Detroit CRE pros know the truth: Good things are happening in this key Midwest city

The M-1 line will bring streetcar service to downtown Detroit.

The M-1 line will bring streetcar service to downtown Detroit.

by Dan Rafter

Detroit is an unusual market today. Andrew Farbman, chief executive officer of Southfield, Mich.-based Farbman Group, says it’s one of the few markets in the country in which competing developers actually root each other on.

The reason for this? Everyone working in the Detroit commercial real estate market wants to see new development in the core of this city. It’s the only way for the city to continue its recent rebound.

“This is one of the only markets I know of where you actually cheerlead your neighbor’s projects,” Farbman said. “The addition of supply in downtown Detroit only increases demand. That’s the nature of the beast in the city of Detroit. Everyone is more open and collaborative of what the downtown should be.”

Farbman and other CRE pros working in Detroit say that downtown Detroit has steadily gained momentum since July of 2013. That, of course, was when the city filed for bankruptcy protection, becoming the largest municipality in the United States to file for Chapter 9 bankruptcy.

That bankruptcy filing generated plenty of negative headlines. But the move was a necessary one, say commercial real estate leaders in the Detroit market. It gave the city a chance to start over.

Today, people are moving into downtown Detroit again. Entrepreneurs like Quicken Loan’s Dan Gilbert are investing in the city. And construction has started on a new arena for the NHL’s Detroit Red Wings and connecting entertainment center that will fill about 45 blocks of the Midtown section of Detroit’s Central Business District. This $650 million project has commercial real estate pros here even more excited about the future of downtown Detroit.

“What brings people to downtown Detroit today? There is a lot of traction there,” said David Friedman, chief executive officer and president of Farmington Hills, Mich.-based Friedman Integrated Real Estate Solutions. “The riverfront. The sporting venues. The bars. The entertainment. The riverwalk. There are a lot of great assets in downtown Detroit. It’s always been a great city. It kind of took a leave of absence. But it’s dynamic again today. The city of Detroit has a lot of great things to offer.”

The pieces fell into place

Friedman says that the pieces are falling into place for Detroit. The bankruptcy happened and gave the city a fresh start. Then entrepreneurs like Gilbert sank their dollars into the downtown, hoping to turn Detroit into an urban environment favoring start-ups, tech firms and Millennials looking for city living.

Now plans are moving ahead for the M-1 Rail Line — or, if you prefer, the Woodward Avenue Streetcar — a 3.3-mile-long streetcar line that will run along Woodward Avenue in Detroit. Construction on this line officially began in the summer of 2014. The line will include a stop at the new Detroit Redwings arena in Midtown.

The Penske Tech Center is also under construction now in the New Center area of Detroit. This is a $6.9 million, 19,000-square-foot facility that will serve as the headquarters for the M-1 Rail. The facility, located between Bethune and Custer streets north and east of Grand Boulevard, will also be responsible for all the maintenance on the line’s streetcars.

“What is amazing to me is how all the pieces came together at one time,” Friedman said. “The bankruptcy. Our new mayor (Mike Duggan), who has done a great job so far. The light rail. The arena. It is simply amazing that all of this fell into place at one time.”

The key, of course, is for residents to move into downtown Detroit. With a steady influx of new residents, it makes sense for retailers to open shops in the Central Business District and for companies to fill office buildings.

And since the bankruptcy, people have been moving into downtown Detroit.

“The first generation of people who moved back into the downtown were urban explorers,” Farbman said. “They wanted the excitement of living in the city. The critical mass downtown is 35,000 to 40,000 people. That crowd has led to safety in numbers. And there are now amenities downtown that weren’t there before. The business leaders are stepping up and creating amenities that are really attractive.”

As an example of the increased amenities downtown, Farbman points to plans for the new gastropub Central Kitchen + Bar. The new bar, headed by entrepreneur Dennis Archer Jr. and his partners, will fill a 3,028-square-foot space at the First National Building in downtown Detroit.

Farbman said that new businesses such as the gastropub would probably have avoided downtown Detroit if it wasn’t for the bankruptcy filing.

Farbman said that the resurgence of downtown Detroit truly picked up steam during the last 12 months. He refers to the bankruptcy as a cleansing that has helped the city wipe away old liabilities.

“It created an end to the bottom,” Farbman said. “It made it so that this city government and the city itself can start to grow again.”

Both Farbman and Friedman predict that the next several years will be exciting ones for Detroit as more businesses invest in the city’s Central Business District and its surrounding neighborhoods. The suburbs surrounding Detroit have long been stable. Now with the downtown core on the upswing, the future looks bright for this key Midwest metropolis.

