November December Midwest Real Estate News

How strong is the commercial real estate market in St. Louis? That depends on what you mean by ‘St. Louis’

By Dan Rafter, Editor

Is demand strong for commercial real estate in St. Louis? Are investors looking for industrial and mul tifamily space here in which to sink their dollars? Are vacancy rates falling in retail strip centers? Are companies searching out Class-A office space?

The answers depend upon how you define the St. Louis area.

As with most major cities today, St. Louis’ downtown area is in flux. Development has slowed here, and far too much office space in the city’s center remains empty. Restaurants are closing early, and many never

re-opened after COVID-19 shutdowns. Uncertainty reigns in downtown St. Louis.

But throughout the suburbs and the rest of the far-larg er St. Louis County area? That’s different. Demand for industrial space throughout the county is soaring. Rent ers are flocking to multifamily buildings in walkable communities. Retailers are applying the strategies they embraced during the pandemic to keep the customers coming.

And investors? They see commercial real estate in St.

Emerging Trends in Real Estate Report: Commercial real estate enters its “new normal” period

By Dan Rafter, Editor

A new normal. That’s what the COVID-19 pandemic has brought to the commercial real estate market, especially in the office and retail sectors.

That’s the conclusion from the Emerging Trends in Real Estate 2023 report from the Urban Land Institute and PwC US. This report, released each year, includes proprietary data and insights from more than 2,000 real es tate industry experts. And this year’s edition -- in little surprise -- focuses on the way the

One Cardinal Way, a luxury apartment development in St. Louis’ Ballpark Village, is a draw for those renters who do want to live in the urban core of the city.

A strong St. Louis CRE market?

That depends: Is demand strong for commercial real estate in St. Louis? Are investors looking for industrial and multifamily space here in which to sink their dollars? The answers depend upon how you define the St. Louis area.

Commercial real estate enters its new normal: A new normal. That’s what the COVID-19 pandemic has brought to the commercial real estate market, especially in the office and retail sectors. That’s the conclusion from the Emerging Trends in Real Estate 2023 report from the Urban Land Institute and PwC US.

Louisville still steady, still resilient: Consistent. Steady. Resilient. Those are three key words that Craig Collins, senior director with Cushman & Wakefield|Commercial Kentucky, uses to describe the Louisville commercial real estate market.

No signs of an industrial slowdown in Indianapolis: Rising interest rates and persistent inflation haven’t been enough to slow development or demand in Indianapolis’ industrial sector.

RREAF Holdings sees a bright future in Indianapolis’ multifamily market: RREAF Holdings LLC acquired a portfolio of 10 multifamily properties with more than 2,755 units. Two of those properties are located in suburban Indianapolis, a departure for RREAF, which usually focuses its acquisitions in the southern portion of the country.

A shaky third quarter for the Midwest’s commercial real estate markets: The United States faces plenty of economic uncertainty as the Federal Reserve Board continues to hike its benchmark interest rate in its efforts to combat rising inflation. And that uncertainty is spilling over into commercial real estate, as investors grow more cautious.

All those remote workers and only a 2-minute drop in commute times? Doesn’t seem fair

By Dan Rafter, Editor

The move to remote work continues to shake up the U.S. office market, with office vacancies reaching all-time highs in many cit ies during the third quarter of 2022. But more people working from home should come with at least one posi tive: a reduction in commute times as fewer cars clog U.S. highways.

The problem? The commute time for the average worker has dropped since the start of the COVID-19 pandemic. Unfortunately, it’s only dropped by about 2 minutes.

That’s the finding from a report re leased Oct. 31 from Yardi Kube. Yardi reported that in 2019, 94% of the U.S. workforce was commuting and 8.9 million people worked remotely. That resulted in an average time of travel to work of almost 28 minutes.

In 2021, 27.6 million people worked remotely, resulting in about 18.6 mil lion fewer commuters. The average time for commuters to travel to work in the United States that year fell to 26 minutes.

That isn’t much of a drop, but Yardi reports that this dip of 2 minutes equals about 8.5 hours in commute time saved a year for the average commuter.

But why isn’t the drop in commute times even higher with so many more employees working remotely? Yardi points to commuter habits.

Last year, more than 126 million work ers 16 and older were commuting to work each morning. The company’s analysis of U.S. Census Bureau data shows that across the United States 67% of these commuters leave for work between 6 a.m. and 10 a.m. The busiest timeslot for the morning commute is between 7 a.m. and 7:29 a.m., when more than 18 million peo ple leave for work, or about 14% of total commuters.

The next busiest time slots are 7:30 a.m. to 7:59 a.m. and 8 a.m. to 8:29 a.m., with 12% and 11% of commuters

leaving for work during these times.

Yardi’s research finds that commuters can save a significant amount of time on their travel to work by delaying or advancing their time of departure to work by just half an hour.

Consider Chicago. If commuters leave

for work at 6:30 a.m. instead of 7 a.m. or after 8 a.m., they can save an aver age of 17.2 hours in commute times every year. This change can make an even bigger difference in Dallas. Yardi reports that commuters here can save an average of 22.2 hours a year by leaving at those same times.

And in Austin, Texas? Commuters can save a whopping 31.4 hours a year in travel times by leaving at 7:30 a.m. instead of 8 a.m. or 9 a.m. instead of 8:30 a.m.

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LOUISVILLE

Still steady, still resilient: Louisville weathering the COVID hangover and rising interest rates

By Dan Rafter, Editor

Consistent. Steady. Resilient. Those are three key words that Craig Collins, senior director with Cushman & Wakefield|Commercial Ken tucky, uses to describe the Louisville commercial real estate market.

As Collins says, Louisville doesn’t experience sudden highs when it comes to real estate values. The market doesn’t get hit with surges of new developments. Occupancy levels tend to remain steady. At the same time, Louisville’s commercial real estate market doesn’t see big dips in demand or value when the country’s economy struggles.

That steady nature is a positive today, when the U.S. economy is struggling with persistent inflation and investors are pulling back as the Fed continues to raise its benchmark interest rate.

As Collins says, Louisville’s commer cial real estate market, especially the multifamily and industrial sectors, have so far proven resilient during the post-pandemic hangover and the country’s current economic uncer tainty.

And Collins doesn’t expect this to change: As he says, Louisville has consistently weathered rough mar kets before.

“Louisville has always been known as a steady Eddie market,” Collins said. “We don’t have big spikes up or big spikes down. We just have steady occupancy and steady construction volume. Period.”

The Louisville advantage

What factors have led to the resilient nature of Louisville’s real estate mar ket? Collins pointed to the region’s diversified employment base. Louis ville is home to the headquarters of Humana and a massive UPS distribu tion center. Ford and General Electric operate big manufacturing plants here, too.

The city also boasts several national and regional headquarters of compa

nies specializing in everything from finance to life sciences.

“The diversity of industry allows our Louisville market to be much more predictable,” Collins said. “You don’t have as much speculation as you

do in a market like, say, Nashville, where you have explosive growth. You historically have not seen that much speculative building in Louis ville. Louisville tends to have more programmatic development.”

As in most markets, certain sectors are performing better in Louisville than are others. One of the stars? The multifamily sector. Collins said that multifamily throughout the Louisville market continues to see high occu pancy rates.

The Two Olympia building is an example of a Class-A Louisville office building that continues to attract tenant interest.

“Louisville has always been known as a steady Eddie market. We don’t have big spikes up or big spikes down. We just have steady occupancy and steady construction volume. Period.”

This is partly because Louisville doesn’t have much speculative multi family development. Because of this, when new apartment developments are built, they tend to fill up quickly at solid monthly rents.

As with many other large cities, Louis ville doesn’t have enough multifamily product to meet the demand for it. That, too, is keeping vacancies low and rents at solid levels.

“There is, generally, a housing short age in Louisville,” Collins said. “And that allows multifamily developers to build new product and get that prod uct absorbed in an orderly fashion. Because we have lower supply than other markets, that generates rising rents.”

How strong have apartment rents been? Collins said that in the late summer and early fall of this year, the local multifamily sector saw an average year-over-year monthly rent growth of 9%.

That rent growth has slowed recently, Collins said. Some of that is because of seasonality. As Collins says, many people don’t want to move late in the year or during the winter months. But while rent growth has slowed, absorption and occupancy levels are still strong in the Louisville market, Collins said.

Certain submarkets are seeing an especially strong multifamily market today, Collins said. He pointed to suburban Louisville and the Southern Indiana market as examples where occupancy levels are especially high.

The impact of the new Ford plant located just south of Louisville is a positive for the apartment market, too. As Collins says, those new jobs are bringing new residents, and they need a place to live.

“We anticipate that the housing mar ket will be very strong in Louisville for the next several years because of housing demand and the new job growth we have in the community,” Collins said.

Downtown challenges

The multifamily market, and other com mercial sectors, aren’t performing quite as well in downtown Louisville, though. This isn’t unusual: The downtowns of many big cities across the Midwest are struggling today thanks to the hang over of the COVID-19 pandemic, the rising number of workers who are no longer commuting to downtown offices and the fears associated with rising rates of crime.

