June 23 Midwest Real Estate News

Cooling off the red-hot industrial market? Credit those interest-rate hikes

By Dan Rafter, Editor

The Indianapolis industrial market has been booming for years, recording more than 20 million square feet of net absorption during each of the last two years.

But this year? While demand for industrial space remains high in Indianapolis and its surrounding communities, industrial sales have plummeted. At the same time, developers have slowed their plans for adding new industrial space to the market.

To no one’s surprise, this stems from higher interest rates.

As the Federal Reserve Board continues to boost interest rates to slow inflation, commercial real estate sales have slowed in all markets and for all asset types. That includes industrial, the asset type that has long been commercial real estate’s top performer.

And in Indianapolis? Brokers working this market say that industrial sales won’t tick up again until the Fed stops tweaking its benchmark interest rate.

INDIANAPOLIS (continued on page 26)

PROPERTY MANAGEMENT

The property management challenge: It’s all about managing tenant experiences

By Dan Rafter, Editor

The property management business has evolved. There was a time when property management teams focused on making sure the snow was plowed, trash picked up and lights stayed on. Those are still important jobs. But today, property managers are equally focused on doing everything they can to provide tenants with the best possible experience.

This means scheduling on-site events such as barbecues, after-hours gatherings and lunch deliveries. It means providing amenities that will inspire workers to return to the office and

Opus is nearly finished with construction of two industrial buildings totaling 1.1 million square feet in Mount Comfort, Indiana, about 30 minutes from Indianapolis.

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Cooling off Indianapolis’ industrial market? Blame it on interest-rate hikes: The Indianapolis industrial market has been booming for years, recording more than 20 million square feet of net absorption during each of the last two years. But this year? While demand for industrial space remains high in Indianapolis and its surrounding communities, industrial sales have plummeted.

For property managers today it’s all about managing tenant experiences: There was a time when property management teams focused on making sure the snow was plowed, trash picked up and lights stayed on. Those are still important jobs. But today, property managers are equally focused on doing everything they can to provide tenants with the best possible experience.

Working through the interest rate blues in Des Moines: Des Moines isn’t unlike any other major city across the United States: Higher interest rates have slowed commercial real estate sales here. And commercial real estate professionals say that this slowdown won’t end until the Federal Reserve Board provides the country with more certainty regarding its benchmark rate.

CRG’s Steve Schnur: The industrial sector’s fundamentals are still strong: The industrial sector has long been the darling of the commercial real estate world. That hasn’t changed today, even though higher interest rates have slowed the number of industrial sales taking place.

Is this the new normal? In net lease market, everyone’s waiting for sellers and buyers to adjust to new economic realities: The net lease sector has provided a haven for investor dollars during even the most challenging of economies. But today? That is changing.

Class B and C and the current industrial market: Class-A office buildings remain the golden child of the office sector, yet middle-tier buildings are also capitalizing on today’s uncertain economy. While this may bring a momentary sense of relief to these buildings’ owners and landlords, it presents challenges for potential users.

A limited return to the office, a surge in experiential retail and the continuing strength of industrial: The commercial real estate market has seen plenty of change since the COVID pandemic started grabbing headlines in 2020. Just look at all those empty offices, buzzing warehouse spaces and suddenly packed indoor mini-golf centers and high-tech bowling alleys.

A new way to solve the studenthousing shortage at universities: It’s a problem at universities across the country: There isn’t enough on-campus housing for the students searching for it. At the same time, rents for off-campus housing continue to rise, making it difficult for students to find affordable rooms at their universities.

Earning the commute: Owners of Eden Prairie office building investing big in new amenities: Getting employees back to the office? That’s challenging today as more office workers continue to push for working from home. And attracting new tenants to existing office buildings? That’s no easy feat, either.

A bit of positivity? JLL report dispels some of the gloom around commercial real estate: Optimism? That’s in short supply today in the commercial real estate industry. But a new report from JLL provides a dose of hope.

Don’t expect the cost of creating new office spaces to fall anytime soon: Turning empty or outdated interiors into usable office space? That’s getting more expensive thanks to supply chain disruptions, inflation and rising labor costs.

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In these challenging CRE times? Some things remain constant

By Dan Rafter, Editor

These are tumultuous times in commercial real estate. Higher interest rates have scared off buyers, stopping the flow of commercial deals. The pace of new development has slowed, too. Everyone, it seems, is waiting for more certainty from the Fed.

But two things haven’t changed: First, the self-storage side of the commercial real estate business remains healthy, with an ever-growing number of Americans turning to storage units to stow their excess stuff. And in the multifamily sector, apartment rents, though not rising as quickly as they once did, are still high enough that finding an affordable unit is no easy task for many renters.

Let’s look at self-storage first.

How much stuff do Americans own? A lot, obviously, with a new report showing that 21% of U.S. adults store some of this stuff in self-storage facilities and another 15% saying they’ll turn to self-storage in the future.

That’s the big finding from StorageCafe’s latest self-storage study, released in late April. StorageCafe asked about 18,000 people why they use self-storage, what they keep in it and what types of self-storage units they use.

An interesting finding? People in the 40- to 55-year-old age group, Gen Xers, are the most likely to rent self-storage units, with 23% of the

people in this age group doing so. These Gen Xers most frequently rent 10-foot-by-10-foot non-climate-controlled self-storage units, mostly because they say they don’t have enough room for all their stuff at home.

Adults from the ages of 24 to 39, mostly Millennials, are also frequent self-storage users, with about 21% of them storing items in units today.

Even older Americans are using self-storage, with StorageCafe finding that 21% of people from the ages of 56 to 74 are currently renting storage space.

Why do people turn to self-storage?

StorageCafe found that 40% of sur-

vey respondents say they don’t have enough storage space at home. An additional 34% said that they were moving and needed temporary storage.

Furniture is the item most commonly stored, with 34% of respondents saying that they use self-storage units for this purpose. A total of 22% of respondents said that they store clothing in self-storage units, while 20% said they use these units for home appliances and equipment.

And on the multifamily side? It can still be a struggle for renters to find affordable apartment units … unless they happen to be renting in the Midwest.

Renters looking for the most space

for as little money as possible? They should look for an apartment in Wichita, Kansas, according to the latest research from RentCafe.

RentCafe recently released its annual look at how much space apartment renters can get for $1,500 in monthly rent. Wichita topped the list of 200 U.S. cities in which renters could nab the most space for that figure.

How much space can renters here get for $1,500 a month? According to RentCafe, they’ll get 1,463 square feet, more than in any other big U.S. city. As a bonus? Wichita ranks as one of the U.S. cities with the lowest cost of living. In second place is another Midwest market, Toledo, Ohio. Here renters can

“How much stuff do Americans own? A lot, obviously, with a new report showing that 21% of U.S. adults store some of this stuff in selfstorage facilities and another 15% saying they’ll turn to self-storage in the future.”

Working through the interest rate blues in Des Moines

By Dan Rafter, Editor

Des Moines isn’t unlike any other major city across the United States: Higher interest rates have slowed commercial real estate sales here. And commercial real estate professionals say that this slowdown won’t end until the Federal Reserve Board provides the country with more certainty regarding its benchmark rate.

But Des Moines does have certain advantages that are helping the city’s commercial real estate market remain resilient, even with the uncertain U.S. economy. That includes the city’s prime location in the center of the city, its strong labor force and its low cost-ofliving.

We spoke with three CRE professionals from the region, Adam Kaduce, president of R&R Realty Advisors; Justin Lossner, senior managing director of the Des Moines office of JLL; and Jason Lozano, senior vice president with the

same office of JLL, to learn more about how resilient commercial real estate activity has been in the Des Moines market and how higher interest rates have impacted it despite this resiliency.

Let’s start with the topic that is on everyone’s mind: interest rates. How have higher interest rates affected real estate sales in the Des Moines market?

Justin Lossner: Right now, there haven’t been many sales. Industrial continues to be the strongest asset class from a leasing standpoint. But there are not many assets coming to the market for sale. That has been the effect that we have seen from higher interest rates.

There is still a lot of dry powder out there. People are waiting for opportunities to invest in commercial real estate. Transactions will happen again. But it will take some time. When you were able to borrow money at 3.5% and 4% just 12 months ago and you are now

looking at something that starts with a 7 or a high-6, you might not be too eager to finance an investment today.

Adam Kaduce: The higher interest rates have driven some of the activity out of the market. We seem to be in a price discovery mode today. Sellers still have the same price in mind they would have gotten a year ago. Buyers are coming to the table and saying that this price doesn’t work for them. That has caused the flow of deals to slow. On the institutional side, there are players who have capital that they need to deploy. In those deals, we are seeing less debt. The institutional players are putting more cash in and reducing their overall leverage on a project. Most of the sales we are seeing are on the industrial and multifamily side, not in the office sector.

Is this disconnect between sellers and buyers easing yet?

Kaduce: Things are starting to settle out. There is more predictability with the interest rate forecast then there was six or eight months ago. It seems like the Fed’s rate hikes are mostly behind us. We will probably see more 25-basis-point hikes instead of 50-basis-point hikes. We have more stability on where interest rates are at and where they will remain for the foreseeable future. Now it’s about buyers and sellers figuring out what makes sense for their projects.

Have the higher rates hit different assets in different ways?

Jason Lozano: The office investment product has been especially slow to move. There is so much uncertainty with occupancy that is playing a role with that, too. It’s not just the interest rates when it comes to office. Interest rates haven’t helped, but office is also facing other challenges that are slowing sales activity.

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Companies need to settle upon their long-term occupancy strategies. How often will they require their employees to work from the office? Once more companies make these decisions, the office market will stabilize.

How close are companies to finalizing their office occupancy plans?

Lossner: Much of that is based on the size of the company. Smaller, more nimble companies are getting there faster. Many have flocked to higher quality office space in the Des Moines metro area. The larger users, those taking 70,000 to 80,000 square feet, are getting more serious about making long-term decisions. But it is taking time.

The bad news is that the downtown office market isn’t quite as robust as what we’ve seen in suburban areas. Downtown Des Moines has a heavy concentration of large publicly traded companies that have been slower to wrap their arms around their occupancy strategies. We get the feeling that flex is here to stay. But so is office space. Does that mean companies will need less square footage? Maybe. If you have 2,000 employees instead of 20, it takes longer to figure out that balance. The core of downtown, then, has seen slower office sales and leasing velocity. But we think that in the next 12 to 18 months, this will change.

