Mainstreet relying on crowdfunding to provide dollars for new seniors rehabilitation center in Indiana

An example of Mainstreet's work.

An example of Mainstreet’s work.

by Dan Rafter

We’ve all read stories of how filmmakers, illustrators and cartoonists have used crowdfunding to turn their dreams into real projects: They ask for small donations from a number of investors — usually collected through a central Web site such as Kickstarter — until those tiny donations build to a big pool of money.

Real estate developers are also embracing crowdfunding, calling for smaller donations from a larger pool of investors to build everything from office buildings to retail centers.

An example is taking place now in Bloomington, Ind. That’s where Mainstreet, a developer of short-stay rehabilitation facilities for seniors, wants to build its newest seniors facility. The company, though, is taking an interesting approach to finding investors in the project, partnering with real-estate-focused crowdfunding site CrowdStreet to gather enough funds to build its rehabilitation center.

Investors today can pledge donations in Mainstreet’s MS Bloomington development project to earn a targeted 10 percent annualized cash yield. Mainstreet also predicts that the project will generate a 14 percent annual rate of return for its investors.

Zeke Turner, founder and chief executive officer of Mainstreet, said that the crowdfunding move is consistent with his company’s approach to developing short-stay rehabilitation centers.

“Consistent with our mission to think differently, innovate and transform industries, Mainstreet is among the first to offer private real estate investment opportunities directly to the public,” Turner said in a written statement.

Mainstreet will host an information session for accredited investors on May 13 at 10 a.m. in Bloomington. Reservations are required for this session. You can make them by visiting Buildmainstreet.com.

Darren Powderly, co-founder of CrowdStreet, said that the Mainstreet project is just the latest real estate venture for his crowdfunding site.

“Our goal is to connect accredited investors with high-quality, professionally managed real estate investments,” he said in a written statement. “The Mainstreet team has a proven business model and a track record of success.”

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Facing the fall-out from the 10-year anniversary of the commercial lending surge

Steven Jacobs

Steven Jacobs

By Steven Jacobs and Matthew Theunick, Trott & Trott, P.C.

Commercial lenders and business owners are approaching a time in which tough decisions will need to be made on maturing commercial loans written during the real property boom of 2005 through 2007. According to a number of recent articles citing economic data for commercial mortgage backed securities, a large group of 10-year loans will be coming due during the next few years, many of them with large balloon payments or higher interest rates that may need to be re-negotiated.

There is one critical question: What should the lenders and property owners do to hedge against the potential risk of loss?

Some of the issues the parties are now contending with are the reduced values of the properties involved and the loss of profitability in the businesses themselves as consumers have reduced their spending, sources of income have dried up and/or other market forces have changed the initial dynamic of the commercial loan that was originated.

Matthew Theunick

Matthew Theunick

Lenders in many markets will be faced with the issue of a loan maturing on a security interest that conceivably could be worth significantly less than the property’s appraised value at the time the loan was written. Additionally, interest rates are still at all-time lows for commercial lending. Because of this, commercial construction is on the rise, resulting in excess available commercial space. This could impact existing commercial property values for years to come. Depending on the type of loan, the business being operated in the space and the financial strength of the borrower, it may make sense to take a closer look at the loan now as opposed to waiting for the loan to mature. This may also be a necessity as business owners approach commercial lenders seeking a possible loan workout, modification or review for relief from a high interest rate or an approaching balloon payment. Other business owners might be seeking an extension of financing beyond the pending termination of the loan.

The first item for the lender should be to engage in a thorough and comprehensive due diligence review of the current loan file and determine what information is present, what information is needed and what information is missing or needs to be supplemented. If any information is not current, the lender will need to contact the borrower and obtain this information for the file. For example, a retail strip mall would have rent rolls showing the current occupancy rate of the space. Additionally, the rent rolls would provide the tenants currently under lease contract, the amount and duration of the lease, etc. This information is pertinent to not only determine the amount of rent being paid to the property owner, but to understand how long the income stream could last. Other information the lender will want to update the loan file with includes profit-and-loss statements, balance sheets, tax filings and bank statements.

Most commercial loan documents will allow the lender to request a variety of documents for review on a regular basis. If there are questions as to which documents can be requested and how the lender needs to make the request, legal counsel can review the documents and assist in gathering this information or provide an opinion as to what steps the lender needs to take to acquire this information under the loan documents in addition to all of the lender’s legal options, including its options upon default of a loan.

