Destination suburbs: The new choice for aging Millennials

Steve Shepherd

Steve Shepherd

Guest post by Steve Shepherd, Vice President, Colliers International MSP

“I just want to cook a ham for the holidays and be surrounded by family and friends,” says one aging millennial, who as of late, is interested in finding balance and establishing roots.

As millennials age (or younger Gen-Xers for that matter), the live-work-play mantra will naturally morph into live-work-educate, as their focus changes to providing educational and enrichment opportunities for their children.

Good schools, a backyard with room for Fido and expanded living space will become more important lifestyle factors than proximity to the nearest micro-brewery.

Suburban “urban-hubs” 

Can the suburbs serve as an enticing option for a generation that wants it all and is used to having it all?  Not surprising to the people who study population migration patterns, the answer is “yes.”

Serving the needs of both millennials and boomers, the suburbs are embracing the integration of the types of amenities that draw people to urban centers.  Attractive mixed-use developments are surfacing in many suburban communities with the profile of centralized walkable hubs that offer ease of accessibility, community gathering space, entertainment, shopping and dining.

In the Twin Cities, suburban locations like West End, France Avenue, Ridgedale, Wayzata and Golden Valley are well positioned to offer this desirable mix of walkable amenities to both millennials and employers seeing to hire millennials.

It’s not only investors, developers and urban planners who are hip to this trend, office owners alike are figuring out how to reposition aging stock with creative, open, collaborative space to fulfill the “work” needs commanded by today’s transitioning workforce.  Savvy office owners know that to keep pace with modern demands and remain viable, they must differentiate themselves to attract businesses focused on recruiting and retaining talent.

Reinventing suburban assets 

Under the ownership of Hillcrest Development, Pentagon Park, located at Hwy. 100 and I-494 in Edina, Minnesota, is an example of a repositioned office property that undertook the task of reinventing itself to avoid abandoned offices, conference rooms and hallways.

“Reinvention of a 1960s-era office park requires attention to detail,” said Scott Tankenoff, managing partner at Hillcrest Development. “Our investments in the buildings were prioritized to promote energy efficiency, enhanced natural light and the development of adjacent tenant amenities.  Further renovations focused on creating open spaces, ceiling heights and exterior common spaces for employees and visitors to enjoy.”

Office options along popular Twin Cities’ commuter routes afford business owners and decision-makers who live in the suburbs, especially the affluent western suburbs, the convenience of a centralized location.  With transit options, accessible amenities, free parking for employees and the added “cool factor” of a repositioned property, the suburbs are starting to look, and think, like the city.

Looking outside the Loop 

Arguably our metro’s hottest office market – and not coincidentally a location very popular among millennials for live-work-play — the North Loop has filled up with creative and tech-driven businesses that don’t need to be in the downtown core with access to skyway connections.

The North Loop’s delivery of cool, non-traditional, often brick-and-timber office space at affordable prices of $12 – $14 PSF net became a popular alternative to a downtown address. With that submarket near full and lacking parking options, we are already seeing a shift to other submarket options, like neighboring Northeast Minneapolis.

With local developers chasing projects in Market West near International Market Square, it’s not a stretch to believe that a subset of office tenants looking for new space would consider the right creative project along Highway 55 or the Interstate-394 corridor if the value was right.

The jury is still out on whether companies are willing to stay in the North Loop as the top end of the market gets pushed closer to $20 PSF net.  Remember, these users have already acknowledged that they don’t need to be located at main-on-main in downtown. We have already seen creative/tech activity at Wirth Corporate Center on Highway 55 in Golden Valley, where creative space design has been implemented to attract those getting priced out of the Loop.

Can the suburban office package of creative finish, access to amenities and value win out over an urban setting if the value isn’t there?  I guess we’ll let the millennials decide.

Steve Shepherd, is vice president of Colliers International MSP in Minneapolis.

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Cincinnati streetcar opens prospects for new, expanded economic development

cincinnati-streetcar-photo-2

by Declan Harty

Jean-Francois Flechet waited for the Cincinnati streetcar for a while. Six years, to be exact.

In 2010, Flechet was looking for the next property that could house his expanding Americanized-Belgian eateries, Taste of Belgium. In anticipation of the much-talked-about Cincinnati Streetcar, Flechet leased a property along the proposed route.

Now, nearly seven years later, Flechet is finally seeing the wait pay off.

