The power of urban living: Relying on multifamily housing to transform a former paper-mill town

An overhead view of the Triangle development site in Wisconsin Rapids.

by Dan Rafter

The city of Wisconsin Rapids isn’t unlike other Midwest towns: This Wisconsin city once relied on busy paper mills for jobs. And when the businesses running those mills downsized, the city struggled to reinvent itself.

Today, though, city officials say they have a vision for the future here. Wisconsin Rapids officials have big plans for their city’s waterfront. And these plans center on the future of the Triangle, a 2.1-acre-site that serves as the unofficial entry to the downtown of this Wisconsin city located nearly equidistant from Green Bay and Eau Claire.

And like other Midwest cities that once relied heavily on a single industry, Wisconsin Rapids is turning to downtown multifamily housing to serve as the catalyst for its rejuvenation.

The Triangle site that has city officials excited about the future is adjacent to Wisconsin Rapids’ waterfront and courthouse and overlooks its most important natural resource, the Wisconsin River.

Zach Vruwink, the mayor of Wisconsin Rapids, envisions a bustling mixed-use development for this site, one that will bring much-needed multifamily housing to the city’s downtown. Vruwink knows that until Wisconsin Rapids can offer more downtown housing, it will struggle to attract the mix of retailers, office users and restaurants that the mayor sees one day bringing residents and visitors alike to the community’s central hub.

“This site offers great proximity to the hardest-working river in America,” Vruwink says, referring to the Wisconsin River. “Whichever developer builds on it will also be in the center of the new life that we are seeing in this community. A developer will have the chance to be a big part of the reinvestment that is happening in our downtown today.”

New life for a hard-working city

For a century, Wisconsin Rapids revolved around the area’s biggest employer, Consolidated Papers, Inc., with Vruwink referring to the city as a paper-mill town.

Consolidated Paper, though, left Wisconsin Rapids in 2001, vacating all of the company’s office space here. This space had sat largely vacant until Wood County — the county in which Wisconsin Rapids sits — acquired Consolidated Papers’ headquarters building. The county is now moving into the space, giving it new life and bringing about 200 workers to the space.

That’s good news for Wisconsin Rapids, and has given Vruwink and other city officials hope that even more development can follow, helping to trun the city’s downtown into a bustling area of businesses, shops and restaurants.

Wisconsin Rapids has already developed a master plan for its public riverbank park areas, and has received a matching grant of $675,000 from the state of Wisconsin to begin the first phase of this project. In late 2017, the city expects to break ground on a new waterfront trail and other park amenities.

“The goal is to bring residents to the parkland we have along the riverfront,” Vruwink said. “We want to get people downtown but also keep them downtown for a longer period of time. We think that boosting our public park spaces is a good start to this.”

This, though, is only a start, something that Vruwink recognizes. The city already received a boost last year, when Aspirus Riverview hospital, Wisconsin Rapids’ main medical provider, announced that it will spend $25 million to expand and improve its facilities during the following two years.

Included in these improvements is a new family birthplace center with 10 hotel-like suites.

Vruwink said that he expects this momentum to continue with the Triangle site. A recent study showed that Wisconsin Rapids needs more downtown housing than it currently has. Vruwink said that he hopes redevelopment of the Triangle will provide this much-needed housing.

“That study reaffirmed our own feelings,” the mayor said. “A lack of downtown housing has resulted in a lack of other businesses coming here. We think that a mixed-use development will be a good fit for the Triangle.”

Downtown Wisconsin Rapids does have retail already, mostly smaller restaurants and retailers. But Vruwink said that the city’s downtown retail strip is dated. There is potential, though, with the core businesses of the courthouse, bank and county administrative offices serving as a launching pad for whatever new businesses will one day come to the city center.

“We think that Wisconsin Rapids offers a growing opportunity for developers,” Vruwink said. “We think we are a good option for developers that want to move to a new market, one that is a bit smaller than some of the other larger markets but is ready to grow. We believe that the city’s willingness to reinvest in itself, to put money on the line, represents a great opportunity for developers.”