“There is so much capital coming into the city, both nationally and internationally,” Farbman said. “Every corner is getting attention. There was a time when you would put a sign on a building and wait a long time for the phone to ring. Today, our clients are calling us with suggestions for what they want to get involved in. It’s a big change, and it’s an exciting time.”

“Multi-family is doing great in the CBD,” Friedman said. “Office is doing great. All the different commercial sectors in the CBD are doing great. There is a three- to five-mile stretch where there is just so much activity going on now. We are seeing so many buildings in that stretch that are in the middle of being rehabbed. And the new arena will only spur future development here.”

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Daimler Group, Kaufman Development set to make history in Columbus with Two25 Commons

A rendering of the Two25 project in downtown Columbus.

A rendering of the Two25 Commons project in downtown Columbus.

by Dan Rafter

The Daimler Group and Kaufman Development are ready to make history in Columbus: The two companies are partnering to build the tallest ground-up mixed-use project in the history of the city.

The new 17-story building — Two25 Commons — will rise at the intersection of Third and Rich streets in downtown Columbus. The building will fill the last open parcel of land adjacent to the Columbus Commons, seven acres of green park space in the middle of downtown Columbus.

Two25 Commons will have about 20,000 square feet of retail space on its ground floor, 125,000 square feet of Class-A office space on five floors and 11 stories holding about 170 residential units.

The project is definitely in its infancy. Daimler Group and Kaufman Development say that Two25 Commons will be ready for occupancy in 2017 or 2018. But officials from both companies already say there is buzz about the project and about the Columbus Commons/Rive South area of Columbus in general.

“The downtown office market and Columbus Commons/River South area specifically is one of the hottest in the Midwest,” said Bob White Jr., president of the Daimler Group, in a written statement. “Companies and employees are looking for vibrant, walkable locations.”

Including Two25, there has been an investment of more than $200 million in the Columbus Commons/River South district since the city demolished the closed City Center Mall. That investment has already brought in more than 1,100 housing units, 250,000 square feet of office space and 102,000 square feet of retail.

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DTZ report: 2014 was a strong year for Kansas City’s CRE market

The Kansas City apartment market continues to grow.

The Kansas City apartment market continues to grow.

by Dan Rafter

Last year was a good one for Kansas City’s commercial real estate market, according to new numbers from DTZ. The company found that the Kansas City area saw nearly 3.9 million square feet of net absorption in its industrial market and 372,000 square feet in its office market.

Much of this comes down to job growth. DTZ reported that 22,300 new jobs were created throughout last year in Kansas City.

At the same time, local housing prices rose and consumers grew more confident. That’s a winning formula.

According to DTZ, Kansas City’s industrial market saw 926,000 square feet of net absorption during the fourth quarter of the year and 3.9 million square feet for all of 2014. Despite this, vacancies did rise a bit, moving from 7.4 percent at the end of 2013 to 7.8 percent by the end of 2014. Blame this on new construction: New building in this sector expanded it by 5.2 million square feet.

The office market ended 2014 on a positive note, according to DTZ. In the fourth quarter of last year, this sector absorbed 269,000 square feet. For the year, the office sector saw absorption of 372,000 square feet.

Vacancy rates in the Kansas City office market have fallen, dropping to 18.1 percent by the end of 2014.

Retail brought some good news, too. DTZ reported that the Kansas City retail market absorbed 965,000 square feet by the end of 2014, dropping the vacancy rate in this sector to 8.8 percent.

The multi-family market here is busy, too, with multi-family rents increasing 22 percent from 2008. The occupancy rate for this sector in the metropolitan Kansas City area stood at 94 percent. This sector continues to grow, with DTZ reporting that 3,854 apartment units were permitted in 2014.

Posted in industrial real estate, Kansas City commercial real estate, Kansas Commercial real estate, Missouri commercial real estate, multi-family, office, retail | Tagged , , , , , , , | Leave a comment

DTZ and a different kind of March Madness

by Dan Rafter

The NCAA’s March Madness tournament is in full swing, with plenty of Midwest teams still vying to give Kentucky its first loss this season.

But DTZ is thinking of a different kind of March Madness this spring: the madness — in a good way — that has been the commercial real estate market.

In honor of the basketball tournament, DTZ has released its 2015 Market Madness — Commercial Real Estate Matchups, which you can see in the infographic below. Click on it to get a bigger look. You’ll probably agree that there are no losers in this particular bracket.

march madness image2

 

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The rise of retail medicine and what it means to CRE firms

Patients are seeking more care at freestanding medical facilities located outside of central hospital campuses.