The $148-million streetcar – now dubbed the Cincinnati Bell Connector – runs a 3.6-mile loop connecting three of the city’s core districts: The Banks, Central Business District and Over-the-Rhine. The streetcar fleet is made up of five electric streetcars, which at 77.5-feet long and 8.7-feet wide, are nearly double the length of an average-sized bus.

The Bell Connector was an effort by the city to provide electric transportation in mass to the community, but more notably to drive business to the three developing areas.

Hotels, shops and restaurants have flocked to the now-prime real estate along the streetcar’s line, according to Tricia Suit, director of marketing for Downtown Cincinnati, who said, Cincinnati “has great bones.”

“Once there was a commitment to build the streetcar, there was a commitment to the neighborhood,” Flechet said.

At the end of November, ridership was 53 percent above the city’s initial expectations. Weekend traffic on the streetcar far surpassed officials’ expectations, Suit said. It seemed that the years of waiting had finally paid off for business owners.

But some Cincinnatians are raising concern after giving the data a finer look. In November, the streetcar’s ridership, 49,920 riders, was barely half that of the projections. The figure is a mere 37.4 percent of the total ridership the streetcar saw in its opening month, a number that stood at a far healthier 133,322.

The project wasn’t supported by everyone, either. Originally proposed in 2007, the streetcar faced harsh criticism from a variety of Ohio lawmakers, the city’s mayor and some city council members. The project would go on to take nine years to complete – finally opening in September.

The statistics have been jarring for many, with some arguing the $148-million price tag was too high for low ridership and manufacturing defects, which reportedly hit four out of the five streetcars in mid-December, were indicators of continued issues to come.

But for many, since its opening in early September, the streetcar has transformed Cincinnati’s businesses.

Joe Hansbauer, chief executive officer of Findlay Market, said the fresh food, open-air market has already seen a 20 percent bump in weekday lunchtime traffic (measured Tuesdays through Friday from 11 a.m. to 1 p.m.). Hansbauer said the streetcar is the “largest thing that has caused that increase.”

The long-term impact of the streetcar’s introduction is what has people excited, particularly the continued economic development, Hansbauer said.

The three targeted areas – The Banks, the Central Business District and Over-the-Rhine – were already seeing signs of development when the streetcar was first introduced. But its introduction is expected to feed the area’s growth, as developers look to cash in on the influx of traffic.

“It’s going to make the neighborhood vibrant,” Hansbauer said. “The presence of the streetcar provided additional confidence for investors to say, ‘This is worth it.’”

Hansbauer said the Findlay Market area, located on the Northern-end of the streetcar’s route, has already seen properties being snatched up and redeveloped into storefronts or other properties in recent months.

In 2003, four years before the streetcar’s introduction, the Market itself was at 50 percent vacancy. By 2011, Findlay Market was at full occupancy.

Trepidations haven’t hit business owners though. Hansbauer said the Market expects to increase weekday traffic by 30 percent overall, to about 1.45 million annual visitors from its current 1.3 million by 2020. When the streetcar was initially proposed, Hansbauer said the Market was seeing about 250,000 annual visitors.

“The redevelopment of the Findlay market neighborhood is going to have a huge impact on our ability to do that,” he said. “It is undoubtedly true that we have already seen an impact from the streetcar, and we’ll benefit from some of the development in the neighborhood.”

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Novak helps Portillo’s reach ground-breaking milestone

novakby Dan Rafter

The temperatures were frigid. The snow was falling. But that didn’t stop burger-and-hot-dog chain Portillo’s as it celebrated milestone ground-breakings earlier this month.

Novak Construction led two ground-breaking ceremonies for a pair of new Portillo’s restaurants that the contractor is building: one in Woodbury, Minnesota, and one in Champaign, Illinois. The future restaurants — each 9,000 square feet — are important ones: The pair of ground-breakings means that Portillo’s will soon boast 50 restaurants across the country.

Keith Kinsey, chief executive officer of Portillo’s, spoke at each ground-breaking, telling the crowd gathered at each that these two new locations will serve as launching pads for further expansion in both regions.

Portillo’s is certainly a retail success story. The chain, which got its start in the Chicago region, has already expanded to Arizona, California, Florida, Indiana and Wisconsin. The Woodbury location will be the first in Minnesota.

Portillo’s hits that sweet spot in the restaurant industry: fast-casual. The chain is a definite step above the likes of McDonald’s and Burger King in the eyes of many consumers. It’s also more affordable than the typical sit-down restaurant. Portillo’s restaurants are well-known for their efficient service, too, employing a busy kitchen staff to assemble meals quickly.