Kaduce: As you drive around Des Moines, you are starting to see parking lots filling up. On Tuesdays through Thursdays, there are more people in the office, in the suburbs and downtown. The larger employers are setting on three-days-a-week back-to-theoffice plans with remote days on Mondays and Fridays.

Interest rates haven’t slowed leasing in many sectors, right?

Kaduce: Leasing has been more of a bright spot in this market. There has been some good leasing activity in the first quarter. In this market, though, more of the leasing tends to be in the suburbs. More of the office leasing activity, for instance, is taking place in the west side of town in the suburbs. In downtown, there is still some uncertainty.

Wells Fargo vacated almost 1 million

square feet of office property and put it on the market. Other companies are talking about downsizing. The suburbs do see some of that, but it’s not quite as bad as what is happening downtown. That’s partly because there are more small and mid-size office users in the suburbs. That kind of smaller space is easier to backfill. The bigger office spaces have been on the market for a while and will remain there until we have more certainty in the economy.

How about other sectors? Are you still seeing strong demand for industrial leases?

industrial space, you do have some opportunities in the Des Moines market. But you have just a handful of options as opposed to several.

What makes Des Moines such a strong market for industrial users?

Lozano: Our location is a big positive. Amazon has built a large facility here. That has helped to spur additional growth in our industrial market. Labor is a factor, too. Companies have access to a strong labor force in Des Moines. We are spoiled here: It takes no more than 25 minutes to get anywhere in the metro. For Amazon, that means it has a pretty wide area in which to find workers. That labor situation has helped industrial growth here.

Lossner: I grew up in Des Moines. I have watched the city evolve. What I have noticed is that the city has provided more robust entertainment offerings while offering a lower cost-of-living than a lot of cities around us. That makes Des Moines more attractive for the workforces of companies looking to move. It makes the city a better destination for companies. When I was growing up, people sought out cities like Kansas City that had more to do than what we had in Des Moines. That has changed. At the same time, we have a strong school system and a low cost-of-living. It’s one thing to have plenty of land at a low cost and a safe environment. But you also need to entertain the population. It’s been fun to watch that entertainment factor improve over the years.

Are there any other commercial sectors that are seeing strong leasing or sales activity today?

Lozano: Our office is tracking a strong pipeline of industrial activity in the market. We have had pretty good growth of industrial construction in our market during the last three years. There is less development coming through the pipeline now, though. We have had spec buildings constructed, so the industrial vacancy rate in the Des Moines area has ticked up a bit. But that has more to do with the delivery schedule of new space than it does to a lack of activity in the market.

Tenants are looking for larger spaces and struggling at times to find it. If you are looking for a 200,000-square-foot

Lossner: There has been an uptick in healthcare demand. There has been a strong growth in the number of clinics that are opening across the Des Moines market. The major hospital systems are reinvesting in their footprints. That goes hand-in-hand with the demographics of our population. It’s also why we are seeing so many beautiful senior housing complexes popping up around the metro. We expect the healthcare sector to continue to grow.

Lozano: There’s been an exciting subset of the office market that had been doing well, too, the tech sector. Before the pandemic, Des Moines was starting to become an exciting tech hub. Several Texas-based companies were looking at our metro area and were

DES MOINES (continued from page 8)

Krause Group hopes to bring a new professional soccer stadium to downtown Des Moines.

“Our location is a big positive. Amazon has built a large facility here. That has helped to spur additional growth in our industrial market. Labor is a factor, too. Companies have access to a strong labor force in Des Moines. We are spoiled here: It takes no more than 25 minutes to get anywhere in the metro.”

DES MOINES

adding satellite offices in Des Moines. Hopefully, that market comes back.

How about multifamily? How strong is that sector today when it comes to leasing activity?

Kaduce: The multifamily space has been especially stable in the Des Moines market. Our region has been steady in terms of population growth. But it’s not a boom or bust type of growth. It’s steady growth. That has helped the multifamily market. At the same time, we are adding new multifamily supply that is of a high quality. We also have capital sources from the east and west coasts that are chasing cap rates. You can get a higher cap rate here than you can on the east and west coasts. That has helped on the multifamily side.

We have seen a slight pause in the development of new multifamily product since the pandemic. But we are still seeing new apartment product coming online. There is good demand out there for new apartments. As mortgage interest rates have gone up, that has slowed some renters from making the move to owning. They have stayed as renters longer. People are graduating from

Iowa universities and moving to Des Moines and absorbing our multifamily product. We need to add more multifamily development to keep up with this demand. You are seeing young people who have been living downtown. They might want to move to the suburbs but they aren’t ready to buy. Instead, they are renting in the suburbs. That’s largely because many of our suburbs now offer entertainment, restaurants and shopping that renters can walk to.

Back to office, how important are higher-end amenities today? Are those helping to bring workers back to the office?

Lozano: When companies are downsizing their footprints, we do often see that they are moving into spaces with better amenities. They are focusing on the amenities, looking for buildings that have fitness centers and shared conference facilities. They want a space that offers an area with a fresh-food option or a Starbucks kiosk. It has been a flight to quality. You see that, too, from landlords who are considering adding more amenities in their buildings to encourage companies to lease space.

Kaduce: There has been a flight to quality in the office sector. It really is the higher-end class-A office buildings that are getting the most attention. Companies have figured out that there is a close relationship between talent and the quality of their office spaces. Having nice office space is a way to win talent. Then there is the cost. Companies can spend the same money to get into nicer office buildings with newer amenities because they need less square footage today. We see that flight to quality happening across all parts of town.

Overall, then, how optimistic are you that any slowdown in real estate sales caused by interest rates is only temporary?

Lossner: The Des Moines metro area remains healthy. Our leasing activity is solid in all categories, especially in our suburban markets. I am optimistic that the infrastructure that city leaders have invested in the core of downtown Des Moines will help reignite a spark there as companies work through their office-occupancy strategies.

As far as the future goes, is there any new development in the Des Moines market that you are particularly excited about?

Kaduce: One of the exciting things is that there is consideration for a new professional soccer stadium in Des Moines. This would be a 6,300-seat stadium at the Dico Superfund site on the south side of downtown. The process of cleaning up that site is largely complete. The real estate arm of Krause Group is planning this stadium.

I think that professional soccer would be a new amenity that the community would embrace. It’s also a project that would bring new development to this part of downtown. We’ve already seen some housing and retail go up in that area. If and when the soccer stadium is built there, you’ll see a lot of new development targeted for that corner of our downtown. For a long time, that area has been a hole in terms of new development. A new soccer stadium and new development there would expand our downtown and bring in new amenities. A lot of people are waiting to see how that turns out.

CRG’s Steve Schnur: The industrial sector’s fundamentals are still strong

By Dan Rafter, Editor

The industrial sector has long been the darling of the commercial real estate world. That hasn’t changed today, even though higher interest rates have slowed the number of industrial sales taking place.

Why has industrial been so strong for so long? Steve Schnur, chief operating officer with Chicago-based CRG, pointed to the sector’s strong fundamentals: Companies still need to distribute their products quickly to their customers. That requires plenty of warehouse and distribution facilities across the country.

We recently spoke with Schnur about the resilience of the industrial sector, even during challenging economic times. Here is what he had to say.

These are obviously challenging times for commercial real estate. But are you still seeing strong demand from tenants for industrial space?

Steve Schnur: We are. If you go back to the core main drivers of our business, you’ll see that they are still strong. Ecommerce is a big driver. Companies rethinking their supply chains and inventory levels has been a big driver. The reshoring of manufacturing to the United States has been an important driver. All those drivers are still in play.

The industrial sector is not completely resistant to what is going on in the economy, not by any means. More people are pressing pause if they can do so. That’s just demonstrating good finan-

cial corporate responsibility. But there is still good demand for industrial space. Leases are still getting done. There are a lot less buildings under construction today than a year ago, so the demand for existing space is still high.

But some deals are getting kicked out a little further. If you can press pause and not make a capital investment today to see how this economic situation will shake out? You’ll probably do that.

Is that what a lot of companies and investors are waiting for today? More certainty with interest rates and the economy?

Schnur: I think the feeling now is that interest rates have sort of topped out. Most people would say that. Hopefully, we will see some easing of rates later this year. Most economists think we are near the top of what the Fed wants to do to curb inflation. But there are geo-political events happening, too,

that are giving people pause, whether consumers or CEOs making decisions about their supply chains. People want as much clarity as they can get before making capital investment decisions.

What about demand from investors for industrial assets? Have high interest rates slowed the number of industrial sales across the Midwest?

Schnur: Activity has definitely paused. The capital markets have seen a pull-

CRG’s The Cubes at Etna in Columbus, Ohio.

CRG’s The Cubes at Sparta Pike in Nashville.

“I think 2023 will still be a strong year for industrial transactions. The capital side will get itself figured out. And the reason for that will be the health of the underlying fundamentals of our business. The industrial sector still has a low vacancy rate. Rent growth is still outpacing inflation. People still want to get into the industrial market.”

back, especially after what has happened with some of the banks in the headlines. Lending has been pulled back. There is less capital out there. Fewer transactions are getting closed today.

But what comes out of this in the U.S. economy is ingenuity. What used to be done with traditional bank financing is now moving toward debt funds. Life insurance companies are more active in the market today.

I think 2023 will still be a strong year for industrial transactions. The capital side will get itself figured out. And the reason for that will be the health of the underlying fundamentals of our business. The industrial sector still has a low vacancy rate. Rent growth is still outpacing inflation. People still want to get into the industrial market.

I don’t want to be blindly optimistic, but I will tell you that when compared to other property types, industrial is a relatively inexpensive investment. As an investor, you are not overpaying for improvements. You are buying highly functional space. Multiple users can come in and use that space without spending significant dollars to retrofit it. The rent-growth story has been phenomenal. Industrial has been the darling of the commercial real estate industry for a long time.

When it comes to newer industrial facilities, what type of amenities and features are end users looking for?

Schnur: The big need is still for additional trailer storage. Users are also looking for flexibility in how this trailer

parking can be used. Some users want to stage product outside in trailers. Power is more critical today, too. Tenants are asking for more power than they probably need knowing that with where the world is going with AI and data, that more power is probably something they are going to need during the terms of their lease.

Companies are having trouble finding warehouse workers. So they are getting creative with amenities in their industrial facilities. When we do fit-outs for tenants in our buildings, we see stuff today that historically we never saw. There are outdoor basketball courts, bike racks, walking trails, workout rooms, locker rooms, showers. Employers and users of the space are adding things that we wouldn’t have typically thought of as warehouse amenities to attract employees today.

