for certain sectors,” Bills said. “I would say we are now seeing a cooling of that very hot market. There is still demand in Milwaukee, though, for commercial real estate sales and leases. There are still transactions taking place.”

As in most other markets, the greatest demand from investors and buyers in the Milwaukee area? It’s for multifamily and industrial product.

Multifamily has been strong for a par-

ticularly long period. Bills pointed to several macro factors that help explain why there has been so much demand for new multifamily product and why investors are still so interested in sinking their dollars into apartment properties.

First, there is still more demand for multifamily than there is product available.

“It’s not just in Milwaukee, but nationally we have a housing shortage,” Bills said. “Even in single-family homes, not just in multifamily, there aren’t enough homes for the demand.”

Rising interest rates are also pushing some potential homebuyers to multifamily. Buyers who might have been

MILWAUKEE (continued on page 14)

able to afford a monthly payment when mortgage loans came with interest rates of 3.5% can’t make these payments when rates are up to 6.5% or higher.

Then there is the growing desire of many to live in a dense, urban environment. These buyers are interested in multifamily buildings that are located within walking distance of restaurants, stores, nightlife and public transportation. They also don’t want to deal with the maintenance demands that come with owning a single-family home.

“We are seeing a strong demand for multifamily in both our urban areas and in the suburbs,” Bills said. “Milwaukee’s mayor has made a strong push to address the housing needs in the city. During the pandemic, there was a lot of migration from larger cities to smaller cities in the United States. There was some migration to the suburbs, too. Now, though, we are seeing people who want to live in both suburban and urban multifamily. There is a bit of a rebalancing occurring.”

Office still in limbo?

While certain sectors are thriving in the Milwaukee area, the city isn’t unusual in seeing an office sector that is still somewhat in limbo.

Many employers in the Milwaukee area are still working to bring their employees back to the office. Others are working on hybrid schedules and trying to determine how much office space they’ll need.

“The word ‘limbo’ is the perfect way to describe office right now,” Bills said. “We are still waiting to see where things will settle. Some predicted that at the end of last year, there’d be a big push to get people back into the office and that the office sector would bounce back strong. I don’t think we’ve seen that yet.”

Bills said that employers are finding it difficult to convince workers to come back to the office five days a week. And this, Bills said, will change the future office space needs of companies.

The challenge for office owners is that

so many companies are still struggling to determine what their space needs are. That leaves the office sector with plenty of uncertainty.

“Do companies need co-working space? Do they still need dedicated office space? Or are they looking for dedicated office space but with employees who have the flexibility to work from home when that makes more sense?” Bills asked. “It is some mix of those options. As a result, I don’t think we’ve seen in Milwaukee the office sector rebound in the way some people predicted. It is yet to be determined how that will play out.”

Despite the challenges of an uncertain economy, high interest rates and post-pandemic sluggishness, Milwaukee remains a strong market for companies, investors and owners, Bills said. Why? First, the cost of commercial real estate development is lower in the Milwaukee area. But even with these lower costs, companies and owners have easy access to the major transportation hubs in Chicago.

Companies know, too, that they can access a strong labor force, drawing employees both from the Chicago area and from Southeast Wisconsin. Many of the municipalities in the Milwaukee area are pro-development, too, Bills said.

“They want to be partners with developers and help build their communities and attract more improvement and jobs,” Bills said. “There are so many great developments taking place in the Milwaukee market today. It makes me excited to be a member of this community.”

Plenty of new development is taking place in the Deer District, home to the Fiserv Forum where the NBA’s Milwaukee Bucks play. There’s also the new 8,000-seat soccer stadium being built in the Iron District MKE, an 11-acre sports and entertainment development rising along the southern edge of downtown. In addition to a new professional soccer team, the stadium will be the home of Marquette University’s soccer and lacrosse teams.

“That is going to be another development that is going to create a new place for people to gather,” Bills said. “The way that the Deer District has become a destination, this project has the potential to have the same type of energy.”

MILWAUKEE (continued from page 10)

The resilient industrial market

As with the multifamily market, the industrial sector in Milwaukee is proving resilient, too, even with today’s higher interest rates. That doesn’t mean that this sector isn’t seeing a cooling-off period, too.

Chad Navis, vice president of Zilber Property Group in Milwaukee, said that industrial leasing activity remains strong in the local market. That’s largely because there isn’t enough industrial space in the Milwaukee area to meet the demand from tenants.

But industrial sales activity has slowed, Navis said. As in the multifamily market, this is largely because buyers and sellers are still trying to work out the right pricing for industrial assets.

As interest rates have risen, buyers want to spend less to purchase industrial properties. The owners of these properties, though, still want to sell at prices near what they would have fetched in 2022.

“There are few available opportunities as the investment market is on a vaulation transition period,” Navis said. “Buyers and sellers are still sorting out price discovery in 2023 from early 2022 pricing.”

This pricing uncertainty has favored the suburban markets of Milwaukee when it comes to industrial activity, Navis said. The availability of land in suburban areas also makes it easier to build spec or build-to-suit projects outside of Milwaukee’s urban slices.

“Given the land area needed for industrial projects, it’s naturally easier to find speed-to-market fits in suburban vs. urban areas,” Navis said. “Given the state of the financing environment, more complicated urban redevelopment projects just became more complicated.”

Navis said that the higher interest rates of today have slowed the development of new industrial properties. And until stability returns to the interest-rate environment, Navis said, he doesn’t expect this to change.

“In addition to demand, the low cost of capital was one of the fuels that kept the industrial development fires burning hot even during the skyrocketing construction costs we have expericend the last couple of years,” Navis said. “Now that the low-capital-cost leg of the stool has been kicked out from underneath developers, industrial development is predictably slowing in a significant way.”

The only way to change this is for the Fed to stop hiking interest rates, giving developers the stability they crave, Navis said. Hopefully, once the Fed stops tinkering, interest rates will slowly start to fall again, though it’s unlikely they’ll ever fall to the lows that the industry saw in 2021 and the start of 2022.

Navis said that the smarter providers of debt will use this period of slowing deals to gain market share by providing reasonable debt terms to leveraged investors.

Mlwaukee is fortunate in that it boasts

Investors and businesses also like Milwaukee because of its lower taxes and active development agencies, Navis said.

Zilber is a good example. Yes, these are more challenging times to develop commercial real estate. But the developer is remaining active in the Milwaukee market.

Navis said that, pending final government approvals, Zilber’s 2023 speculative industrial developments will total about 600,000 square feet across three building projects. This includes the launch of the 90-acre Caledonia Corporate Park on the northern end of the Interstate-94 corridor.

some advantages to help its industrial market work through these challenging times. Navis pointed to the area’s skilled workforce and the continual investments in public and private infrastructure from developers and government bodies.

“Despite all the cost challenges with industrial development, Zilber Property Group is committed to making available new industrial space in the metro Milwaukee market,” Navis said.

“In addition to demand, the low cost of capital was one of the fuels that kept

industrial development fires burning

we

expericend the last couple of years.”

Colliers report: Quality matters. Industrial might have peaked.

investors are still sinking their dollars in multifamily

By

Acontinued flight to quality office assets. A slowdown in demand for industrial properties. A multifamily sector that remains the darling of investors.

These are some of the highlights from Colliers’ Global Investor Outlook, a look at investors’ sentiments regarding commercial real estate in 2023.

We recently spoke with Steig Seward, U.S. head of research for Colliers, about the report’s findings and the state of commercial real estate in 2023. Here is some of what he had to say.

Colliers’ report shows that investors, like tenants themselves, are interested in the highest-quality office properties today. Is that a trend that is still going strong?

Steig Seward: There has been a prolonged flight to quality in the office sector. Companies are engaged in a war for talent. HR departments are doing what they can to retain their top talent and attract new talent. Having office space that makes people want to come back to the office is a high preference for leadership teams and HR departments. Many companies are upgrading their addresses to help combat that talent drain.

Some of these companies might reduce their office footprint once they move. But they will pay a higher rent. If you net it out, their total operations costs remain the same, but they still get to upgrade their address and, hopefully, attract the best talent.

In the markets that we cover, newer, class-A office space is seeing the lowest vacancy rates.

Seward: These newer buildings are designed differently. There is a shift in these newer buildings toward more collaborative work environments and more meeting spaces as opposed to dedicated offices. Definitely, the floor plans and layouts of newer buildings

are more conducive to that type of work. They also have higher-quality amenities, outside patios, concierge services and perks like that.

What will happen to those older office buildings, though, that lack the amenities that tenants today favor?

Seward: We conducted a study recently of top gateway markets. We found that 35% of all the buildings in those markets are older than 50 years. They are facing functional obsolescence because of time. Not all those office buildings can be converted into something else. They all can’t be converted into multifamily or hotels. Only a small

percentage, maybe 10% or less, would be a good fit for conversion. It’s going to be interesting to see what happens with these buildings. I suspect that most of them over time will lose their tenant base. At some point, when the financial conditions are right, their owners will scrap the building and put up a highest- and best-use type of property instead of trying to reconfigure the whole building. That’s not good from an environmental standpoint, but it is a cheaper way to get to the end results.

What about the multifamily market?

In Colliers’ global report, it says that investors today consider multifamily the top asset class for their dollars, with multifamily being seen as even more attractive than industrial.

Seward: Multifamily has been the darling of investors for quite some time. It used to be that office was king and multifamily was next, then industrial and retail. As things have turned, multifamily has been thrust into the spotlight. It is definitely where people want to invest. It is having its share of difficulties, too, with today’s interest rate environment. But if you talk to people out there, they all list multifamily as a key asset class that they are most interested in scooping up.

When it comes to multifamily, what are investors looking for?

Seward: It depends on the investor’s profile. You have some investors who are only interested in higher-amenitized Class-A properties. Others are perfectly content with investing in affordable housing. Investors play in different areas. Different investors favor downtown over suburban. It is not a universal movement in which all the investors are moving in the same direction.

Industrial has been a strong sector for a long time. Do you think, though, that investor demand for industrial assets has reached its peak?

And

Dan Rafter, Editor

“It’s important to remember what an outlier 2021 was. But in 2022, we still saw almost 480 million square feet of net absorption in the industrial market across the country.”

Seward: Demand is starting to slow for industrial assets. The industrial market was on a rocket ship just after the pandemic started. There was all this demand for online shopping. It caused a ripple effect with retailers. They had to increase their warehouse space to handle all this merchandise. Industrial has been on an absolute tear the past two years. We are starting to see that demand is slowing a little bit. But it’s not like it has completely fallen off. Demand for industrial assets is still stronger than it has been historically. When you compare demand to what we saw in 2021, it’s not as strong. But 2021 was a record year when it comes to net absorption numbers. And 2022 was the second-best year for absorption on record. It’s natural to see demand trimming down a bit.