Once the documents are provided, the review is completed and the viability of the business is determined, the lender must establish the next best course of action. If the business survived the economic downturn and is now starting to rebound, or even if the economy did not affect it greatly, and the business appears to be viable, opening up the lines of communication with the borrower may be the optimal first step toward avoiding a large loss on the loan.

The business and property owners’ investment is most likely not worth the same amount as it was when the loan was financed back in 2005 through 2007. So, what option(s) does the borrower have when the loan matures? Selling the property may result in the owner having to come to the closing table with funds to pay off the balance of the loan, which he or she may not have, or the willingness or desire to actually pay it off at that time. To avoid a default and foreclosure, the lender could consider offering a workout to ensure the loan continues to perform for the next five to 10 years while the parties wait to see if property values ever rebound from the record-low levels. If, on the other hand, the business is struggling, but this appears to be a result of the economy, the lender might consider reaching out to the borrower now to create a plan of action to aid the borrower in avoiding a default when the loan matures, or even prior to the maturity date. This plan could be a precursor to building a sustainable relationship that allows a loan workout in the event of a default.

There is no set formula for a workout between the lender and borrower. Financially, it must make sense for both parties. Interest rates are still at all-time lows and commercial lending is on the rise, so now is an opportune time to see if a workout of some sort can be accomplished, possibly in the form of a re-finance. Of course, a barrier to any re-finance is the appraisal of the property, which more than likely will be lower than before. However, if the loan has been performing, and the business is operating and profitable, the due diligence completed beforehand will position the lender and borrower optimally to make a determination of the next step in avoiding another wave of defaults and foreclosures where both lenders and borrowers will likely lose.

Steven Jacobs and Matthew Theunick are attorneys in the litigation department of Trott & Trott, P.C., a Farmington Hills, Mich.-based real estate law firm. The authors specialize in commercial litigation and land-use and zoning issues. Jacobs can be reached at sjacobs@trottlaw.com and Theunick is available at mtheunick@trottlaw.com.

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Cassidy Turley: Dayton office market showing signs of life, more improvement needed

dayton office

by Dan Rafter

The first quarter of 2014 ended on a positive note for the Dayton, Ohio, market, according to the latest research from Cassidy Turley.

And this happened despite the best efforts of the federal government to slow growth in the Dayton area.

As Cassidy Turley researchers said, the government shutdown hurt Dayton. That’s because the public sector accounts for 10 percent of all local wages here.

“Dayton was able to survive the government shutdown, which stunted its economic recovery toward the end of 2013,” said James Flick, vice president of research and marketing for Cassidy Turley, in a written statement. “Moving forward, the positive momentum being generated in the national economy, as well as the local manufacturing and logistics industries, will hopefully re-energize the local and regional economic recovery.”

Dayton also suffered from stalled job growth and higher unemployment than the national average, with the area’s unemployment rate standing at 7.2 percent at the end of the first quarter of 2014.

Still, there was some good news in the Dayton-area office market. The first quarter ended on a positive note with 11,333 square feet of positive absorption in this sector. This caused the office vacancy rate in Dayton to fall to 25.3 percent. That’s still too high, but it is an improvement.

The East submarket, with 88,771 square feet of net absorption, led the way during the first quarter. The strongest markets in terms of class-A rent growth were the East, where rents rose 1.6 percent, and the South, where they jumped 1.4 percent.

The average gross asking rental rate for the overall Dayton office market stood at $14.38 a square foot at the end of the first quarter. The class-A rental rate, though, grew 1.4 percent when compared to the fourth quarter of 2013, increasing from $18.14 a square foot to $18.40 a square foot.

Cassidy Turley researchers, though, predict continued improvement for this office market. The company pointed to the news that CareSource is leasing the entire 150,000-square-foot former Workflow One building at 200 E. Monument Ave. The company will move 200 employees to the CBD starting in August.

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Lee & Associates’ Courtney: The grocers, restaurants keep flocking to Indianapolis

Whole Foods has been one of the most active grocers in the Indianapolis area.

Whole Foods has been one of the most active grocers in the Indianapolis area.

by Dan Rafter

People like to eat, whether the economy is soaring or struggling. Just look at Indianapolis.