At the end of the day, everyone is competing for workers. Companies don’t want to lose warehouse employees. Finding good employees is the number-one challenge of most of our users today. So they are adding the amenities that workers want.

How difficult is it today for end users to find the industrial space they need?

Schnur: Every real estate brokerage company puts out a report. But in Chicago, the industrial vacancy rate is sub 3%. On a national basis, it’s somewhere in the 3.5% range. You can make an argument that the industrial sector is under-supplied. If you dove into those vacancy stats, you’d

find that some of the vacancies are in buildings that are borderline functionally obsolete. The lack of space can be challenging for tenants that need to find new, modern space.

I think the larger facilities, such as 400,000 square feet and up, have

the most demand today. The larger buildings, especially those close to population centers, are especially in demand.

Are there any industrial products that CRG is working on today that have you especially excited?

Schnur: We have a lot going on. We are working on a million-square-foot building just north of Minneapolis. It’s a great location, and the building should be complete in the third or fourth quarter of this year. It’s a phenomenal project.

We recently finished a million-square-footer in the Columbus market that we leased to a major brand-name company, and we are getting ready to start a 250,000-squarefoot building just to the north of the Columbus market.

In Chicago, we are building out the tenant interiors for a major company. That building will hit the market later this year.

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Is this the new normal? In net lease market, everyone’s waiting for sellers and buyers to adjust to new economic realities

By Dan Rafter, Editor

The net lease sector has provided a haven for investor dollars during even the most challenging of economies. But today? That is changing.

High interest rates and persistent inflation has caused investors to pause, even when they are considering net lease assets. Sellers and buyers are still adjusting to today’s new market, and so far? No one is budging and deals aren’t getting done.

Midwest Real Estate News spoke with Randy Blankstein, a net lease expert and president of the Boulder Group in Wilmette, Illinois, about the sluggish net lease market. Here is what he had to say.

Let’s start with the big question: How have higher interest rates impacted sales in the net lease space?

Randy Blankstein: Volume was down significantly in the first quarter of the year. This is the result of two things. First, interest rates and inflation have hurt. And last year the first quarter was a historically strong one. Activity in the first quarter of last year was abnormally high. Now we have gone abnormally low in the first quarter of this year. Until the Fed is done raising rates, we can expect volume to remain down. During times of uncertainty, the path of least resistance is to move to the sidelines.

The net lease sector has long been considered a safe investment. Isn’t that a plus today?

Blankstein: The net lease sector is under pressure for the same reason that the bond market is under pressure. Net lease has always been a conservative investment. It’s been safe. Net lease investments don’t have a lot of upside or a ton of downside. When interest rates and inflation go up, though, you can’t adjust the rents enough to keep up, so the value of net lease properties goes down. When you can get short-term bonds on 4.5% and 5%, it doesn’t make

sense to pay the same cap rate on real estate. People want a greater spread when bond yields are high.

Cap rates are going up, but people want them to go up even higher. Sellers aren’t always catching up with the interest rate environment. There is a group of people who think that interest

rates will hopefully stop going up and start to move down again next year. Why should they sell in the middle of this tightening curve? There is a large group of owners who would rather not sell their net lease properties in this current environment.

There is a belief that the Fed might

be winding down its hiking of interest rates. How much of a boon would that be to net lease sales activity?

Blankstein: That’d be good news if it happens. The Fed might be signaling that it will move this way. We might be close to the end of the hikes. But that doesn’t mean that interest rates will necessarily go down. And we don’t even know for certain that the Fed won’t raise rates again.

The Fed could pause their hikes but then raise interest rates again later. Just because they stop raising rates for now, doesn’t mean we are at the end yet. When the Fed does stop raising rates and pauses their increases for a long time, then I think it will have a positive impact on the net lease market. But we’re not there yet. Most people I talk to are saying to forget what the Fed says and instead watch what inflation does. When inflation is below 3%, they tell me, let us know. That’s when they’ll get active again in the net lease market.

Even in today’s challenging economic environment, are their net lease asset types that are attracting investor dollars?

Blankstein: There is less competition today. In times like this, you’ll see a flight to quality. In net lease, that means assets with longer leases and investment-grade tenants in major metropolitan areas. Investors have the chance to buy those at better prices than they could in the past. Assets that are selling at lower prices, under $4 million, are more attractive for investors today, too. This is an interesting time to buy some of the higher-quality assets. It is an interesting time to be a buyer if you are looking to buy something of quality.

Are investors especially skittish today?

Blankstein: The problem is, people are looking at the headlines today. When you see commercial real estate in the

Investors today are looking for high-quality net lease assets, such as always popular Starbucks locations.

“If you think commercial real estate is only core urban office buildings, then commercial real estate in your view isn’t strong today. People who look past that one sector, though, get a better sense of things.”

news today, what do you see? You see a lot of negative headlines about the struggles of downtown office buildings. That is the most challenged sector in commercial real estate and the most visible. The struggles of office buildings make headlines. That causes people to think that commercial real estate is perhaps in worse shape than they envisioned. If you think commercial real estate is only core urban office buildings, then commercial real estate in your view isn’t strong today. People who look past that one sector, though, get a better sense of things.

The key question out there, which no one has an answer to, is were the last few years an aberration and are we reverting to the mean? Is this the new normal? Or is the new normal somewhere between what we saw the last two years and what we are seeing today? I am in the camp that this is probably the new normal and people must adjust to it. People bought properties at more aggressive pricing during the last few years and aren’t anxious to realize losses or break even when they sell. That has put us in an adjustment period.

How long will this adjustment period last?

Blankstein: No one knows the answer to that. But people will have to adjust. They can’t sit on the sidelines forever. Sellers will have to sell eventually. If you sell a property and you only break even or you lose money on the deal?

Your track record is now less stellar than it was. People are not anxious to put break-evens or losses on their

track records. It’s a tough realization. It’s an adjustment, but it’s a painful one.

How about the sale-leaseback side of the industry? How is that niche performing?

Blankstein: Sale-leaseback business hasn’t expanded to the extent that people believed it would, myself included. It had been hard to do sale-leaseback transactions the last

few years because you could borrow on a floating rate cheaply. Now that shortterm rates are up, and continuing to go up, there should be more interest from investors in sale-leaseback deals. The cost of capital has gone up. Suddenly, doing a sale-leaseback becomes more viable. I think the volume of sale-leaseback deals should be up in the second half of the year.

That being said, sale-leaseback volume has been well below where it was before. It is surprising that volume hasn’t gone up yet. Everyone is taking a look, but they are still on the sidelines. I’m not sure how long that is going to last. People’s initial reaction today is to play wait-and-see. Ultimately, though, you have to make decisions. Corporations are like individuals, you have to adjust and adapt over time. I am confident that sale-leaseback deals will become more viable in an environment of rising rates. You are taking interest-rate risk out of the equation when you do a sale-leaseback. I am optimistic that the increase in sale-leaseback transactions

Dollar stores remain strong net lease performers.

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Class B and C and the current industrial market: What you need to know

By Mia Goulart, Staff Writer

Class A office buildings remain the golden child of the office sector, yet middle-tier buildings are also capitalizing on today’s uncertain economy. While this may bring a momentary sense of relief to these buildings’ owners and landlords, it presents challenges for potential users.

Simply, the industrial real estate market in Chicagoland is currently experiencing a shortage of available space—particularly that of Class B and C, which among other consequences, is driving up rents and making it harder for tenants to find affordable options.

This is the case across the board, but it’s especially tight infill markets like O’Hare, I-55, Central DuPage, I-88 West and Lake County, to name a few.

In fact, across Chicagoland, 96% of all Class B and Class C buildings are currently occupied, forcing potential tenants to consider more alternatives, like paying more for Class A or expanding their geographic parameters outside of the region to better accommodate their search.

Additionally, NAI Hiffman Executive Vice President Joe Bronson said there are very few Class C options that are functional, only limiting the options further.

“When I give clients a report of spaces available, they often ask why I sent them a report of only “new” buildings,” Bronson said. “The tendency to renew leases is even stronger than usual because of this.”

Even in terms of new development, companies like NAI Hiffman and Core Industrial Realty have seen shifts in patterns of that of spec. Bronson said current interest for spec development lies with a much smaller group of buyers—and sells at a lower cost.

“We as a market have to decide if the exurbs are going to finally become just the next ring of suburbs,” Bronson said. “And if the answer is yes, will there be

enough labor to support the tenants in those buildings?”

That’s just another rung on this year’s

Core Industrial Realty Managing Broker/Founder Noel Liston agreed it’s true that there is limited availability in lower-tier asset classes, for purchase in particular, and business owners that prefer to own versus lease are having a difficult time finding product to buy.

That said, Liston said we might start to see supply grow a bit in these asset classes in the latter half of the year, and like Joe Bronson said, geography is also something to be considered.

“In the secondary markets, we started to see some product emerge for sale, which is typically an indication that you’ll start to see other product for sale in more established submarkets,” Liston said. “We currently see some vacancy in the periphery markets, and I predict a bit more will be added to the market later this year, creating more opportunity for those that have not been able to find a building to purchase.”

The outlook for the near future revolves around the positioning of capital costs, as there remains a significant level of inactivity while people await the stabilization of rates. Investors hope for a scenario where there are no rate increases in the second half of the year and a downward adjustment to the Fed funds rate beginning in early 2024, however, whether this becomes a reality, along with many other uncertainties of the year, remains a “wait and see” situation. The encouraging news is that supply and demand are relatively well-balanced at the moment, and the limited availability of land and fewer land purchases will result in a lower inventory of new product next year, sustaining the equilibrium between supply and demand.

ladder of unknows and how things will play out, but it’s not necessarily a “new” issue.

“It remains a landlord’s market, but there might be equilibrium toward the end of the year where the market neither favors tenant nor landlord,” Liston said. “As for vacancy rates in the second half of this year, I don’t anticipate much change, but I remain bullish on the near future of the market overall.”

“We as a market have to decide if the exurbs are going to finally become just the next ring of suburbs. And if the answer is yes, will there be enough labor to support the tenants in those buildings?”

will happen. We just haven’t seen it to the extent that we thought we’d see it.

What is the state of the 1031 Exchange market?

Blankstein: The 1031 market faced the most serious political threat that it ever had in 2021. You had the presidency, House and Senate all under the control of the Democrats. They viewed 1031 Exchanges as something that benefited the wealthier people in the country. The timing was right for politicians to either eliminate or tweak the way 1031 Exchanges worked. But it never happened. Now, with a divided Congress, that is essentially dead. Those two sides won’t likely agree on anything. No one is talking about 1031 limitations or the elimination of 1031 Exchanges at this point.

