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| From 28th Street to Alpine Avenue, the Grand Rapids retail market has approximately 17.0 million square feet of inventory throughout Kent County. The 28th Street SE and 28th Street SW submarkets make up 51 percent of the entire market and have a combined vacancy rate of 7.1 percent. Rivertown Parkway has the second highest percentage of retail space with an overall market share of 18 percent and boasts the lowest vacancy rate of 4.9 percent. The three submarkets make up nearly 70 percent of the total market inventory, which in large part, is because these submarkets house the areas two largest malls. Alpine Avenue and Plainfield/Northland Drive account for 28 percent of the total market inventory, while the East Beltline corridor claims the remaining 3 percent. |
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The office group has been keeping very busy with short term renewals, extensions and leases under 5,000 sq ft. That trend will most likely continue until confidence is restored in the economy and capital markets free up.
Despite economic challenges, the needs for users of office space persist and will continue to change. We stand ready to advise them as it relates to their ever changing needs and market conditions.
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The investment landscape has changed rapidly in the past two months. Buyers and Sellers have come to the realization that financing is no longer available under the terms it has been over the last five years. For Sellers this means adjusting expectations with regard to price and terms. Cap rates on most property types have risen at least 50 basis points since the beginning of the year. For Buyers this means that they can be a little more demanding in negotiations and selective in what they are buying. The Investment Group continues to see excellent purchaseng opportunities in the market. Buyers who are brave enough to act today are finding tremendous investment opportunities. |
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The retail team has been working hard this past quarter. We have been advising some national retailers plugging them into buildings along the high traffic retail corridors. Although the market has slowed a bit we are still seeing activity in high profile locations with experienced tenants that continue to expand. We are looking forward to the 4th quarter and getting some last minute deals completed. |
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Cash is King. With the majority of banks under pressure to conserve funds either for liquidity purposes or to bring loss ratios in line, credit is increasingly hard to secure. Buyers with good cash flow and large down payments are still able to get loans, but the pool of buyers able to perform is smaller now than in months and years past. This change puts downward pressure on pricing and allows those buyers with available cash the opportunity to take advantage of the new market dynamics. The current environment also is causing marginal buyers to shift their focus to leasing with the hope of being able to purchase in the future. As a result, lease rates should hold steady as the combination of uncertainty about the economy balances with the shift from buying to leasing for those users still active
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Collections...
It's a sign of the times when property managers are spending significantly more time dealing with delinquency and collection issues than in anyone's recent memory. The secrets to successful collections are diligence, consistency, understanding, and communication. A wise person once said that you catch more flies with honey than with vinegar. The same can be true when trying to collect money.
Good property managers stay in regular contact with tenants and have meaningful dialog regarding business operations and performance; good listening skills are vital to avoid surprises at the rent due date. Immediate contact with a tenant who is exhibiting signs of trouble can mean the difference between late payment and true default.
In this economy and with most tenants, it does not pay to be hard-nosed and stringent from the start. The key is to keep the lines of communication open and to try to work with struggling tenants. Maintain positive relationships so that if the time comes to have a tough discussion about collections, there is a basis of understanding. It costs a Landlord much more to replace a tenant (legal fees, lost rents and CAM, marketing time, improvements, and commissions) than to work creatively with an existing tenant to get through a rough patch. Legal proceedings should be a last resort, but may be unavoidable if a tenant is unresponsive or does not keep their word. Otherwise, start with a smile and a kind word...it will go a long way toward a favorable outcome.
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Commercial Paper Outstanding
By Bob Bach
The commercial paper market, a vital source of short-term funding for businesses, has tightened sharply in the last few weeks as shown by the drop in the total amount outstanding. Recent issuance of commercial paper with the shortest maturities, one to four days, has increased, while issuance of longer term paper has dropped, a sign that lenders are reluctant to part with their cash for all but the shortest periods lest they need it themselves. Severe disruption in the credit markets is reining in business spending and expansion, which will impact tenant demand for commercial real estate. 