Grocers and restaurateurs are announcing new shops in the city on a seemingly daily basis. And both are providing a boost to Indianapolis’ rebounding retail market.

The best news? The brokers working in this city say that the retail resurgence in Indianapolis — and especially the boom in grocers and new restaurants — is far from a short-lived trend.

Scot Courtney

Scot Courtney

“There was, years ago, a concern that Indianapolis was overbuilt from a grocery standpoint. But that was a long time ago,” said Scot Courtney, president of the Indianapolis office of Lee & Associates. “Ten years have come and gone since that was the case. In real estate terms, that’s an eternity. Now we’re getting newer concepts in Indianapolis that have never been present in the city. They’re looking at it as a good opportunity to expand their brands and reach. And the people here are ready for it. They’re looking for something different and better.”

It makes sense for grocers and restaurateurs to target Indianapolis for new locations. The city today features a vibrant downtown, one that is attracting new residents who want to live an urban lifestyle in which they can walk to restaurants, entertainment, parks and public transportation.

At the same time, Indianapolis has bounced back nicely from the economic downturn, Courtney said.

“We were hit a little hard in the downturn because we have a lot of businesses tied to finance and real estate. But we have recovered really well,” Courtney said. “We have a diversified economy. That gets overplayed, but in our case it is true. Our job growth has picked up. We are getting back to where it was before 2008. We have a very healthy economy today. We also have a low cost of living. A lot of our success comes down to a high qualif of life at a low cost of living.”

Courtney said that grocers such as Whole Foods are looking at new locations today in Indianapolis. Fresh Thyme Farmers Market, a grocery startup based in Phoenix, plans to open three stories in Indianapolis this summer. Courtney also says that the Kroger grocery chain is an active one in the city and its suburbs.

The restaurant market here is just as active, Courtney said.

“I wouldn’t say it’s an explosion, but it’s as close to one as you can get,” Courtney said. “This is something that’s happened in the last five years. In the wake of the recession, restaurant activity was minimal. Now consumers are spending again. Now there is growth in almost every segment of the restaurant market. Fast-casual has especially been hot. But also local restaurant groups are expanding. Someone who has 30 to 40 different units, but mixed across several different restaurant types, is typical, too, of someone who is expanding in our area.”

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Omaha becoming the silicon prairie of the Midwest

omaha 2by Dan Rafter

The silicon prairie? For the brokers who work here, Omaha deserves that nickname.

And why not? Tech companies are increasingly calling the city and its surrounding communities home.

Jeffrey Wyatt, senior advisor at the Omaha office of Colliers International, says that the word has spread that Omaha is not only a tech-friendly community but that it is an exciting place to live and a safe place to raise a family.

“Things are more exciting in Omaha than they ever have been,” Wyatt said.

To help prove his point, Wyatt points to the growing number of tech-based companies that are setting up shop in Omaha. The Scott Technology Center has played an important role in this. The center, developed by the Suzanne and Walter Scott Foundation as an incubator for tech start-ups, now features 220,000 square feet of facilities.

There’s also the Mastercraft building, a former furniture factory that today is a creative center in North Downtown Omaha designed to support young companies, including those working in information technology and other high-tech fields.

Omaha is also attracting younger business people. Wyatt points to Creighton University’s Heider College of Business. About 80 percent of the students that attend this Omaha-based business college come from outside the city. And 60 percent of those graduates land their first jobs in Omaha, meaning that they aren’t fleeing the city after graduating.

“A lot of young professionals are saddled with a horrendous amount of debt. Why shouldn’t they start their careers in an area that is more affordable?” Wyatt said. “Omaha is a better place to live for these graduates. There is a better quality of life here. And there are plenty of fun things for people to do.”

It makes sense, too, for a growing number of tech start-ups to locate in the city, Wyatt said.

“Where would you rather start a tech company? In Silicon Valley where the office rents are incredibly high and no one can afford to buy a home?” he asked. “Or would you rather start one in Omaha, where office rents and housing are both affordable? They’re calling us the Silicon Prairie because so many people are starting to realize what a great place this is to start a new technology company.”

Wyatt doesn’t expect this trend to slow any time soon. Downtown Omaha continues to become a more vibrant place, and that is attracting a greater number of young people to the area’s new multi-family developments, he said.