As for today? 1031 volume is down, too.

What are your predictions for the rest of the year? Do you think sales activity in the net lease sector will finally increase?

Blankstein: There are certain events that people have delayed. There are

a lot of loan expirations coming in the second half of the year. That will force people to either reduce their cash flow by refinancing or to sell. They must make a decision one way or the other. It’s easy to have lenders kick that decision down the road for three

or six months. But lenders will only do that for so long. In the second half of the year, these owners will have to make a decision. People are optimistic about next year. It is a presidential election year. The Fed usually doesn’t fight people in a presidential election year. They will do what is necessary this year, but probably back off in 2024.

This is a transaction-driven business. You can put yourself on the sidelines for a while. But in the long term, people are looking for you to invest capital and earn a return. You have to choose a direction at some point. People will be more motivated to close deals in the second half of this year. Volume will be up in the second half of the year but will be down from last year overall because volume has been down so much in the first and second quarters of the year. I expect us to rebuild a bit and be better than today. It’s just an adjustment period, and adjustments take time.

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Drug stores remain attractive investments even during these challenging times.

Birth of a new CRE market: A limited return to the office, a surge in experiential retail and the continuing strength of industrial

By Dan Rafter, Editor

The commercial real estate market has seen plenty of change since the COVID pandemic started grabbing headlines in 2020. Just look at all those empty offices, buzzing warehouse spaces and suddenly packed indoor mini-golf centers and high-tech bowling alleys.

What are the biggest trends in today’s post-COVID commercial real estate industry? Midwest Real Estate News spoke with Jonathan Keith, managing director with the New York office of Deloitte & Touche, about the company’s 2023 Commercial Real Estate M&A Outlook and the challenges that the commercial real estate industry faces in the coming months. Here is some of what he had to say.

Was there anything in the M&A Outlook that surprised you?

Jonathan Keith: I wouldn’t say there was anything surprising. Real estate touches everyone’s lives. We all see some of the real estate trends manifesting in our daily lives. More people are going back to shopping at brick-and-mortar retail today. We see multifamily rental prices rising. We see that some companies are implementing back-to-work policies in the office sector. We see these trends playing out in our everyday lives. It’s not surprising when we see those trends reflected in the results of our M&A Outlook.

Speaking of one of those trends: Are you seeing more companies encouraging their employees to return to the office?

Keith: There is a little push to get folks back to the office. Will the office look the way it did pre-COVID? Probably not. I think back to my experience. When I started working, I was commuting five days a week to the office while wearing a suit and tie. My sense is that we will not go back to that. The question is, will employees return to the office two or three days a week or four days a week? How do compa-

nies grapple with that in terms of the amount of space they need?

Companies have some decisions to make. There is a value to getting people back to the office and working together again in person. But there are also some cost savings by having people work remotely. I don’t foresee a full return to where we were before COVID. How this will shake out, I don’t know. Right now, companies are taking small steps but are not returning fully to the days before the pandemic.

We’ve seen that multifamily rents are still rising, but not as quickly as they once were. Do you have a feel for whether rent growth will continue to slow in the multifamily sector?

Keith: That’s difficult to predict. A lot of it is market-driven. Markets behave differently across the United States. The apartment rental market in the Manhattan area is much different than in the Rust Belt in the Midwest or in the Southeast. From a general perspective, it is tough to say whether multifamily rents will go up or down or stabilize. It’s about looking at a particular market and the demographics around it.

I know industrial sales have slowed, but demand for industrial space remains high. Is industrial still the darling of the commercial real estate sector in your opinion?

Keith: We see industrial and some of the alternative real estate types, such as data centers and offices retrofitted for medical services, to be the strongest commercial classes. Warehouses remain very strong performers. We have seen a drop in M&A activity in the industrial space, though, through the end of 2022. M&A activity has been even slower in the first quarter of 2023. That’s because of higher interest rates and uncertainty around rates and where the economy is heading. Both of those play into the gaps between buyer and seller expectations.

The uncertainty around the economy has led to a continued decrease in deal volume and deal value through the first quarter of 2023.

Experiential retail, such as high-tech bowling alleys, is booming in popularity today.

“We will continue to see growth and opportunity in the industrial sector. On the flipside, office is still seeing a large amount of uncertainty.”

Are investors sitting on the sidelines, even when it comes to strong sectors such as industrial?

Keith: We had such a long period of lower interest. Now, investors are looking for a stabilization of rates. They are looking for the new normal. Maybe the new normal rate will be 5% versus where it might have been before May of 2022.

One side fears that interest rates will go up. One side says that maybe they will come down. That gap is there. People are waiting to sell until interest rates stabilize. They are also waiting for some stabilization with the economy. People are waiting for the country to return to more of a moderate growth economy.

One of the things you mention that investors can do today to protect themselves is to rebalance their portfolios. Can you talk about that?

Keith: Investors need to adjust their portfolios to include some of the asset classes that are stronger today, assets like industrial, multifamily or some of the alternative assets like data centers. There is also an option to repurpose existing facilities, though that comes at a cost. If you are long on offices, can you repurpose some of that space into industrial or retail? We’ve all seen old banks turned into restaurants.

You can repurpose certain assets to more desirable real estate sectors.

A lot of times, when you have heavy M&A activity, a group can focus on purchase, purchase, purchase. When the market slows, it’s a good time to work on your portfolio. What are the things you can improve on? Take the same sort of professionals who have done the M&A work and have them manage the portfolio and optimize that.

In a new market, there are things you can do to optimize and get ahead of the trends of the market.

What are some of the key trends in Deloitte’s latest M&A report?

Keith: The two big takeaways are that industrial remains strong and that office is on the flipside of that. We will continue to see growth and opportunity in the industrial sector. On the flipside, office is still seeing a large amount of uncertainty. Is there too much office space out there? The risk is that a change is taking place in office usage among companies. That can have a significant impact on the owners of that real estate.

The other interesting thing concerns retail. The thought during COVID was that people were not going to return to malls. There was the sense that malls were dying. People can use the Amazons of the world to order items from

their computers. But that is changing. People do want to go out and shop. We are seeing a desire for experiential retail. People want experiences. There has been a rebirth of retail from that perspective. Everyone said that we

wouldn’t need that old bookstore because we have Amazon. But now trends are working the other way. There is a desire and appetite among consumers to go out and shop in brick-and-mortar locations again.

Malls that offer the right retail mix are showing surprising resiliency today.

“The two big takeaways are that industrial remains strong and that office is on the flipside of that.”

A new way to solve the student-housing shortage at universities: Make Greek housing more attractive to more students

By Dan Rafter, Editor

It’s a problem at universities across the country: There isn’t enough on-campus housing for the students searching for it. At the same time, rents for off-campus housing continue to rise, making it difficult for students to find affordable rooms at their universities.

Officials at Butler University, a private university in Indianapolis, recognize this. And they’re taking a different approach to providing more housing for their students: They’ve asked architecture and design firm Luminaut to renovate and build new fraternity and sorority buildings across the campus, providing more housing options for a university in desperate need of additional space for its students.

Eric Rowland, principal in the Indianapolis office of Luminaut and the firm’s Greek housing expert, said that

the focus on improving Greek housing options makes sense for Butler. With greater amenities and modern design, these Greek buildings will attract more students. That will relieve some of the

pressure on the university to continue building new on-campus dormitories.

“There is a lot of emphasis on student housing in general today,” Rowland

said. “Colleges across the country are replacing older traditional dorms with apartment-type living. The newer buildings tend to focus more heavily on amenities. That’s the case at Butler, too. Students expect better amenities in their on-campus residences. Greek housing tends to be a little denser in terms of how many students it can house. It made sense, then, to renovate these buildings to make them more attractive to students.”

Rowland said that Butler officials recognized that they didn’t have to build enough on-campus housing to accommodate 100% of the school’s student population. The Greek system can house a significant percentage of these students.

Luminaut is still active on Butler’s campus, working with sororities and fraternities as they determine when they are ready for renovations or expansions. Not all Greek houses will go through the process, but many will, when the time is right.

“The university doesn’t own the Greek houses, but Butler is encouraging the houses to consider renovations,” Rowland said. “The different houses were bult at different times and in different styles. Because of this, renovations and expansions all come with different costs. It’s up to the different Greek houses, then, to determine when or if they are ready for changes. Because of this, the work that we are doing is ongoing at Butler.”

Located on the north side of Indianapolis, Butler University has opened two new residence halls since 2016 and is renovating a third to help meet the housing needs of its students. Students here can choose from seven campus housing options and about 2,500 beds. The university also requires full-time undergraduate students to live in university-owned or -operated housing for six academic semesters -- three years.

The 33% to 38% of Butler students who belong to a fraternity or sorority can live

An example of Luminaut’s work at Butler University, an renovated exterior at the Alpha Phi house.

“There is a lot of emphasis on student housing in general today. Colleges across the country are replacing older traditional dorms with apartment-type living.”

in Greek chapter housing. That’s where Luminaut comes in. Of the 14 Greek organizations on campus, Luminaut has renovated or built new houses for more than half. Butler prioritized an improvement to its Greek housing starting in the 2000s, beginning with renovations to the Delta Delta Delta house, the largest sorority on campus with the smallest house.

Luminaut worked with Tri Delta to more than double the size of the sorority’s housing. Luminaut also worked with Lambda Chi Alpha to build a new house on a site adjacent to most of the university’s other Greek houses.

After that? The university and Luminaut began a steady stream of renovation projects, all of which helped boost the number of students that could comfortably live in Butler’s Greek housing, providing relief for a campus in need of additional student housing.

Luminaut completed a master plan and renovation for Delta Gamma, and Sigma Nu again reached out to the firm, this time for the design of a completely new house. Two doors down, Phi Kappa Psi tapped the architecture and design team to find a solution for an existing chapter house that was without a dining room. A reconfiguration of the main public level created space for both a commercial kitchen and dining room.

Rowland said that Luminaut focused on the way students today entertain themselves and interact – or don’t interact – with their fellow housemates when redesigning sorority and fraternity houses.

Students today spend much of their time staring at their phones or visiting social media. Because of this, they often struggle to engage with their fellow housemates. Luminaut, then, designed spaces in which members of the Greek system would be encouraged to put down their screens and interact with their fellow students.