Vruwink said that he and his fellow city officials are willing to be patient as they wait for the right developer for the Triangle. The city has a deadline of June 1 to receive proposals. As of early April, the city had received one response from a developer. A second developer had expressed interest, too. For Vruwink, it’s only a matter of time before the city finds that one right developer.

“This is a true opportunity for a developer to make a difference in this market,” Vruwink said. “A developer can be a part of a project that I believe will be catalytic in nature, stimulating new development downtown.”

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Hospitality industry set for solid, if not explosive, year in 2017

by Dan Rafter

The nation’s hotel industry is set for another solid year in 2017, with the industry seeing higher room revenues and a greater number of newly delivered hotel rooms, according to the latest hospitality report from Marcus & Millichap.

This doesn’t mean that the hotel industry doesn’t face challenges. There’s Airbnb, of course, which Marcus & Millichap says remains a formidable challenger to traditional hotels. At the same time, Marcus & Millichap points to the White House’s strained relationship with Congress, which might slow the Trump administration’s efforts to increase infrastructure and defense spending.

Such a slowdown could impact the hospitality industry, as more infrastructure and defense spending could boost the national economy and inspire more business and leisure travel.

As for the numbers, Marcus & Millichap predicts that developers will add about 140,000 hotel rooms across the country this year. That is a jump from the about 100,000 hotel rooms that developers brought to the country in 2016.

Even with the extra rooms, though, occupancy levels will only take a small fall. Marcus & Millichap reports that room demand will increase during the year by 1.4 percent. Despite this increased demand, room occupany will slip to 65.2 percent, a dip of 30 basis points when compared to last year.

In more good news, both average daily rates and revenue per avaialble room should increase this year. Marcus & Millichap predicts that the U.S. hospitality industry’s average daily rate will increase 2.8 percent. This increase is a bit slower than last year’s 3.1 percent gain. Marcus & Millichap attributes this to increased competition from new hotels and home-sharing services.

Revenue per avaialable room will also see a small increase, rising by 2.4 percent this year when compared to 2016.

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Marcus & Millichap: Net-leased retail sector soaring in 2017

by Dan Rafter

Retail developers today overwhelmingly prefer single-tenant developments. This is especially true in the growing quick-service restaurant, pharmacy and dollar-store segments.

That’s the key takeaway from Marcus & Millichap’s 2017 Net-Leased Retail Research report, which says that increasing optimism from consumers is providing a boon to the net-leased retail sector.

According to Marcus & Millichap’s report, single-tenant retail projects have accounted for more than 80 percent of retail construction since 2009. That’s up from below 70 percent before the recession hit in 2007 and 2008.

And don’t expect this trend to slow soon. Demand for net-leased retail properties remains high across the country, with Marcus & Millichap reporting that this demand remains ahead of the growth in supply. Net-absorption levels in this sector have exceeded the pace of development by nearly 16 million square feet every year since 2010, according to Marcus & Millichap.

Because of this, vacancy rates in the net-leased retail segment have fallen 240 basis points to 4.8 percent across the country since 2010. This vacancy level is actually 100 basis points below the pre-recession peak, showing just how strong this retail sector has become.

Not all net-leased retail developments are performing equally well, though. Marcus & Millichap reported that net-leased retail growth is especially strong in the health and personal-care and food-service and drinking establishment categories. These categories have seen year-over-year gains in growth of 8.5 percent and 5.6 percent, respectively.

Dollar stores remain strong, too. Marcus & Millichap says that in 2017, store openings will be led by this sector.

Look for significant changes in the drugstore market, too, this year. Management at Walgreens reworked the details of the chain’s pending merger with Rite Aid, a merger that is expected to take place in July. The new offer requires the selling of 1,200 Rite Aid locations to fred’s Pharmacy. This Memphis-based chain is now poised to be a national player in the drugstore segment.

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NAIOP report: Commercial construction supported 6 million U.S. jobs last year

by Dan Rafter

How important is the commercial real estate industry to the U.S. economy? How about 6 million jobs and more than $800 billion worth of importance?