Collins said that downtown Louisville’s office market is seeing some of its high est vacancy rates in the last 35 years. Collins, though, hopes that the arrival of a new mayor in 2023 – Louisville held its mayoral election on Nov. 8 this year

– will lead to more efforts to reduce crime in downtown Louisville and ease the fears of both tourists and residents. The mayoral candidates had stressed the importance of safety during their campaigns.

“You are seeing that across the coun try,” Collins said. “Downtowns are struggling to come back. In Louisville, it is unusually unsafe today. Louisville has always been a very safe commu nity. But the current social unrest has made office tenants hesitant to return to the downtown market. We are hope ful that the new mayor will take steps to improve safety, allowing office tenants to return. Once they return, that will also benefit the apartment communi ties that are in the downtown market.”

“Commercial real estate is still an attractive investment to people, even with rising interest rates,” Collins said. “Real estate is a great investment in an inflationary environment.”

Back to the office?

Are employers in Louisville bringing their workers back to the office? That’s a complicated question.

Many major employers, such as Hu mana, are still finalizing their back-tothe-office plans. And until the city’s biggest employers do that, downtown will seem quieter during the workday.

Collins, though, said that convention traffic has largely returned to down town as has traffic from the city’s bourbon tourism. That is bringing energy back to downtown, he said.

“It is quieter downtown than it was pre-COVID. That is true,” Collins said. “But some activity has returned. We are not at full capacity, but we are hopeful that a new mayor will be the cheerleader to bring businesses back to downtown and provide a safe, sta ble living and working environment.”

Like other urban markets, Louisville is seeing a flight to quality in the office sector. Companies often need less of fice space today as many of their em

ployees continue to work from home. Because they don’t need as much space, these companies are often renting higher-class office space: They can get this space without spending more money because they don’t need as much square footage.

Demand, then, for Class-A office properties is higher than it is for low er-class space, Collins said.

He points to Two Olympia, a Class-A, top-of-the-market office building in the Summit Ridge neighborhood of Louisville. Cushman & Wake field|Commercial Kentucky sold the property in 2022 for $38.7 million.

“We are seeing tenants moving to ward the top of the market,” Collins said. “In Louisville, there isn’t that much of a stretch between the rent for a Class-B office building and the rent for a Class-A property. For that lit tle bit of premium, tenants will move to the Class-A buildings.”

The suburban Louisville office market also remains stronger than the down town market, Collins said. Rents in

the suburban office market are rising, standing almost a dollar higher now than where they rested a year earlier.

Solid retail performance

The retail sector in Louisville is holding its own, too, Collins said, with demand especially high for gro cery-anchored retail. Both investors and tenants are seeking out these retail properties, he said. And in good news, supermarket chain Publix has announced that it is opening two stores in the Louisville market.

“Commercial real estate is still an attractive investment to people, even with rising interest rates,” Collins said. “Real estate is a great invest ment in an inflationary environment. It’s a good place to be when you have a high rate of inflation. If the cost of reproduction is going up, the pur chase today will generally be below the replacement costs tomorrow. For a long-term hold, inflationary periods are beneficial to the buyers of real estate.”

This doesn’t mean that rising interest

rats aren’t having an impact on Louis ville’s commercial real estate market. Some deals have been scuttled as interest rates rise. Rising rates are also putting pressure on the pricing of commercial real estate assets. This isn’t surprising: As interest absorbs more of the cash flow of investors, the less they can spend on acquiring an asset.

The next several months will probably feature even more uncertainty as the Fed continues to raise its benchmark rate. Collins, though, said that he expects investors to continue to sink their dollars into Louisville’s com mercial real estate assets. After all, real estate remains one of the safest investments today.

“I do think investment sales will con tinue,” Collins said. “There are still quality assets that will need to be refinanced or sold, and over the next year or two years there will still be activity. But what will change is that the casual seller will most likely not sell in this environment.”

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An industrial slowdown? No signs of that in Indianapolis

By Dan Rafter, Editor

Jimmy Cohoat, senior vice president with the India napolis office of Colliers, has closed more than $600 million in transactions since joining the brokerage as an industrial specialist in 2014. It’s safe to say that Cohoat knows the Indianapolis indus trial market.

And his views on the industrial sector in Indianapolis and its suburbs? De mand is still high for industrial space. Investors are still sinking their dollars into industrial assets. And developers aren’t shy about bringing new indus trial space to the Indianapolis market.

Rising interest rates, supply chain disruptions and persistent inflation are challenges. But Cohoat says that the Indianapolis industrial market is strong enough to overcome these hurdles.

Midwest Real Estate News spoke to Cohoat about the long-running strength of the Indianapolis industrial market. Here is what he had to say.

Is demand still high for industrial space in the Indianapolis market?

Jimmy Cohoat: We are still seeing a lot of industrial space under construction. We have about 28 million square feet of industrial space under construction now, which is a lot for a market of our size. The demand is still tracking with that. In 2021 we had record construc tion, leasing and absorption numbers in our industrial market. We are on the same kind of pace this year.

We’ve also signed about 21.5 million square feet of new industrial leases through the third quarter in this mar ket. That is slightly higher than where we were at the same time last year, which was a record year. The fourth quarter so far has remained active with tenant demand.

Why has demand for industrial space remained so high for so long?

Cohoat: The continued shift to ecom merce and getting customers their desired goods quicker has made an

impact on the industrial sector. The Amazon effect is real. Everyone is competing with it. We continue to see more not just national distribution hubs but regional hubs to get custom ers their products as fast, conveniently and cost-effectively as possible.

How have the changes consumers made during COVID continue to fuel industrial demand?

Cohoat: It’s been an additional shot in the arm. Everybody had to get used to shopping online. It was the only way to get stuff for a short period of time. Then people realized how convenient it was to shop online. A lot of those habits have stuck since COVID.

What makes Indianapolis such a good place for industrial users?

Cohoat: Indianapolis benefits from being centrally located in the country. We have a great interstate system. Additionally, compared to many of the larger coastal markets, we are relatively cost-effective here. Rents have grown quite a bit here, but compared to some of those coastal and larger markets, we are still relatively inexpensive. We have the opportunity to push rents and still be below some of our competing mar kets, which benefits Indianapolis.

We have a lot of flat land here, too, and a business-friendly environment. That continues to attract companies to Indianapolis.

Are there any major industrial devel opments taking place now that you

think will have a significant impact on the Indianapolis market?

Cohoat: Walmart is well-documented to be planning a 2.2-million-square-foot hub on the east side of Indianapolis. They are in the process of working on that. That will be one of if not the larg est industrial buildings in the market. Then we have a number of other mil lion-square-foot speculative buildings, some of which have been pre-leased, coming to the market. We are seeing a jump in larger tenants coming to In dianapolis compared to what we saw pre-pandemic.

Cohoat: One, we are delivering all the construction. Developers are doing a nice job of getting sites entitled and maxing out these sites to be as efficient as possible. Then, as ecommerce con tinues to grow, companies need space fast. Indianapolis can accommodate these companies. It’s a bit of the old if you build it, they will come situation. And we are building a lot of it.

Why are these larger tenants coming to Indianapolis?

Jimmy Cohoat

The industrial market remains strong throughout the Indianapolis market. (Photo courtesy of The Opus Group.)

Cohoat: We are doing a nice job of supplying enough product to meet the demand. We have a nice balance at the moment. We are probably a little light on the smaller- to mid-size product. That type of product is get ting gobbled up at a good pace. There is room for more of those buildings to come online and get absorbed.

Cohoat: Yes. A good number of build ings are pre-leased before construc tion is complete. They might start off as speculative space but then get leased before construction ends. The larger spaces typically end up as single-tenant buildings. There is a lot of pre-leasing in that end of the market. Sometimes companies will pre-lease the space and expand the building from 800,000 square feet or 900,000 square feet to 1 million or 1.2 million square feet. They are taking a building and expanding it before they get into it.

Cohoat: Rates have had less of an effect on the demand side. Demand remains strong and it will continue to be strong throughout the balance of the year. You never know what will happen in 2023. That’s what everyone is trying to figure out. On the devel opment side, rising rates are making conversations tougher. It can be hard to convince lenders to loan money. Construction costs are high. Deals are harder to pencil in during this current

interest-rate environment. Develop ers are taking a step back and making sure to do their due diligence and find quality sites.

There is a lot of uncertainty in the economy today. What do you think this will mean for the industrial sec tor in 2023?

Cohoat: I think 2023 will be another strong year. If you look at 2021 and

2022, they are basically the best two years in the history of industrial leas ing. To compare every year to the best years would be unfair. If you compare 2023 to how we’ve done historically, next year will probably be above the average. We will have the industrial product available. There are plenty of positives to doing business in In dianapolis. That will keep our market strong and healthy.

Is there enough industrial product in the Indianapolis market to meet demand?

Is industrial often getting pre-leased even before the buildings are com plete?

What impact have rising interest rates had on demand for industrial?

Louis County as a safe bet for their dollars.

What is uncertain is how long this split between downtown St. Louis and its surrounding communities will remain. For that, the commercial real estate community – as is common today in many major cities – is firmly in waitand-see mode.