This meant adding study and dining spaces adjacent to the main entry points of Greek houses. Residents will have to pass by these spaces, which will often be more crowded with their fellow housemates, before they can reach their own rooms. That, Rowland says, is designed to encourage students to speak more with their housemates.

“It’s an opportunity to break some barriers,” Rowland said. “Students can start a conversation with someone whom they haven’t spoken to in a while. In these Greek buildings, there is strength in membership. It’s important for sororities and fraternities to keep men and women in their houses for a couple of years. They can increase the odds of this with interior spaces that

encourage residents to become more connected with each other, to develop non-digital bonds with people.”

Another important feature of Luminaut’s designs? Front porches, spaces that also encourage socialization. Luminaut’s plans also call for open layouts of the Greek houses’ common areas, another way to use design to

encourage residents to spend more time socializing and fewer hours tapping on their phones.

“We’ve designed these buildings so residents won’t just slip into a back stairwell and go into their rooms,” Rowland said. “They are forced to pass through some of the public rooms in the house.”

Top: The renovated Lambda Chi Alpha house at Butler University. Bottom: Luminaut’s improvements to the Tri Delta house at Butler University.

Earning the commute: Owners of Eden Prairie office building investing big in new amenities

By Dan Rafter, Editor

Getting employees back to the office? That’s challenging today as more office workers continue to push for working from home. And attracting new tenants to existing office buildings? That’s no easy feat, either.

One solution for both companies and building owners? Amenities.

Companies are increasingly looking for higher-quality office buildings with top amenity packages when they move to new space. There are two main reasons for this: As more of their employees work from home at least part of the time, many companies need less square footage. Because they are taking smaller footprints, they can afford more expensive office space that might have been out of their financial reach just two years ago.

Companies also understand that they need to offer modern amenities -- such as high-end fitness centers, tech-enabled meeting spaces, on-site food and beverage service -- to help persuade often reluctant employees to make the commute to the office.

That’s why Excelsior Group has launched a multi-million-dollar renovation at 7500 Flying Cloud, a 202,000-square-foot Class-A office building in the Minneapolis suburb of Eden Prairie.

The renovations will be complete in the fall of 2023. The building’s owners expect that this work will bring a slate of new tenants to the building, all of which will focus on the new amenities as a way to entice their employees back to the office.

“We know that offering the very best workspaces and tenant amenities is an important factor for companies to develop a thriving and productive workplace,” said Chris Culp, chief executive officer of The Excelsior Group, in a statement. “The significant investments we are making at 7500 Flying Cloud will create unsurpassed tenant experiences.”

The renovation, designed by RSP Architects, will bring new social spaces to the property, including an exclusive club lounge with a bar area, liquor lockers and a golf simulator.

The updates will also include a tech-infused training room and what designers are calling the “war room,” a larger meeting space designed for full-day strategy sessions. These upgrades will complement 7500 Flying Cloud’s exist-

ing amenities, including a full-service café and large-scale fitness center.

Brent Karkula, managing director with JLL, and Laura Farrell, senior associate at JLL, are leading the leasing efforts for 7500 Flying Cloud. Both said that the new amenities should help drive up occupancy levels at the building.

“Ownership was at a crossroads with this building,” Karkula said. “It doesn’t

feel dated. It doesn’t feel tired. But the ownership group knows what tenants are looking for today. They decided that if they went through with this renovation, they could make this building a best-in-class property. It would be an example of the absolute best quality office building in the Twin Cities market.”

The renovations at 7500 Flying Cloud in Eden Prairie include the addition of new social spaces.

A new club lounge will be another place for employees to gather.

RENOVATIONS (continued on page 25)

A bit of positivity? JLL report dispels some of the gloom around commercial real estate

By Dan Rafter, Editor

Optimism? That’s in short supply today in the commercial real estate industry.

This isn’t surprising: Interest rates remain high, something that has throttled investment sales. Buyers and sellers can’t agree on the sales prices of industrial, multifamily and retail properties. And recent bank failures are bringing even more uncertainty to an industry that craves stability.

But in its Mergers & Acquisitions and Strategic Transactions Monitor report released in early April, JLL’s researchers found plenty of optimism in the commercial real estate market. As the report says, inflation might have peaked, the Fed has indicated it is nearing the end of its interest-rate hikes and institutional capital sources have amassed a war chest of more than $240 billion, money they are itching to spend.

Midwest Real Estate News recently spoke with Sheheryar Hafeez, managing director with JLL Capital Markets, about the company’s latest report and the state of the capital markets. His overall message? Yes, these are challenging times. But there are reasons to be optimistic, too.

Let’s start with the biggest news. How have the recent bank failures effected the commercial real estate industry?

Sheheryar Hafeez: It really is a weekby-week determination these days for where the market psyche happens to be. One week it feels like the sky is falling. The next, we are off to the races and on top of the world. After all the noise about the volatility of the market and the bank failures, we have basically been flat across pretty much every sector except maybe office.

It’s interesting: Despite the headlines about the bank failures and interest rates, the market has somewhat absorbed that information. I think the market saw that the Federal Reserve Board was constructive and moved aggressively to curtail any contagion effect from the bank failures we’ve

seen. That was well-received. When I spoke with people I knew in the venture capital or tech world, they told me that the Friday night when Silicon Valley Bank failed was one of the most nerve-wracking nights since the 2008 recession. But the government moved fast to limit the damage. That eased some of those fears.

There are still concerns about future bank failures, though?

Hafeez: We don’t have a crystal ball. We don’t know when the next shoe will fall. The Fed seems to be constructive in dealing with this, though. And the damage seems to be specific to certain banks. The banks that operate in a more conservative environment since

the last financial crisis seem to be safe.

I like to be careful when speaking about these matters because you never know what will happen. But we haven’t seen a chain of failures yet. And the important point is that if we are going to see more failures, it seems like the Federal Reserve is prepared to not let it become a major issue if it can reasonably curtail it.

How about interest rates and inflation? Is there good news on that front, too?

Hafeez: It seems that inflation might have peaked and it also appears that the Fed might be nearing the end of its interest rate hikes. The Fed raised

its benchmark rate by a smaller 25 basis points last time partly because the data led it to say that the economy might be cooling off a bit. The Fed recognized that it might not have to be as aggressive with rate hikes now.

The aggressive interest rate increases were going to have some repercussions. The banks that were overleveraged and took more risks paid the brunt of it.

What commercial sectors today are attracting the most attention from investors?

Hafeez: The sectors that are performing well today are the same ones that were performing well before interest rates started to rise. Self-storage is very strong. Data centers are attracting a lot of attention. Net lease is flat for the year but is still a solid investment. The same sectors that were outperforming before the Fed started hiking its rate are still the ones that investors favor.

The net lease sector is interesting because it encompasses so many asset types. These assets usually feature longer-term leases, 10 years or more on average. They might not generate big profits, but they are steady-Eddie

FORECAST (continued on page 24)

Sheheryar Hafeez

“The sectors that are performing well today are the same ones that were performing well before interest rates started to rise.”

Cushman & Wakefield report: Don’t expect the cost of creating new office spaces to fall anytime soon

By Dan Rafter, Editor

Turning empty or outdated interiors into usable office space? That’s getting more expensive thanks to supply chain disruptions, inflation and rising labor costs.

But office owners might have little choice but to spend these extra dollars if they hope to attract new tenants in what has become an extremely competitive office sector.

These are the key takeaways from the 2023 Fit Out Cost Guide for office markets released earlier this month by Cushman & Wakefield.

The report found that although supply chain challenges are easing, many office users are experiencing “sticker shock” as project pricing comes into focus, potentially jeopardizing planned construction projects.

The average fit-out costs -- the money it costs to transform either empty or outmoded space into a modern office facility -- in the Americas now total $136 a square foot, up 11% from 2022.

The most expensive markets for fit outs, not surprisingly, are clustered around the coasts: San Jose, San Francisco, New York City, Seattle, Sacramento and East Rutherford, New Jersey. The most cost-effective markets for office fit-outs are Latin American cities such as Colombia, Argentina, Peru, Mexico City and Monterrey.

Demand for office fit-outs is also expected to rise, with at least 60% of total office space in the United States having the potential to be considered for a fit-out by landlords and occupiers as they look for ways to attract workers back to the office.

“In the evolving nature of the workplace, it has become clear that quality outperforms,” said Brian Ungles, Project & Development Services for the Americas Lead at Cushman & Wakefield, in a written statement. “A preference for newer, Class-A space has led to stronger rent growth in this segment of the office sector, highlighting to landlords the advantages of

repositioning existing assets to better compete with newer inventory.”

Supply chain issues persist

Despite receding supply chain stress indicators, the average lead time for switchgear, one of the most in-demand and constrained construction

12% on a year-over-year basis. Steel prices have also come down from their pandemic highs but to a lesser degree, with year-over-year prices up 1% and quarter-over-quarter prices down 4%. The report warned that although cost increases have decelerated, they are still elevated relative to pre-pandemic levels.

Labor challenges

At the onset of the COVID-19 pandemic, the overall U.S. labor market was tight, with an unemployment rate of 3.5%. The Cushman & Wakefield report says that initially, the pandemic-driven recession led to job losses across most employment sectors, including construction. Most of those jobs, though, were quickly recovered as hiring accelerated. Non-residential construction employment, however, has not recovered the jobs it lost during the pandemic.

Of the more than 47,000 non-residential construction jobs lost because of the pandemic in 2020 through 2021, 37,000 were recovered as of year-end 2022, leaving a 10,000-job deficit from pre-pandemic levels.

The report also noted that increasing interest rates are adding upward pressure to costs and making the lending environment more challenging. But there is less clarity about how these rates will impact costs in 2023 as economic uncertainty in the first quarter has muddled the outlook on additional rate increases.

systems, continues to be significantly delayed, averaging between 12 and 18 months.

The report showed that volatility in commodity costs may be slowing as prices begin to level off. Both copper and lumber have fallen from their pandemic highs, with lumber costs down

Cushman & Wakefield added that as occupiers look to upgrade space to attract employees and adopt hybrid work models, the ability to make strategic decisions about the workplace is becoming clearer.

“On a positive note, as occupiers look to upgrade space to attract employees and adopt hybrid work models, the ability to make strategic decisions about the workplace is becoming clearer,” Ungles said in a statement.

“On a positive note, as occupiers look to upgrade space to attract employees and adopt hybrid work models, the ability to make strategic decisions about the workplace is becoming clearer.”

JLL’s latest research shows that office tenants are seeking higher-quality space. Since the beginning of 2020, newly built or renovated Class-A office buildings have accounted for about 39% of the office leases in the Minneapolis market.