Patients are seeking more care at freestanding medical facilities located outside of central hospital campuses.

by Dan Rafter

Debora Field has worked in the commercial real estate business for more than 35 years. She’s seen plenty of changes in the relationship between hospitals and medical providers during this time. Today, Field, vice president of sales and leasing for Kansas City-based Newmark Grubb Zimmer, says that the medical field is moving to a retail model, with a growing number of medical practices moving out into retail locations in the neighborhoods surrounding big hospitals. This trend, which is only gaining strength, means big changes to the services that commercial real estate firms need to provide to their medical clients.

Field recently spoke with Midwest Real Estate News about the changes hitting healthcare real estate.

Midwest Real Estate News: This is a broad question, but what are some of the most significant changes you are seeing in the way hospitals and medical providers serve patients today?
Debora Field: The first thing you have to do is look at the historical tendencies to understand what is different now. Historically, we have had seven- to 10-year cycles of medical practices either moving away from the hospitals they are affiliated with or moving back to the centralization model where medical providers are located on or near hospital campuses. It flip-flops. I have been in business for more than 35 years. I have seen it, and seen it all. And I have done a lot of deals. So I have seen this cycle play out many times.

MREN: It seems like today, patients want neighborhood locations where they can receive treatment for a variety of ailments. They don’t want to go to the big hospital if they can help it.

Debora Field

Debora Field

Field: The decentralization trend that we are seeing now really has been a result of the behavior of the hospitals. The hospitals have either wanted to treat medical practices as a tenant or as a partner. When hospitals want to treat medical practices like a partner and don’t charge them rents that are too high, the medical practice will generally want to be on the hospital campus. It is more convenient. And some practices, like OB/GYN, have to be near a hospital. Today, most practices are still tied to hospitals. The hospitals are still controlling them and buying them. And medical providers generally like being on the hospital campus or near it. It’s more convenient for them.

But today we are also seeing a certain number of medical practices and clinics moving out to the neighborhood level. That is the cycle we are now in. The trend today for hospitals is retail medicine, setting up clinics and emergency care centers throughout the neighborhoods they serve. The hospitals don’t want patients going to the big central hospital for routine acute illnesses. They want to handle the more serious problems at their central hospitals. But for most illnesses, they want the patients to stay near their homes, where medical providers can provide that care less expensively.

MREN: What kind of sites are medical providers looking for when they move out into neighborhoods?
Field: They are seeking box stores. They want to locate in the best spots in retail strip centers, the end-cap spaces. Some are even looking at pad sites that they can build on. They aren’t only re-using what is already there in developed neighborhoods. They are building new sites. They are trying to reach the population by coming to them. The goal is keep the patients from going as often to the hospitals, where care is so costly. Hospitals don’t want patients sitting in emergency rooms and taking up beds they don’t really need. Instead, they want customers going to the neighborhood clinic associated with the hospital.

MREN: What does this mean for the commercial real estate companies that work with healthcare providers?
Field: We have to search for a different kind of property for our healthcare clients, a new model. The clinic wants to go to a one-story, often freestanding building in a retail location. They want great parking. They want great signage.

MREN: Is it difficult to find these locations?
Field: No, not really. But you do have to spend some time searching. Every market is different in that regard. In our local market in Kansas City, we have already seen this trend toward retail medicine occur. It has been occurring for close to five years. Our market is healthier today. Our retail centers are healthier. That is good, but it does make it more of a challenge to find the right location for medical providers. The downturn in the economy offered lots of opportunities for medical clinic locations. Now, there isn’t as much. Are there a lot of vacancies that are suitable for medical providers today? There aren’t as many as there were when we had a softer market. But you can still find them.

MREN: When you talk about retail medicine, it makes me think of all the clinics that are now located inside drug stores like CVS/pharmacy and Walgreens. How does this trend impact the way commercial real estate companies work with healthcare providers?
Field: Just like banks infiltrated all the box stores, you are now seeing doctors and pharmacists inside all the big retailers. Because the healthcare system that you as a broker might represent now has different avenues to provide care – they don’t have to rely just on a pure office-space environment today – that does diminish the demand for the services we provide in a certain way. I can’t measure it. But still, hospitals and medical providers do need our services. When there these clients do have a real estate requirement, the requirement is often more retail in nature. Doctors and clinics always want good access and nice buildings for patients. I am doing deals now with medical practices that aren’t in medical office buildings but instead want good access in a nice office building because the parking is so much better equipped to handle their needs. That being said, we haven’t erased the old model. It still exists. We are still doing searches for typical medical office space for practices that need to expand or relocate. But the search has become more of a retail search. Medical providers are interested in what the demographics are, what the traffic counts in neighborhoods are. They want to know what kind of sign they can get.