“The overall culture of Omaha has changed in the last 10 to 15 years,” he said. “There has been a big shift to create a culture that is a little bit more welcoming to young professionals and the tech community.”

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Revving the engines: Improving investment sales in Michigan and the Midwest

Bill Bubniak

Bill Bubniak

Guest post by Bill Bubniak, senior vice president, director of investment sales, Farbman Group

In recent years, Midwest real estate—particularly Michigan real estate—has in many ways gone the way of the auto industry: the market is continuing to move in the right direction. When we look closer at the improving state of investment sales in Michigan—what things look like now and how they will remain for the balance of 2014 and beyond—that story of automotive recovery serves as a cohesive theme that ties the narrative structure of the story together.

To a large extent, that story is one of rediscovery. People are looking at Michigan with new eyes, and are rediscovering opportunities. In particular, those who have had trouble finding investment opportunities in other cities and those who are getting priced out of ultra-competitive markets, like Manhattan, are beginning to make moves in Michigan. There are new entrants into the market, and interest rates are still relatively low. This increased activity, combined with the ongoing good publicity that is being generated by the auto resurgence and the overall state economic recovery, is not just generating chatter—it is creating real momentum. It is important to note that this is not just hype—there is job creation, there is growth, and there is not a great deal of new construction. In many ways, it is the perfect storm for success with respect to investment sales.

All of these elements are coming together and are working to Michigan’s advantage. In fact, while it has long been considered a secondary state when it comes to real estate, Michigan is starting to be considered a “wise buy” from a national perspective. The good news is, lenders are following suit, and lending is picking up, too. But while the overall picture looks good, understanding the trajectory of Michigan’s real estate marketplace requires a more detailed look at how specific market segments are performing:

Apartment
Michigan has seen no real construction activity in the past decade, along with low population growth and a sluggish job market. Now however, with those population and employment indices picking up, and construction still slow, the result is an increasingly robust multifamily market with very aggressive cap rates. All in all, this is the strongest real estate segment in the state. At Farbman Group, we are seeing a 6 to 7 percent cap rate on stabilized deals, and up to the high single digits or perhaps a 10 percent cap on “turnaround” deals. While the lion’s share of the business is taking place in the usual hotbeds of Oakland, Wayne and Macomb Counties, select markets—like Grand Rapids, for example—are notably hot at the moment. There is very little space available in downtown Grand Rapids, and some noteworthy sales have seen competitive bidding that actually exceeds the asking price.

Industrial
It should come as no real surprise that industrial tends to go as the auto industry goes. Which is why many industrial brokers have smiles on their faces these days, and one of the big reasons why we are seeing so many transactions being done. In a sea of success stories for this segment, Auburn Hills stands out as one of the state’s hotter industrial markets. Again, the lack of new construction is contributing to this competitive dynamic, and vacancies are down across Southeast Michigan in particular. There is still quite a bit of older industrial product out there (with structural or functional concerns like sub-optimal ceiling heights and code issues) that is not doing as well comparatively, but even there, we are seeing activity beginning to tick up. Michigan is starting to see a bit more build-to-suit activity, but demand is so immediate and the need is so acute that many companies are demonstrating a willingness to take those lower ceiling heights or inferior geographic locations.

Retail
Retail market in particular is seeing a lot of first-time buyers in the state. Not infrequently, that population of buyers is also exploring options in other Midwest markets like Milwaukee, Cincinnati and Toledo. Overall, retail remains largely segmented, mirroring the national trends in that respect. With the continued encroachment of online sales into brick-and-mortar, and the trend toward retailers adopting smaller and more efficient formats, big box retailers are downsizing and reformatting. Consequently, retail formats that have been less impacted by those trends are performing the best: neighborhood strip centers and smaller, grocery-anchored centers are figuratively flying off the shelves, and demand is sky high. With power centers, buyers need to be smarter and more careful. You have to buy right and know your location, understanding both the area and the demand profile.