Featuring views of both Lake Smetana and Lake Bryant, 7500 Flying Cloud is located steps from the new Southwest Light Rail Transit’s Green Line. The building is also close to retail, hotel, restaurant and service amenities in the Eden Prairie Mall District.

This prime location coupled with its new amenities should make the property an attractive one for tenants looking for a move, Karkula said.

“We meet with a lot of prospective tenants,” Karkula said. “We ask what is important to them. What are they looking for? We’ve been getting a different variation of the same story over and over again: We want to be in a building that our employees want to come to, a commute-worthy building. In today’s world in which companies are giving employees the option of working from home, they want buildings that will inspire employees to get up, get dressed and

drive to the office because they like working in the space.”

Farrell is no stranger to how important modern amenities are to office tenants. She is working on leasing efforts at North Loop Green, a transit-oriented development being developed by Hines in Minneapolis’ North Loop neighborhood. The

development will feature 350,000 square feet of office space in addition to housing, 17,000 square feet of food and beverage offerings and a 1-acre public green space.

Interest is already high for North Loop Green’s office space because it will be of such a high quality. As with 7500 Flying Cloud Drive, tenants are

intrigued by the high-end amenities and workspaces it will offer.

“Finding office space of the highest quality is such an important factor for a lot of tenants and their employees today,” Farrell said. “As we say, you have to earn the commute. That is something that the owners of office buildings understand.”

investments. They are safer investments.

But investors aren’t only focusing on the safest of investments. Some are investing in riskier assets.

What riskier asset types are investors targeting today?

Hafeez: The one asset class that jumps out is retail. You’d expect investors to target industrial and healthcare. Those are strong sectors. But retail has seen a lot of recovery since the early days of the pandemic. Retail was off the radar for investors but is now starting to come back. The retail sector went through a lot of volatility and restructuring. But retailers have come out of this period stronger. There are a lot of healthy retailers now. There are a lot of retail landlords

with strong portfolios. They have produced compelling same-store return-on-investment growth and are getting rewarded for that. Because of that, retail assets are attracting the attention of REITs and other investors. That was a sector that I wouldn’t have thought investors were targeting so much before I looked at the data.

What about the office sector? Are you seeing any positive signs there?

Hafeez: Office is going through the same type of life cycle now that retail has already gone through. Over time, the office picture will become clearer. Office will remain an important commercial class. People won’t stop going to the office. It will remain an important part of the real estate sector. There is just so much uncertainty now. We don’t know where we are headed. It will take more time before the story clears up a bit.

REITs have owned some of the best office spaces over the years. They have acquired and developed some of the best and most competitive product in the office space. They might be getting hit now by the volatility of this sector. Hopefully, this is temporary.

The JLL report lists some reasons why investors should have optimism about the commercial real estate market. Can you talk about some of those?

Hafeez: For one thing, inflation might have peaked. Hopefully, that will start to go down. But another reason is that REITs have been effective at getting rents above the rate of inflation. They have become more sophisticated. They have better assets and are using better technology to work those assets. That shows up in the same-store net operating income growth. Investors can typically beat inflation with the growth in net operating income.

Then there is the liquidity out there. There is a lot of liquidity for asset allocations sitting on the sidelines. There will be a push to get that money out as the economy starts to settle down.

As humans, we often think that where we are today is where we are going to be forever. We all do that. In the middle of COVID, we all thought that no one would be going back to work in an office, that cities will be dead, that everyone will be moving to the suburbs and that we’ll be wearing masks forever. Now, two or three years later, we are in a very different place. We even had some record years when it comes to transaction activity. So a lot of us might think that we are always going to be dealing with today’s uncertainty and higher rates. But we won’t be. Things will stabilize and deals will get done again. The human psyche can change dramatically.

Renovations include a golf simulator.

Alex Vulic, vice president of real estate development for the Indianapolis office of Opus Development Company, said that the slowdown that Indianapolis’ industrial market is seeing is no different from the struggles other sectors and markets are experiencing.

“Our industry, of course, is incredibly sensitive to interest rates in terms of how investors value properties,” Vulic said. “Higher rates do have a big impact. At this point, it’s uncertain when demand from investors will increase again.”

In good news, the demand for industrial space from tenants remains strong. Vulic said that the Indianapolis industrial market saw almost 5 million square feet of net absorption during the first quarter of this year.

Retailers continue to rely on an omnichannel strategy, emphasizing both brick-and-mortar and ecommerce sales. To make this work, they need to deliver their products to consumers quickly when these shoppers buy them online. Because of this, retailers need warehouses across the country, including in markets such as Indianapolis that benefit from their prime location in the center of the nation.

“I don’t see this changing post-COVID,” Vulic said. “We are seeing a continual conversion to that omnichannel approach. That will only continue. There are too many efficiencies for retailers to give up. Some people were sort of forced to try online shopping and delivery during the pandemic. Many of them discovered that they liked it. COVID forced the issue and it is going to stick.”

Billy Powers, associate vice president at the Indianapolis office of Colliers, said that while interest rates haven’t slowed the demand users have for industrial space, the mix of space that tenants are looking for has changed.

Changing demand

Powers says that last year, tenants were looking for industrial spaces of 50,000 square feet up to 1 million square feet. Today, tenants in the Indianapolis market are most interested in 50,000- to 200,000-square-foot industrial facilities.

“It’s difficult to pinpoint why this has changed,” Powers said. “A lot of the Fortune 100 companies are taking a deeper

look into their supply chains. Two years ago they were more aggressive in taking space to help move their product quickly. Now they are more strategic about the space they need. There is still interest in industrial space, but there aren’t as many of those deals for larger spaces that we saw during the last year or two.”

At the same time, a growing number of companies are reshoring manufacturing jobs back to the United States. That, too, is boosting the demand for industrial space. And the rise of new industries, such as a surge in the production of electric vehicles, has provided yet another boon to the industrial market.

Powers said that tenant demand has been spread out among Indianapolis’ submarkets, though some of these markets do have higher vacancy rates. He pointed to the Mount Comfort submarket. This submarket, just east of Indianapolis, has a higher industrial vacancy rate because it has four vacant buildings, each about 1 million square feet, with vacancies.

But areas such as Indianapolis’ Northeast corridor have lower vacancy rates. This submarket in particular is targeting life sciences users, Powers said. Because of this, the industrial spaces developed in this submarket tend to be smaller, resulting in spaces that are more easily filled and lowering the submarket’s overall vacancy rate.

“It is tough for tenants to find industrial space in the smaller square footages,” Powers said. “Companies have to move quickly to get that space. We’ve also seen a huge increase in industrial rents during the past year. That has a much larger impact on companies that are looking for smaller spaces. If you are looking for 20,000 square feet but rent is 25% higher than it was a year ago? That makes the market for smaller users very competitive.”

The sales side hiccup

The only hiccup today remains the slowdown in industrial sales.

“We are in a slow period when it comes to sales,” Vulic said. “Everyone is trying to figure out how prices are going to shake out. People want to know what the new cap rate is going to be based on what the new interest rate is going to be. Folks are waiting until the Fed stops raising rates to figure out their underwriting.”

Unfortunately, high inflation continues to linger. That has spurred the Fed to continue increasing its benchmark rate.

Until that changes, sales of all commercial real estate asset types, including industrial, will remain sluggish, Vulic said.

“It’s very difficult to enter into a purchase where you put debt on a property without knowing where the interest rate on that debt will be in six months,” he said. “Once that calms down, everyone can reset their underwriting expectations and get back to work. A lot of people are sitting back and waiting to see what is going to happen.”

Powers said that many investors are taking a wait-and-see approach before committing their dollars to commercial real estate.

“The capital markets have slowed dramatically,” Powers said. “But we remain a very strong market for multifamily and industrial, life sciences. We are seeing a lot of inquiries but not a lot of transactions. Money is on the sideline ready to be deployed once it makes sense for people. A lot of investors are waiting to see what happens in the next few years when all the commercial real estate debt comes due for repayment at the end of 2025.”

Powers said that the greatest amount of sales activity has focused on value-add

industrial projects. But investors have dramatically slowed the amount of money they are pouring into big-distribution centers.

While demand among tenants for industrial space remains strong, there are certain building types that are more in demand today, Vulic said. He said that tenants are still seeking industrial buildings of 600,000 square feet or less.

Those buildings that are 800,000 square feet or higher, though? The demand for these spaces in the Indianapolis market has slowed, Vulic said.

“Everyone is a little down in the mouth and concerned about 2023,” Vulic said. “But 2021 was a record year for the industrial market here when it comes to absorption. And 2022 was the second-best year here for industrial absorption. It’s not surprising that there might be a slowdown this year.”

What attracts industrial users to the Indianapolis area? Powers pointed to the region’s strong labor pool. The Indianapolis market also benefits from its location in the center of the country and its strong logistics infrastructure.

The pro-business environment helps, too, he said.

“Indiana is great for government incentives,” Powers said. “Indiana is always looking to attract and incentivize large users to Indianapolis.”

Historically, the Indianapolis market has seen from 8 million to 10 million square feet of industrial absorption each year, Vulic said. That has changed. Now, Vulic says, he expects to see from 15 million to 18 million square feet of industrial absorption each year in the Indianapolis market.

And that’s something that should boost the morale of industrial brokers.

New construction numbers will probably be down this year in the Indianapolis industrial market, too. But that also isn’t surprising with the large amount of industrial square footage that has come online in the market during the last several years.

Opus has substantially completed two new industrial buildings totaling 1.1 million square feet in Mount Comfort, Indiana, a project known as the Point 70 Logistics Park. But once those buildings are complete, Opus probably won’t start another new project in the Indianapolis area for the rest of this year, Vulic said.

INDIANAPOLIS (continued from page 1)

Billy Powers

Alex Vulic

PROPERTY MANAGEMENT

building a community at the job that will keep workers coming back once they’ve left their home offices.

We spoke with Rob Pritz, portfolio manager at the Cincinnati office of Hiffman National, about the evolving role of property managers. Here is what he had to say.

The commercial office sector is certainly in flux today. Does having a strong property management team in place help the owners of office buildings attract more tenants to their properties?

Rob Pritz: Companies have more options when it comes to finding office space than they’ve ever had before. Having a skilled property management team to handle efficiency, cleanliness and basic services is more important than it has ever been. But there’s another duty that has seeped into the property management world: managing tenant experiences. It’s about amenitizing the common areas of a building, providing the perks at work. Workers expect more when it comes to amenities and food service. It’s up to property management teams, then, to boost the appeal of an office building, whether that’s through providing amenities throughout the building or scheduling events and interactions. All of this has crept into the property management world. We are still providing day-to-day services, but we are also focusing on improving the experience for tenants.