The last two years have been so strong for industrial that we might have gotten a bit spoiled, it seems.

Seward: It’s important to remember what an outlier 2021 was. But in 2022, we still saw almost 480 million square feet of net absorption in the industrial

market across the country. That is still well above average. If we didn’t have 2021 as an outlier and just saw 2022, we’d say, ‘Wow. What an amazing year.’ But we were comparing 2022 to a phenomenal year.

The Colliers’ report also said that investors are still interested in last-mile distribution properties.

Seward: All the retailers and logistics providers see that the most important last step to the distribution chain is getting to that last mile. That can make or break delivery timelines. We are seeing more of these distribution centers popping up closer to those big population hubs. Companies can reduce their delivery times with these centers instead of relying on one or two giant super centers. We will see more of these last-mile facilities pop up. Companies are spreading their total square footage over more locations.

Overall, do investors still consider commercial real estate a good home for their dollars, even with the higher interest rates?

Seward: Real estate has always been considered a good hedge for inflation. Commercial real estate is still doing well. We are coming from a very low interest rate environment. Because the interest rates were so low, investors were still able to obtain a large, impressive margin. At the same time, rent growth was rising and vacancies

were down. Now that the cost of capital is more expensive, that margin of profitability is beginning to shrink. A higher cost of capital is squeezing that profitability margin. You also have buyers who want a steep discount. Sellers, then, are holding onto their assets. Unless they are forced through some type of event, most of these sellers are going to hold their properties and ride this out. We have a disparity between buyers’ and sellers’ expectations at this time .

Does that mean we’ll see fewer transactions in 2023?

Seward: The first half of 2023 will be relatively quiet. Deals will get done, but not at the pace that we experienced last year. But once the markets get a better handle on what the interest rate environment will be, when we feel we are at that peak where the Fed is no longer going to be increasing its federal funds rate, that will establish a floor. Then the industry can begin to recover and everyone can factor in exactly what the cost of capital is going to be going forward.

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Steig Seward

Fear of making a mistake: is this what’s behind the slowdown in multifamily deals?

By Dan Rafter, Editor

The multifamily market remains a darling of commercial real estate investors. Even with rising interest rates, the fundamentals of the sector remain strong. And investors are increasingly broadening their search to sink their dollars in Class-B apartment buildings.

Those are some of the key points from the sixth annual Powerhouse Poll Outlook released this February from Berkadia.

Berkadia surveys investment sales advisors and mortgage bankers two times a year. This most recent Powerhouse Poll included the opinions of 144 respondents and was conducted from December of 2022 through January of 2023.

The results of this most recent poll reflect the struggles that multifamily investors are facing because of higher interest rates.

But Ernie Katai, executive vice president and head of production for Berkadia, said that the multifamily sector, despite the higher interest rates, remains a strong one.

“People are lamenting and gnashing their teeth because of interest rates,” Katai said. “But apartment buildings are still 95% occupied across the county. We are seeing rent growth of just a little less than historical norms, 3.3% versus 3.5% on a year-over-year basis. And we just came off a period of amazing rent growth. The market is fundamentally strong. We are just seeing a pause in investment activity and multifamily sales because rates have bounced up.”

Katai said that he expects investors to return in greater numbers to the multifamily market once interest rates stabilize. When that happens, though? That’s uncertain.

Katai said that the market might not even see interest rates stabilize in June of this year. It all depends on when the Federal Reserve Board decides to stop boosting its federal funds rate. Many

economic analysts are predicting that this will happen in the second half of this year. But no one knows for certain if this is true.

Part of the issue investors are facing? People are spoiled by interest rates of 2% or 3%. Historically, though, even today’s higher rates would be considered low, Katai said. And it was unreasonable to expect those historically low interest rates to stay in place for much longer.

“The one thing the market hates is uncertainty,” Katai said. “It paralyzes activity. At some point, the national players will start transacting again. Then I think we’ll see a bit of a herd approach. Investors have money they want to get out into the market. Someone must be brave enough to get things started again. It’s not FOMO, or fear of missing out. It’s fear of making a mistake.”

Here’s how Katai’s “fear of making a mistake” works: If investors don’t make any deals now, they won’t get into trouble. But if they close a transaction and that deal ends up in a loss? They could damage their bottom lines. Many investors, then, prefer to play it safe and wait out the uncertain interest rate environment.

“That’s what leads to paralysis,” Katai said. “It’s just the mindset right now.”

When will we see more multifamily investment sales? Katai said that interest rates need to stabilize and owners need to accept that their multifamily properties might not be worth as much as they were one or two years ago.

“People might have thought their property was worth $100 million a year ago but maybe it is only worth $80 million today,” Katai said. “Real estate is just math. It’s not overly complicated. Look at it from the perspective of owning a house: Maybe your house was worth $350,000 last year and now it is worth $275,000. You might think, ‘I’m not going anywhere now.’ Take that to the multifamily level. That’s what multifamily owners are thinking now. The industry is a little spoiled. It had a great run.”

The numbers

What were some of the more interesting results from the most recent Powerhouse Poll?

• Not surprisingly, respondents were concerned about interest rates. According to Berkadia’s poll, 54% of respondents said that interest rates, inflation and fears of a recession would have an extreme impact on investment activity this year. An additional 45% said that these economic concerns would have a moderate impact on multifamily investment activity in 2023.

• A total of 51% of respondents said that they believed that the country will fall into a recession in the next 12 months, while 36% said that the country was already in one. A total of 12% said that the country would not see a recession during the next 12 months.

• In another interesting result, 59% of poll respondents said that Millennials will make up the highest percentage of multifamily renters during the next two

years, while 31% said that members of Gen Z will lead the rental market.

• What about what renters want?

The Berkadia poll found that 66% of respondents said that location and security were the most important factors to renters looking for a multifamily property. Only 26% said that interior and common-area amenities were the most important factors, while only 2% said that renters are focused first on smart-home technology.

An evolving mindset

When investors are ready to close multifamily transactions again, what will they be looking for?

Katai points to the growing popularity of Class-B apartment assets.

Not too long ago, investors considered Class-A multifamily properties to be the best home for their investment dollars. Today, though, investors realize that a far greater number of renters can afford Class-B apartment units.

“It’s a bigger pool of potential renters,” Katai said. “Most renters live in Class-B apartments. Why not invest in something like that? It’s hard to argue against that mindset.”

The Class-B apartment market looks especially inviting today when you look at inflation, Katai said. As the price of so much continues to rise, many renters will look to Class-B spaces to save money on rent. These properties might not feature the latest amenities such as rooftop pool decks or concierge services. But if the units are safe, secure and clean, renters are eager to snap up Class-B space, Katai said.

And that makes these more modestly priced apartment properties attractive to investors.

A recession on the way? Already here?

One of the more interesting results from the Powerhouse Poll was the high number of respondents who said that the United States will see a recession during the next 12 months and the

respondents who said that the country is already in a recession.

Katai, though, said that he wasn’t entirely sure how deep any recession will be.

“It feels to many in this business that we are already in a recession because our business in the fourth quarter of last year fell off a cliff,” Katai said. “There were minimal transactions. Everyone was down double-digit numbers. A recession is when it hits your house. A lot of producers feel that way. But are we really in a recession already? That is harder to decide.”

And when investors are making multifamily transactions, what kind of deals are closing? Katai said that bigger deals are not necessarily better today. Today’s multifamily transactions are more commonly smaller deals closed by private investors, while larger institutional investors are mostly waiting out the uncertainty.

“We are actually very busy at Berk-

adia,” Katai said. “People are trying to figure out what the values of their properties are. There is a lot of conversation about deals, but there aren’t as

many fish on the hook. Owners want to know what the market thinks their properties are worth. When they see the numbers, they step back. No one is sitting around staring at the walls. But the execution is not there yet.”

The importance of safety

Another interesting response in the Berkadia survey was the importance of security for renters. Katai says that this is the first time he’s seen safety pop up as what investors think renters are most concerned about.

Katai said that this isn’t surprising, though. After COVID, the streets of many major downtowns feel less safe than they did before the pandemic.

Katai sees this firsthand. He lives in Chicago and notices that downtown still isn’t as busy as it was before the days of the pandemic.

“It bums me out a bit,” Katai said. “I love the hustle and bustle of the city. But I’ll finish dinner at a restaurant and walk

home and not see anyone out. This is Chicago. What’s happening? The cities are still not back at their pre-pandemic activity level yet.”

This doesn’t mean, though, that the multifamily market in downtown areas is dead. Katai says that younger adults are still renting in the middle of bigger cities. In fact, the Berkadia poll found that large metropolitan areas are still seeing the greatest number of multifamily transactions.

The poll listed secondary metropolitan areas as seeing the second-highest amount of multifamily transactions, while suburban areas were seeing the third-highest.

“That caught my attention,” Katai said. “If you remember during the height of COVID, suburban occupancy levels went through the roof. People wanted more space. To see suburban activity drop to number three? That caught my eye. If that holds up in our next poll in June, that will be an interesting trend.”

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“The cities are still not back at their pre-pandemic activity level yet.”

desire of Omaha’s leaders to make this city the best it can possibly be.

A model of resiliency

Amy Lawrenson, partner at Omaha’s Baird Holm, said that Omaha’s commercial real estate market still boasts its famed resiliency. That doesn’t mean, though, that the real estate market here is immune to the cooling impact of rising interest rates.

Commercial sales have slowed here as the Fed continues to boost its benchmark rate.

“We have seen a difference in activity once rates started to rise,” Lawrenson said. “But we’re not like much of the rest of the nation. We are not seeing as severe a slowdown in activity as other markets are seeing.”

What’s behind this resiliency? Lawrenson points to the more conservative approach Omaha developers have taken. There isn’t as much spec space

delivered in the Omaha market each year as there is in other markets. This means that demand for commercial space tends to remain high, something that has kept sales and leasing activity steady despite higher rates.

Omaha also has a strong roster of Fortune 500 companies with a presence in the city. These strong businesses have

the resources to withstand temporary slowdowns.

Lawrenson also cites the philanthropic nature of Omaha’s business and civic leaders. Leaders here are not shy about pumping their money into new development and improvement projects throughout the Omaha market, Lawrenson said.

“Our government bodies are supportive of the business community,” Lawrenson said. “They are good partners to our developers.”

In little surprise, the industrial sector continues to thrive in the Omaha market. This sector, of course, has been booming throughout the country, even as interest rates rise.

Lawrenson said that the industrial vacancy rate in the Omaha market is near 2%, incredibly low.

“The demand for industrial space just outpaces how much we can build,” she said. “We in Omaha are very underbuilt when it comes to industrial. The actual construction numbers are deceptive because we have built so much data center space. Those numbers make you think we have plenty of industrial space. But we don’t have as much warehouse and distribution space as we need.”