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| Robert Bach, Senior Vice President, Chief Economist, has 30 years of professional experience in real estate market research, consulting and city planning. His commentary on the real estate markets is provided here on a weekly basis. |
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Written By: Kent Hildebrand, CPA
Everyone with a loan or wanting a loan knows there has been a dramatic change in banking in West Michigan. Why this change and what can we expect in the future?
The news has been full of stories about the subprime mortgage crisis. These mortgage portfolios are being referred to as "toxic debt", but West Michigan banks didn't invest in these assets and don't carry any on the balance sheet. Most small and medium banks throughout the country don't either. Why then has there been such a dramatic contraction of available credit in West Michigan and throughout the country?
At the root of the subprime crisis is the housing bubble, there has been a multi-year period of strong demand for housing fueled by an unprecedented availability of credit at low interest rates. The result was new building of supply, a period of rapidly increasing appreciation, and correspondingly high appraisals. Almost overnight, there was a string of successful residential development activities that suddenly stopped. Land sales have ground to a halt and there are a number of developments, in various stages of completion and absorption, that appear nearly frozen in time with no prospects of getting on track anytime soon. Take out residential development activities and consumer lending and other commercial lending have shown a relatively small up-tick in non-performance and default. Residential developments are West Michigan's "toxic debt".
Confidence is everything in banking. A lack of confidence leads to worry, which leads to fear, which leads to panic. We are at the worry stage in the continuum. The problem is that the continuum is sticky in the confidence direction and slippery in the fear direction. There is worry in two broad areas, how large will the losses be and how do banks deal with them.
Estimating losses when there is an active stable of buyers is relatively easy, but we are in a market where there is currently an oversupply of housing and no buyers for troubled developments, hence the worry. How low will the prices have to go to attract buyers into the residential development market? I get nervous just asking the question.
The other issues are how to deal with the problem. Banks are highly regulated and constantly have to maintain certain ratios proving liquidity and solvency. The tools for dealing with these issues are in disarray. Bank stocks are depressed, the price of inter-bank lending is up and in limited supply, and the money markets are in turmoil. All of this results in an abundance of caution.
The problem is not pervasive, however, there are West Michigan banks with minimal exposure to residential developments, but all are worried the crisis will deepen and other assets may be impaired. When crossing a river you need to plan for its deepest point. The uncertainty is causing banks to be very cautious. There are commercial loans available, but until the situation stabilizes expect banks to use strong underwriting criteria. It reminds me of a Bob Hope line, "a banker is someone who will loan you money when you can prove you don't need it."
Kent Hildebrand, CPA is an Investment Advisor, Vice President and CFO of Grubb&Ellis|Paramount Commerce.
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Written By: Mike Murray, CCIM
If you are an owner of a retail strip center it's time to "play nice". Over the past 10+ years tenants have had to scratch and claw their way into your centers trying to beat out the competition. They have paid high rent dollars to help finance your project and the land that you paid too much for and they have accepted your "white box" with no extra build out from you. Well, times they are a-changing . . . All aspects of the economy are feeling the pinch and retailers are forced to take a hard look at their balance sheet, especially the line pertaining to rent and CAM charges.
With some retailers in our market paying as high as $25+ dollars per square foot, their requirement to continue to sell a large amount of their product or service to support their rent could be next to impossible. Therefore, some are struggling to keep their doors open. The worst thing a retailer can do is to close an underperforming location. This gives them a black eye in the market place and can sometimes lead to a downward spiral. It's not the Landlord's responsibility to make sure their tenant's concept is up-to-date and current. However, it is the Landlord's responsibility to provide the best atmosphere for their tenants to conduct business. At a minimum, it is more important than ever that Landlords go the extra step with their property maintenance to keep their center looking sharp. Spend extra time on the landscaping, seal and re-strip the parking lot, and keep that trash picked up.
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| Landlords, listen to your tenants when they come to you and ask for help, whether that is a rent reduction to help them through rough times, parking, signage or issues with other tenants. This does not mean you have to give in on every request. However, with a tenant that has paid their rent on time over the past few years, and if they have a |
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concept that you believe in, (remember as a Landlord you're basically partnering with your tenants) you should consider their request in order to keep them as a tenant.