What you see depends on where you look

James Fredericks, partner with the St. Louis office of law firm Armstrong Teasdale, said that the difference between commercial real estate devel opment, sales and leasing activity is stark between downtown St. Louis and the rest of the St. Louis-area market.

“You are still seeing growth in other areas, but not in downtown St. Louis,” Fredericks said. “The downtown has its own problems. I have friends who won’t go to a baseball game downtown because they are afraid of crime. The restaurants close early. The residential community downtown should be in creasing and appears to be dwindling in the core area except for the Ballpark Village development.”

St. Louis isn’t alone in this. Across the Midwest downtowns from Chicago to Minneapolis are struggling to bring the crowds back. Part of the problem remains the office sector. With so many people working from home, companies don’t need as much of fice space. All that empty space, and the reduction in daytime workers, is making running restaurants and retail spaces in downtowns more challeng ing, resulting in more closures and shorter operating hours.

Then there are safety issues. Many are worried about increasing crime rates in their downtown centers. That is keeping more tourists and residents alike from visiting the entertainment venues, museums, restaurants and shops of their downtowns. Until peo ple again feel safe in their downtowns, these urban centers will struggle.

St. Louis has a unique challenge, too: As Fredericks says, St. Louis’ down town offers dozens of entertainment areas. But these entertainment dis tricts are smaller than the ones visitors would find in cities with urban centers

that rely on only one or two entertain ment centers.

“Having all these entertainment dis tricts is great for people who live in St. Louis. For me, I don’t have to get bored going to the same place all the time,” Fredericks said. “For someone coming from another city, though, there is no real one place to go. That is part of the problem with the development activity in downtown. The downtown area is great if you live here, but a lot of people who don’t live in the downtown area don’t feel like searching for all these different entertainment areas, not when they are so spread out.”

Differing markets, differing results

Andrea Kendrick, managing director of investment sales in the St. Louis office of Berkadia, agreed that commercial real estate activity in the St. Louis market as a whole has been strong. She pointed to research from Berkadia

showing that commercial deal activity hit a historic high in 2021 both nation ally and in St. Louis.

Deal activity has been slowing, though, near the end of this year, prob ably because of rising interest rates. Berkadia’s numbers show that while the multifamily sector in St. Louis, for example, is outperforming other asset classes, deal activity was down in the third quarter of this year in this sector by 30% year-over-year.

“The capital markets landscape will continue to change rapidly,” Kendrick said. “Capital remains available, but investors have become more selec tive. We may see more loan assump tion transactions as well as buyers and sellers becoming more creative with debt options.”

But in downtown St. Louis? Deal activ ity remains sluggish. Fredericks points out that the downtown core has seen

very few new buildings during the last two decades. But the Clayton sub market, which is just 10 miles away, is extremely hot, one that is attracting a steady stream of new development.

That highlights Fredericks’ second big point: Yes, development and commer cial activity is sluggish in downtown St. Louis. But the communities sur rounding the urban core and those dotting St. Louis County are seeing strong leasing, sales and development activity in several commercial sectors.

An example? The multifamily sector is booming throughout suburban St. Louis communities, Fredericks said.

“People like the concept of being near the city of St. Louis,” Fredericks said. “We have good entertainment. We have one of the best-run baseball teams in America. People do want to live here. It is convenient and inexpen sive. But they don’t necessarily want to live in downtown St. Louis. They do want to live in suburban areas like Webster Groves, Maplewood and Clay ton. Those areas are on fire for multi family demand. These areas are where investors are buying up buildings to turn them into multifamily properties.”

Kendrick said that there are several reasons for the strength of the indus trial and multifamily sectors in St. Louis.

One of the most important? For many St. Louis residents, it remains more af fordable to rent an apartment than it is to own a single-family home, Kendrick said. And as interest rates rise, this doesn’t look ready to change.

“With higher mortgage rates and con tinued market volatility, we’ve seen the cost of buying deterring homeown ership,” she said. “Although multifam ily experienced record rent growth, renting still remained cheaper.”

St. Louis’ third-quarter monthly effec tive rent of $1,220 was about 80% of the median monthly mortgage pay ment, Berkadia reported. This means that renting an apartment is an easier financial choice for many St. Louis res idents, something that will keep the multifamily market strong.

And the industrial market throughout St. Louis County? It is thriving, too.

ST. LOUIS (continued

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“The industrial market can’t be stron ger,” Fredericks said. “St. Louis is in the middle of the country. It has access to multiple highways and railroads. From what I’m hearing from brokers and investors, developers can barely find enough land to build the next warehouse or industrial building. As a result, the price-per-square-foot on warehouse space has gone up in the St. Louis metro area.”

St. Louis has a price advantage in the industrial market, too. Kendrick said that businesses can rent industrial space in the St. Louis market for lower monthly payments than they can in several other Midwest markets.

Kendrick also pointed to employment growth as helping to fuel the industrial market across the country. In Septem ber of 2022, employment hit 99% of the pre-pandemic high of February, 2020. Manufacturing added 2,800 jobs annually and transportation, warehousing and utilities added 2,200 jobs through September of 2022.

The office market provides yet more evidence of the divide between down town St. Louis and the rest of St. Louis County.

Berkadia research shows that the over all St. Louis-market office occupancy rate stood at 89.4% in the third quarter of this year, slightly outperforming the national average of 87.6%. St. Louis is also outperforming some major Midwest markets, including Chicago, which saw its office occupancy settle at 85% in the third quarter of this year, and Detroit, which saw this number hit 88.5%.

Kendrick said that the office market is seeing some positives as several of St. Louis’ biggest employers institute re turn-to-office plans. This includes BJC Healthcare, Washington University, Mercy, Boeing and SSM Health.

But not all submarkets are seeing as many positives. As Fredericks says, the downtown St. Louis office market is struggling today. That is impacting re tail in these buildings, too. Fredericks says that office workers in downtown leave their buildings and go home without stopping at the restaurants and shops in their own buildings.

Large firms have moved from down town to the suburbs, adding to the stagnant downtown office sector, Fredericks said.

Areas such as Webster Groves, Ches terfield, Clayton and Maplewood are walkable and bikeable. The restau rants are full of people. The shops are busy. It’s a better atmosphere, both for workers and multifamily residents, Fredericks said.

“Life is short,” Fredericks said. “It’s nice to live in a live-work-play area. I live two blocks from where I work and I am working for one of the largest law firms in the metro area of St. Louis.”

The retail sector in the St. Louis market is holding its own. Kendrick pointed to several new retail developments as evidence that there is life in this sector. This includes a Bass Pro store under construction in suburban Sunset Hills, Meijer opening its first St. Louis-area grocery store and Walmart’s an nouncement of a $240 million invest ment to update its Missouri stores.

The threat of rising interest rates

Commercial brokers, developers and lenders are concerned with the impact of rising interest rates. These higher rates have already scuttled some de velopment and investment deals, in St. Louis and across the Midwest.

Fredericks, though, said that the in dustrial sector in particular is poised to overcome the hurdles of rising in terest rates. The fundamentals of the industrial market are just too strong, he said.

“It is a trend in America to order items by mail. As a result, companies want to get you your products in one or two days or even one or two hours as opposed to one or two weeks,” Fred ericks said. “Because of this, there are still a lot of warehouses going up.”

Office blues?

Jason Breden, Vice President

The Ballpark Village development remains one of the stronger downtown-area projects.

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commercial real estate industry has evolved since the onset of the COVID19 pandemic in 2020.

The report also looks at the more recent headwinds facing the commer cial real estate industry, rising interest rates and persistently high inflation. These two factors are already having an impact on the demand that inves tors have for commercial assets.

Midwest Real Estate News spoke with Byron Carlock, real estate leader for PwC US, about the report and its findings. Here is some of what this in dustry expert with more than 28 years of experience had to say.

Let’s start with the hot topic of the day: What impact are rising interest rates having on commercial real es tate deals?

Byron Carlock: Interest rates today are two-and-a-half to three times higher than what people might have been seeing when they began their underwriting on construction projects or acquisitions. The constriction that these higher rates have had on the capital markets is very clear. There

is still some funding out there, but at lower loan-to-cost ratios. More deals are going to the non-bank funds that are standing on deck waiting for the deals that traditional banks are now passing on.

Commercial real estate transaction volume has fallen dramatically in the last 60 days. The question now is how much will the industry readjust to these higher rates?

Have the interest rate hikes been too sudden? Would it have been better for the Fed to raise its rate at a more gradual pace?

Carlock: The Fed wanted to send a signal very quickly to help reduce asset inflation. There is talk about how a healthy economy might have a 5% to 6% unemployment rate. We are now at 3.5%. This rapid escalation of the Fed’s rate, then, was designed to let some air out to the tires of this economy very quickly. Sadly, it has. What is interesting to me, though, is that the demand for certain product types is still very healthy. Multifamily housing, especially, is still in high de mand. We are still an under-housed society. The developers that are trying to meet the need this country has for new housing were caught flat-footed

by these interest-rate hikes. Their deals might no longer meet under writing criteria.

Given the uncertainty of the economy, do investors still view commercial real estate as a good investment?