What the Omaha market does have is a shortage of buildable land for industrial projects, Lawrenson said. Industrial development today is being pushed out to agriculture land further from the city. That land isn’t yet ready to be developed, Lawrenson said. It needs utilities and roads, and those

costs have to be added to the cost of development.

Lawrenson said that she has clients who have been looking for years to get into suitable industrial space in the Omaha market. Finding land that is ready for development, though, remains a challenge.

“If they can’t wait for the right piece of land, they are going to have to pay and pay dearly,” Lawrenson said. “They effectively end up developing the land as they go through the process. They might even sell off outlots after they develop what they need. That’s hard for a lot of companies to do. They are running large companies already. They are not wanting to play developer.”

Big developments

The Omaha market is fortunate to be home to several major developments that are expected to bring even more new business to this city.

Mutual of Omaha, for example, is building a new skyscraper at 1614 Dodge St. in downtown Omaha. The expected completion of this project is 2026. It shows a commitment to the Omaha office sector that is impressive today.

Another major project in Omaha is the “Builder’s District”, being developed by busy Omaha-based developer Noddle Companies.

Kiewit, when it moved its headquarters to 15th and Mike Fahey streets in Omaha, provided the impetus for this project. The goal here is to populate the area surrounding this building with

TENANT REP

A rendering of Noddle Companies’ Builder’s District.

multifamily units, office space, retail and an urban park.

The project will cover about six city blocks and will include a 130,000-square-foot office building made primarily of timber. Noddle says that the project will include sports courts, giving people space to play volleyball and pickleball.

“The Builders District will fill a hole in that part of downtown,” Lawrenson said. “Noddle knows what it is doing there. That will be a good support for the central business district and should improve the area around Creighton University.”

Heartwood Preserve is another major development that is boosting the entire Omaha commercial real estate market. This 500-acre mixed-use project in west Omaha features, or will feature, seniors housing, multifamily, single-family homes, retail and office uses. Open green space will also be a key at this development located on the former Boys Town site in Omaha.

Another boost might be coming soon to downtown Omaha, a new streetcar.

The Omaha Streetcar Authority has proposed a 3-mile streetcar route serving downtown Omaha, running from Cass to Farnam on South 10th Street, Farnam west to 42nd Street and back to 10th Street on Harney. The streetcar will be free for all riders.

The authority says that the streetcar will be built, operated and maintained without an increase in property or sales taxes. Instead, taxes paid by new or redeveloped income-producing

commercial and multifamily buildings will pay for the cost of building the streetcar system.

The streetcar is still being explored by Omaha’s city government. Its price tag is expected to be $306 million. In a March presentation, though, the Omaha Streetcar Authority said that it estimates that the streetcar will lead to $3.2 billion in new downtown development over 15 years.

The schedule now calls for the preliminary design of the streetcar project to be completed in 2023, with final design and vehicle procurements also completed this year. If the system is approved, construction of the main line is scheduled to begin in 2024 and end in 2026, with the streetcars going into service later in 2026.

Proponents of the streetcar say that it will lessen the need for more parking in downtown Omaha and reduce the amount of new parking spaces developers will have to provide for their new projects. The streetcar will also free land for billions of dollars in new development, according to the streetcar authority.

Count Jay Noddle, president and chief executive officer of Omaha developer Noddle Companies, as a fan of the new streetcar. He’s also working hard to make the system a reality, serving as president of the Omaha Streetcar Authority.

Noddle said that Mutual of Omaha’s decision to build its skyscraper at what could be the eastern end of the streetcar line has been one impetus for pushing the streetcar project forward.

Mutual of Omaha’s new building will move about 4,000 jobs in the Omaha area two miles to the east, Noddle said. That creates what Noddle calls an eastern employment anchor in the city’s downtown area.

Mutual of Omaha’s new building will join the offices of First National Bank and Union Pacific at the western end of the Gene Leahy Mall, a 9.6-acre park located in Omaha’s The RiverFront, a recreational area of downtown that combines three parks into one space.

“We can now connect the new development on the east side of downtown with the Medical Center neighborhood on the west in our urban core,” Noddle said. “We have to deliver this streetcar to make this happen.”

Mutual of Omaha is relying on the streetcar. The plan is for the company’s employees to ride the streetcar to get from Mutual of Omaha’s parking location to the new tower.

“The streetcar route will connect the convention center and our baseball field, Charles Schwab Field, with the rest of downtown,” Noddle said. “There is a lot of available land and under-utilized buildings along the route. To say that this streetcar will be a shot in the arm for the urban core is an understatement.”

Solid performance from the retail market

Adam Maurer. Associate broker with the Lerner Company, sums up the Omaha commercial real estate market with one phrase, “limited supply.”

OMAHA (continued on page 22)

A new campus for Applied Underwriters is part of the Heartwood Preserve project in Omaha.

Maurer, a retail specialist, said that the Omaha retail market has seen a dip in new deliveries for the last five years. That has brought about vacancy rates in this sector that have dipped to their lowest levels in five years.

That has led to an increase in asking rents throughout Omaha’s retail sector, Maurer said. In fact, high retailer demand combined with a low supply has boosted the average asking rates across the Omaha metropolitan area by 5.8%.

These higher rates, though, haven’t been enough to slow retail leasing, Maurer said. He pointed to Omaha’s busy Capitol District, a mixed-use entertainment district downtown. The district will soon welcome three new tenants, two regional bar concepts and local favorite Frank’s Pizzeria. And two new-to-market concepts, Walk On’s Sports Bistreaux and YETI, have announced that they will be opening locations in the Nebraska Crossing Outlet Mall.

The Omaha retail sector isn’t immune to the impact of rising interest rates,

though, with the higher rates slowing the influx of investor dollars.

“We are still seeing activity in the investment market, but rising interest rates are forcing investors to be more stringent in their underwriting and take a closer look at where and how they choose to invest,” Maurer said. “Sellers are beginning to realize that it’s not the same market it was six to eight months ago, and pricing expectations must follow suit.”

There are new retail developments coming to the Omaha market, though, that should ease the demand for retail space among the restaurants, entertainment centers, brand-name retailers and local businesses that are hoping to enter the Omaha market or expand their locations in it.

Notable new retail developments include projects by Hy-Vee, Menards and Fleet Farm, all of which are coming to the Highway-370 corridor. Across the river in Council Bluffs, Iowa, part of the Omaha market, Menards is preparing to open its new flagship store at the former Mall of the Bluffs. Redevelopment plans are underway for Menard’s former site at Lake Manawa Power Center.

This activity is more proof, if anyone needed it, that Omaha’s resiliency is unmatched across the Midwest. The market has handled all challenges that come its way, including today’s higher interest rates and the lingering impact of the pandemic.

“Omaha’s conservative mentality yet again proved vital in withstanding the ups and downs of the COVID-19 pandemic, and this attitude will be key in weathering market volatility in 2023,” Maurer said.

The office sector has struggled in markets across the country as companies work to determine how much space they will need in the future. With so many employees working on a hybrid schedule, a growing number of companies are opting for less office space but at a higher quality level.

Lawrenson said that Omaha’s office market is working through this uncertainty, too. But this sector, struggling so much in other markets, is showing resiliency in Omaha, she said.

“The office sector is one of the areas where Omaha is unique when compared to what other places in the nation are seeing,” Lawrenson said.

“By and large, companies in Omaha still want office space. They are approaching it differently. They are trying to stay nimble. If they are decreasing their footprints, they are doing so with focused intent on how they are improving the office situation for their employees.”

Lawrenson said that many employers in Omaha are focusing on the amenities and flexibilities that they hope will encourage workers to come back to the office on their own volition.

This means offering hybrid work options and giving workers the flexibility to work from home when they are tackling heads-down busy work throughout their days, but asking them to come into the office when they need to meet with clients or work in teams.

What amenities are office users focusing on to encourage their workers to return? Lawrenson said that owners are putting more thought into appealing common areas where workers can gather to work or socialize. Others are looking for higher-quality gyms. Companies might offer on-site daycare to bring working parents back to the office.

OMAHA (continued from page 21)

The Retail District in the Heartwood Preserve development.

Some are even pumping white noise throughout their office space as a way to muffle the traditional noise of an office, Lawrenson said. Employees who worked from home for nearly three years might have gotten used to quieter working conditions. The white noise helps them concentrate while in the office, she said.

On the leasing side of the office sector, companies and owners are putting more thought into how they structure lease terms, Lawrenson said.

Building owners might offer shorter lease terms to give tenants more flexibility in case they need to reduce the amount of space they need. Other leases might give large tenants the option to off-load a floor at a certain point in their contract if they no longer need that space.

“The ability to grow or shrink as they see fit is important for office tenants today,” Lawrenson said. “That nimbleness of being able to grow or reduce

react more quickly to the ebbs and flows of their workforce.”

that they need to offer employees flexibility if they want to retain their best workers. But they still want to bring them into the office when it

T h e W a t e r f o r d B u i l d i n g

1 9 2 n d S t r e e t & W e s t D o d g e

Partly because of this more measured approach, Lawrenson said, Omaha hasn’t seen as dramatic of an increase in office vacancy rates. There has been a jump in the amount of sublease activity

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Development

MIKE HOMA President, Nebraska

COOPER WILSON Manager, Brokerage &

The Omaha RiverFront project has combined three downtown parks into one recreation area.

apartment sales taken in the last six months? What will it take for buyers and sellers to begin transacting again? And are the fundamentals of the multifamily market still solid enough to keep this sector an attractive investment?

Here is some of what these finance pros had to say.

Paul Smith Senior Vice President BWE, Columbus, Ohio

Let’s start with the obvious question: Have higher interest rates slowed the demand for multifamily financing?

Paul Smith: As rates have risen, developers, owners, operators and capital stacks have all gotten squeezed. Loan-to-value ratios have gone down. The senior debt has become tighter. This has made it more difficult for owners and developers to get stuff done. There has been an increase in mezzanine funding requests and construction loan requests. The interest rates have had a very difficult impact on people’s ability to get deals done.

What has to happen with interest rates, and the economy in general, to spur more multifamily deals?

Smith: For the big picture, we need to find a way to get inflation under control so that we can get some stability in the interest-rate market. The fundamentals of multifamily properties are still strong. The demand on the capital side is strong. Interest is strong everywhere. The issue is volatility. When rates are going up and down, it’s hard to find that baseline where people feel comfortable closing transactions. If we could get to a place where there is some stability with interest rates that would go a long way toward helping developers, sellers and buyers find a middle ground.

You mentioned that the fundamentals of the multifamily sector are still strong, even with the higher interest rates. Can you talk a bit about that?