Novak will handle demolition work at each four-acre site. Novak will also oversee the installation of new site utilities, curbs, asphalt paving and any additional site improvements. The restaurants themselves are pre-cast structures with full-brick exteriors, patios and steel architectural elements.

Champaign’s Portillo’s will resemble a 1950s diner decorated with items from the decommissioned Chanute Air Force Base in nearby Rantoul, Illinois. The Woodbury location will feature a 1920s prohibition-era theme.

Dan Moriarity, project director and vice president of Novak’s restaurant group, said in a statement that he and the company are ready to help Portillo’s continue its expansion.

“We meet the deadlines no matter what the weather,” Moriarity said. “Our shared goal is to contribute to Portillo’s success, and have new customers become as addicted to this menu as we are in Chicago.”

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Industrial market entering uncharted territory

industrial-buildingby Dan Rafter

The industrial market is booming across the Midwest, its performance ranking second only to the even busier multifamily market.

It’s little surprise, then, that individual markets across the Midwest are experiencing historically low vacancy rates and higher rental prices in the industrial sector.

Consider what is happening in Cincinnati as a prime example. According to the most recent numbers from Colliers International, the industrial market in the Cincinnati area has entered what the company calls uncharted territory. The industrial market here saw its vacancy rate fall to an historically low 4.2 percent by the middle of 2016. This rate has never been lower.

During the final two quarters of the year, 2.9 million square feet of new industrial inventory entered the Cincinnati market. But even with this addition, the area’s industrial vacancy rate rose only to 4.8 percent. Colliers says that this is still low by historical standards.

“There is a lack of supply in the market, and only recently did developers begin to respond to the rapidly shrinking inventory,” said Norm Khoury, brokerage senior vice president with Colliers International|Greater Cincinnati.

At the same time, asking rents for industrial properties in this Midwest market rose. Colliers reported that overall asking rental rates jumped 8.3 perent in 2016 to $3.97 a square foot. This increase was driven primarily by the bulk warehouse sector.

And Khoury had even more good news. He predicts that industrial lease rates and sales pries will continue to rise in 2017.

Not surprisingly, e-commerce and distribution centers drove the industrial market in 2016, not just in Cincinnati, of course, but across the entire country. These twin forces — online retailers need more distribution centers located in the center of the country — should continue to drive the market in 2017, according to Colliers’ predictions.

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Jason West: A fan of the entrepreneurial life

Jason West

Jason West

Jason West, executive managing director of brokerage services with the Rosemont, Illinois, office of Cushman & Wakefield, has worked in commercial real estate for more than two decades. And like others, he was drawn to this business by the entrepreneurial nature of it.

West recently spoke with Midwest Real Estate News about the passion he has for commercial real estate – especially his specialty of industrial – and the reasons why this career never gets boring. 

Midwest Real Estate News: What do you enjoy so much about this business?
Jason West: The industrial brokerage business is so fast-paced and rewarding. You control your own destiny in terms of controlling your own success. So much of your success is based on how hard you work. What you put into it is a direct result or correlation, at least, to what you get out of it. I like to control my own destiny. It’s a business that allows you to do that.

It’s very entrepreneurial. You make your own hours and you control your own schedule. You are able to control how much or how little time and effort you put into this business. It’s like running your own company. Even though you might work for a bigger company, you are running your own business within that bigger business.

MREN: You specialize in the industrial side of the business. What do you enjoy about that side of commercial real estate?
West: In commercial real estate, you have a lot of different choices in terms of what type of product to focus on, in terms of what specifically you want to do. Industrial, though, has always fascinated me. Every company you work with in industrial is doing something a little different. It all goes back to that fast-paced part of the business. We are dealing with warehousing, distribution, manufacturing and, of course, e-commerce. There are a lot of different facets that make things interesting every day.

MREN: Why do you think this career has been such a good fit for you and your personality?
West: You need a certain level of tenacity in this business. You need to be persistent. You need to be creative. And you need a certain level of likeability. You want people to want to do business with you. Fortunately, I have been able to develop a nice roster of clients during my career. I have made a lot of friends in this business over the years. I have had very few negative interactions.