Carlock: Real estate has always been viewed as a safe haven in times of in flation. Those who can increase their allocations in real estate seem to be wanting to do so. Those who are not able to do so are hampered by the denominator effect. Their valuation doesn’t get them to the margins they need to get to other assets such as real estate. But in general, people do still view real estate as a good investment. In today’s market, some of the alternative assets such as data centers, life sciences facilities and self-storage facilities are seeing great competition from investors.

There is still great concern, though, about the office sector. The post-pan demic reality is that owners have to redesign spaces to inspire people to want to come back to the office, to make it an enjoyable as opposed to obligatory experience. Building owners are redesigning office spaces for this new normal. Today, it’s about going to the office for collaboration,

planning, mentoring and training, not to do the head-down work in a cubicle.

Are more office tenants seeking Class-A space to inspire their work ers to come back to the office?

Carlock: That is one of the big chang es coming out of the pandemic, the rising demand for Class-A-plus office space. The rates people are willing to pay for that higher class of building are very impressive. But what hap pens to the lower-class office space? There is a lot of talk about converting these spaces to alternative uses. Some cities are offering incentives to encourage these conversions. They might need more multifamily hous ing, so they are encouraging owners to convert their obsolete office build ings into apartments.

This will force some hard decisions about our existing office space. The downtown buildings with large floor plates built from the ‘60s to the ‘80s might need a change. That’s signifi cant because about 80% of our office stock was built in the ‘80s or before. We will see a great change in which office space is relevant and which is not.

Are you seeing more apartment rent ers moving to the suburbs following the pandemic?

Carlock: There is evidence that the pandemic did reopen the suburbs after years of us talking about the suburbs being dead. There’s a big difference when the commute to the city for work is now two or three days a week instead of five. During the pandemic, we saw tremendous numbers of people moving further out from the city as they gained per mission to work remotely. Apartment rents in most of the gateway cities are at or above their pre-pandemic levels. People are moving to the suburbs to get some relief from that. The move to the suburbs is a comment on afford ability and the flexibility that comes from working remotely.

Are more companies moving their of fice spaces to less expensive but still large cities now that so many of their employees are working remotely?

Carlock: We have seen more migra tion southward. People have chosen to move to business-friendly environ ments with relative affordability and

TRENDS (continued from page 1)

Sean Pollock for unsplash

easy access to a talent base. They are moving to cities like Nashville, Austin, Dallas and Phoenix. We can’t ignore the attractiveness of business-friend ly, low-income-tax states like Texas and Tennessee.

Just look at Nashville. It’s hard to go there and not say, ‘My goodness. I can see myself living here.’ It’s a busi ness-friendly environment. There are talented workers available. Some of the financial services businesses that have moved to Nashville from New York thought that they might have a hard time persuading their New York City workers to move to Nashville. But it turns out that those workers love living in Nashville.

This issue of mobility and the at tractiveness of cities and states is something worth noting for cities struggling to keep their businesses. Just look at the corporate relocations and exodus we’ve seen in Chicago. Some of these cities that are losing businesses might need to move away from the tax-and-spend policies they’ve relied on in the past.

What should cities do today to keep not only their businesses but to inspire people to want to move to their multifamily properties?

Carlock: Can we re-imagine our cities? As polarized as we get in this country about political and social issues, we can all agree on the importance of art, green space, gathering spaces and music. Our major city cores continue to offer all of that. You can’t recreate

the depth of culture that has been developed during 100 years or more in our cities. If we could move away from the political polarization to think about making our cities better and more attractive for people, that could make a major difference in our country.

That’s a lofty goal, but it is doable. There is an emotional draw to the urban core. History has taught us

that. Just look at Chicago. It has such wonderful architecture and culture. If we could solve some of the big prob lems cities face and focus on the cul ture and beauty that they provide, we can make a dramatic improvement in our country’s health. We need to find a way to improve the collaboration between public and private funding to do greater things to reimagine our cities.

Byron Carlock

“There is evidence that the pandemic did reopen the suburbs after years of us talking about the suburbs being dead.”

Targeting Indianapolis: RREAF Holdings sees a bright future in this Indiana city’s multifamily market

By Dan Rafter, Editor

Earlier this year, RREAF Hold ings LLC acquired a portfolio of 10 multifamily properties with more than 2,755 units. Two of those properties are located in suburban Indianapolis, a departure for RREAF, which usually focuses its acquisitions in the south ern portion of the country.

But RREAF’s move provides yet more evidence that Indianapolis and its surrounding communities are bless ed with a thriving multifamily mar ket, one that is attractive to even the most active real estate investment firms in the country.

Just ask Graham Sowden, a partner with RREAF Holdings and the compa ny’s director of acquisitions. He said that the Indianapolis market has long been on his company’s radar, and the properties it purchased –both with the potential for value-add investments – will provide a boost to RREAF’s bottom line.

“Historically, we have focused on buying properties in the secondary and tertiary markets in the south and southeast,” Sowden said. “The two properties we got in Indianapolis, though, exhibit some of the same economic demand drivers that we are always looking for. They are in markets with a high-growth popu lation. And there is a need for this type of multifamily product in these markets.”

RREAF Holdings, working in partner ship with 3650 REIT and real estate investment and financial services firm DLP Capital, announced the ac quisition of its Southeast Multifam ily Portfolio III in early October. The portfolio’s other eight properties are in Arkansas, Georgia, Mississippi, North Carolina, Oklahoma and South Carolina.

The acquisition marks the trio of companies’ third portfolio acquisi tion in less than 12 months.

Sowden said that demand for multi family properties remains especially high in suburbs located near major

cities. That is the case for the Indi anapolis-area properties that RREAF acquired: There is a lack of affordable housing options in these areas, and the properties that RREAF purchased can help fill this need.

Sowden said that after acquiring multifamily properties, RREAF typi cally renovates apartment buildings that were built in the ‘80s, ‘90s and early 2000s.

“We’re looking to improve the build ings that haven’t been touched for a long time,” Sowden said.

RREAF also brings in professional property management firms to run the properties, something that Sowden says enhances the experi ence of residents.

Contractors will tear out old car peting in units and replace it with vinyl plank flooring. They’ll replace Formica countertops with stone and install subway tile backsplashes. They’ll add modern light fixtures and stainless-steel appliances, all to modernize the living spaces.

The key, though, is that even after

these updates, the monthly rents at these units will still fit in the afford able category.

“Those are the types of improve ments that renters are looking for as they are looking for a place to live,” Sowden said. “They want to have more modern features. Having those amenities helps attract more residents to our apartments versus others in the area.”

Graham Sowden

“They (the renters)want to have more modern features. Having those amenities helps attract more residents to our apartments versus others in the area.”

Think Beyond the Build.

Rising interest rates? Soaring inflation? The pandemic hangover? They all played a role in the third-quarter performance of commercial real estate markets across the Midwest

By Dan Rafter, Editor

The United States faces plen ty of economic uncertainty as the Federal Reserve Board continues to hike its benchmark interest rate in its efforts to combat rising inflation. And that uncertainty is spilling over into commercial real estate, as inves tors grow more cautious.

It’s all led to a tumultuous end of the year for CRE markets in the Midwest.

Just how are Midwest markets weath ering the COVID-19 hangover, rising interest rates and persistent infla tion? It depends on the city and the sector.

The office blues in the Twin Cities

For example, the office sector is struggling across the region. A good example? The sluggish performance of this sector in the Twin Cities.

Office buildings in Minneapolis and St. Paul are feeling awfully empty these days, according to the latest research from Newmark.

In its third quarter Minneapolis-St. Paul Office Market Report, Newmark reported that the region’s office va cancy rate continues to rise, hitting 15.3% in the third quarter. That’s up 30 basis points from the previous quarter.

The Twin Cities office market also recorded negative net absorption of 343,676 square feet during the third quarter.

These numbers aren’t surprising. Office markets across the United States continue to struggle as com panies allow more of their workforces to work from home. With this trend showing few signs of slowing, office tenants are increasingly downsizing, needing less square footage for their offices.

The office market continues to struggle as companies devise their return-to-the-office plans.

This has also led to a flight to quality, one that is clear in the Twin Cities market. Older office space is suffering from especially high vacancy rates today while more companies move to Class-A offices. These tenants can afford this more expensive space be cause they need less of it.

Consider the performance of Class-A office space in the Twin Cities market. Newmark reports that Class-A asking rates stood at $35.75 a square foot in the third quarter and have increased 220 basis points since the third quar ter of 2021. Overall office asking rates saw an increase of 70 basis points during the same time.

This has led to developers targeting outdated office space with the goal of converting them to live, work and play developments.

Despite this rather muted outlook,

the Newmark report pointed out several larger office transactions that took place in the Minneapolis-St. Paul market. The Normandale Lake Office Park sold late in the second quarter when New York-based Opal Holdings purchased the 1.7-million-square-foot campus from a MetLife and Allstate Insurance partnership for a price of $365 million, $215 a square foot.