Smith: We still have a housing shortage in this country. That has created strong occupancy levels and rent growth in multifamily during the last couple of years. We are starting to see rent growth slow. In some areas, we are starting to see rents fall. Couple

that with what I think is going to be a wave of new supply over the next 12 to 18 months and I do expect there to be some softening in the demand for multifamily in the short term, the next 12- to 24-month window ahead of us. But once we get through that wave of supply, the multifamily sector will still look strong. That underlying demand in all markets for housing is not going away.

When people are looking for financing for multifamily deals, what type of apartment properties are they most interested in?

Smith: Interest is spread out across all the classes. Everyone has a lane. There is still demand up and down the spectrum. I do feel there is a slight lean toward suburban, well-located products. That doesn’t mean that downtown core product isn’t in demand. But suburban properties are a little more popular today. The demand is a little less for transitional assets, value-add properties. If you are trying to turn a class-C property into a Class-B or a Class-B into a Class-A building, those business plans are harder to execute today. The cost of capital is higher. Rent growth is not what it was. Construction costs are higher. Everything is more challenging. People today are interested in solid products with a stable cash flow.

What about in your home market of Columbus, Ohio? Is demand for multifamily product among renters and investors still strong?

Smith: We are in a good spot in Columbus. We haven’t had the huge spike in new development or demand like we’ve seen in some of our sister cities, the Raleighs and Nashvilles. That has served us well. We don’t have quite as much new supply coming online, so our fundamentals are still strong. The population in Columbus continues to go up. I feel good about where we are.

Even with the challenges we’re seeing in the national economy, is multifamily still considered a good investment?

Smith: Of all the food groups, multifamily is still the belle of the ball. Many of the other asset types are facing stronger headwinds. When we talk to investors and developers, multifamily is still the preferred asset class. It is still hard to build single-family homes in a lot of markets. The need and demand for multifamily is still there.

When you do receive a request from an investor or developer for multifamily financing, what do you consider when determining whether to take on that request?

Smith: It comes down to the basics of the deal: the location, the strength of the market and the business plan. The nuts and bolts of the deal are most important. In today’s market, capital wants to be selective. Having those basics down and having really strong fundamentals are what make deals go through. The fringier deals or the challenging deals are much harder to get

done today than they were 12 months ago.

Henry Tomecki Executive vice president, commercial real estate BankFinancial, Chicago

Have higher interest rates slowed the demand for commercial financing?

Henry Tomecki: The increase in rates has caused many investors to take a pause on new acquisitions. BankFinancial has seen new purchase opportunities slow as a result. Currently, there is plenty of liquidity in the marketplace as buyers are waiting for CAP rates to take effect and the lower valuation of CRE properties. Sellers, on the other hand, will need some time to adjust to lower valuations from record-low interest rates that drove CAP rates down and property values up.

What must happen with interest rates, and the economy in general, to spur more multifamily deals?

Tomecki: Many multifamily investors would prefer to see a return to pre-pandemic interest rates, which is unlikely to happen. A look at historical rates tells us that the comfort level many investors would like to see is between 5% and 6%. With inflationary pressure continuing to be a major concern, it will take some time before rates fall below 6%.

How strong are the fundamentals of the multifamily industry? Are vacancy rates and rent growth still solid?

Tomecki: The multifamily industry’s fundamentals continue to be strong with vacancy rates remaining relatively flat. However, we expect to see rent growth topping off sometime this year if it has not already done so. In many parts of the Midwest, we are seeing rent growth flatten out. With unemployment forecasted to trend up by the third quarter of this year, we forecast a slight increase in collections.

Is multifamily still one of the more desirable investments today?

Tomecki: The retail sector is still stabilizing from the Amazon effect and the office sector continues to struggle. Yet multifamily is holding its own and its fundamentals overall are still favorable and the least risky of all the options.

When investors are making multifamily deals, what type of properties are they looking at? Are they still primarily interested in Class-A buildings, or are they also considering Class-B apartments?

Tomecki: In today’s environment of rising rates, BankFinancial has had many investors looking at Class-B apartment buildings. Many of those properties still have an upward opportunity to increase rents and decrease some costs. Class-A properties are currently showing the highest vacancy and collections at this point. They are dropping rents, and concessions are increasing.

What do you consider when deciding whether a financing request is a solid one?

Tomecki: CRE Lending is an important line of business for banks, and we rely on its revenue. As such, most banks are cash-flow lenders. Therefore, the primary items that we consider for viable financial requests are Debt Service Coverage Ratio, Loan-to-Value, strength of the borrower or guarantor and the liquidity reserves.

Kevin Kovachevich Principal, District Capital, Detroit

I’ll ask the same question I’ve asked the other sources in this story: How

big of an impact have higher interest rates had on the multifamily finance business?

Kovachevich: The rising interest rates have significantly impacted the flow of money. Unless you absolutely have to, you don’t want to borrow right now. The rates took such a significant move upward that the cost of borrowing has exponentially gone up. The monthly rents have not followed. Those prices remain the same. You have a situation where the rates rose so quickly that sellers haven’t had time to adjust. Sellers still want prices from 2022. Buyers are saying that the cost of their capital

has gone through the roof and that sellers need to adjust.

There’s a serious disconnect between buyers and sellers?

Kovachevich: Because of this disconnect, we are seeing very few transactions. The number of transactions on the sales side nationally has fallen off a cliff. Having such a steep rise in interest rates in such a short time has crippled the sales market and has slowed the financing market.

Do you think the Fed increased rates too quickly?

Kovachevich: They did move quickly. Real estate is a slow-moving market. It doesn’t react quickly to overnight moves or sudden moves. Historically, if the Treasury goes up, we see some spread decreases. The spreads tighten up to make up for some of that increase. In this case, spreads have widened over the last 12 months. You have a double whammy. Spreads are widening and your borrowing rate goes from 3% to 6%. It’s a shock to the system. The multifamily sales market is crippled for the time being.

Everyone is looking for the second half of this year for activity to pick up again. The most recent Fed announcements, though, made it painfully obvious that they are not slowing the rate hikes. They made it painfully clear that rates aren’t coming down anytime soon. People are buying 10-year Treasuries to be safe. Those are risk-free.

What will buyers and sellers need to see before multifamily transaction activity rises again?

Kovachevich: When the long end of the curve starts to go back down and spreads tighten, that is an indicator that sales will start happening again. The steep increase in rates halted everything. The only sales we are seeing now are forced sales, an action that has to take place. If you are a holder of multifamily product, you are not running out to sell right now.

Are there any other challenges in the multifamily market today?

Kovachevich: Multifamily rent growth has slowed. In 2021, you were hearing about 15% to 25% lease trade-ups. People who had been renting for

Kevin Kovachevich

Henry Tomecki

Paul Smith

“The multifamily industry’s fundamentals continue to be strong with vacancy rates remaining relatively flat. However, we expect to see rent growth topping off sometime this year if it has not already done so.”

$900 a month went up to $1,500 a month overnight when they signed their leases. That was the new market rent. People were underwriting these large rental increases like they were going to continue forever. That was a major factor in those record-breaking sales prices and volumes that brokers recorded in 2021 and 2022. That has slowed down. Rents are still going up, but we are seeing more realistic increases. You can still push rents, but we saw such a hard, aggressive approach to rent increases in the last 24 months. They had to come down. You can’t continue to push rents at the pace we were pushing them during the last two years.

Even with all that is happening in the economy, is multifamily still an attractive investment?

Kovachevich: Yes. Multifamily is one of the darlings of the commercial real estate world and has been for a while. The two best product types in the market are multifamily and industrial. The industry fundamentals are still good. We still have a housing crisis. There are not enough housing units for people.

Homebuyers face pressure from rising interest rates. Say you are getting ready to buy a house. You’ve saved money. You were looking at 3% interest rates. Suddenly, those rates are at 7%. That might delay your decision to buy a home. You are back in the renter pool for the next few years until interest

rates come down. The fundamentals of multifamily are phenomenal.

Deals will still get done. But it will take time for buyers and sellers to meet up.

When you do get a request for multifamily financing, what do you consid-

er when deciding whether the request is a sound one?

Kovachevich: The fundamentals of the deal are always the top priority. How strong is the local market? How strong is the operator? Those factors are always in play.

What types of deals are getting done today?

Kovachevich: We are seeing some deals in the Class-B space and in tertiary markets. Those types of investments make more sense today. Those deals are more attractive because of the yield that they present to investors. Multifamily investors are antsy people. They must continually transact to keep themselves and their employees busy. They are deal junkies by nature. Sitting back idly is not in their DNA. This presents a challenge. Eventually, their patience will run out. People will start to buy things. And hopefully by then, the interest rates will start to settle and we’ll see more of a normal market. There is nothing normal about what is happening today.

“Yes. Multifamily is one of the darlings of the commercial real estate world and has been for a while. The two best product types in the market are multifamily and industrial.”

The future of healthcare real estate? Increasingly, it’s in or near mixed-use residential developments

By Dan Rafter, Editor

Healthcare real estate remains one of the strongest commercial sectors, with demand for medical office buildings, freestanding medical facilities and ambulatory centers soaring across the country. And one growing trend? People want to live in dense multifamily communities that are located near these medical providers.

That’s part of the reason behind Kansas City, Missouri-based Grayson Capital’s acquisition of Leawood, Kansas-based Monument Healthcare Development. Grayson’s goal with this acquisition is to create multifamily communities in which their residents have easy access to healthcare.

“This was a great opportunity for us,” said Michael Collins, chief executive officer of Grayson Capital. “We are interested in this nexus between housing and healthcare. We think that providing our residents with easy access to healthcare will be a value-add to the communities that we are developing. This is a development strategy that is important to us.”

What does easy access to healthcare services mean? Collins pointed to dense

multifamily developments in urban areas. It makes sense to develop medical office buildings and outpatient care facilities within easy walking distance or a quick bus or train ride to these apartment communities.

But there are opportunities for this mix of healthcare and housing in the suburbs, too, Collins said. Many suburban communities are creating their own walkable downtowns. These downtowns need both multifamily housing and healthcare real estate that can serve the residents of these walkable communities.

“Where healthcare used to be is not where people want or need it to be today,” Collins said. “People want to have their medical needs met in outpatient facilities that are located closer to them. They don’t want to have to go to the big hospital campus for most procedures. The hospital campus today is increasingly being reserved for the more intense medical procedures.”

Suburban residents also don’t want to travel downtown for their medical care. Because of this, it’s important for developers to bring more healthcare real estate closer to their suburban homes,

whether these suburban residents are living in apartment homes, townhomes or single-family residences.

“Do the Baby Boomers who have retired to the suburbs want to go downtown or do they want to migrate to the suburbs to be closer to their family or friends?” Collins asked. “Do they want to stay in a suburban area or do they want to live that urban experience? You have a large population and demographic across the United States that is splitting now between the suburban and urban areas. For us to crack that nut, we need to have both high-density housing and healthcare real estate in both environments.”

