Better times in Michigan should inspire all commercial real estate professionals.

It doesn’t seem like the ideal time to start a commercial real estate company. But six industry veterans have seen enough positive signs to take the plunge.

And this should be inspiring to everyone wondering whether the commercial real estate industry really is getting healthier.

Six veteran real estate professionals recently combined to form Southfield, Mich.-based Keystone Commercial Real Estate.

Matt Berke, Gregory Newman and Ryan Kattoo, all formerly with the Beale Group, are Keystone’s principals. Ryan Duff, Kevin Berke and Steve Shamoun are the company’s sales associates.

Newman said that the timing of the move made sense. Things are looking up even in Michigan, a state hit particularly hard by the recession.

“There has been a lot of positive news lately,” Newman said. “Michigan is starting to come back. The auto industry is showing some big profits. Banks are looking more positively at Michigan. Some of the insurance companies are starting to look at Michigan more favorably. Rents are leveling out and starting to climb a bit. People are spending more money in retail. What better time to start our own company than when things are starting to improve?”

Keystone Commercial will focus on tenant representation, investment sales, leasing and property management of a portfolio of shopping centers ranging from 10,000 square feet to 500,000 square feet.

Berke, who worked with the Beale Group for 18 years, agrees that the Michigan economy is in recovery mode, making this a wise time to open a new commercial brokerage.

“The supply of available space out there is beginning to shrink. When that starts to happen, you start seeing an uptick in rents. Our activity during the last eight months has been fantastic, and we expect that to continue.”

And that should be inspiring news to commercial real estate professionals across the Midwest. When commercial pros are again willing to take chances, you know that the industry is moving in the right direction.

– Dan Rafter

Are lenders less stingy when it comes to multi-family developers?BR

The good news for the multi-family market is that lenders are closing a greater number of construction loans today for strong multi-family projects.

Dan Hampton, senior vice president and head of U.S. commercial real estate in the Indianapolis office of BMO Harris Bank N.A., says that BMO Harris has increased its volume of such loans as the company has moved in to 2012.

Some of the most attractive multi-family projects in Hampton’s eyes are the student-housing projects popping up around university towns such as Madison and Minneapolis. Hampton has also seen strong new-construction multi-family projects in Milwaukee and Chicago.

“There are some thing that are common in those markets,” Hampton said. “They each have diverse, stable job environments. They have research-and-development firms that are doing well. They have strong populations. Some of these markets benefit from a major university. These factors, this stable environment, makes these markets good environments for new multi-family development.”

Mitchell Gould, executive vice president with BRT Realty Trust, said that the multi-family market appears to be strongest in the Southeast region of the country. He pointed to Atlanta as a particularly strong multi-family market.

BRT Realty looks for many of the same factors that Hampton outlined when deciding which multi-family projects receive funding and which ones don’t. Gould added that BRT Realty studies the history of the borrower closely when deciding whether to approve that borrower for financing.

“Does the borrower have a strong operating history?” Gould asked. “Does the borrower own other multi-family projects? Does the borrower know what it is doing? We also want to work with borrowers who can come up with additional cash if that is ever necessary in the event of a problem.”

David Roberts, president and chief operating officer of Grandbridge Real Estate Capital, said that his company’s focus remains on providing financing for multi-family projects because of the continued strong performance of this asset class.

For 2012, Roberts predicted, effective multi-family rents should continue to rise. He said that in most markets, these rents will jump 4 percent to 4.5 percent during the year. At the same time, vacancies are dropping.

Combine this with the fact that the national homeownership rate continues to fall, and you have the recipe for a multi-family market that shows no signs of slipping in the near future.

Roberts pointed, too, at the jobs that the country has created during the last two years. Of these, about 70 percent have been filled by individuals from the ages of 20 to 34. These younger consumers remain prime rental candidates and are, indeed, choosing renting over single-family housing in larger numbers.

“It’s more challenging for young people to get down payments today,” Roberts said. “They have doubts about whether it’s a good investment to buy a single-family home. It’s caused a lot of people in that age group to become renters.”

Roberts also predicted that the country will see a larger number of multi-family starts in 2012, somewhere in the range of 200,000 to 250,000 new units started this year.

“The rents are going up. The vacancies are going down,” Roberts said. “That makes multi-family look pretty darn good.”

– Dan Rafter

Is the Carlson Center in Minnetonka up for sale?