In the northeast submarket, Broad way Ridge was purchased by Singer Capital from Altus for $30 million, $161 a square foot. The 466,900-squarefoot Prudential Office Campus in Plymouth, Minnesota, sold for $20.4 million or $43 a square foot. Scannell purchased the property with plans to demolish it and build a mixed-use development on the 75-acre site.

In the CBD, Sherman and Associates purchased the former Wells Fargo Operations Center at 255 2nd Ave.

S. This 561,000-square-foot building was purchased for $6.4 million or $13 a square foot. Sherman also plans to demolish and redevelop the 2.4acre block into mixed-income and market-rate apartments, a hotel and, possibly, offices.

Total office sales volume in the metro area now stands at $846 million yearto-date with $142 million trading in the third quarter. Office investment sales volume remains sluggish when compared to previous years.

Office struggling in Detroit, too

The office vacancy rate in the metro politan Detroit market continued to climb in the third quarter of this year, reaching 19.1%. As Newmark says in its latest research, the office market here remains stuck in contraction mode.

And with many companies still not certain how many of their employees will be back in the office on a full-time basis? This contraction mode might last for a while.

Newmark’s third-quarter Metro Detroit Office Market report highlighted the challenges that Detroit’s office market faces. According to Newmark, just more than 526,000 square feet in net vacancies were added to the Detroit office market in the third quarter. Va cancies in this space have continued to trend upward since the third quarter of 2020.

Since that quarter in 2020, the office vacancy rate in the Detroit market has climbed 420 basis points and pro duced more than 2.7 million square feet in net vacancies, Newmark report ed.

In little surprise, sublease activity remained high during the quarter. According to Newmark’s report, avail able sublease space rose by 460,000 square feet in the Detroit office market during the third quarter to just more than 1.8 million square feet. Before the pandemic, sublease levels stood at just 900,000 square feet in this market.

There is some good news, though. Newmark says that Detroit’s Central Business District remains a draw for companies. Huntington Bank and Majorel are the latest firms to take up a significant footprint in downtown Detroit.

There is some good news nationally, too. More workers are back in the office today, at least on a part-time basis, than you might think. According to the third quarter U.S. Office Outlook from JLL, 47% of workers were back in the office in some capacity in the third quarter. That’s a post-pandemic high.

It’s also an improvement. JLL reported that at this time last year, only 35% of workers were back in the office. JLL predicts that by the first quarter of 2023, 65% of workers will be back to the office, at least in a hybrid mode.

Other news in JLL’s report, though, wasn’t as positive. According to JLL, only 45.5 million square feet of office leases closed in the third quarter of this year. That’s down 3.6% from the second quarter. JLL pointed to a slow down in the amount of tech leases for this drop-off.

Companies are still uncertain about the future, too, which has led to shorter office leases. JLL reported that the average lease term was 6.2 years in the third quarter. The aver age office lease term had grown to 9.1 years during the past 12 months before this drop.

Overall office vacancy rates continue to rise, increasing by 20 basis points in the third quarter to 19.1% nation ally.

When tenants are moving into new space, more of them are looking for higher-quality space. This flight-to-quality has created 1.7 million square feet of positive net absorption in trophy-quality office space.

Warning signs in West Michigan?

The West Michigan industrial mar ket enjoyed another strong three months during the third quarter of the year. But JLL warned in its recent CRE report that a slowdown in the development of new industrial facil ities might be on the way as interest rates and construction costs contin ue to rise.

According to JLL’s third quarter Industrial Insight report, the West Michigan industrial market saw a low vacancy rate of 3.2% in the third quarter. The market also saw more than 3.29 million square feet of pos itive absorption during the quarter.

JLL reported that direct asking rents for industrial properties in West Michigan rose to an average of $4.39 a square foot during the third quar ter.

And in a major deal, Gotion Inc. is rumored to be planning a $2.4 billion factory near Big Rapids, Michigan, another large-scale automotive investment that JLL says will have a ripple effect for the market in the coming years.

Honda also announced its commit ment to a $4.4 billion investment in the state in a joint venture with LG.

There are concerns, though, over rising interest rates and construction costs. JLL says that the new-construc tion pipeline of industrial space has been reduced to 1.3 million square feet currently under construction. This is 2 million square feet below where the West Michigan market stood at this point last year.

JLL says that speculative industrial construction might begin to taper off because of increasing costs and a decrease in available land ready for development. Rising interest rates are also having a negative effect on financing for speculative projects, something that is putting some devel opers on the sidelines, JLL said.

“While industrial speculative devel opment continues for the next few months, activity is looking to start to level off based on a couple of factors, including lack of available sites with infrastructure and the costs of money to finance these projects,” said JLL executive vice president Bob Horn.

UNCERTAINTY (continued on page 24)

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The multifamily market remains strong even during the economic uncertainty facing the United States.

“Several major national financial institutions in June suspended most lending on speculative and develop ment projects. Despite this, we’ve seen 1.2 million square feet of new deliveries year-to-date, and 1.3 million square feet of space is currently under construction.”

Hints of a multifamily slowdown?

It’s happened for the first time in two years: The median monthly rents of one- and two-bedroom apartment units across the United States both declined in October.

According to that month’s rent report from Zumper, the national one-bed room median apartment rent fell 0.8% in October when compared to September. That figure stood at $1,491 in October. The median two-bedroom apartment rent in the United States dropped 0.7% in October when com pared to September, falling to $1,832.

More than half of the 100 U.S. cities on Zumper’s list posted month-overmonth declines in October, while 19 saw their median apartment rents remain flat.

The rent slowdown is showing up, too, in Zumper’s year-over-year fig ures. After 12 consecutive months of double-digit year-over-year median monthly rent jumps, the national me dian apartment rent this October is up only 9.2% when compared to the same month in 2021.

What’s behind the slowdown in month ly rent growth? Zumper cites the fear of a recession as the main reason. In a recent Zumper survey, 76.2% of U.S. respondents said that they thought the United States was already in a recession.

Rising interest rates and inflation, though, are keeping monthly rents from dropping too severely, Zumper reported. Rising interest rates are pushing potential buyers out of the single-family housing market. Because of this, apartment owners are still en joying relatively strong competition for units. This will prevent more drastic drops in monthly rents, Zumper says.

“In many metro areas, declining pric es are actually a correction to prices that’d become overly inflated,” said

Zumper chief executive officer An themos Georgiades, in a statement. “We saw historic levels of migration throughout the pandemic, as people switched to working from home and re-imagined their living situations. Now, with a turbulent, unpredictable economy causing fear of recession, migrations are slowing, occupancy rates are falling and rent prices are following suit.”

The renters keep coming

Despite this monthly rent dip, the multifamily sector remains strong in the Midwest and across the country, ranking only behind the industri al market in activity and investor demand. A new study by RentCafe found that 43.7 million U.S. house holds lived in rentals in 2021. That’s the highest this figure has been in the last 55 years.

And one-third of the people renting multifamily units this decade say that they are renting by choice, not neces sity, according to RentCafe.

This trend doesn’t look ready to slow, either. RentCafe reported that as many as 101 zip codes in the country switched from owner-majority to rent er-majority during the last decade. Today, there are more renters than homeowners in 41% of the zip codes in the United States’ 50 largest cities.

The 43240 zip code in Columbus, Ohio, saw the fastest increase in the number of renters, RentCafe said. In 2011, this zip code saw 1,192 renters. In 2020, that number had risen to

3,067, an increase of 157.3%. About 68% of the people living in this zip code are renters.

The 60606 zip code in Chicago ranked second on this list. In 2011, this zip code had 807 renters. In 2020, that figure had jumped 151.2% to 2,027. Here, renters account for 63% of the zip code’s population.

According to RentCafe’s research, the number of renters in the United States rose by 12% from 2011 to 2020. That is three times faster than the in crease of 4% in homeowners during this same time.

Many of the zip codes with the fast est-growing renter populations are in city cores, RentCafe said. Eight of the 20 neighborhoods that grew their renter populations by more than 80% in the past decade are in or near downtowns.

A good example of this trend in the Midwest is zip code 55415 in central Minneapolis. According to RentCafe, this zip code saw a jump of 162% in its number of renters. This Twin Cities downtown zip code is now twice as renter-friendly as it was in 2011.

And in Nashville’s zip code of 37228, 100% of the area’s 1,289 residents are renters.

A powerful industrial market in Detroit

It appears that industrial remains the one CRE sector that has remained strong no matter what. A good exam

ple is the performance of this sector in the Detroit market.

In its third-quarter industrial report, Savills said that asking rents for Detroit-market industrial properties reached record heights, soaring to an average of $6.17 a square foot during the quarter.

Asking rents for Detroit-area indus trial properties have jumped 8.8% on a year-over-year basis, according to Savills. They are also up an impres sive 16% since the start of the COVID19 pandemic.

Not surprisingly, developers remain active in this market. Savills reported that developers had delivered more than 5.5 million square feet of new industrial market to the Detroit mar ket in 2022 as of the end of the third quarter. Despite this new product, vacancy rates have remained steady at 4.7% in the third quarter, up slight ly from 4.4% in the third quarter of 2021.

A total of 8.9 million square feet of new industrial space was under con struction in the Detroit market as of the third quarter, according to the Savills report.

