Qualified optimism in commercial development

Things could be better in the commercial real estate industry. But they could be a lot worse, too, industry insiders say as they reviewed the impact of the national economic slowdown.
“There has been a slowdown in the last year and a half,” MLG Commercial Executive Vice President Andy Bruce said. “We haven’t fallen off a cliff, but there are fewer total transactions and fewer prospects.”
James Barry Jr., president of James T. Barry Real Estate, has seen a similar trend.
“In general, I think the market is somewhat slower than it has been in the past,” Barry said. “We have seen that, in particular, larger manufacturing facilities are taking a longer time to lease or sell. It is not dramatic, but it is evident. In addition, I think there is less new product and speculative product being built. That will be the trend for a while. Some of the spec space that has been built remains vacant, including industrial space in the Mitchell Field airport area.”
“In the Racine area, they have probably been hit harder based on their population relative to layoffs and stumbling of larger manufacturing employers,” Bruce said. “But last week it was announced that Bombardier has purchased Golden Books, and they also purchased land adjacent to the facility from us. They will have 1,000 employees in that location — so that makes up for many of the layoffs. In our Racine park, there was also a family-owned spice company that was recently purchased by Kerry Industries — a multinational — and they are talking about expansion at that site.”
Bruce and Barry also stressed that in Racine County, the state and the nation, the commercial real estate industry has seen worse.
“The real estate industry has experienced a much more severe downturn in the mid ’80s,” Bruce said. “The industry then went through a major shift that had to do with tax laws. There was rustbelt changeover and things like that. But today, Wisconsin still has lots of growing industry.”
“I think the latest slowdown would have been in the early 1990s — but this is not as dramatic as that time period,” Barry said. “There was much more overbuilding then. The banks were much freer with money and their underwriting wasn’t as discerning. The underlying economy was not in as good of shape because of the widespread recession. I’m optimistic that toward the end of the year there will be a pickup in business. In my experience, it has not been overly dramatic — it has just been somewhat noticeable.”
Grove park filling slowly
Like the industry giants, small municipal developments are seeing a slowing trend, according to Village of Union Grove Administrator Ron Bursek, who is handling the village’s 80-acre Tax Incremental Finance (TIF) district.
The TIF includes a recently annexed area and 50 additional acres south of the annex. Of the 90% of parcels that are, according to Bursek, “sold or in the process of being sold,” half are still in process.
He added that while the TIF is filling up quickly, a real or perceived slowing of the economy is causing hesitation to sign on the dotted line.
“They may not delay, but they do have concerns — in particular those businesses that are tied closely to the manufacturing economy,” Bursek said, adding that any slowdown in commercial building does not indicate that the economy is shrinking, but rather that it is hesitating in growth.
“When you move a business, you don’t just relocate — you consolidate and make improvements,” Bursek said.
Aggregate strong
Tim Todd, area sales manager for Vulcan Materials, with locations in Franklin, Racine and Oconomowoc, would know if there was a slowdown in commercial construction. Not much in the way of a building goes up without aggregate and concrete that his firm supplies.
“I think the market isn’t too bad,” Todd said. “We’ve been fairly busy in April and May. June looks favorable. I am a little concerned about fall.”
Todd agrees with others interviewed that project owners are in some cases hesitant to proceed.
“There is a big ‘what if’ attitude out there in a lot of commercial building,” Todd said. “I know that people we work with are steadily giving out quotations and bidding projects.”
Todd said the firm’s material sales have been steady — and conform to an industry standard of about 10 tons per person per year based on regional population. However, business is not what it was a few years ago.
“We are past our peak of a few years ago — 1997 through 1999 were the busiest,” Todd said. “Even with business conditions — I don’t think our backlogs are real strong.”
Todd is quick to add that Vulcan serves not only the building sector, but the Wisconsin Department of Transportation (WDOT) as well, and that a strong WDOT year can offset a poor year in the private sector.
July 20, 2001 Small Business Times, Milwaukee