Just why has Minneapolis’ Carlson Real Estate Company hired an investment banking firm to review the company’s 5.5-million-square-foot real estate investment portfolio?

It’s a good question. But it’s not one that Matt Van Slooten, president of Carlson Real Estate is ready to answer.

Minnesota Real Estate Journal contacted Carlson to ask why the company in February hired investment banking firm Eastdil Secured to assist it in reviewing and evaluating strategic alternatives for its real estate investment portfolio.

A spokesperson for Carlson said that Van Slooten is not available for interviews on this topic.

It is certain, though, that Carlson might be willing to sell some or all of its real estate holdings if it receives the right bids for its properties.

Carlson’s real estate portfolio includes properties in Minnesota, North Carolina and Arizona. Key properties among the Minnesota portion of the portfolio include the business park surrounding the corporate campus of the Carlson Companies in Minnetonka and the 36-story office tower in downtown Minneapolis that holds the Radisson Plaza Hotel and Plaza Seven Office Tower.

In a press release, Carlson Real Estate Company said that it has directed Eastdil to explore a full range of possibilities that could include a sale or joint-venture arrangement of its real estate business operations or portions of its portfolio.

The company’s Minnesota portfolio is anchored by several properties within Carlson Center, the business park surrounding the Carlson headquarters at the intersection of Interstate-394 and Interstate-494 in the western suburbs of Minneapolis.

CREC also owns a 36-story mixed-use project in downtown Minneapolis containing the Radisson Plaza Hotel and Plaza Seven Office Tower.

Though Van Slooten did not want to hold a telephone interview about Carlson’s arrangement with Eastdil, the company president did release an official statement: “This is an exciting time for Carlson Real Estate. We are exploring new forms of financial arrangements from what we’ve had in the past, with the goal of maximizing the potential of our real estate business.”

Carlson Real Estate Company has operated as a separate business from Carlson’s other operating groups for more than 25 years.

– Dan Rafter

Grand Rapids residents are seeing growing signs of the commercial real estate recovery.

No state has been hit harder by the Great Recession than Michigan. Commercial real estate professionals working in the state, then, are still searching for signs of hope during the nation’s slow economic recovery.

Fortunately, against all odds, they are finding these signs.

Just ask Mike Mikesell, director of brokerage and manager of the Grand Rapids, Mich., office of Signature Associates.

“Today, everyone is working through the problems in the state and making the adjustments that have to be made,” he said. “It’s much like with the residential market. There were properties there that were overvalued. Those properties are being flushed through the system. They’re being sold at lower prices, released at new market rates. The same thing is happening to commercial. Properties that were overvalued are now being flushed through the system. It’s painful in a lot of ways, but it is necessary for recovery.”

Good news sometimes comes in unexpected forms. That’s why it was such a pleasant surprise to discover, via the Wall Street Journal late last year, that Grand Rapids enjoyed the second highest level of housing-price increases in the country last year, right behind Bismark, N.D.

“That, I think, is reflective of some of the positive events taking place in Western Michigan,” said John Cameron, a real estate specialist in the Grand Rapids office of law firm Dickinson Wright.

But Cameron is realistic. He knows that the state still has a long way to go before its recovery is truly felt by its residents and businesspeople.

“We’ve seen a little bit of improvement. We can always see more. We are still in Michigan, after all,” Cameron said.

And that’s the crux of life in Western Michigan today. Yes, more commercial real estate deals are taking place. Retail is starting to slowly lumber back into life. Multi-family is strong. Office remains sluggish, but not quite as sluggish as it has been in the past. And industrial is showing signs of life, too.

But this is still Michigan. There’s still work to be done here.

At least, though, there are signs of hope. And in today’s still sluggish economy, that’s something worth holding onto.

– Dan Rafter

Of course, this isn’t unusual. Plenty of commercial real estate firms across the Midwest donate a staggering amount of volunteer hours and dollars to charitable causes.

This Feb. 22, though, Colliers will be participating in a big way in an eight-day global charitable campaign, “Everyone Gives.” The event is a big one, so it more than deserves its own mention.

During the eight-day day event, you can make a small donation to the charity of your choice at the Everyone Gives Web site. You’re then supposed to use sites such as Facebook and Twitter to request that your friends, co-workers, clients and family members make a charitable donation — again, to the charity of their choice — too.