Savills predicted, too, that the Detroit industrial market isn’t due for much of a slowdown, even with the threat of rising interest rates. Savills said that Michigan’s experience in auto motive manufacturing will sustain the Detroit-area industrial market, especially as more auto makers push toward electric vehicle production.

Wilhelm Gunkel for unsplash

The demand for warehouse and distribution space continues to soar across the United States.

With great supply comes many decisions for office seekers

By Tom Koelzer, partner and co-founder,

International

Tom Koelzer

More than two-and-ahalf years after the pandemic closed office buildings and knowledge workers pivoted to remote work, many businesses are still figuring out a return-to-office strategy. It’s no sur prise then that according to Costar data, Chicago remains in the middle of its largest supply wave of office space in more than a decade.

In this environment, our role at Tenant Advisors/CORFAC Interna tional is to help clients evaluate what their needs are as they’re faced with plentiful choices. Here are some basics that office-seekers should be considering:

Understand your space needs

We recommend clients start by getting a handle on their new “in the office” policy. That is, how many employees are in the office on each day? Does every employee need his or her own workspace? Do employ

ees need dedicated quiet space or multipurpose space for meetings and collaboration?

Depending on the responses to these questions, a tenant may be able to shrink its office space foot print. Many landlords are also build ing move-in ready spec suites to make it easier for a tenant to make a move, saving time and furnishing costs.

Which amenities matter?

There is a renewed interest in amenities, such as fitness centers and tenant lounges, that landlords believe will entice employees back to the office. However, these amenities may not appeal to every company’s culture. Consider what conveniences or social functions your employees will appreciate. Perhaps providing breakfast and coffee every day in a private break room is more meaningful to them than a rooftop social lounge.

City versus suburbs

Central business districts around the country are struggling to get employ ees back to the office. In Chicago, we’re seeing a historical high of 96 million square feet of vacant space (18.8% of total inventory) currently available, an increase of more than 13 million square feet since the first quarter of 2020.

We have seen some markets in the suburbs faring better, as some com panies want to be located where employees have a shorter commute. However, consider what your employ ee makeup will look like long term. Do you need to hire junior-level recent college graduates who are more likely to live in the city, or are your employ ees primarily established profession als and parents who appreciate being closer to home?

How certain are your plans?

Some tenants are confident of their “in the office” requirements and are

comfortable making a long-term com mitment. Signing a longer lease may give them leverage to negotiate a larger improvement allowance. Other tenants are still sorting out their new in-the-office vs. work-from-home balance. They may be best served by a shorter-term lease renewal, or a move to a space requiring little to no improvements.

After making serious business deci sions over the course of the pandem ic, companies are ready to look to the future. With a plethora of space available, it’s a tenant’s market – but some decisions still need to be made. Companies may need to reevaluate their space based on how they’re using offices now, and a tenant-fo cused brokerage like ours can help them weigh the options.

Tom Koelzer is partner and co-found er of Tenant Advisors/CORFAC Inter national in Schaumburg, Illinois.

Tenant Advisors/CORFAC

“After making serious business decisions over the course of the pandemic, companies are ready to look to the future. With a plethora of space available, it’s a tenant’s market – but some decisions still need to be made.”

Decarbonization 2022: The role of commercial real estate

By Saagar Patel

Decarbonization is com monly defined as the state in which the amount of greenhouse gases going into the atmosphere is balanced by the amount taken out. The term is significant, particular ly for carbon-dioxide emissions, because it describes the state at which global warming stops.

While many equate climate change with rising temperatures, the story is much more complex. Because our world is an interconnected series of systems, changes in one area have reverberating effects elsewhere. The consequences of climate change can now be seen around the globe in the form of intense droughts, rampant wildfires, flooding, rising sea levels, severe storms, melting polar ice caps and a negative impact on biological ecosystems.

The very nature of this crisis demands action by us all, but particularly those in the building industry which, by some measures, accounts for almost 40% of global energy-related carbon emissions. For building owners, oper ators, contractors and real estate pro fessionals, this is the time to live the phrase “think globally, act locally.”

Commercial real estate: Part of the problem/part of the solution

As previously noted, the construction and operation of buildings is a sig nificant contributor to global green house gas emissions. The good news is there are many technical solutions available to help decarbonize this sector. The bad news is significant barriers persist that make investing in and financing these efforts difficult.

The World Economic Forum is ad dressing this challenge by helping the financial services industry redefine how the value of such investments are perceived and defined. The Net Zero Carbon Cities program was launched to consider the social, environmental and system performance outcomes of improved buildings, in addition to traditional financial measures.

Saagar Patel

Reaching consensus: Standards and goals

Commercial real estate developers are working with local governments to set these sustainability and net zero targets. However, the continued lack of consensus on exactly what “net zero” means makes this type of planning a challenge.

Progress is being made by the Inter national Organization for Standard ization in defining the world’s first consensus-based net zero guiding principles and the benchmark for the climate agenda. The organization recently announced the launch of the International Workshop Agreement (IWA) to help accelerate the develop

ment of net-zero guiding principles. The initiative hopes to solve a tricky conundrum: How do you translate the science-based concept of net zero into specific, actionable rules and guidelines?

Until a consensus is adopted, com panies and developers can follow guidelines suggested by the Science Based Targets initiative (SBTi). The SBTi is described by the organization as “the gold standard for net-zero tar get setting, which is vital in enabling companies to identify and reduce their emissions and limit temperature rise to 1.5°C.” That is the limit most scientists agree must be achieved by 2050 to avoid the worst effects of climate change.

SBTi released its 2021 Progress Re port that indicates the initiative dou bled the number of new companies setting and committing to net zero targets. The report also showed a tripling of the rate at which these tar gets were validated. The organization reports more than 2,200 companies representing ore than one-third of the global economy’s market capitaliza tion were working with SBTi in estab lishing net zero emissions goals.

The Intergovernmental Panel on Cli mate Change (IPCC) also recently is sued a special report, Climate Change 2022: Mitigation of Climate Change.

“Commercial real estate developers are working with local governments to set these sustainability and net zero targets.”

The financing conundrum: Haste makes waste, or Carpe diem?

By Matt Wurtzebach, Draper & Kramer

Given current capital mar kets, many commercial real estate owners are de bating whether to start the financing process for their properties now or wait until the first quarter or second quarter of 2023.

The thesis for waiting is predicated on the thought that capital availability will be greater in the new year than it is today, leading to more competition and better loan economics. The risk to waiting, however, is that even if the market is more liquid, loan terms could still be worse in a volatile envi ronment of rising interest rates.

On recent transactions, we have seen 10% to 15% of lenders fully or partial ly sidelined for the balance of 2022. Lenders provide a variety of reasons for the capital reductions, but there are common responses.

Some have already lent their 2022 allocations and, instead of requesting more funds, are evaluating market conditions. Several money center banks reduced or halted lending in re sponse to harsher regulator-induced balance sheet stress tests, while other banks cite concerns over future regulator scrutiny or are focusing only on existing clients. Others have expressed concerns about upcoming loan maturities in their portfolios due to higher interest rates or about the health of existing loans.

As a result, there is certainly less cap ital available now for financing than we typically see, and the remaining lenders are using more conservative underwriting assumptions compared with six or nine months ago. Barring something unexpected – geopolitical risk, higher rate-induced market stress – 2023 should bring more li quidity with fresh capital.

Higher rates on the horizon

Though more capital should be available, rates will almost certainly be higher. By the end of 2023, the Federal Open Market Committee is expected to raise its benchmark rate

Matthew Wurtzebach

to a median estimate of 4.6%, from 3.25% as of mid-October, with an anticipated hike of 75 basis points at its early November meeting.

With the September inflation report running hotter than forecast, several market participants are even betting the Fed funds rate will ultimately exceed 5%. If these forecasts hold true, it is conceivable that commercial real estate note rates could meet or exceed 7% by year-end 2023. That’s before contemplating Treasury Secre tary Janet Yellen’s recently expressed concern about liquidity in the U.S. Treasury market due to the oversup ply of Treasuries.

Most loans we underwrite today are constrained by debt coverage, not value or cost. Higher interest rates lead to higher debt service payments and, in many cases, lower loan dol lars. As interest rates rise and persist,

cap rates should also (asymmetrical ly) rise, which would put pressure on property values and sale prices.

Higher interest rates and occupancy issues are already causing some dis tress, particularly in the office sector. Those datapoints will start to appear in appraiser analyses, adding pres sure on refinances.

What this means for borrowers

Crystal balls are less clear than nor mal, and there is more market tail risk than we have seen in quite some time. Next year should bring more capital availability, but with stressed balance sheets, fewer loan payoffs and a potential looming recession, avail ability may not meet expectations. Furthermore, more lenders quoting loans compared to the fourth quarter of 2022 may not improve terms if note rates continue the current path.

Despite these challenges, the good news is that the capital markets in the U.S. are functioning, loan dollars are still available and appropriately underwritten transaction still receive multiple viable debt bids. Borrowers need to balance the timing of capital availability against the prospect of future rate increases.