The NAIOP Research Foundation recently published its annual study on the economic impact of the commercial real estate business. Researchers found that the development, construction and ongoing operations of new commercial real estate in the United States supported 6.25 million jobs and contributed $861 billion to the U.S. GDP last year.

Those numbers are impressive, but they’re not surprising considering the busy year commercial real estate developers had in 2016. According to the NAIOP report, developers built 410 million square feet of office, retail, warehouse and industrial buildings last year. These buildings have the capacity to house 1 million new workers with a total estimated payroll of $57.6 billion.

“The importance of commercial development to the U.S. economy is well established, and the industry’s growth is critical to creating new jobs, improving infrastructure, and creating places to work, shop and play,” said Thomas Bisacquino, NAIOP president and chief executive officer, in a written statement.

The construction sector enjoyed a particularly strong year in 2016. The NAIOP reports that construction spending has increased every year since 2011, seeing a rise of 48.7 percent from 2011 through October of 2016. Total construction spending was up 3.4 percent for the fiscal year that ended in October of 2016.

According to the association’s report, office construction spending hit $36.6 billion in 2016, an increase of 28.7 percent from 2015. Retail construction expenditures came out to $17.2 billion in 2016, a decrease of 7 percent from the previous year. And warehouse construction totaled $13.6 billion last year, a sixth consecutive year of increasing expenditures. Warehouse expenditures jumped 12.7 percent when compared to 2015.

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(Multi)family matters: Navigating the intricacies of incorporating multifamily into mixed-use developments

Lori Bongiorno

By Lori Bongiorno and Dan Brogan, M+A Architects

As demand for high-quality mixed-use environments continues to grow, the specialized and diverse toolkit that an experienced architect brings to the table is extremely prized. That toolkit is especially valuable when it comes to multifamily residential—consistently one of the trickiest pieces to fit into the mixed-use puzzle.

Successfully blending multifamily in a commercial environment alongside restaurants and retail components can take a development to the proverbial next level. Elevating a place into a community, and creating the kind of social, commercial and experiential synergies that distinguish the most dynamic and successful mixed-use destinations.

Don Brogan

But understanding how to pull that off can be easier said than done. Navigating the intricacies of seamlessly incorporating multi-family into mixed use developments requires a nuanced understanding of everything from building code compliance to retail tenant expectations, successful balancing a wide range of design, demographic and functionality considerations. 

Balance

The big picture is a big deal: figuring out how to incorporate residential components in a way that adds value to the project without taking away valuable retail space. For owners and investors, the bottom line is the bottom line, and maximizing retail space is priority 1A. That said, residential that is sitting on an out-parcel with no meaningful connections to the rest of the project will not be the asset it can be. The goal should be a convenient location and access (with perhaps a dedicated entry) all without compromising the retail. Remember also that mixed-use is a broad category, including projects ranging from a single block of residential above retail, to larger, master-planned projects with a mix of components. 

Logistics

Among the most important factors to consider when incorporating multifamily elements into mixed-use developments are the essentials: logistics and technical considerations. If your project doesn’t work, it does not matter how good it looks or how many units you can rent in the first year. From a practical standpoint, thoughtful developers need to plan out all shafts and services to run below the residential, ensuring that retailers are accommodated without disrupting residents. Additionally, developers need to remember that building out the retail requires access to the roof in a manner that does not disrupt or inconvenience residential tenants. One helpful tip is to establish utilities in each potential retail space prior to final buildout and finishes­—enabling the retail tenant to easily tie in to them without demolishing completed construction. These technical considerations can be especially tricky where restaurants are concerned, and care must be taken throughout the planning and design process to accommodate all of the specialized ductwork and venting that restaurants require.