Grayson Capital acquired Monument Healthcare Development in December of 2022. Grayson specializes in transit-oriented multifamily developments. Collins founded the company in April of 2022 after spending time as managing director of JE Dunn Capital Partners and president of the Port Authority of Kansas City.

The company’s recent Kansas City, Missouri, projects include multifamily developments at 15th and Holmes and 18th and The Paseo in the city.

Monument Healthcare has been in business since 2005 and specializes in healthcare real estate. The company has developed such facilities as Saint Luke’s Southridge Medical Office Building and Ambulatory Surgery Center in Overland Park, Kansas.

Shawn Frost, director of design and construction with Monument Healthcare Development, says that healthcare real estate today is about the user experience.

“People are taking a more proactive approach in their healthcare,” Frost said. “They are more knowledgeable about healthcare, and they want to integrate their healthcare into their daily routines. They want their healthcare provider close to the grocery store so that they can stop by their physical therapist on the way to the store or the occupational therapist on the way home. They want to have healthcare facilities closer to where they live and shop.”

This would leave the sprawling central hospital campuses for heart specialists, brain surgeons, major surgeries and serious emergency care.

If you are suffering a serious emergency and you call an ambulance, that ambulance would still take you to the central hospital campus, Frost said. But if you need outpatient surgery, physical therapy or other services that aren’t considered emergencies, you’d instead take yourself to one of these medical office buildings or freestanding clinics, hopefully one located near your home.

“Ambulatory care services are playing a bigger role in healthcare real estate today,” Frost said. “They are providing knee replacements and outpatient surgeries in which the patients are walking out in the same day.”

Collins said that medical office facilities and outpatient centers are becoming the favored way for patients to receive a growing number of healthcare services today. That’s because they don’t have to spend an entire day traveling to and from a hospital campus in the middle of the city.

Grayson Capital and Monument Healthcare Development’s University Health Campus in Amherst, Ohio, is a 26,000-square-foot ambulatory surgery center and 55,000-square-foot medical office building.

“Going to the hospital is a chore, but going to an ambulatory care center or your doctor’s medical office is just a part of your daily life,” Collins said. “If a physician group can open offices in closer proximity to where their patients live, it makes a heck of a lot more sense. If your physicians are closer to you, you’ll also be more likely to see them on a more routine basis. Healthcare becomes more of an outcome-based model versus going in because you are sick.”

That leads to a big question: Do people consider nearby healthcare options when they move? Do they wonder whether an occupational therapist or freestanding medical clinic is a short walk, train trip or car ride away?

Probably not. But Collins did say that people do consider whether they can live a healthy lifestyle when they move to a new multifamily or single-family home.

“People are considering options for

their health,” Collins said. “They aren’t focused solely on whether their doctor or future physician is nearby. But they do wonder how a certain community will work for their lives. What is the real estate doing for me? What is around me?”

Collins said that people increasingly consider whether they can walk to grocery stores, public transportation, parks and restaurants when choosing

a home. They want to live by healthy eateries and be able to take a short trip to experience green space. Many want to limit the amount of time they spend driving on crowded roadways.

It makes sense, then, for developers building mixed-use developments to include healthcare options along with multifamily residences, Collins said.

“The future involves adding the health

and physician component into some of our developments,” Collins said.

Frost said that Monument Healthcare Development will continue to chase healthcare developments that are near a mixed-use space. The company works with healthcare systems across the country as they are expanding their footprints in both urban and suburban areas, he said.

“If the stars align and we can provide a healthcare development near a mixeduse, high-density development, that is the best option,” Frost said.

Collins said that Grayson Capital loves multifamily developments and healthcare assets.

“Even in these interesting economic times, we see that healthcare and multifamily are stable assets,” Collins said. “We have experience in both, and we like those asset classes. They are the future.”

Grayson Capital and Monument Healthcare Development’s Chadds Ford Ambulatory Surgery Center in Chadds Ford, Pennsylvania, is a 30,000-square-foto ambulatory surgery center that opened in 2022. The center includes five operating rooms and eight stay suites.

A key tool for making sure PPE reaches healthcare providers quickly? Reshoring

By Dan Rafter, Editor

Manufacturers learned a big lesson during the COVID-19 pandemic: They couldn’t make all their products overseas and expect them to arrive fast enough for U.S. consumers.

That’s especially true for those companies manufacturing healthcare products. During the early days of the pandemic, the country’s over-reliance on supply chains that led through foreign countries made it difficult for medical personnel to receive the personal protective equipment, or PPE, that they needed to safely treat patients infected with COVID.

That’s why many companies are making a shift: They are locating more of their manufacturing operations in the United States. This trend, known as reshoring, is providing another boost to the already strong industrial commercial real estate sector in the United States.

A good example? American Nitrile, a manufacturer of medical gloves, made the decision to move more of its manufacturing operations back to the United States. That has resulted in the renovation of a 527,000-squarefoot warehouse in Grove City, Ohio, at 3500 Southwest Blvd. in the Columbus market.

Contegra Construction Co., which has offices in Edwardsville, Illinois, and St. Charles, Missouri, handled the renovation work to create a manufacturing facility that will produce 4 billion medical research lab gloves each year.

The big question? Will more companies reshore their manufacturing centers back to the United States, and will this continue to have a positive impact on the U.S. industrial sector?

More reshoring on the way?

“From our standpoint, we are seeing a fair amount of opportunity in the construction sector for light-manufacturing projects,” said Jim Mundy, chief operating officer of Contegra Construction. “With the supply chain

difficulties we encountered during the pandemic, it makes sense. You can improve the flow of products into the marketplace if you manufacture them domestically. We are starting to see more opportunities from a construction standpoint with reshoring product that has historically been produced overseas.”

An example? Contegra recently kicked off a $30 million reshoring project for a manufacturing facility in Washington, Missouri.

“More of these types of projects are being planned,” Mundy said. “We are going to see a lot of additional manufacturing associated with electric vehicle and battery production. That is becoming more prominent in what we do. We build a lot of distribution and logistics warehouses. The users of those warehouses are supportive of reshoring jobs, creating additional jobs in the United States.”

A big job

During the repurposing of the Grove City, Ohio, warehouse for American

Nitrile, Contegra and engineering firm IMEG needed to boost the building’s infrastructure so that it could support a complex automated manufacturing process with 12 production lines.

What did that entail?

• Water system upgrades to support the robust water demand needed to make gloves.

• Installing a new wastewater treatment system and sanitary sewer upgrades including a multi-pump lift station to treat and discharge wastewater.

• Engineering and installing a new electrical service with multiple substations to power the advanced manufacturing process.

• Installing exhaust fans in conjunction with supply air fans capable of five air changes an hour to stabilize temperature and humidity in the facility.

• Installing two large air compressors and air piping for the production process.

Contegra also provided 15,000 square feet of remodeled office and lab space.

American Nitrile is a Grove City, Ohiobased company that manufactures medical and research/lab gloves for healthcare, government and industrial users. Jacob Block founded it in 2021 to meet the need for domestic sources of manufacturing of critical PPE products.

Was reshoring a trend before the pandemic hit? Mundy said that he hadn’t seen nearly as much of a desire from companies to move their manufacturing facilities back to the United States before COVID-19 arrived.

And Tony Uzzo, project manager with Contegra Construction, said that the supply chain logjams during the start of the pandemic were the impetus for today’s reshoring push.

“The American Nitrile project was absolutely in response to the pandemic,” Uzzo said. “There is no question that they went for this project as a way to make sure they could get their products to U.S. users as quickly as possible.”

Why reshoring is needed

The numbers show why reshoring the production of medical gloves has been so necessary. According to American Nitrile, the United States consumes about 60% of all nitrile gloves produced globally, but less than 1% of these gloves are produced in the United States.

The global manufacturing of these gloves is based in Malaysia, China and Thailand. The COVID-19 pandemic showed just how risky this arrangement is, exposing a vulnerability in the supply chain of the PPE needed in the United States.

Why was the Grove City location a good fit for American Nitrile? Mundy said that by retrofitting an existing facility, American Nitrile was able to move into the new space quickly. Building a new production facility from the ground-up would have taken far longer, he said.

“That helped with speed-to-market,” Mundy said. “This was an established building with an established infrastructure and an accessible workforce in the Columbus area. That was important for

American Nitrile. That was a big part of why the company chose this location.”

This didn’t mean, though, that the American Nitrile project was a simple one. As Uzzo says, the upgrades needed to transform the facility into manufacturing space were complex.

First, the facility needed an upgrade

The origin of excellence.

to its electrical system. The building had 2,000-amp electrical service, but American Nitrile needed 16,000 amps of electricity. That entailed the installation of four 4,000-amp substations.

Contegra also had to increase the building’s two-inch domestic water pipes to six-inch supply lines to accommodate the 100 million gallons

of water a year that American Nitrile needed to support the production of its medical gloves.

The upgrade also required a larger sanitary system powered by a new 10-inch sewer line, Uzzo said.

Supply chain issues were challenging, too. The design of the renovation kicked off in May of 2021. When Contegra placed an order for the electrical switchgear required for the manufacturing facility, the construction company discovered that this material now had a lead time of 30 weeks, which would push Contegra past its delivery deadline.

To overcome this hurdle, Contegra relied on rented switchgear to help power the production lines while construction crews waited for the arrival of the project’s permanent equipment. Some of those permanent switchgears arrived as late as December of this year.

“Now, all the permanent switchgear is in place,” Uzzo said. “Everything for the production lines is on-site and installed.”

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“There is no question that they went for this project as a way to make sure they could get their products to U.S. users as quickly as possible.”

How strong is demand for MOB space in Twin Cities? Just look at how many medical offices are opening in vacant retail storefronts

By Dan Rafter, Editor

Demand for medical office space remains high throughout the Minneapolis-St. Paul region. And there are few signs that this demand will lessen any time soon, especially as the country’s population ages and a growing number of patients seek medical care outside of hospital campuses.

This doesn’t mean, though, that the Twin Cities’ medical office sector doesn’t face challenges.

According to the latest research from Colliers, the uncertainty surrounding interest rates combined with supply chain bottlenecks are combining to put many new medical office building projecs on hold until the second half of 2023.

At the same time, medical providers are struggling to find enough healthcare workers to staff new facilities. That is also putting expansion plans on hold for many providers throughout the Minneapolis region.

Even with these challenges, though, the medical office market in the Twin Cities remains a robust one, according to Louis Suarez, senior vice president for Colliers Minneapolis and an expert in the medical office building sector.

“There is still strong interest in healthcare investment sales throughout the Twin Cities market,” Suarez said. “Healthcare, along with industrial, remains the most stable of all the sub types and some of the strongest sectors historically. That is continuing.”

Thanks to higher interest rates, though, the number of healthcare investment sales will slow this year, despite this steady demand, Suarez said.