Hesitation carries risk

In times of market volatility and un certainty, if there is a need to finance, it is generally better to secure the deal that works now than wait in the face of likely deteriorating fundamentals.

Debt markets should be more liquid in the first quarter of 2023 as lenders have new allocations, which should mean more competition for loans, but the degree of more availability is far from certain. And if interest rates are higher, increased liquidity probably will not help the main economic driv ers of the loan – dollars and rate.

Borrowers that can start the financ ing process or secure financing now, particularly fixed-rate financing with an early rate lock, should consider exploring options sooner rather than later. In some cases, particularly with life insurance company capital and some banks, it is possible to lock a rate in 2022 and fund in 2023, poten tially securing a lower rate now while tapping into early next year liquidity, especially with lenders looking to get some dollars out the door early to start the new year.

Borrowers concerned that high rates today are an aberration that should abate in 2024 or 2025 may consider shorter duration loans or negotiating pre-payment flexibility.

Matthew Wurtzebach is senior vice president of the commercial finance group of Chicago-based Draper & Kramer.

“2023 should bring more liquidity with fresh capital.”

The news there is a bit more dire. According to the report, “unless there are immediate and deep greenhouse gas emission reductions across all sectors, 1.5°C is beyond reach.” The report outlines how emissions can be reduced by half in key sectors and outlines how humanity can improve its chances for success.

It is clear that the need for universal guidelines is pressing. According to analysis by the Energy & Climate Intelligence Unit (ECIU), while some producers of greenhouse gases have committed to clearly defined and binding net zero plans, others may be gaming the system. Without clear, agreed-upon standards and process es, some entities may be vacuous promises. For example, not making changes in the near term but setting future goals based on the assumption that new carbon capture technologies will become available down the road.

This initiative offers compliance options for LEED Platinum and net zero building certifications.

Acting locally: Industry profession als drive change

Waiting for sustainability require ments to be defined is not an option. There are meaningful actions busi nesses can take to create net zero plans in the interim:

1. Tackle energy reduction (i.e., oper ational carbon) first, before investing in offsets.

2. Address embodied carbon when constructing new real estate.

3. Review opportunities to electrify (i.e., decarbonize) equipment when performing end-of-life system re placements.

4. Capitalize on existing local utility incentives and federal tax programs to help fund initiatives.

As organizations move forward with net-zero and decarbonization plans, and adjust them as future regulation comes about, I recommend initially tying targets to the Paris Agreement as this will likely be the sticking point for all climate change initiates and directives to come.

With major cities like San Francisco setting the pace, the rest of the na tion seems to be joining the effort for a cleaner, more efficient built en vironment. For these net zero efforts to be successful, it will require the cooperation of building owners, oper ators and occupants to work together to meet these challenges while the engineering design and construction industries continue to push for a greener future.

Saagar Patel, PE, LEED AP BD+C, WELL AP, CCP, is the Operations Direc tor for ESD, a global engineering firm specializing in mechanical, electrical, plumbing, fire protection, life safety, structural and technology engineer ing. He leads ESD’s Sustainability and Healthy Buildings group.

Demand still strong

Before, throughout and now in the end stages of the pandemic, the demand for multifamily housing has remained high. What’s behind such long-lasting demand?

There are demographic reasons, of course: Both older Boomers who want to downsize and younger generations are choosing to rent instead of taking on the financial and upkeep responsi bilities of owning a home.

Then there are rising mortgage inter est rates, which make it more difficult for many to afford a single-family home. This has forced many potential homebuyers into renting.

COVID has played a role, too. With so many people working from home, many tenants can rent just about any where. They can choose more afford able markets – such as Indianapolis

– while still working for an employer based in a more expensive city.

“We have seen tons of demand for multifamily housing,” Sowden said. “We have seen it on both sides of the country. We are also seeing more peo ple migrating to the south and south east and more affordable markets in the Midwest. People are looking for a more affordable lifestyle. The product that we are focused on buying and renovating is very appealing to a large segment of the population.”

Because of this, Sowden said, RREAF will continue to look for new Midwest markets. The company’s acquisitions team is already looking for additional product to acquire in Indianapolis and its surrounding areas, he said.

The push for suburban apartments

Another change that has come about because of COVID? Sowden said that many renters are focusing today on apartment properties in the suburbs.

Many of these are more affordable than multifamily developments lo cated in the middle of major cities. Renters also want more space if they will work from home.

“People are able to move away from major metros,” Sowden said. “More people are certainly looking at more affordable apartments, the garden-style apartments, not the high-rise, Class-A multifamily stuff. In a downturn, people do not want to pay $3 a square foot to live in a high-rise in downtown. They want to live in a nice ly renovated garden-style apartment.”

These renters also want certain amenities, such as an on-site gym, playground for their kids and a swim ming pool. Many also want in-unit or on-site laundry facilities. Mail rooms and package-delivery systems have become more important, too, Sowden said.

Affordability, though, is key, Sowden said. The challenge is that there aren’t nearly enough affordable rental units

as there is demand for them.

To help close this gap? Sowden said that government intervention is key. This means that tax credit or abate ment programs are necessary to encourage developers to build new affordable multifamily product.

“Developers are more apt to build affordable when a tax credit or abate ment program is involved,” Sowden said. “Otherwise, they can’t keep rents low while still building a quality product. The costs of construction have gone through the roof. A lot of times it doesn’t make financial sense for developers to build for affordable. We need to see some government intervention.”

The good news? Sowden says that he sees more government incentives already in place to encourage devel opers to enter the affordable-housing market. And as demand for this type of product increases, these incentives and abatements should continue to pop up across the country.

“With major cities like San Francisco setting the pace, the rest of the nation seems to be joining the effort for a cleaner, more efficient built environment.”

ASSET/PROPERTY MANAGEMENT FIRMS

AREA REAL ESTATE ADVISORS

4800 Main Street, Suite 400

Kansas City, MO 64112

P: 816.895.4800 Website: openarea.com

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

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

Services Provided: AREA’s Property Management team is determined to establish the premiere provider of commercial real estate services in Kansas City, while building strong relationships with clients and tenants. We feel the best way to achieve our goal is through common sense leadership; focus on real estate, not policy and procedure; employ and develop the best people in the industry; and provide an environment where our employees and clients can enjoy success. AREA Property Management is currently managing 2 million square feet in the Kansas City Metro, providing Lease Administration, Building Maintenance and Consulting Services.

Notable Properties Managed: Plaza Vista (Welsh Plaza), 4800Main (Former BOT), Centerpoint Industrial Park.

CENTERPOINT PROPERTIES

1808 Swift Drive

Oak Brook, IL 60523 P: 630.586.8000 Website: centerpoint.com

Key Contacts: Bob Chapman, Chief Executive Officer; bchapman@centerpoint.com; Nate Rexroth, Executive Vice President, Asset Management; nrexroth@centerpoint.com

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

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

CRESSY COMMERCIAL REAL ESTATE

4100 Edison Lakes Pkwy., Suite 350 Mishawaka, IN 46545 P: 574.271.4060 3 502 Woodview Trace, Suite 250 Indianapolis, IN 46268 P: 317.875.8888 Website: cressy.com

Key Contact: Brad Meier, Vice President

Services Provided: Brokerage Services, Property Management, Financial Management & Reporting, Maintenance & Mechanical Services, Development, Architectural Services, Design Services, Project Management, Construction Services.

Company Profile: Cressy Commercial Real Estate’s skilled, experienced staff specialize in the construction and professional management of office, retail, industrial, multi-housing communities and associations. Our experts design and construct improvement projects; and develop and implement customized management and maintenance strategies that integrate proactive, cost-efficient property management and tenant/resident retention.

CUSHMAN & WAKEFIELD/THE LUND COMPANY

450 Regency Parkway, Suite 200

Omaha, NE 68114

P: 402.393.8811 | F: 402.393.2402

Website: lundco.com

Key Contacts: Jason Fisher, CEO, jfisher@lundco.com; Tanya Shapiro, President, tanya.shapiro@lundco.com

Services Provided: Our staff of innovative and creative professionals offer a wide range of real estate services including brokerage, commercial and multi-family property management, real estate consulting, investment acquisition, and project and development services.

Company Profile: Cushman & Wakefield/The Lund Company markets and manages over 20 million square feet of properties, which includes more than 100 commercial buildings and 18,000 apartment units.

FARBMAN GROUP/NAI FARBMAN

28400 Northwestern Highway, Suite 400 Southfield, MI 48034

P: 248.353.0500

2021 ANNUAL RESOURCE GUIDE marketplace

Website: farbman.com

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

Services Provided: Property Management, Leasing & Brokerage, Construction, Investment Sales, Asset Management, Site Selection Services, Acquisition & Disposition, Medical Real Estate Solutions, Move Management, Receivership Services, Facility Management, HVAC Services, Net Lease Brokerage Services.

Company Profile: Farbman Group, a full-service commercial real estate company, is one of the largest and most respected names in Commercial Real Estate.

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, Executive Vice President, Operations, 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.

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 26,000,000 square feet of property and have developed in excess of 14,000,000 square feet of projects.a

MID-AMERICA REAL ESTATE-MICHIGAN, INC.