MREN: Are there any industrial deals that you’ve closed that you’re particularly proud of during your career?
West: There are so many. It’s tough to pinpoint any one particular deal. The ones that are the most rewarding are the ones that take the most time and effort to develop. There was a deal a few years ago, a very complicated food-processing deal. That transaction was five years in the making. I had put so much time and effort into that transaction by the end of it, that it was especially satisfying when that one finally got done. Those don’t come along too often. But any time there is a transaction or project you’ve worked on for a prolonged period of time, it is satisfying when you are able to get it to fruition. That gives you a certain level of satisfaction and pride that you are able to get that project over the goal line after sticking with it so long.

Rcently we have worked on about a dozen e-commerce transactions. That is the area in which we see the highest level of growth coming over the next several years. It is exciting to be involved in forging new territory in the e-commerce space. We have worked on about a dozen e-commerce transactions over the past two years. That is an exciting new area of focus.

MREN: It’s not easy to predict the future, but what do you see for the immediate future of the local industrial market? Do you think we’ll see activity in industrial continue at a healthy clip?
West: I think the market is still fairly healthy, and that we will continue to see a steady supply of new product being built by developers and investors. There is a steady supply of new speculative development. That combined with demand for industrial product means that 2017 is going to continue to be steady. We have had several good years in a row. I expect 2017 to be another solid year for industrial.

MREN: Why is Chicago such a strong industrial market?
West: Logistically it is the center of the country. You have a large population density around the Chicago metro area. You also have several major interstates and major railroad lines that all converge into Chicago. There is a very diverse economy and population base here and a diverse mix of skilled and unskilled labor. All that plays into the recipe for success.

MREN: When you’re not working, what are some ways in which you like to spend your time?
West: I have three daughters, so like to spend time with my family. I love watching them play sports, and we love to travel as a family and experience new places and see new things. I also love to play poker. I’d say I’m a decent poker player. I know what I’m doing. Sometimes I win, sometimes I lose.

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Space shortages make life challenging in industrial market

Mike Antonelli

Mike Antonelli

By Mike Antonelli, Brown Commercial Group 

As the industrial market in Chicago and across the Midwest continues its strong run into 2017, several trends continue to impact the small to mid-sized owners and tenants in the market. While there has been much talk about large tenants, such as Amazon and other big-box users driving new construction and leasing, market conditions are bringing other changes to those companies that need only a fraction of the space required by larger users.

With overall industrial vacancies low – they are at or below 7 percent throughout the Chicago area, for instance — a shortage of space is creating challenges across most submarkets. This is particularly true with properties in the 60,000-square-foot and under category, where tenants—whether they intend to buy or lease—are often hard-pressed to find ideal facilities.

This is a result of quarter-over-quarter positive absorption and a continued supply of active buyers and tenants looking for spaces in the 10,000- to 60,000-square-foot range. Also, new construction is limited in this size category. While it’s cost-effective for developers or large-end users to build new, state-of-the-art facilities of 100,000 to 1 million square feet, small to medium-sized users often find new construction costs to be prohibitive.

This scenario is particularly true for those users seeking Class-A building space with modern amenities. Buildings with 24-foot ceiling heights or higher, ample truck and employee parking, and multiple dock spaces, for example, are in high demand.

Those who wish to buy are often forced into plan B, leasing a smaller space within a larger building. Many properties that have been on the market for a long period of time — and might not have all the amenities tenants desire — are now seeing increased activity because of this lack of inventory.

This supply-demand equation is also driving up pricing in many markets. During the past few years, rents have increased by 5 percent to 10 percent or more in many areas. Sellers and landlords no longer need to offer aggressive concessions, especially on the most desirable spaces.  This increase in average lease rates combined with steady interest rates, has caused many buyers to now consider those new-construction opportunities that were once considered cost-prohibitive.

In the Chicago area’s DuPage County and bordering collar counties, for example, sales of industrial buildings of 50,000 square feet and under remain strong, as sellers are taking advantage of the favorable market conditions compared to that of 2011. However, lack of infill sites available for development continue pushing newer, larger developments beyond the core submarkets into areas such as the south suburbs of Chicago and Southeastern Wisconsin.

The outlook for small to mid-sized industrial tenants and owners remains positive, as growth in light manufacturing, e-commerce and related supply-chain businesses should continue at a steady pace. Many business owners are more confident about their long-term growth plans today than in recent years. All this bodes well for the industrial market heading into 2017.

Mike Antonelli is vice president of sales with Brown Commercial Group in Elk Grove Village, Illinois. 

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Malls still have their place – but they need to adapt

shopping-centerby Dan Rafter

Shopping malls were already struggling. Then Sears announced it would close 150 Sears and Kmart locations. Macy’s announced it will shutter 68 stores.