Everyone Gives is notable because it grew from an idea conceived by top officials at Colliers International. The real estate firm is the campaign’s top sponsor, and its idea has proven popular. Today, hundreds of charitable organizations have joined Everyone Gives. These include the Juvenile Diabetes Research Foundation, Room to Read, World Vision and the United Way.

The Everyone Gives campaign will launch Feb. 22 in more than 60 countries. The hope is that by generating many small donations — even $5 is important — Everyone Gives will result in a landslide of charitable donations.

“It’s exciting because it’s never been done before,” said Doug Frye, president and chief executive officer of Colliers International, in a written statement. “This isn’t another one-off charity donation. This is about enabling individuals to engage their personal connections to give more to the charities they are passionate about.”

If you’re thinking about kindness this Valentine’s Day, why not jot down Feb. 22 on your calendar? Even a small donation, and a brief message to your social media friends, can make a big difference.

– Dan Rafter

Critics? They’re not quite as certain.

According to WDIO.com, Alatus officials visited Duluth, Minn., earlier this week. Their goal was a simple one: They were there to promote their plans to build a casino in the Twin Cities.

According to Bob Lux, principal at Alatus, plans call for a 75,000-square-foot casino to be built on the third floor of downtown Minneapolis’ Block E building. It’s an intriguing proposal for several reasons: First, the Block E building is struggling mightily today. Secondly, developers estimate that the casino could generate $100 million in state taxes every year. That money could then be used to finance a new stadium for the Minnesota Vikings.

Alatus completed its acquisition of the Block E building in the summer of 2010.

Of course, any Minneapolis casino is far off. It’s not easy to gain approval for a casino in a major city, just ask city leaders from my hometown, Chicago. Illinois Gov. Pat Quinn is working with Chicago Mayor Rahm Emanuel and other state and city leaders to work out a compromise that would bring a casino to Chicago, something city officials have long coveted to as a financial generator to help shore up an ailing budget. But a final agreement still appears to be a way off, and the famed Chicago casino has been a project that’s been debated for decades.

Let’s be honest here: Aren’t cities showing a serious lack of imagination by constantly turning to casinos to solve their problems? I have no problems with casinos. (Heck, my parents are regular visitors to the casinos lining Lake Michigan in Northwest Indiana and Southwest Michigan. They’re particular fans of the Four Winds Casino Resort in New Buffalo, Mich.) I’ve visited a few Chicago-area casinos in my time and — sort of — enjoyed myself. But I would like to see officials with Chicago — and other cities across the country — break their seeming addiction to gambling as the answer to all of their problems.

Remember when the casino boats came to Gary, Ind.? Officials there painted the boats as saviors. Well, the boats have been there a long time, and the problems that plague Gary — high crime rates, sky-high unemployment — remain. It’s not fair to expect casinos to solve the long-term problems of cities. But the way gambling proponents sometimes sell their boats and land-based gambling centers, you’d think casinos were the pot of gold at the end of the rainbow.

A Minneapolis casino might keep the Minnesota Vikings in town. But what might really keep the football team in place would be if its wealthy owners ponied up their own funds to upgrade their stadium.

– Dan Rafter

The Vue in Minnesota is an example of a new multi-family project coming to the Midwest.

The best news for the multi-family market is this: This market segment remains strong for several reasons, not just one.

Foreclosure numbers remain at unhealthy numbers across the country, with RealtyTrac confirming that foreclosure filings were reported on 610,337 properties in the third quarter of last year, an increase, though slight, of less than 1 percent from the previous quarter. That’s a lot of people who’ve lost their homes; they have to live somewhere.

At the same time, lenders today have tightened the requirements that potential homeowners must meet to qualify for mortgage loans. Real estate columnist Kenneth Harney, writing for the Washington Post, reported early this year that home loans originated for purchase or guarantee by Fannie Mae and Freddie Mac now carry average FICO credit scores in the 760 range. That’s a record-high. Loans insured by the Federal Housing Administration now have average credit scores just above 700.

There was a time when lenders considered FICO scores of 620 to 640 good enough. In fact, that time wasn’t even that long ago — try the housing boom years of 2004 through 2006.

There are other reasons why people are choosing multi-family living: More people are migrating toward urban centers because these are where most the jobs are today. Single-family housing in big cities remains expensive, so potential homeowners in these urban centers are instead becoming renters.

Then there is the aging of the country. Baby Boomers are getting older, becoming empty-nesters. Many are trading in their single-family homes for multi-family living.