Larger REITS are putting transactions on hold or are no longer as aggressive as they’ve been historically, Suarez said. At the same time, not as many owners of medical office buildings are putting their properties on the mar-

ket. This limits the number of medical office properties that are available for investors to purchase.

“We are seeing a difference in expectations on what sellers thought their buildings were worth and what investors are willing to pay,” Suarez said. “I do think there is some of that delta between the expectations of buyers and sellers. That is slowing the pace of sales.”

The Twin Cities already saw this slowdown at the end of last year. As Suarez said, much of the debt that historically had been funneled into medical office sales didn’t flow as freely at the end of last year.

“Some of the largest lenders were off the table at the end of the last year,” Suarez said. “There was a halt on what they were putting out into the market. That dramatically affected the end of last year.”

When buyers were seeking medical office space in the Twin Cities market last year, they were often looking for core-plus assets, larger properties that are filled with high-quality tenants on

long-term leases or properties on a hospital campus.

There are individual private investors, though, including many 1031 investors, who are looking for smaller medical office properties that might not be located on or near a hospital campus. And in good news for these investors, there are more of these medical offices opening across the Twin Cities region.

That’s because many patients today are receiving medical care, even surgeries, in outpatient facilities. Patients like the convenience of these medical spaces that are often located in retail strip centers. And because demand for these outpatient centers is on the rise, developers are building more of them while owners are more likely to accept switching a vacant office or retail space into one filled by a healthcare provider.

“There will always be clinics and smaller properties that will be available,” Suarez said. “Typically, they are not of the scale or size that larger institutional investors are willing or want to look at, the 10,000-square-foot to 20,000-square-foot buildings

with one to three tenants. These might be attractive to a local or regional investor or a 1031 investor versus a 150,000-square-foot or 200,000-square-foot property that has more infrastructure and higher costs.”

But the challenge for smaller and larger investors in the Twin Cities remains the same: There just aren’t that many medical office properties for sale now.

“The people who own these properties are typically long-term holds,” Suarez said. “If they sell on the larger side, it is usually one REIT selling to another REIT or changing up a portion of their portfolio or adding to it.”

Waiting for certainty

What will inspire owners to put more medical office space on the market? And what will inspire buyers to return to the market to purchase these properties?

Suarez says that it comes down to

r.e. Redevelopment: Economic uncertainty, emerging opportunity and an evolving redevelopment landscape

By Josh Poag

After a year when economic headwinds sapped some of the momentum from the commercial real estate market, the prospect of lingering inflation, challenging market dynamics and a potential recessionary cycle have all injected additional uncertainty into an industry that has been, at least until recently, enjoying a post-pandemic surge in activity.

Rising interest rates make getting a high-enough return on equity a more difficult proposition, an occurrence that has simply priced most retail development projects out of the market. Consequently, new ground-up retail development is in increasingly short supply. Considering construction cost spikes, and the fact that residential and industrial projects have been soaking up a sizable percentage of an already scarce and expensive skilled labor supply, it’s not hard to see why development pipelines have slowed significantly.

All of which makes retail redevelopment one of the most interesting—and potentially among the most important—features on the commercial real estate landscape. The retail redevelopment space is not immune to some of the factors that have complicated matters in other areas of the commercial real estate industry, but redevelopment comes with its own unique set of challenges and opportunities. However, the need for redevelopment due to dated properties that need a new vision is growing quickly.

What follows is a brief look at the state of the retail redevelopment market today, including some of the strategies and tactics developers are using to maximize opportunities, elevate environments and experiences, and unlock value.

Trend lines and timelines

For many experienced retail develop-

ers, every acquisition they are making is viewed through a redevelopment lens with long enough runways to optimize the process. That starts with buying the right assets at the right price: retail environments that are stable enough that some operational adjustments can ensure that there is no need to push forward with an accelerated and urgent redevelopment timeline. This allows developers to not only proceed in a thoughtful, deliberate and strategic manner, but to put off major redevelopment investments until opportunities can be capitalized in a year or two when markets improve.

The long game

Those extended timelines and lack of immediate pressure not only allow developers, owners and operators to be deliberate when it comes to moving forward with efforts to enhance placemaking and tenant roster updates, but also affords them the critical flexibility required to resolve regulatory and approval issues, and to conduct complicated leasing and tenancy negotiations.

Depending on major tenants and anchors, and on what degree of control and input they have over leasing and design decisions, those negotiations

may be smooth and seamless or protracted and challenging. The key, however, is to approach those discussions as true partners, with a level of patience and a shared recognition that legacy anchors, owners and operators alike have a mutual interest in revitalizing and maximizing the potential of their site.

Anchors: a way

Speaking of anchors, another important piece of the puzzle is the extent to which the ecosystem of available anchors is changing in important ways across the industry landscape. A large-and-growing array of entertainment and experiential anchors, from sports to themed entertainment concepts, is emerging, and giving owners and operators new options when it comes to elevating the brand of a center as a true local or regional destination.

Along the same lines, there is growing recognition of the potential that adding new complementary uses to underperforming malls (e.g. multifamily and hospitality) provides some mixed-use synergy and placemaking momentum. While it may sometimes be necessary to rethink layouts and operational mechanics, such as reclaiming parking lot space for a new building, the payoff with increased vibrancy can be well worth it.

Moving forward

The elements above can be seen in action in recently completed redevelopments, as well as projects moving forward in the pipeline now. The Shops at Highland Village in the Dallas suburb of Highland Village, Texas, is an example of a promising redevelopment opportunity with multiple moving parts. Located in a highgrowth market, the redevelopment plan for this center included tenancy upgrades, renovations to public spaces and potentially adapting zoning to current trends.

A new tenant mix means that the needs of the center are different and will require some site reconfiguration to improve access and accommodate parking for high-volume restaurants. Improvements can’t just be functional, but need to be aesthetic, such as with new landscaping, lighting and even the addition of an outdoor performance stage. Entitlement work is underway as part of an effort to add a new residential component that will further enhance the site and increase the vibrancy and viability of the project for the next 20 years.

An art, not a science

Because every project is different, there is no one-size-fits-all formula or checklist of how to move forward with a successful redevelopment. Some redevelopments may be dictated by tenancy decisions (both new and existing). Others may be inspired by the opportunity to make key layout or design changes that could improve accessibility and elevate the atmosphere.

Whichever elements ultimately drive a redevelopment opportunity, the best examples encompass multiple upgrades: from new tenants and designs to thoughtful repositioning and infrastructure improvements. The cumulative impact of a series of enhancements, such as aesthetic improvements and strategic tenant upgrades, can reimagine and rebrand a retail environment in a way that not only makes headlines, but also boosts bottom lines in a meaningful and sustainable way.

Josh Poag is president and chief executive officer of Memphis, Tennessee-based Poag Development Group, a mixed-use real estate developer that focuses on retail and experiential retail. To reach Poag directly, email him at jpoag@poagdevelopmentgroup.com.

Josh Poag

New converts: Hype vs. reality when it comes to converting office to multifamily

By Bill Bubniak and Todd Szymczak

As the office landscape continues to evolve and a post-pandemic world features more hybrid or full-time work-at-home models, developers are presented with more opportunities to convert underutilized offices into multifamily. At a time when quality residential options are sorely needed in many markets, these opportunities can deliver both civic and financial rewards.

For development professionals, understanding why these conversions are so timely and potentially valuable is critically important. So is a strong grasp of the priorities, tips and best practices for executing a successful office-to-residential redevelopment, what kinds of locations are best suited for these conversion projects and what the future holds for this intriguing development segment.

What’s old is new again

Conversions have been around for decades and take many forms, whether it’s an old fire station repurposed to a

Class-A boutique hotel and restaurant, a pre-war wool mill converted to a unique office space or a vintage office building converted to multifamily residential.

Conversions generally work best for both developers and communities when converting an antiquated space that is either not optimized or is no longer functional to accommodate a higher-demand use. Taking unused or underutilized space off the market bolsters demand for remaining properties in that segment.

On the flip side, because the updated use in the newly converted space feeds higher demand, it can relieve pressure and fill a market need. Municipalities and local taxpayers benefit from improved functional spaces that increase the tax base.

Geography and geometry

Converting office to residential sounds simple in concept, but the execution is often more complicated. A foundational real estate adage is that you can fix a property, but you can’t fix a location.

The rare exceptions to that rule are projects so large and so consequential that they create their own gravity and have a broader transformational impact. Think Hudson Yards in New York City or Dan Gilbert’s contributions to Detroit’s CBD.

For most developers, however, project success is highly dependent upon location, which highlights one reason why the hype may sometimes get ahead of reality.

You need two key ingredients to make a conversion recipe work: the right building and the right location. Conversions generally work best in areas with existing community appeal. Pre-war office buildings are prime conversion targets. Older buildings often benefit from strong locations and oftentimes have the desired smaller floorplates—as well as traditional window openings.

These older buildings are also popular conversion targets because deferred maintenance sometimes yields a lower basis and warrants full renovation to update electrical, HVAC and plumbing.

Lofts at Merchant Row in Detroit.

“You need two key ingredients to make a conversion recipe work: the right building and the right location.”

In Detroit, Farbman Group was an early leader in converting older generation office into residential units with projects like Woodward Lofts and Riverplace Lofts. It’s noteworthy that Bedrock, the current Detroit conversion leader, acquires and converts almost exclusively vintage properties (e.g. The David Stott Building, Book Tower, The Free Press Building, The Assembly and 35 W).

Hype vs. reality

While conversions can be an effective solution to remove excess office space from the market, it’s not a one-sizefits-all fix, and media coverage can sometimes overlook the complexity of conversions—and fail to communicate that not all conversions succeed.

One example of how a conversion project can run into problems is illustrated by a development in Cleveland: a prewar office building converted to apartments. Very large floorplates created very deep units with limited light, an issue exacerbated by a high core factor, with oversized hallways and a center skylight the only source of natural light. Consequently, the units felt dark and not very functional given their relatively long and narrow floorplans. Most critically, the location was in an up-andcoming Cleveland neighborhood that wasn’t quite vibrant enough to attract the top market rents needed to support conversion costs.

In today’s market, there may be an understandable trend to view many office properties as conversion opportunities. But each property needs to be evaluated on its own merits to determine the probability of success—and if the costs of conversion and the existing building layout make sense.

Costs and context

As advisors, we need to promote opportunities where conversion projects do make sense—and help give buyers and sellers the resources they need to evaluate them.

We’ve worked with architects to provide basic floorplan evaluations and designs to see how many units could be modeled in a conversion. That data can inform ballpark conversion costs and market rent analyses to provide pro-forma unwriting. Architects are also a great resource to evaluate the possibility of government support programs that may help support conversion costs. Given that many of these buildings were simply not set up to be residential, architectural oversight and financial analysis is essential.