Parking

While parking certainly falls into the logistics category, it is such an important and complex topic when it comes to integrating different uses within a mixed-use project that it deserves its own discussion. Reserved, covered, residents-only parking is key, but delivering that can present a logistical/design challenge. Space can be at a premium, particularly with urban projects as sites are often very tight and the use of parking garages are sometimes necessary. But, keep in mind that adding parking garages under retail, office and residential creates an even more complicated building where the coordination of the building’s infrastructure becomes that much more important and critical. The best mixed-use projects strategically position parking resources and guide the flow of vehicular and pedestrian traffic to and from that parking in a way that does not compromise public parking or commercial avenues. So, how do you get the most bang for your buck and make the most of what is, at the end of the day, expensive space? Shared parking in the cases of office and residential parking is a key consideration and working with local jurisdictions is important to potentially reduce the required parking based on shared parking. Essentially, office tenants use parking spaces when residential tenants are not using those same parking spaces.

Design

From a design standpoint, all components need to be designed and built to the same high standards and design criteria. Developers need to recognize that the mixed-use development itself is one of the most powerful and appealing amenities, and should design with that in mind. Roof decks and balconies facing parks and public activated spaces are a great example. Owners and investors can often charge higher rents for premium park-facing units, or units with balconies, for example. Be creative: for units facing away from the experiential heart of the project, include pools, plantings and other compensatory assets. One of the trickiest balancing acts to pull off is to give residents the benefit of the project’s social and commercial energy without making it too intrusive. One solution is to give residents a private retreat. Thoughtful acoustic strategies with tenant positioning and carefully selected construction materials can also help, as can design restrictions such as not allowing retail tenants any signage above ground level (no large blade signs that would block residents’ views, for example).

Demographics

While owner preference, demographic studies, space constraints and other factors all play a role in determining what makes sense in terms of unit count and unit mix, the character of the residential component can and should vary based on who you are building for. Be mindful not just of your target audience, but also the broader marketplace context and the nature of the project itself. Residential that is designed to provide senior living options will have different design and marketing priorities than an apartment building located on a park and aimed at active young professionals. And with student housing, it’s smart to pay attention to branding and other graphic elements. While some developers may be able to integrate different types of housing to appeal to as broad a range of people as possible, there is a definite trend toward smaller unit sizes, especially in urban areas. Micro-apartments with well-appointed common/community spaces tend to appeal to the influential and fast-growing Millennial demographic, as do buildings packed with integrated technology and convenient features like communal chef’s kitchens and dedicated visitors’ units.

Amenities

Strategies continue to evolve for introducing multifamily amenities into residential areas in mixed-use projects. The initial instinct on the part of the developer may be to pack in as many luxury amenities, as possible. That approach has begun to shift, however, as it becomes clear that many high-end amenities are underutilized. Developers need to be more strategic about what amenities to include, understanding what will sell the apartment and what will be of meaningful value to the residents. Part of making those decisions means getting smarter about understanding what is and isn’t working in other projects, and part of it is understanding the importance of context. That context can be regional (for example: a pool isn’t necessary in Columbus, but it’s virtually a prerequisite in Florida) or it can be local: dictated by the project and the surrounding community. For example, by leasing commercial space to fitness-oriented businesses (right outside your residents’ front door), you won’t need a massive in-house fitness facility.

Prioritization

Finally, recognize that leasing agents and retailers are going to have very different priorities from those folks managing the residential component. One of the little-discussed secrets of mixed-use development is that most projects that bill themselves as mixed-use really do “lean” one way or the other. One might be a residential project with some retail accents, and another might be a retail, dining and entertainment project with some residential included. Successful developers know that some balance and accommodation is important, but they also recognize the importance of keeping the needs of the primary use top of mind.

Lori Bongiorno is principal and commercial studio director at M+A Architects, a Columbus, Ohio-based architecture firm. Don Brogan is residential studio director at the firm.

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Payless latest big retailer to close stores, but there’s good retail news, too

by Dan Rafter

Payless ShoreSource is the latest brand-name retailer announcing bankruptcy, filing for Chapter 11 protection last week and announcing plans to close about 400 stores in the United States. And Payless is just the latest big retailer closing stores.