Finally, an interesting point came up during the Commercial Real Estate Forecast Conference held this January in Chicago by Midwest Real Estate News’ sister publication Illinois Real Estate Journal. Sam Zell, the famed Chicago real estate mogul and chairman of Equity Group Investments, praised the strength of multi-family housing. And in doing so, he mentioned that younger consumers — those 34 and under — are no longer rushing out of college to buy a single-family home.

These buyers, instead, are choosing the flexibility that comes with renting, partly because they’re worried that home values will continue to fall.

As Zell said, this appears to be a prudent move.

“I have no idea why any young person today would want to be tied down with a single-family home,” Zell said during the conference.

Dan Hampton, senior vice president and head of U.S. commercial real estate in the Indianapolis office of BMO Harris Bank N.A., said that he expects multi-family’s strong performance to continue for the foreseeable future.

“Multi-family is certainly one of the advantaged property classes in commercial real estate right now,” Hampton said. “We have seen a real pick-up in multi-family this year and late last year. We’ve closed acquisitional loans, refinance loans, construction loans for good projects, all in the multi-family market. And we are interested in continuing to look at these loan opportunities.”

What kind of multi-family projects is BMO Harris funding today? What do officials with this bank look for when deciding which projects are worth funding and which should be bypassed?

Not surprisingly, much of this decision, as in most real estate decisions, comes down to location, Hampton said.

“This remains a location business,” Hampton said. “We look at the location of the multi-family project. We look for demand generators, submarket factors. We look at the equity contribution and, of course, the sponsor quality. We want to work with clients who have more than just a credit-only relationship with us. We want to work with clients who have, preferably, a full-banking relationship with us.”

– Dan Rafter

Has the commercial recovery hit Lexington?

NAI Isaac‘s year-end market report brought plenty of good news for commercial real estate professionals in Lexington, Ken. To sum it up: Every commercial market segment in Lexington improved in 2011.

The numbers bear this out: According to the report, the suburban office vacancy in Lexington fell 1 percent in 2011, while office vacancies in the Central Business District dropped 1.16 percent.

The news was good on the retail side, too: According to the NAI Isaac report, retail vacancies fell 6.65 percent during 2011. And industrial saw the biggest decline in vacancies in the past year, a solid drop of 15.06 percent.

Lexington has been a fortunate market, though. It certainly suffered during the worst days of the Great Recession; I don’t know of any city that didn’t. But Lexington didn’t seem to suffer quite as much as many other Midwest markets. The Lexington commercial real estate professionals to whom I’ve spoken always point to the same factors: Lexington features a diverse employment base. It’s a fairly conservative market, meaning that it doesn’t suffer the high highs or the low lows that more volatile markets do. And Lexington boasts a solid, centralized location.

Add to this the fact that the city has managed to carve out a presence in the still-thriving healthcare market, and you understand why vacancies dropped last year in this city, even in the struggling office segment.

– Dan Rafter

Multi-family builders will be busy this year in the Twin Cities.

Expect a busy year in the multi-family market in Minneapolis/St. Paul.

The researchers at Marcus & Millichap Real Estate Investment Services predict that builders will deliver 1,865 rental units in 2012. That’s the highest this figure has stood in eight years. It also dwarves multi-family activity in 2011, when builders delivered 477 multi-family markets to the Minneapolis/St. Paul market.

The news is not all good, though. Marcus & Millichap is predicting that vacancies in the Twin Cities multi-family sector will rise 20 basis points in 2012 to 2.8 percent. The reason for this is fairly obvious: The number of new units delivered by builders will exceed a smaller increasein demand among Twin Cities consumers.

Don’t expect the rising vacancies, though, to hurt rents. According to Marcus & Millichap, operators should be able to raise asking rents 2.9 percent by the end of 2012 to $987 a month. Effective rents will see an even bigger increase, a predicted 4.5 percent to $956 a month.

This is all good news for the Twin Cities. Overall, Marcus & Millichap ranks Minneapolis/St. Paul as the 10th-best multi-family market in the country. That’s down a bit from 2011, when Marcus ranked the Twin Cites as the eighth-best such market, but it’s still a solid ranking. And it provides yet more evidence that the multi-family market here, and in most Midwest markets, remains the best commercial real estate bet out there.

– Dan Rafter

Commercial real estate activity is on the rise in St. Louis.