Upcoming lender-owned properties could provide fertile ground for conversions, as buying at the right basis makes it possible to convert more buildings. A

favorable basis obviously helps inform those conversion investment decisions, understanding that potential conversions generally demand a more rigorous level of due diligence than comparable redevelopment projects. Longer design and development timelines may be needed to secure tax credits and other incentives. Sellers should approach these transactions recognizing that their office building is unlikely to stay office—otherwise agreements on price will be elusive.

Getting Political

Cities can take a more active role in promoting and incentivizing conversions to support more residents living in their cities and potentially boost property values. For decades, cities have addressed the affordable housing crisis with a combination of carrots (tax incentives) and sticks (regulated requirements).

New York City’s 421-a and 421-g tax

incentives for residential conversion are just one example. Chicago, for example, is incentivizing investments in a targeted area of LaSalle Street as part of a strategy to stimulate office-to-apartment conversions and infuse social and commercial energy into targeted districts.

Other cities are surely watching closely and considering whether similar incentives might be used to stimulate growth or help preserve neighborhoods in their own cities. Legislation like the Revitalizing Downtowns Act currently being considered by Congress—and other potential tax law changes, such as allowing 1980s office buildings to qualify for tax credits, would also be beneficial.

While there are many units already scheduled for 2023 completion in the Midwest and national pipeline, there will likely be a slowdown in new development in response to higher interest rates and construction costs. Despite these economic headwinds and the challenges and complexities of these conversion projects, we believe the market is there for finished apartment conversions in quality locations. In many markets, there are simply not enough high-quality residential rental options, and conversion volume will likely be readily absorbed.

Bill Bubniak, adjunct professor at the Taubman College at the University of Michigan, and Todd Szymczak lead the investment sales division of the brokerage department at Farbman Group, a Southfield, Michigan-based full-service real estate firm with Midwest expertise. To connect with Bill and Todd, email bubniak@farbman.com or szymczak@farbman.com.

certainty: Investors and owners are waiting to see some certainty when it comes to interest rates.

“People want clarity on what the new normal will be from an interest rate perspective,” Suarez said. “It might still take some time to get the buyers and sellers on the same page when it comes to the valuation of medical properties.”

Then there are labor issues, specifically on the medical providers’ side.

Suarez said that medical groups aren’t as willing to expand today because so many of them are struggling to find enough healthcare workers.

They can’t open their new offices, treatment centers or ambulatory care centers because they can’t find enough workers to staff these new facilities. That, Suarez says, has slowed the amount of new medical office space and healthcare facilities that are opening in the Twin Cities market.

One trend that is boosting the amount of healthcare space in the Twin Cities, though, is the conversion of empty

office and retail space into medical uses. Suarez said that this trend will continue, but did say that the space being converted has to meet certain requirements to work for healthcare use.

“You can’t put a neurologist next to a nail salon,” he said. “The space has to be well-positioned. There might not be enough windows. The parking might not work. You might run into infrastructure issues. A building might not have the right HVAC, electrical system, plumbing or weight load. If you try to put an MRI machine on the second floor of an office building and

it’s not designed for that, you could face challenges.”

Then there is the equipment that developers and healthcare providers need in their spaces. They might need to upgrade their electrical systems. Getting the switch gear necessary for that could take up to a year today. This, too, is holding back both new medical office projects and conversions.

“The conversions are certainly happening today,” Suarez said. “But you can’t convert any space. It has to be the right space.”

Bill Bubniak

Todd Symczak

TWIN CITIES (continued from page 32)

Your best option to finance your Seniors Housing Community today? The answer might surprise you!

By Christopher Fenton and Corley Audorff, Colliers Mortgage

Aclient recently asked us, “Why would I want to finance my seniors housing community today and lock a high rate for the next 35 years?” Hearing that question, we carefully laid out the reasons why this client should consider financing his projects through the HUD Lean program today.

The reasons apply to many owners of seniors housing, and we have presented them below.

Like all federal agencies, HUD’s fiscal year runs from Oct. 1 through Sept. 30. From Fiscal Year 2010 through Fiscal Year 2022, the HUD 232 or “Lean program,” as it is more commonly known, has financed on average $3.75 billion worth of seniors housing loans. This volume was made up of new construction loans, acquisition loans and refinance loans.

The Lean program has been an important part of seniors housing financing for more than 20 years. Originally, seniors housing loans were processed through various multifamily field offices under either the TAP (Traditional Application Processing) model or the better-known MAP (Multifamily Accelerated Processing) model.

In 2008, HUD made the strategic decision to create the Lean program, which was loosely based on Toyota’s Lean manufacturing model. While HUD’s MAP program had cut down on some of the processing time for loan applications as compared to the older TAP program, a team of HUD professionals from all levels and professional disciplines believed they could improve on seniors housing and healthcare loan execution by incorporating Lean principles.

The Lean model faced challenges in the first few years of its inception which included the credit crunch of 2008 through 2010, but the pioneers of the Lean program persevered and ultimately created the program that exists today. The Lean program finances skilled nursing, assisted living and memory care communities, as well as independent living (up to 25% of the overall units).

From 2018 to 2022, we have seen Lean

rates locked in the 2.50% to 4.00% range. For a new generation of HUD borrowers and lenders, those rates have become the norm. However, the database of HUD Active Insured Mortgages shows Lean loans closed in the early 2000s with rates ranging from 5.00% to 7.50% or higher. Currently rates are around 5.65%, including the .65% Mortgage Insurance Premium (“MIP”) that HUD receives in exchange for its non-recourse loan guaranty.

Even in today’s interest rate climate, we are at the lower end of this historical range. Compared to other seniors housing loan products in the market today, it is still a low rate. HUD borrowers can obtain leverage up to 80% of value as compared to other loan products that top off at 65% of value or even less.

There are a few other benefits to the HUD LEAN product which include:

• A 35-year term and amortization period;

• Non-recourse except for standard “bad act” carve-outs; and

• Flexible prepayment schedules.

Yes, we said two words that are not normally spoken in the same sentence, HUD and flexible. Unlike other loan products, HUD offers a declining pre-payment penalty, with the standard schedule starting at 10% and declining by 1% each year. At the end of year 10 the loan is fully pre-payable at par.

A borrower may ask, “What if I want to

sell my community in year six?” HUD is flexible in these cases and allows borrowers and their lenders to structure pre-payment penalties that better suit their needs. In exchange for a slightly higher rate, a borrower can obtain a pre-payment penalty that might include five years of pre-payment penalty at 10%, followed by five years of pre-payment penalties at 1% and open after year 10. This is just one flexible option HUD allows to accommodate future sales, and other permutations are possible.

So back to the client’s question: Why would a borrower want to finance a community with HUD Lean today? To begin with, timing. Throughout the past five years if you asked how long the queue was, we would answer 30 to 40 projects. As of late February, the HUD Lean queue sits at only 15 deals!

That is one of the shortest queues since Lean’s inception. If Lean assigns an average of four loans per week for underwriting, that is a queue wait time of only one month – much shorter compared to wait times of up to a year in the early days of Lean processing. Having said that, as rates eventually settle lower, the queue and wait time will expand.

Many borrowers’ main concern with HUD today is locking in a higher interest rate for a long period of time. HUD has programs to mitigate these concerns. HUD offers the Lean 223(a)(7) refinance and the Interest Rate Reduction (IRR) modification programs to give borrowers the opportunity to lower their interest rates in a streamlined fashion.

The 223(a)(7) refinance loan can be processed by any Lean-approved lender, while the IRR loan modification must be processed by the current HUD lender. Both are quick and easy tools to reduce the interest rate. And with the 223(a)(7) program, borrowers may even be able to extend the term of their loans, borrow additional funds for improvements and refinance additional existing debt.

Recently, Lean adopted the Green MIP program. This program allows borrowers to lower HUD’s MIP rate to just 0.25% annually, a decrease of 0.40% on a 223(f) refinance and more than 0.50% on a new construction transaction. This program applies to borrowers who have already achieved a HUD-approved green standard for their community and borrowers who intend to implement energy-saving measures to achieve a green certification.

For borrowers who intend to implement these measures, HUD will allow you to refinance your community and include the cost of these measures in the loan amount. You have 12 months post-closing to implement those changes, but your reduced MIP starts at loan closing. While there are costs associated with achieving the Green MIP, the significant reduction in annual MIP cost should provide a very short payback on the investment. This is not only a win for HUD borrowers through lower rates but a win for the environment, too.

However, like most loan programs and lenders across our industry during this time, Lean underwriting standards have tightened. On top of expecting an experienced owner and operator, Lean requires a strong trailing-12 income statement that supports the loan amount at 1.45 times debt service coverage or above. If you meet these requirements, HUD may be a great option for you and your next project. Today might be the day to begin the HUD process with an experienced HUD Lean lender.

Christopher Fenton and Corley Audorff are senior vice presidents focusing on seniors housing at Colliers Mortgage.

ASSET/PROPERTY MANAGEMENT FIRMS

AREA REAL ESTATE ADVISORS

4800 Main Street, Suite 400 Kansas City, MO 64112

P: 816.895.4800

Website: openarea.com

Key Contacts: Doug Grossenbacher,EVP, Director of Property Management, dgrossenbacher@openarea.com

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.

Services Provided: Lease Administration, Accounting, Building Maintenance, Project Management and Consulting

Notable Properties Managed: lightwell office building- 1100 Main Street (668,032 SF), West Bottoms Redevelopment (743,698 SF), Regency Park- 92nd & Metcalf (201,751 SF), 4800Main (162,850 SF)

FARBMAN GROUP/NAI FARBMAN

28400 Northwestern Highway, Suite 400 Southfield, MI 48034

P: 248.353.0500

Website: farbman.com

Key Contacts: Andrew Farbman, CEO, afarbman@farbman.com; Andrew Gutman, President, gutman@farbman.com; Michael Kalil, COO and Director of Brokerage, kalil@farbman.com; Chris Chesney, CFO, chesney@farbman.com

Services Provided: Property Management, Leasing & Brokerage, Construction, Investment Sales, Asset Management, Site Selection Services, Acquisition & Disposition, Medical Real Estate Solutions, Move Management, Receivership Services, Facility Management, HVAC Services, Net Lease Brokerage Services. Company Profile: Farbman Group, a full-service commercial real estate company, is one of the largest and most respected names in Commercial Real Estate.

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.

KESSINGER HUNTER & COMPANY, LC

2600 Grand Boulevard, Suite 700 Kansas City, MO 64108

P: 816.842.2690 | F: 816.421.5659

Website: kessingerhunter.com

Key Contact: John DeHardt

Services Provided: Kessinger Hunter & Company, LC is a full-service, commercial real estate firm. Full service includes management, brokerage, development, accounting, and consulting services throughout the United States and globally.