This trend has gotten a lot of attention, but it started before the pandemic, right?

Pritz: It definitely did. Managing the tenant experience is now just one more thing to add to our utility belt. It is one more thing we offer to provide the best value for tenants and, therefore, the best value for the owner of the property.

There’s another thing that has been around for a long time but has become even more important for the office sector today: a mixed-use environment. I’ve been fortunate to have been involved in several mixed-use projects recently. These have much higher leasing and success rates than do other office properties. When you combine the amenities of the building and the amenities of the location, such as sur-

rounding restaurants and retail offerings, you just have a more appealing and enticing destination. For property managers working these mixed-use spaces, it’s about activating the entire user experience.

The live/work/play aspect has been in play for several years. A lot of new projects are focusing on that mixeduse experience, that combination of office and retail. They have seen strong success.

We’ve seen that several suburbs are focusing on this mixed-use approach, combining office and retail, to create a walkable area for workers. Is this trend only getting stronger?

Pritz: It’s true in urban downtowns, too. When people are going to work, they need an experience that they can’t have at home. Everyone is in the amenities arms race. This started before COVID. Office owners need to provide the experiences that workers can’t get at home, everything from collaborating with other people to attending a happy hour, getting a coffee with coworkers or walking to a sporting event after work. If you feel like you are the only one in the office, if you’re stuck in a bland cube farm, you won’t want to go into work. But when you are walking around downtown or in a suburban downtown and you see activity and enthusiasm on the streets, that makes the experience of going into work different. You can’t have that at home.

That type of experience draws people back to their offices. The walkable experience is important, which is why mixed-use developments work so well. People want to stand up from their desks and take a short walk to get coffee or their lunch. They want to finish

their work and meet for a happy hour with their friends.

What kind of amenities are important inside office buildings themselves? Are property management teams spending more time on providing and managing these amenities?

Pritz: The amenities arms race has been going on for years. That goes to the common spaces within the building. It’s about activating those spaces, having tenant events, creating a shared experience among the tenants. It’s about getting people back together, having them spend time together. In a mixed-use environment, property managers get into the management of retail and restaurants. It’s a collaborative and cross-branding type of experience.

Certain buildings have advantages. The rules of real estate haven’t changed: It’s about location, location, location. Places with better locations have better success. Places with more walkability have more success. If you are doing a new project, those are the things I’d prioritize, creating that mixed-use experience. But that doesn’t mean that you can’t have success with older office buildings. You just have to bring the amenities to them.

It’s not necessarily about bringing in a ping-pong table. It’s about having a ping-pong table in a location where a lot of people gather. That way, everyone can be in on the game or watch it. You want to create areas in which people can gather, take a break and have their lunch. It’s about making those spaces warm and inviting. You don’t see as many old-school cube farms today. People are bringing those walls down. Today, you need to provide extensive indoor and outdoor

landscaping to help create an inviting experience that makes workers feel happy to be in the office.

Do these in-building amenities make workers more productive?

Pritz: I can’t speak to that. But they do increase people’s enjoyment at work. I think that in-person work is important. I enjoy going to an office. But you must make people feel happy about being at work. You have to give them the amenities so that they want to be in the office more frequently.

What should building owners look for when hiring a property management team?

Pritz: The baseline operational items are still the most important. That has to be expected, that your property management team will make sure the building runs efficiently and smoothly. But strong property management teams will also handle the tenant build-outs, including the legal agreements that come with them. They will provide ideas for amenitizing the building. You need to decide what type of marketing your property management team will do to promote the image of the building and not just the leasing of the property. Does the property management team offer community management? What sort of social media platforms will the team use to promote the building?

Property management has changed. We’ve added tenant service to our repertoire. But base-level operations are still important. Being able to combine the tenant services and baseline operations work into one consistent deliverable is what makes for a strong property management team.

Rob Pritz

“It’s about location, location, location. Places with better locations have better success.

Places with more walkability have more success.”

BROKERAGE FIRMS

AREA REAL ESTATE ADVISORS

4800 Main Street, Suite 400 Kansas City, MO 64112

P: 816.895.4800

Website: openarea.com

Key Contact: Tim Schaffer, Founder & President, tschaffer@openarea.com

Services Provided: Office, Retail & Industrial Landlord and Tenant Representation; Multifamily Brokerage; Property Management; Project Management; Investment; Research Analytics and Consulting.

Company Profile: AREA Real Estate Advisors is a full-suite commercial real estate firm in Kansas City.

AREA is the hometown team that plays in the big leagues. Our size and scope allow us to be nimble and apply a team-driven approach while providing best-in-class service. At AREA, we deal in real estate, but our business is relationships. We are committed to meaningful partnerships with our clients to ensure that their goals are achieved. Our goal is to exceed our clients’ expectations

Notable Transactions: Ocean Prime / Prime Social, Visiting Nurse Association, American Trailer & Storage, Ryan Lawn & Tree, Five Below, Strang Chef Collective, Professional Engineering Consultants, Vytelle, Inspired Homes, CentiMark, Clairvaux, Santa Fe Village Apartments, Arvest Bank, Arborwalk, Higher Ground Education.

BARBERMURPHY

1173 Fortune Blvd. Shiloh, IL 62269

P: 618.277.4400 | F: 618.277.4407

Website: barbermurphy.com

Key Contacts: Wayne Barber, Jr., SIOR, Principal, Wayne@barbermurphy.com; Paul Murphy, Managing Broker, Principal, Paul@barbermurphy.com; Steve Zuber, SIOR, CCIM, Principal, Steve@barbermurphy.com; Collin Fischer, CCIM, Principal, CollinF@barbermurphy.com

Services Provided: BARBERMURPHY is a full service Commercial Real Estate firm offering their clients on the ground market knowledge and experience in the disposition and acquisition of commercial, industrial, land, retail, and investment properties.

Company Profile: BARBERMURPHY is one of the top commercial real estate brokerage firms focusing on the downstate Illinois/St. Louis Region. Our growing firm has 20 Licensed Brokers and more than 500 exclusive listings.

Mission Statement: Achieving total client satisfaction through exceptional people providing the best possible Commercial Real Estate Solutions.

GERSHMAN COMMERCIAL REAL ESTATE

150 N. Meramec Ave., Suite 500 St. Louis, MO 63105

P: 314.862.9400

Website: gershmancommercial.com

Key Contacts: Chris Fox, CCIM, SIOR, President & CEO, cfox@gershmancommercial.com; Molly Studer, Chief Operating Officer, mstuder@gershmancommercial.com

Services Provided: Gershman offers an extensive array of commercial real estate services, including brokerage, landlord and tenant representation, investment sales, valuation advisory, market research, corporate services, property & facility management, project/construction management, client accounting and maintenance/engineering.

Company Profile: Gershman Commercial Real Estate is a full-service real estate firm providing comprehensive, personalized services to owners and occupiers of commercial property. With an over 75-year history in St. Louis, and firm leadership based locally, we are uniquely positioned as the longest-standing independently owned firm in the metro area.

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

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.

HUNTINGTON CONSTRUCTION COMPANY

28400 Northwestern Highway, Suite 400 Southfield, MI 48034

P: 248.353.0500

Website: huntingtonconstruction.com

Key Contacts: Andrew Gutman, President, gutman@farbman.com; vJohn 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 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: Huntington performs over 150 tenant improvement, ground-up construction, and other general contracting every year throughout all commercial real estate sectors.

Commercial Real Estate Solutions

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

PRINCIPLE CONSTRUCTION CORP.

9450 West Bryn Mawr Ave., Suite 120 Rosemont, IL 60018

P: 847.615.1515 | F: 847.615.1598

Website: pccdb.com

Key Contacts: Mark L Augustyn, COO, maugustyn@pccdb.com, James A.. Brucato, President, jbrucato@ pccdb.com

Services Provided: Principle specializes in commercial and industrial property and is committed to providing clients with the highest level of design/build construction services with an absolute dedication to each project.

Company Profile: Design/Build General Contractor established in 1999 specializing in the design and construction of Build-to-Suit, Speculative, Retail, Food Processing, Expansions/Additions, Tenant Improvements, & Specialty Facilities. Principle also has extensive experience in interior improvements, site evaluation, due diligence, and value engineering.

Recently Completed Projects include:

• 100,643 SF Spec Warehouse with space built out for tenant Vital Proteins, at 3500 Wolf Road in Franklin Park, IL.

• 18,000 SF office and manufacturing expansion for Avery Dennison, at 902 Feehanville Drive in Mount Prospect, IL.

• 41,000 SF Spec Warehouse for Midwest Star Group, at 3600 W. 127th St. Alsip, IL

SUMMIT DESIGN + BUILD, LLC

1036 W. Fulton Market, Suite 500 Chicago, IL 60607

P: 312.229.4630

Website: summitdb.com

Key Contacts: Adam Miller, President, amiller@summitdb.com; Deanna Pegoraro, Vice President, dpegoraro@summitdb.com; Jon Silvers, Business Development, jsilvers@summitdb.com

Services Provided: Summit Design + Build, LLC is a provider of full service general contracting, construction management and design/ build construction services for the commercial, industrial, multifamily residential, office/tenant interiors, hospitality and institutional markets.

Company Profile: Located in Chicago’s Fulton Market and with regional offices in Tampa, FL, Austin, TX and North Carolina, Summit Design + Build has been involved in the design and construction of over 400 buildings and spaces totaling more than 10 million square feet over the firm’s 18 year history.

Notable/Recently Completed Projects: Eli’s Cheesecake (Industrial), 2217 Loomis (Industrial), 1436 W Randolph (Adaptive Reuse Hotel), 718 Main (Multifamily), Prenuvo (Medical TI), 5691 N Ridge Ave (Multifamily).

ECONOMIC DEVELOPMENT CORPORATIONS

VILLAGE OF HOMER GLEN ECONOMIC DEVELOPMENT

14240 W. 151st Street

Homer Glen, IL 60491

P: 708.301.0632

Website: HomerGlenIL.org

Key Contact: Janie Patch, Economic Development Director, jpatch@homerglenil.org

Services: Resource center for brokers, developers, site selectors and businesses providing space and property inventory, trade area demographics, site selection assistance, custom tours, coordination through entitlement process, business opening process guidance and retention services.