It would seem, then, that this is a terrible time for traditional, brick-and-mortar retail

Oddly enough, though, it isn’t … at least not for every retailer.

The first-quarter shopping center report from Chicago-based Quntum Real Estate Advisors says that despite the growing presence of e-commerce and a wave of big-box closings, the U.S. retail market continued to grow, albeit slowly, in the first quarter of 2017.

Not all retailers are growing equally, though. Quantum says that a large chunk of the retail growth was led by the $32 billion food-and-beverage industry. For the 10th consecutive year, this segment had the largest deal volume in the retail sector, 23 percent.

In other good news for brick-and-mortar retailers, Quantum reports that average retail rents should rise throughout 2017. One reason? Construction crews should complete just 49 million square feet of new retail space this year. This lack of new space should continue to drive retal rents higher.

Quantum reported that the average retail rent for the first quarter of 2017 increased to $17.55 a square foot, an increase of 1.1 percent from the average rent of $17.36 a square foot in the fourth quarter of last year.

In more troubling news, Quantum did report that the first-quarter retail vacancy rate rose, up to 5.2 percent in the first quarter from the 4.9 percent vacancy rate the sector saw in the fourth quarter of last year.

Fortunately, the retail vacancy rate during the first quarter was still lower than the rate of 5.6 percent in the first quarter of 2016.

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Want to bring renters to your apartment buildings? Consider these amenities

by Dan Rafter

What amenities are renters looking for in new apartment buildings? What features should owners and developers add to make sure that renters choose their properties?

The National Apartment Association provides some hints in its latest report, Adding Value in the Age of Amenities Wars.

The report lists the top amenities in apartment buildings across the nation, with a focus on 11 key cities, Chicago the only one in the Midwest. In keeping with the trends of modern apartment development, researchers found that the most important amenities are community ones, with half of the top amenities added or upgraded since 2014 involving bringing residents together.

Everything from clubhouses to outdoor kitchens and swimming pools remain key amenities for apartment developers hoping to attract a steady stream of renters.

According to the report, fitness centers have become the most popular community-wide amenity in apartment buildings. That is followed by business centers, clubhouses, common areas for socializing and pet-friendly apartment buildings.

The next most popular community amenities are improved landscaping in common areas, swimming pools, outdoor kitchens, playgrounds or play areas and areas for holding packages delivered to residents.

Renters are willing to pay a bit more each month for certain community amenities. The National Apartment Association found that 46 percent of apartment residents today are willing to a pay rent premium for access to on-site fitness classes, while 42 percent are willing to pay more for walking trails and tracks.

Inside units, the most sought-after amenity since 2014 is an in-unit washer/dryer, following by high-end kitchen appliances, hardwood floors and upgrades to units’ lighting, plumbing and electrical systems. Renters also sought energy-efficient appliances, high-end kitchen countertops, ceiling fans, cable TV, garbage disposals and personal outdoor space.

The National Apartment Association found that 49 percent of renters are willing to pay $75 more a month in rent for hardwood floors, while 41 percent are willing to pay $50 more each month for balconies. The association also reported that 39 percent of renters are willing to spend $30 a month more for granite countertops.

But can multifamily owners charge higher monthly rents for added amenities? According to the apartment association, yes. The association found that community-wide amenities brought in higher average rent increases, $77 more per unit each month. Unit-specific upgrades brought higher rents, too, but a smaller average of $52 a month.

The association reported that pet-friendly amenities had the greatest impact on rents and only cost owners an average $7,000. That makes pet-friendy amenities the biggest bang for building owners’ bucks.

Fitness centers are an important amenity, too. The apartment association said that building owners could receive an average of 13 percent more in monthly rent by adding fitness centers to their buildings. The average cost of adding a fitness center, though, is not cheap, $28,500 according to the National Apartment Association.

Adding a clubhouse will cost owners an average of $50,000, but will result in an average monthly rental boost of 9 percent for a building. A new swimming pool, which costs an average of $25,000, will bring an average monthly increase of rental income of 11 percent, according to the association.

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