MREN: You obviously work in a competitive field. How do you make sure that your clients keep coming back to you?
Field: You must offer your client a knowledge of what kind of space is conducive to retrofitting for medical if it hasn’t yet been medical. You have to understand air-quality issues, plumbing and structural issues. You have to understand access for patients and parking. You need to know what all those aspects are that go to defining a quality functional space for a medical tenant.

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List of 10 best states for retirement comes with two surprises — Iowa and Nebraska made the rankings

A low cost of living, low crime rates and top healthcare options make Nebraska a top state for retirees.

A low cost of living, low crime rates and top healthcare options make Nebraska a top state for retirees.

by Dan Rafter

Is retirement nearing? Then you might want to stay put in the Midwest. A recent feature story from Bankrate ranked the 10 best states for retirement living. And two Midwest states — despite their chilly winters — actually ranked highly.

The states that rank high boast low costs of living, strong healthcare systems, low crime rates, low taxes and plenty of sun.

You might think that last part eliminates all of the Midwest. But no.

Nebraska ranked 10th on the Bankrate list. A strong healthcare system and low cost of living helped the state earn this spot, according to Bankrate. The state also ranks high when it comes to a well-being score measured by the Gallup-Healthways Well-Being Index.

Iowa came in sixth place on the rankings. Low crime rates, low cost of living and quality healthcare are the bonuses here. Bankrate reports that Iowa’s healthcare system ranks as the fifth-best in the United States, according to research from the Agency for Healthcare Research and Quality.

Those were the only two “official” Midwest states on the list. But nearby states such as Idaho, South Dakota and Wyoming — more West than Mid, but still, not on the coasts — also made Bankrate’s list. In fact, not one traditional Sunbelt southern state ranked in the top 10.

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Doing more of your shopping at drug stores? You’re not alone

cvs

by Dan Rafter

How often do you run into a drugstore on the way home from work? And how often do you fill your shopping basket not just with aspirin and cough medicine, but with gallons of milk, loaves of bread and cans of pop?

If you find that you’re doing more of your actual grocery shopping at stores such as Walgreens and CVS, you’re not alone.

Research firm Nielsen last year told the Drug Store News trade publication that Millennials are big shoppers, spending up to $200 billion every year. But Millennials aren’t exactly rich: Nielsen said that the median annual income for younger Millennials stood at $25,000 and $48,000 for older Millennials.

So though they want plenty of products, they have to be frugal with their purchases. This is why the spending of Millennials often exceeds that of Baby Boomers in drug stores, according to Nielsen’s research.

Midwest Real Estate News recently spoke with Melissa Studzinski, vice president of customer relationship management with CVS/pharmacy, about Millennials and their increasingly frequent visits to drug stores.

Convenience: Not surprisingly, Studzinski cited convenience as one of the main draws inspiring Millennials to do more of their shopping at drug stores. Consider that CVS/pharmacy operates 7,800 stores across the country. More than 75 percent of the population live within three miles of one of the company’s stores in the markets that it serves.

Studzinski said that CVS/pharmacy stores have also increased the number and type of items that they sell. Shoppers can buy cereal, bandages, toys, magazines, cleaning supplies and candy. And there’s the pharmacy, too, of course. Like many drug store chains, CVS/pharmacy runs its own in-store clinics — they’re called MinuteClinic here — that can provide customers with quick care.

These services are important to Millennials because Millennials are often in a rush.

Catering to the shopping habits of Millennials: “Millennials are some of the most tech-savvy consumers,” Studzinski said. “They are more likely to make online puchases or engage with a brand via a mobile device compared to older consumers.”

This is why drug store chains are strengthening their mobile apps. For instance, shoppers can use the CVS/pharmacy app to refill prescriptions, check for possible negative drug interactions and redeem coupons and rewards points digitally.

Bye-bye fast food? Studzinski says that Millennials are turning to drug stores and convenience stores as a replacement for fast-food meals. Millennials are also interested in healthier snacks.

You might not think of drug stores as home to the healthiest of food items. But stores like Walgreens and CVS/pharmacy today stock a wider variety of healthier items. It’s not unusual to find urban drug stores, for instance, that sell fresh fruit.

CVS/pharmacy has launched its Gold Emblen Abound line to meet this trend. The line features food that is free of artificial preservatives and flavors.

Rewards on the rise: Nielsen’s research said that Millennials are particularly interested in rewards programs. Drug store leaders recognize this and have been introducing and strengthening their own rewards programs as a way to attract consumers.

CVS/pharmacy runs its ExtraCare rewards program. Shoppers who participate in the program receive ExtraBucks Rewards. Studzinski refers to these as “essentially free CVS money to spend on anything in the store.”

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