Demographic Info: Strategic Will County location 25 miles southwest of Chicago with two I-355 interchanges between I-55 and I-80. Average household income of $137,577. Trade area population of 83,000. Prime commercial corridors include Bell Road, 143rd Street and 159th Street (State Route 7). 159th Street is improved with 4 lanes and access to Lake Michigan water and sanitary sewer.

Recent CRE Activity: The Square at Goodings Grove (106 townhomes) completing construction. The Villas of Old Oak (46 ranch duplexes) under construction. JC Licht now open. Restaurant with drive-thru position available at Homer Glen Bell Plaza with Pet Supplies Plus, Dollar Tree and Taco Bell, SWC 143rd/ Bell.

ECONOMIC DEVELOPMENT CORPORATIONS MICHIGAN CITY

Two Cadence Park Plaza

Michigan City, IN 46360

P: 219.873.1211

Website: edcmc.com

Key Contacts: Clarence Hulse, Executive Director - Economic Development Corporation Michigan City, chulse@edcmc.com; Karaline Cartegna Edwards, Economic Development Manager, kcedwards@edcmc.com

Services/Demographic Info: Up-to-date inventory of commercial buildings, site selection and orientation tours.

Incentives: Tax-Increment Financing, Facade Improvement Grants, Property Tax Abatements, Enterprise Zones, Revolving Loans, Job Training Programs.

Recent CRE Activity: Double Track Project: $649 Million Downtown Development reducing train travel to Chicago to 60 minutes; Michigan City Central Station: $100 Million Development with Residential & Retail Space; “You Are Beautiful:” $240 Million Mixed-Use Multifamily Development with 235-room Boutique Hotel & 150 Luxury Condos; TRG: $35 Million Downtown Workforce Housing Project; Burn ‘Em Brewing: $1.6 million expansion project with 30 new jobs.

VILLAGE OF HUNTLEY

10987 Main Street

Huntley, IL 60142

P: 847-515-5268

Website: huntleyfirst.com, huntley.il.us

Key Contact: Melissa Stocker, Marketing & Recruitment Specialist, mstocker@huntley.il.us

Services/Demographic Info: Huntley, a northwest suburban Illinois community of greater than 28,000 residents, is conveniently located at the crossroads of Interstate 90 and IL Route 47. Proximity to the interstate and to international and cargo airports in Chicago and Rockford make Huntley an ideal location for businesses looking to escape the congestion of more populated areas while reaping the benefits of a Chicago market location. Village of Huntley staff provides comprehensive services including site selection assistance and demographic resources, visit huntleyfirst.com to start the search for your new home for business. Residential construction continues with three subdivisions actively building. Huntley is home for your business, and home to the right employees for your business.

Population In Primary Trade Area: 97,283

Incentives: TIF District, Fast Track permitting and development approval process

CRE Activity: Huntley is home to leaders in business. Join Weber, Northwestern Medicine, Amazon and many others that chose Huntley as their home for business. Hampton Inn recently opened in Huntley. A second Amazon facility is currently under construction. E-Logistics firm headquarters are underway. Speculative development is underway near the tollway. Multiple retail strip centers are in the planning phases. With land available for custom-tailored facilities, businesses seeking sites recognize Huntley as a prime location for operations.

NAPERVILLE DEVELOPMENT PARTNERSHIP

22 E. Chicago Ave., Ste. 205 Naperville, IL 60540

P: 630.305.7701

Website: www.Naper.org

Key Contact: Christine D. Jeffries, President, CJeffries@Naper.org

Services Provided:The Naperville Development Partnership promotes the City of Naperville and its many businesses. Whether you are an existing business looking to relocate or a new company, we will take the time to show you what Naperville has to offer.

Company Profile: The Naperville Development Partnership is a public / private economic development organization that promotes business interest in the City of Naperville. Our mission is to enhance the economic vitality of Naperville and maintain its outstanding quality of life. This is achieved through the retention and expansion of existing businesses as well as attracting new business to the community.

LAW FIRMS

GOULD & RATNER

222 N. LaSalle St., Ste. 300

Chicago, IL 60601

P: 312.236.3003 | F: 312.236.3241

Website: gouldratner.com

Key Contact: Joe Marzo, Chair, Real Estate Practice, jmarzo@gouldratner.com

Services Provided: Counsel on nearly all real estate transactions, including purchase, sale and financing of office, industrial, hotel/hospitality and residential/multifamily development, as well as commercial and retail leasing, multiparcel assemblage, tax-deferred exchanges, management agreements, construction financing, litigation and environmental issues.

Company Profile: Gould & Ratner lawyers translate legal knowledge and business acumen into practical solutions that work for our clients, who include entrepreneurs, family businesses, and middle-market and Fortune 500 companies in real estate and many other industries in Chicago and nationwide.

HAHN LOESER & PARKS LLP

200 Public Square, Suite 2800

Cleveland, OH 44114

P: 216.621.0150

200 West Madison Street, Suite 2700

Chicago, IL 60606

P: 312.637.3000

Key Contacts: Aaron S. Evenchik, Partner, National Chair, Real Estate Group, aevenchik@hahanlaw.com; Joel T. Cooper, Partner, jcooper@hahnlaw.com

Services Provided: Our real estate practice is national in scope across all asset classes, and we assist our clients with structuring and implementing acquisitions, dispositions, joint ventures, financings (public and private), leasing, and development matters. Clients include local and national property owners, investors, developers, contractors, asset and property managers, and financial institutions.

Company Profile: With over 140 attorneys practicing from offices in Chicago, Cleveland, Columbus, San Diego, Fort Myers, and Naples, we are always focused on our clients’ missions. We render innovative solutions across multiple areas of the law and legal disciplines. We serve individuals and businesses doing business locally, regionally, and globally.

MELTZER, PURTILL & STELLE LLC

1515 Woodfield Road, Ste. 250 Schaumburg, IL 60173

P: 847.330.2400 | F: 847.330.1231

125 S. Wacker Drive, Suite 2900 Chicago, Illinois 60606

P: 312.987.9900 | F: 312.987.9854

Website: mpslaw.com

Key Contact: William J. Mitchell, Managing Partner, wmitchell@mpslaw.com.

Firm Profile: Meltzer, Purtill & Stelle LLC is a business-to-business law firm with exceptionally strong capabilities in all areas of real estate law. The firm provides a full range of transaction and litigation services to real estate developers, financial institutions, and businesses engaged in corporate, industrial, and retail development as well as financing, leasing, andinvestment.

Services Provided: The firm provides an exceptionally wide range of real estate-related services, including commercial real estate and leasing; land use, zoning, and entitlement; construction and finance-including TIF and other development incentives and commercial litigation.

REINHART BOERNER VAN DEUREN S.C.

1000 N Water Street, Suite 1700 Milwaukee, WI 53202

P: 414.298.1000

Website: reinhartlaw.com

Key Contact: Joseph Shumow, Shareholder, jshumow@reinhartlaw.com

Services Provided: Reinhart is a full-service, business-oriented law firm that delivers innovative, value-added solutions for today’s most important real estate needs, including land use and zoning; taxincremental financing; tax credits; leasing; construction; and condemnation and eminent domain issues.

Company Profile: With the largest real estate practice in Wisconsin and offices throughout the Midwest and across the country, Reinhart’s attorneys offer clients customized real estate insight rooted in broad knowledge and deep experience to help you capitalize on opportunities no matter where you do business.

SARNOFF & BACCASH

100 N. LaSalle St., Ste. 1000 Chicago, IL 60602

P: 312.782.8310 | F: 312.782.8635

Website: sarnoffbaccash.com

Key Contacts: James Sarnoff, jsarnoff@sarnoffbaccash.com; Robert Sarnoff, rsarnoff@sarnoffbaccash.com

Services Provided: Sarnoff & Baccash is a leading and recognized law firm concentrating solely in the field of property taxation. We help client’s secure favorable taxes in Illinois through property tax appeals, incentives and consulting.

Company Profile: Sarnoff & Baccash’s clients include Owners, Developers, Managers, REIT’s, Fortune 500 Companies, Private Equity Firms, etc., in connection with commercial property, high-rise and low-rise apartment buildings, condominium associations and single-family home portfolios.

ULMER & BERNE LLP

1660 West 2nd Street, Suite 1100

Cleveland, OH 44113

P: 216.583.7000

Website: Ulmer.com

Key Contact: Lori Pittman Haas, Group Leader, Real Estate Practice; lhaas@ulmer.com

Firm Profile: Ulmer & Berne, established in 1908, focuses on exceeding client expectations and delivering superior, customized legal solutions for an exceptional value. From offices in Cleveland, Cincinnati, Columbus, Chicago, New York, Washington, D.C., and Boca Raton, Ulmer’s attorneys handle cutting-edge, complex matters on a national basis across all practice areas, while retaining the work ethic, rates, and user-friendly attitudes reflective of the firm’s Midwest origins.

Services Provided: All aspects of commercial real estate, including but not limited to: urban development, multi-family development, and shopping center development; environmental issues; tax credit enhancements for financing, such as New Markets Tax Credits, Historic Tax Credits, and Low Income Housing Tax Credits; private and public financing; property taxation; eminent domain; land use; tax-deferred exchanges; leasing (retail, office, and industrial/warehouse); acquisitions and divestitures, including skilled nursing and assisted living facilities; and portfolio transactions.

WORSEK & VIHON, LLP

180 North LaSalle Street, Suite 3010 Chicago, IL 60601

P: 312.917.2307 P: 312.917.2312 | F: 312.596.6412

Website: wvproptax.com

Key Contacts: Francis W. O’Malley, Managing Partner fomalley@wvproptax.com; Jessica L. MacLean, Partner jmaclean@wvproptax.com

Services Provided: Worsek & Vihon, LLP represents tax payers in Illinois by limiting their property tax liabilities through ad valorem appeals. We have over 35 years of experience and can handle basic to the most complex assessment issues while offering the dependable, personalized attention our clients deserve. We have experience representing owners of all property types. In addition to filing thousands of appeals with the Cook County Assessor, we have been involved in numerous proceedings before various Boards of Review, the Illinois Property Tax Appeal Board, and the Circuit Court of Illinois, and have appeared before the Illinois Appellate and Supreme Courts.

Company Profile: Worsek & Vihon LLP, is a team of experienced attorneys singularly focused on real estate tax law. The firm is dedicated to minimizing property tax liabilities through strategic tax portfolio management, well-researched, creative appeal preparation and aggressive advocacy.