These stores are anchors for malls across the Midwest. The new round of closings is yet another blow for shopping malls.

And the news hadn’t been good before these closures were announced. Retail analyst Jan Kniffen last year predicted, on air on CNBC, that 400 of the nation’s 1,100 enclosed malls will shut down in the coming years. Kniffen said that of those that remain open, only 250 will do well. The rest will continue to struggle to hold onto tenants and shoppers.

An example of the struggles of malls can be found in the St. Louis market. In November of last year, construction crews started demolition of the former Crestwood Plaza mall in Crestwood, Missouri. This 1.1-million-square-foot mall opened in 1957 and closed in 2013.

That mall has a new future, though. Chicago-based UrbanStreet now owns the mall and received approval last year for a redevelopment plan that includes 47 acres of entertainment, retail, restaurant, office and housing.

Mark Kornfeld, managing director for retail services for Sansone Group, said that St. Louis is like most markets: It has some core malls that are thriving — such as the St. Louis Galleria, West County Center and South County Center — that are doing well. But it has others that are struggling or have already closed.

“Some of the malls that were built 30 or 40 years ago have already failed or are on the verge of being completely obsolete,” Kornfeld said.

Crestwood Plaza, which Sansone is marketing, fell into this latter category. The mall thrived for about three decades, Kornfeld said. But when it officially closed, it was completely vacant.

UrbanStreet, though, has big plans for the site. Kornfeld said the developer is going to turn part of the land into a stand-alone movie theater with restaurant pads in front of it.

“They are using the theater to bring folks back to the area,” Kornfeld said.

Sansone Group already has experience with marketing former malls. The Northland Shopping Center in St. Louis was once a thriving shopping center. But then, like other malls, it struggled to attract tenants. The shoppers stopped coming.

Construction crews tore down the center and replaced it with a grocery store and Target.

“That site is now doing extremely well,” said Jim Sansone, principal of Sansone Group. “Sometimes a mall just becomes obsolete, and the best choice is to demolish it and start with something new.”

Malls still matter

Kornfeld said that malls still have their place. But they need to be designed differently to meet the needs of today’s consumers, he said.

This might mean offering major mall tenants their own entrances facing the parking lot. Instead of having to go into a main mall entrance and then walk two or three minutes to find the retailer they want, shoppers can just park outside the store of their choice and run into its own front door.

“If I just want to run into a sporting goods store and it has its own entrance in the parking lot, I’ll do that,” Kornfeld said. “That’s a better option than paking, entering into the mall itself and trying to figure out how to get to the sporting goods store from inside.”

Location matters, too, of course. Sansone said that those malls in the St. Louis area that are thriving tend to be located near major interstates. For instance, the Galleria is located just off of Interstate-64.

“The other malls that are struggling are the ones that you might have to exit the highway and drive down another road to reach,” Sansone said. “The days of those malls being vibrant are over.”

Finally, the mix of tenants matters, too. Kornfeld said that the Galleria recently added Nordstrom to its tenant mix to bring in new shoppers. This particular Nordstrom boasts its own entrance, too, off the mall’s parking lot.

“The owners of the Galleria have kept that mall updated,” Kornfeld said. “They have put money back into the main corridor where people are walking. They have brought in new retailers. That’s what you have to do.”

Other malls are focusing on offering experiences for consumers, something more than just a food court and a string of storefronts. Think of places like Round 1, a bowling and entertainment chain popular in malls, or Pinstripes, which offers the same kind of enterainment choices.

Other malls focus on everything from indoor miniature golf to that old standby, the high-end movie theater.

According to a survey published late last year by Coldwell Banker Commercial Affiliates and Harris Poll, nearly 75 percent of adults say they are happy to shop at brick-and-mortar stores if they can have an experience.

t’s all about what is known as experiential retail. Respondents to the survey said that they are more likely to visit phsyical locations — instead of online options — if those locations offer in-store classes, product demonstrations, free samples, celebrity appearances, holiday events or book signings.

“What does this mean for commercial real estate developers and the like? You will see more event-driven retailers like theaters, restaurants and exercise facilities integrated into malls and shopping centers,” said Fred Schmidt, president and chief operating officer of Coldwell Banker Commercial, in an earlier interview with Midwest Real Estate News. “At the same time, traditional retail space is changing. There is more square footage devoted to common areas and locations where shoppers can have experiences.”

The message here is clear: Malls can survive today. But to do so, they have to adapt, and they have to offer today’s choosier consumers a reason to enter their doors.

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