Like most Midwest cities, St. Louis suffered through its share of pain during the Great Recession and its painfully slow recovery. Today, though, the city appears to be on the rebound. And that includes its commercial real estate market. Midwest Real Estate News recently spoke with Piers Pritchard, a vice president and principal at the St. Louis office of Cassidy Turley. Pritchard had plenty of positive news to share regarding this Midwest city’s commercial real estate market.

Midwest Real Estate News: This is a pretty broad question, but are you seeing things getting better in the commercial real estate market these days in St. Louis?
Piers Pritchard: Yes. We saw some good momentum at the end of 2011. In the second half of this year, that momentum has continued. Some of the good news comes from our local companies. We have several local companies, from recent start-ups to our Fortune 500 companies, who are adding jobs and committing to additional space. These companies are furthering their commitment to the St. Louis metro area.

MWREN: It’s good to see that commitment from local companies.
Pritchard: It is. We won’t see that absorption until 2012. That’s when we’ll see the space actually being occupied. But we are seeing good momentum in St. Louis right now. The total square footage that those tenants are looking for is 11 percent more space than they currently occupy. That’s a good formula. We are feeling good and optimistic about 2012.

MWREN: Why do you think you’re seeing these improvements now.
Pritchard: I think St. Louis is a pretty fundamentally sound city. We do not have the boom/bust of the bigger cities on the coasts. We don’t’ see the highest of highs or the lowest of lows. When we are seeing a recovery, as we are now across the country, St. Louis is almost always positioned well to recover because we don’t have the big swings like some of the bigger cities. We also have a good foundation of corporate citizens. Some of our largest employers are adding jobs and more space.

MWREN: What commercial sectors are performing better than others?
Pritchard: The big thing everyone is talking about is healthcare. St Louis is actually pretty heavy on healthcare. That’s a good thing from our perspective. It’s one of those segments that hasn’t slowed during the recession. We’ve seen growth. We think that will accelerate.

MWREN: What other property types are doing well right now?
Pritchard: Some property types seem to be in the last stages of the downfall. Others seem to be in the first stages of recovery. Industrial has seen the most significant recovery so far. The St. Louis area has seen a couple of large deals. Walgreen’s occupied 500,000 square feet last year. Procter & Gamble expanded in the area. There has also been a strong demand for rental units. It’s hard to purchase a home because of stricter lending standards. The multi-family market coast to coast is doing well. That is the case here in St. Louis as well.

MWREN: Multi-family seems to be doing well in all the Midwest markets that we cover.
Pritchard: From an investment perspective, there are two product types doing well now. One is core, well-leased, good-credit-tenant big retail projects that are grocery anchored. Big retail centers of that kind are doing well. And the multi-family segment is also doing well.

MWREN: What about retail? How is that segment performing today?
Pritchard: Retail is slow and steady. We have optimism going forward. What we’ve seen in the last couple of years has been a flight to quality from lesser B- and C-class properties to Class-A properties on the retail side. Those B and C type properties have been vacated or have been converted to different types of uses. An old retail center could become a church or a school or very inexpensive office space. The owners of lesser-quality retail space have had to be creative in attracting tenants, in recouping that income from tenants that have vacated.

MWREN: Since the start of the recession, we’ve seen plenty of these creative re-uses across the Midwest.
Pritchard: It is a trend that we have seen. And it’s not just on retail. You’ll also see light industrial, flex spaces and office/warehouse spaces that may have had more of a typical type of use that are now being converted into something different. From a landlord’s perspective, they just want their space leased.

MWREN: Looking ahead, what do you see occurring in the world that might actually derail the recoveries we are seeing in most Midwest markets?
Pritchard: Everyone is still on edge. We are still optimistic and we do believe that the momentum we’ve seen can carry us in the right direction. But recent history has everyone a little nervous. Everyone is very cautious in their optimism. We have political issues and the presidential election in November to worry about. There are a lot of things that are teetering in Washington. Who will be president is one of them. This could all have an impact on what happens nationally.

MWREN: Do you think the recovery in St. Louis will continue in 2012 and beyond?
Pritchard: Our economy here is pretty diverse. We are not completely dependent on any one industry. Healthcare is a growing trend in St. Louis, but we are not completely dependent on healthcare. We have manufacturing. We have IT companies here. We have a strong market with lawyers and accountants and other professionals. We are not dependent on one segment of the market. That will help our recovery. We are all about slow and steady. St. Louis is about not hitting the high highs or low lows.

– Dan Rafter