Company Profile: What really sets us apart is our People. Integrity, Passion, Knowledge, and Experience are a way of everyday life for us at Kessinger Hunter. Each group responds to our clients’ needs, and they work together to utilize the resources that come with more than 140 years of experience and 200 associates. We manage over 26,500,000 square feet of property and have developed in excess of 14,000,000 square feet of projects.

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 fullservice 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 2021 was $2.4 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

NAI DESCO

8112 Maryland Ave., Suite 300 St. Louis, MO 63105

P: 314.994.4800

Website: naidesco.com

Key Contact: Katie Chatman, Director of Property Management, kchatman@naidesco.com

Services Provided: Facilities/Asset Management, Building Maintenance, Lease Administration, Accounting, Brokerage, Consulting

Company Profile: NAI DESCO is a market-leading, full-service commercial real estate brokerage and property management firm providing exceptional service and expertise in Eastern Missouri and Southern Illinois. Whether you’re a commercial real estate buyer, seller, owner, tenant or developer, NAI DESCO is your ideal partner with local market expertise and worldwide connections.

Notable Properties Managed: EQT Exeter St. Louis Portfolio - 12M SF

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 Hillsv, 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.

CONSTRUCTION COMPANIES/GENERAL CONTRACTORS

ALSTON CONSTRUCTION COMPANY

1901 Butterfield Road, Suite 1020 Downers Grove, IL 60515

P: 630.437.5810

Website: alstonco.com

Key Contact: Robert Murray, SVP/ Regional Manager, RMurray@alstonco.com, 908.966.1306

Services Provided: Alston offers a diverse background of design-build experience, general contracting and construction management of industrial, commercial, healthcare, retail, and municipal projects.

Company Profile: Alston Construction’s success begins and ends with our approach to planning, scheduling, and choosing the right team. We have been adhering to an open and collaborative approach since our founding more than 35 years ago.

Notable/Recent Projects: Project Heartland 1.5 Million SF build to suit distribution facility for Proctor & Gamble in Morris, IL. Lakeshore Manor 210 unit senior living facility in Northwest Indiana. Dynamic Foods 3PL 500,000 SF build to suit distribution and packaging facility in Wilmington, IL. Brown Deer Distribution Center 420,000SF two building speculative distribution center in Milwaukee, WI. 106,000 SF meat packaging facility in Northwest Indiana.

BRINKMANN CONSTRUCTORS

16650 Chesterfield Grove Road, Suite 100 Chesterfield, MO 63005

P: 636.537.9700

Website: BrinkmannConstructors.com

Key Contacts: Brian Satterthwaite, CEO, bsatterthwaite@brinkmannconstructors.com; Tom Oberle, President, toberle@brinkmannconstructors.com; Rebecca Randolph, Senior Director of Client Relations & Marketing, RRandolph@brinkmannconstructors.com

Services Provided: General contracting services including design-build, design-assist, and construction management.

Company Profile: Brinkmann Constructors is an employee-owned construction company focusing on finding the best right answer to save clients money and time. From our offices in St. Louis, Denver, Kansas City, Richmond, Va., and Phoenix, Brinkmann works nationwide on construction projects in the senior living, multifamily/ student housing, warehouse/distribution, retail/mixed use, office, healthcare, and hospitality/ entertainment markets.

Notable/Recent Projects: Expo at Forest Park – St. Louis, MO – Transit-oriented development with 2 buildings totaling 457,100 SF with 287 apartment units, retail and parking; Signature at West Pryor –Lee’s Summit, MO – 250,000 SF multifamily apartment building with 184 units; 3000 Huron – Denver, CO – 354,000 SF mid-rise apartment building in downtown Denver with 300 units; Woodleigh Chase – Fairfax, VA - Three building, 618,000 SF senior living community with 262 units; Park Place Flagstaff –Flagstaff, AZ – 472,000 SF student housing development with 200 units.

HUNTINGTON CONSTRUCTION COMPANY

28400 Northwestern Highway, Suite 400 Southfield, MI 48034

P: 248.353.0500

Website: farbman.com

Key Contacts: Andrew Gutman, President, gutman@farbman.com; John Line, Executive Vice President of Property Management and Construction, line@farbman.com

Services Provided: Huntington Construction offers General Contractor, Construction Management, Owner/ User representation options for all commercial real estate throughout the Midwest. Specializes in ground up construction and tenant improvement work as well as specialized construction. We are your full service, one-stop shop for all of your construction needs.

Company Profile: Huntington Construction is a recognized leader in the commercial construction industry serving as a General Contractor and Construction Manager. Huntington has over 30 years of experience in all areas of commercial construction and specializes in tenant improvement work for office, industrial, retail, medical office and medical office as well as design build and ground up construction.

Notable/Recent Projects: Recently Huntington has performed on several ground-up, single tenant developments, a corporate headquarter construction job and hundreds of jobs in-between, in 2019.

MCSHANE CONSTRUCTION COMPANY

9500 West Bryn Mawr Avenue Ste. 200 Rosemont, IL 60018

P: 847.292.4300 | F: 847.292.4310

Website: www.mcshaneconstruction.com

Key Contacts: Mat Dougherty, PE, President, mdougherty@mcshane.com

Services Provided: McShane Construction Company offers more than 35 years of experience providing design-build, design-assist and general construction services on a national basis The firm’s diverse expertise includes build-to-suit and speculative warehouse, distribution and manufacturing facilities, as well as multifamily, commercial and institutional developments.

Company Profile: Headquartered in Rosemont, Illinois with regional offices in Auburn, Alabama, Irvine, California, Phoenix, Arizona, Madison, Wisconsin and Nashville, Tennessee, McShane Construction Company provides comprehensive construction services on a local, regional and national basis for a wide variety of market segments. The firm is recognized as one of the Chicago area’s most diversified and active contracting organizations with a reputation built on honesty, integrity and dependability.

Recent/Notable Project: Industry Center at Melrose Park – the construction of three speculative industrial buildings in Melrose Park, Illinois. The new development incorporates a total of 651,617 square feet.

MERIDIAN DESIGN BUILD

9550 W. Higgins Road, Suite 400 Rosemont, IL 60018

P: 847.374.9200 | F: 847.374.9222

Website: meridiandb.com

Key Contacts: 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 Profile: 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: Clarius Park Joliet Building #2, Joliet, IL - 906,517 sf speculative industrial facility for Clarius Partners. Commerce Park Chicago Building B, Chicago, IL - 602,545 sf speculative multi-tenant industrial facility for NorthPoint Development. Halsted Delivery Station, Chicago, IL - 112.000 sf package delivery station on a 17-acre redevelopment site for Prologis.

DEVELOPERS

CENTERPOINT PROPERTIES

1808 Swift Drive Oak Brook, IL 60523

P: 630.586.8000

Website: centerpoint.com

Key Contacts: Michael Murphy, Chief Development Officer, mmurphy@centerpoint.com; Brian McKiernan, Senior Vice President, bmckiernan@centerpoint.com

Services Provided: CenterPoint Properties is an innovator in the investment, development, and management of industrial real estate and multimodal transportation infrastructure. CenterPoint acquires, develops, redevelops, manages, leases, and sells state-of-the-art warehouse, distribution, and manufacturing facilities near major transportation nodes. Our experts focus on port-proximate distribution infrastructure assets near America’s major population centers.

Company Profile: CenterPoint Properties continuously reimagines what’s possible by creating ingenious solutions to the most complex industrial property, logistics, and supply chain problems. With an agile team, substantial access to capital, and industry-leading expertise, we give customers a competitive edge to ensure their success — no matter how great the challenge.

CONOR COMMERCIAL REAL ESTATE

9500 W. Bryn Mawr Avenue, Suite 200 Rosemont, IL 60018

P: 847.692.8700 | F: 847.292.4313

Website: conor.com

Key Contacts: David J. Friedman, President, dfriedman@conor.com; Brian Quigley, Executive Vice President, bquigley@conor.com

Services Provided: Conor Commercial identifies and implements the most suitable commercial real estate strategy to yield increased returns for each real estate opportunity. With offices and seasoned real estate professionals strategically located throughout the country, the firm provides the experience and resources needed to develop and stabilize real estate developments that maximize positive returns to investors and partners.

Company Profile: Conor Commercial Real Estate is the integrated real estate development firm of The McShane Companies headquartered in suburban Chicago, Illinois with regional offices located in Dallas, Houston, Irvine and Phoenix. The firm is active on a local, regional and national basis in the development of master-planned industrial and office parks, multifamily properties, medical office developments and built-to-suit projects for lease or purchase.

MULTIFAMILY FINANCE FIRMS

BELLWETHER ENTERPRISE (BWE)

1375 E. 9th Street, Suite 2400

Cleveland, OH 44114

Website: BWE.com

Key Contacts: Ned Huffman, CEO; DJ Effler, President

Services Provided: As an independent partner of Enterprise Community Partners, Inc., we support its mission of creating and preserving affordable housing in thriving communities. With an unwavering commitment to regional expertise and unmatched customer service, we are making an impact beyond the bottom line. With offices throughout the country, we provide a wide variety of loan products from Life Insurance Companies and Pension Funds, Freddie Mac Optigo™ seller/servicer, Fannie Mae DUS Lender (Multifamily affordable and Market Rate Housing Lender), FHA, USDA and CMBS to name a few. We are Capital on a Mission.

Company Profile: BWE is a national, full-service commercial and multifamily mortgage banking company that puts people and communities first. We provide flexible, competitive financing solutions with streamlined underwriting and enhanced loan servicing for Market Rate, Affordable Housing, Workforce Housing, Manufactured Housing Communities, Seniors Housing, Senior Communities, and Long-term Care Facilities. Our partnership with BWEIS, a rapidly growing investment sales team, is fully integrated with our debt platform on both market rate and affordable transactions.

Service Territory: We originate, close and service loans for multifamily and commercial real estate properties throughout the country.

COLLIERS MORTGAGE

(Colliers Mortgage is the brand used by Colliers Mortgage LLC and Colliers Funding LLC.)

90 South Seventh Street, Suite 4300z

Minneapolis, MN 55402

P: 612.376.4000

Website: colliers.com ( find us under services)

Key Contacts: Tim Larkin, SVP Agency Financing, tim.larkin@colliers.com; Gregory Bolin, SVP Commercial Financing, greg.bolin@colliers.com

Services Provided: Colliers Mortgage offers a comprehensive and wide range of products and services designed to meet our clients’ financing, funding and capitalization needs. Our experts are available to help clients’ access federal agency loan programs, structure competitive financing packages for borrowers and lenders, or identify capital sources for capitalization requirements.

Company Profile: Colliers Mortgage is a full-service nationwide mortgage banking firm. We connect multifamily owners and developers with the appropriate financing and funding options to execute their project plans. We are one of the industry’s top providers of multifamily financing and are currently servicing in excess of $10 billion of loans.

Service Territory: Nationwide