38500 Woodward Avenue, Suite 100 Bloomfield Hills, MI 48304

P: 248.855.6800

Website: MidAmericaGrp.com

Key Contacts: Brad Lefkowitz, Director of Property Management, blefkowitz@midamericagrp. com; Daniel Stern, President, dstern@midamericagrp.com

Services Provided: Mid-America provides strategic consulting services that maximize net operating income, net cash flow, and accelerate property appreciation. As a full-service firm, we provide property and construction management, leasing, due diligence, and market analysis under one roof. Additionally, we offer MA Building Services, a self-performing porter and maintenance company offering our clients cost savings and improved accountability for related services.

Company Profile: Mid-America is the leader in retail real estate services in the Midwest, based on transaction volume and property under management on a regional basis. Our exclusive focus on retail real estate, combined with cutting-edge technology and unsurpassed service, distinguishes Mid-America within the industry and provides clients with a competitive edge. The total consideration value of leasing and investment sales transactions facilitated in 2021 was $2.4 billion. With offices in Illinois, Michigan, Minnesota and Wisconsin, Mid-America manages and leases over 42 million square feet of retail space, and represents more than 270 retailers.

ASSET/PROPERTY MANAGEMENT FIRMS

OUTLOOK MANAGEMENT GROUP, LLC AMO

S74 W16853 Janesville Road

Muskego, WI 53150

P: 414.369.3511 | F: 414.435.0251 Website: outlookmgmt.com

Key Contact: Ray Balfanz, President/Partner, ray@outlookmgmt.com

Services Provided: Full service property and asset management services, financial analysis and reporting; budget preparation and expense reconciliations; lease administration; construction management; preventative maintenance and consulting services.

Company Profile: Outlook Management Group, LLC AMO provides comprehensive property and asset management services for all asset classes in multiple states and markets.Notable Properties Managed: Washington Corners, Naperville, IL; Ironwood Office Park, Glendale, WI; Wood River Condominiums, West Bend, WI; Seven 10 West Luxury Apartments, Chicago, IL; MDJD Aesthetic MOB, Rockford, IL, Ascension Health MOB Milwaukee, WI; Henry Ford Health Systems Pharmacy Services Building in Rochester Hillsv, MI; Henry Ford Medical Center in West Bloomfield, MI; Baptist Medical Center South, Montgomery, AL; and Lee Memorial Health Systems Building in Fort Myers, FL

CONSTRUCTION COMPANIES/GENERAL CONTRACTORS

ALSTON CONSTRUCTION COMPANY

1901 Butterfield Road, Suite 1020 Downers Grove, IL 60515

P: 630.437.5810 Website: alstonco.com

Key Contact: Greg Kolinski, Director of Business Development, gkolinski@alstonco.com 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.

CLAYCO, INC.

35 E. Wacker Drive, Ste. 1300 Chicago, IL 60601 P: 312.658.0747 Website: www.claycorp.com

Key Contacts: Bob Clark, Executive Chairman & Founder, clarkb@claycorp.com; Kevin McKenna, President - Construction Group, mckennak@claycorp.com

Services Provided: Clayco is a full-service turnkey real estate, architecture, engineering, designbuild and construction firm.

Company Profile: Clayco specializes in “the art and science of building”, by providing fast track, turnkey design build solutions in North America for commercial, institutional, industrial and residential building types. Clayco looks “beyond these walls” focusing on helping our clients fulfill their mission.

Notable/Recent Projects: St. Louis – Centene Campus, 100 Above the Park, Benson Hill, Delmar Devine Chicago - Willis Tower Transformation Project, Macy’s Flagship Redevelopment, Fulton East, Upshore Chapter National – Blue Origin, Dominion, Centene East Coast HQ, Amazon E Commerce, Penn State.

LAMP INCORPORATED

460 North Grove Ave.

Elgin, IL 60120

P: 847.741.7220 | F: 847.741.9677 Website: lampinc.net

Key Contact: Ian Lamp, President, ilamp@lampinc.net

Services Provided: Design/Build, General Construction, and Construction Management services for additions, build outs, renovations, and new facilities for office, industrial, logistic, technology, and commercial buildings.

Company Profile: Lamp Incorporated has been providing professional construction services for over 80 years. Our commitment of exemplary service to our clients creates projects that are completed early and with exceptional value.

Notable/Recent Projects: Mitutoyo America Corporation North American Headquarters, Aurora, IL. 96,000 SF warehouse addition; 63,000 SF, three-story office addition, which includes high tech showroom, two story atrium, corporate offices/conference room, cafeteria, and locker rooms.

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.

PEAK CONSTRUCTION CORPORATION

9525 W. Bryn Mawr Avenue, Suite 810 Rosemont, IL 60018

P: 630.737.1500 | F: 630.737.1600 Website: peakconstruction.com

Key Contacts: Michael P. Sullivan, Jr., CEO & Founder, msullivan@peakconstruction.com; John Reilly, President, jreilly@peakconstruction.com Services Provided: Peak Construction Corporation offers design/build and construction management services through a strategically developed culture, highly regarded for dynamic problem-solving abilities and a network of alliances that allow Peak to bring in experts and partners from a wide spectrum of fields and roles.

Company Profile: Peak Construction Corporation is a privately-held, well-capitalized design/ build general contractor. For 25 years Peak has delivered industrial, hospitality, office, healthcare, retail, multi-family and specialty construction projects on-time and on-budget. Notable/Recent Projects: Peak’s recent Midwest projects include NorthPoint Development’s Third Coast Logistics Park in Joliet and Building 1 in Bristol, WI; Janko Group’s Bristol Business Park also in Wisconsin; Scannell Properties’ Elgin Distribution Center in Elgin and DuPage Business Center Phase II and TI in West Chicago, as well as various tenant improvements throughout Chicagoland and Wisconsin.

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 E. 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. 5,200 SF space at 9450 S. Bryn Mawr Ave. Suite 200 in Rosemont, IL. for 3rd time client Celerity Pharmaceuticals. 19,558 SF addition for General RV’s (another 3rd time client) location in Huntley, IL,. Principle initially constructed the building in 2011 and expanded in 2013, 2014, 2017 and 2018

SUMMIT DESIGN + BUILD, LLC

1036 W. Fulton Market, Suite 500 Chicago, IL 60607 P: 312.229.4630 | F: 312.229.1147 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 17 year history.

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

MULTIFAMILY FINANCE FIRMS

ASSOCIATED BANK

45 South 7th Street, Suite 2900 Minneapolis, MN 55402

P: 612.359.4414

Website: associatedbank.com/cre

Key Contact: Paul Schmidt, Executive Vice President / Head of Commercial Real Estate, Paul.Schmidt@associatedbank.com

Services Provided: Our clients include professional developers of income producing commercial real estate, including multi-family properties, retail, office, storage, student housing, and industrial.

Company Profile: Commercial Real Estates offices are located in Chicago, Milwaukee, Madison, Green Bay, Cincinnati, Indianapolis, Minneapolis, Detroit, St. Louis, Dallas and Houston.

Associated BancCorp has total assets of $35 billion and is one of the top 50 financial services holding companies in the United States.

BELLWETHER ENTERPRISE (BWE)

1375 E. 9th Street, Suite 2400 Cleveland, OH 44114

Website: BWE.com

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

Company Profile: BWE is a national, full-service commercial and multifamily mortgage banking company that puts people and communities first. We provide flexible, competitive financing solutions with streamlined underwriting and enhanced loan servicing for Market Rate, Affordable Housing, Workforce Housing, Manufactured Housing Communities, Seniors Housing, Senior Communities, and Long-term Care Facilities.

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

COLLIERS MORTGAGE

(Colliers Mortgage is the brand used by Colliers Mortgage LLC and Colliers Funding LLC.) 90 South Seventh Street, Suite 4300z Minneapolis, MN 55402 P: 612.376.4000 Website: colliers.com ( find us under services)

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

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

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

Service Territory: Nationwide

GRANDBRIDGE REAL ESTATE CAPITAL LLC

14 North Tryon Street, Suite 2000 Charlotte, NC 28202

P: 704.332.4454 | F: 704.332.1931 Website: grandbridge.com

Key Contacts: Matthew Rocco; Chairman of the Board / CEO, MRocco@Grandbridge.com; John Randall; EVP / National Production Manager, JRandall@Grandbridge.com

Services Provided: Grandbridge provides comprehensive CRE and capital markets solutions on a national basis. As a full-service leader in commercial/multifamily finance, Grandbridge is a fully integrated commercial investment banking company that originates commercial/ multifamily real estate loans, services loan portfolios, provides asset and portfolio management, and offers investments sales, and estate brokerage services.

Company Profile: Grandbridge’s lender relationships include leading insurance companies, pension fund advisors, CMBS investors, investment banks and capital markets. Grandbridge is a Fannie Mae DUS® lender, a Freddie Mac Optigo® lender for Conventional Multifamily, Seniors Housing and Targeted Affordable Housing, and an FHA MAP and LEAN approved lender.

Service Territory: The company operates its comprehensive CRE and capital markets, loan origination, investment sales, and servicing and asset management services nationwide (28 offices).