Office
As in much of the Midwest, office remains Michigan’s softest segment. Despite that comparatively lackluster performance, we are seeing some bright spots that did not exist a few years ago. There are pockets of opportunities, but you have to be a little more careful what you are buying. The Troy market, for example, is basically a microcosm of the larger state marketplace: a still-soft office market making a slow and incomplete recovery from the recession and the auto industry struggles. Like the rest of the state, Troy is also bucking up against some significant national trends: people working from home, cubicle sharing, etc. There is, however, still a fight for quality for class A-locations. One notable bright spot in Detroit is Dan Gilbert, who recently purchased One Woodward Avenue and the Dime Building. His confidence and investment is creating some demand and interest from others—both from inside and outside of the state.

Future prospects
Aside from Chicago, many of the same factors at play in Michigan are also influencing the markets to some extent across the Midwest. Investors who are running out of prime opportunities in A-states or cities are rediscovering the potential in places like Wisconsin and Ohio. Michigan has something most of those other markets do not have, however: a compelling story of a dramatic turnaround. Institutional buyers are recognizing opportunity in Michigan, and investors who used to think it was not “fashionable” to own something in Michigan have come full circle. In short, Michigan is “cool” once again. Some of this is the result of national trends as well, of course, but Michigan is making a bigger leap than other states nationally—and there is tremendous up-side here compared to many other states. When you know you can buy quality for less, it is exciting.

Looking ahead, the near-term future remains bright. The cascade of interrelated positive factors bodes well: the auto industry’s strong performance, fewer troubled properties, more lenders lending in the state, more tenants in the market, light construction activity, and a generally improving economic outlook. One cautionary note to keep an eye on in 2015 and 2016 is the issue of troubled loans. Those closely tracking troubled loans will see that there are a large number of balloon notes in the Midwest coming due. If you combine that with the uncertainty as to where interest rates might be heading, the window of opportunity to sell might be somewhat limited. The year ahead looks good, but the crystal ball gets cloudier once we move into the New Year.

Posted in Detroit commercial real estate, industrial real estate, Michigan commercial real estate, multi-family, office, retail | Tagged , , , , , , , | Leave a comment

CRE Summit celebrates 25 years in Omaha

Jean Stothert, mayor of the city of Omaha, and Tom Fellman and Howard Kooper from Broadmoor attended this year’s CRE Summit.

Jean Stothert, mayor of the city of Omaha, and Tom Fellman and Howard Kooper from Broadmoor attended this year’s CRE Summit.

by Dan Rafter

For 25 years, the top minds in the commercial real estate business have gathered in Omaha for the Commercial Real Estate Workshop, better known by the acronym CREW. This year, though, marked a change for the group: CREW changed its name to the CRE Summit.

Jerry Slusky, principal of Omaha-based law firm Smith, Gardner, Slusky Law, says, the new name more accurately reflects this yearly event.

“Our surveys tell us that the professionals in this business have come to rely on this once-a-year event to provide them the tools they need to be successful in their businesses,” said Slusky. “Therefore, the word ‘summit’ seemed to be more appropriate.”

Bill Kristol was the keynote speaker at this year's event.

Bill Kristol was the keynote speaker at this year’s event.

This year’s event, held April 4 at the CenturyLink Center, again drew a crowd. This is not unusual: Attendance topped the 500 mark last year.

This year’s keynote speaker was Bill Kristol, the founder and editor of The Weekly Standard, contributor to ABC News and contributor to the news program This Week with George Stephanopoulos. Kristol spoke about the state of the national economy and the specific economic factors in the Midwest that will either hinder or help the commercial real estate industry.

For 25 years, the top minds in the commercial real estate business have gathered in Omaha for the Commercial Real Estate Workshop, better known by the acronym CREW. This year, though, marked a change for the group: CREW changed its name to the CRE Summit.

Jerry Slusky, principal of Omaha-based law firm Smith, Gardner, Slusky Law, says, the new name more accurately reflects this yearly event.

- See more at: http://www.rejournals.com/2014/04/05/cre-summit-celebrates-25-years-in-omaha/#sthash.50vFp2Pa.dpuf

For 25 years, the top minds in the commercial real estate business have gathered in Omaha for the Commercial Real Estate Workshop, better known by the acronym CREW. This year, though, marked a change for the group: CREW changed its name to the CRE Summit.

Jerry Slusky, principal of Omaha-based law firm Smith, Gardner, Slusky Law, says, the new name more accurately reflects this yearly event.

- See more at: http://www.rejournals.com/2014/04/05/cre-summit-celebrates-25-years-in-omaha/#sthash.50vFp2Pa.dpuf

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