BMO Harris’ Hampton and Wise: Sluggish economy, nationwide uncertainty not stopping CRE recovery in Indianapolis

Commercial real estate activity is on the rise in Indianapolis. But, like in all Midwest markets, it could be even stronger.

Midwest Real Estate News recently spoke to two commercial real estate pros at BMO Harris Bank about the health of the commercial real estate market in Indianapolis and Indiana: Dan Hampton, senior vice president and head of U.S. commercial real estate, and John Wise, senior vice president and director of commercial real estate for Indiana.

Those looking for good news should take heart: Both Hampton and Wise said that commercial real estate activity in Indianapolis and across the state was on the rebound. But you know that in today’s economy the news can’t be all good; both commercial real estate professionals agreed that there are several factors slowing the recovery in this key Midwest state.

Midwest Real Estate News: Are you seeing more commercial real estate activity in Indianapolis and Indiana today?
Dan Hampton: We have definitely seen an up-tick in our pipeline. The pipeline is infinitely higher. We are experiencing some pretty robust pipeline figures today. We are pretty bullish right now on the market.
John Wise: The up-tick is focused on a few product types, multi-family, industrial and medical office. There is definite demand there for those products.

MWREN: What accounts for that higher demand in the multi-family, industrial and medical office sectors?
Hampton: With multi-family, liquidity is strong in that market with the GSEs funding that product. There is also a fair amount of institutional dollars that are flowing in either on the buy side or the invest side to do multi-family projects. The same is true for medical office. But you are also seeing a lot of medical office projects being originated by REITS and a lot of products purchased by REITS that were originated elsewhere. With industrial, that has to do with the recovery of the economy in general. There was pent-up demand that people are meeting with new facilities. We are not fully recovered, of course, but we are seeing an up-tick in those three property types in general

MWREN: What unique factors are helping Indiana and Indianapolis through this slow recovery?
Hampton: Indiana is a major distribution hub. We can reach a vast majority of the U.S. population within a one-day’s drive time. It is a favored industrial market. We also have a really good airport that is easy to get in and out of for FedEx and UPS. We have an advantage from a geographic standpoint.The state is doing well, too. Unemployment is lower than it is in other parts of the country. We have good leadership here, and that helps, too..
Wise: We have seen a strong growth in healthcare research and educational services throughout Indiana. And the industrial market is being driven by other organizations in other parts of country that need to distribute out of a location that is easy to get to for most of their clients. Multi-family is being driven by demand. More people are moving from single-family homes into the multi-family sector. Fewer people are able to quality for loans for single-family homes today. They have to live somewhere.

MWREN: The future looks good, then, for Indiana and Indianapolis.
Wise: I will focus in on where the growth of jobs has been in the city. Indianapolis has had about a 1.2 percent growth rate in the last few years. We have added those jobs in education, healthcare research and government. There are other markets outside Indianapolis, such as Columbus, that have some similarities to what Indianapolis is doing, and all those markets are also showing some strength today.

MWREN:What is holding back growth from proceeding at an even faster pace?
Hampton: We are rolling into a pretty major national election. I will take a wait and see attitude about the strength or acceleration of the recovery until after the election. It has been a very gradual recovery in most of the markets in which BMO Harris operates in. Some markets have recovered more quickly than others. We have to wait and see when it comes to two major events: the presidential election and the possibility of a fiscal cliff. If action isn’t taken, we will have the Bush tax cuts eliminated while the Obama tax increases take effect. That could pose a barrier to economic recovery in general.
Wise: And the other thing is that there are going to be mandatory spending cuts at the federal level. Throw all those issues together, and it could be a difficult situation. I believe that politically, though, the legislators will come to some sort of agreement.
Hampton: I think that they will have to. The nature of that agreement will determine how markets will react, including the real estate market.

MWREN:Looking back at your careers, have you ever seen a recovery that was as painfully slow as this one has been?
Hampton: Usually when you have a deep trough like we did in 1989 and 1990, you have a pretty good bounce-back, a fairly aggressive trajectory in terms of recovery. That hasn’t been the case in this one.
Wise: We have seen a tremendous use of technology throughout the economy that has increased productivity in every sector of the market. When you have higher productivity with the workers, it is hard to bring new ones on. Older workers are staying longer on the job. A lot of growth of new workers coming into the workforce has been delayed, I think.
Hampton: What you’re saying, then, is that job creation is one of the barriers to the real estate recovery.
Wise: That’s especially true for some of the property types like office buildings. There is not quite as much demand for those today thanks to the slower job creation in the country.

– Dan Rafter

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