Tenants, if you are going to approach your Landlord and ask for help be prepared to open all of your books, both company and personal, to the Landlord and their accountant. You are going to have to prove that you need the help as well as a possible projection on how a rent reduction would help your business (spending that extra dollar on advertising, additional employees, etc.). Also, expect that the Landlord is going to have you make up your rent reduction in the future.
The worst thing for a Landlord in this market is to have vacant space. Take the time to stop by, talk to your tenants and listen to them. Keep your centers looking shiny and new and go the extra step by not being close-minded when a tenant asks you for some help. We are blessed with a community of hard working people. Eventually, the market will turn around, it always has, and your tenants want to keep their doors open so they can be ready for the turn-around. So ... now is the time to "play nice" and work together as partners within our community.
Mike Murray, CCIM, is the retail team leader and a vice president at Grubb & Ellis|Paramount Commerce (G&E|PC). Mike offers over 12 years of retail experience throughout West Michigan.
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Written By: Christopher Beckering
To obtain the EcoBroker Certified® designation, a licensed advisor must complete a unique and informative training program on the energy and environmental issues that affect real estate transactions. GEPC joins the movement of professionals leading the real estate market toward energy-efficient, sustainable, and healthier design/features in commercial buildings. The high-performance building movement is getting a boost thanks to this type of high quality real estate professional earning the designation. EcoBrokers® throughout the country are forging this market and creating competitive advantages for their clients. With national surveys indicating that 80% of consumers consider themselves "green-minded," real estate professionals with the designation are in a better position to serve the real estate consumer. We're always looking for the best ways to offer our clients the best value. EcoBroker training helps us ensure client satisfaction and profitability... our top priorities. From windows to moisture control to energy savings, we now have more resources at our disposal to help our buyers and sellers make better real estate decisions. The EcoBroker designation allows us to better understand environmental and energy related issues and to convey this understanding to our clients.
EcoBroker International's education and designation program is designed exclusively for real estate professionals who care about the environment and want to help their clients benefit from the energy-efficiency, "green," and healthier features of commercial buildings. Advisors must complete the extensive curriculum and training and fulfill additional program requirements to become Certified EcoBrokers®. "Mr. Beckering is an example of the quality real estate professional the EcoBroker designation seeks to attract," explains EcoBroker International's CEO, Dr. John Beldock. "These real estate professionals are not only distinguishing themselves in a competitive marketplace, but they are really giving back to the community in very constructive and meaningful ways.
With EcoBroker® training, we have broadened the range of real estate opportunities we offer our clients. Whether the transaction involves environmental assessment and mitigation (mold, radon, etc.) or the opportunity to reduce utility bills, we're in a position to provide real value-added recommendations and assemble of team of environmental specialists. The real estate industry is changing, and to best serve our clients we need to understand the newest designs, technologies, and environmental issues. We're looking forward to continuing to positively impacting the quality, durability, comfort, safety, and cost-effectiveness of commercial buildings in the West Michigan market. |
| Chris Beckering is a certified EcoBroker®. He is the first and only commercial broker in Michigan to achieve this coveted designation as of February 2008. |
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The 2nd annual Greatest 5K Ever benefitting the Help Fight Scleroderma Foundation was a tremendous success due to the overwhelming support of the Grubb & Ellis|Paramount Commerce family in the form of contributions and participation. Ten members of the Grubb & Ellis|Paramount Commerce family joined together on the brisk morning of October 4th to participate in a charitable run. Looking like a true team in our stylish wick-dry company logoed shirts, we took to the sea of over 350 participants and began to run. The sun was shining and the band was playing as we crossed the finish line. We enjoyed the music, food, and camaraderie and truly made a difference in the fight against this terrible disease.
Scleroderma is a chronic, autoimmune connective tissue disease. The word scleroderma literally means "hard skin". Common symptoms include thickening and hardening of the skin, joint stiffness, and pain and sensitivity to cold in the extremities. Symptoms can also include damage to internal organs making scleroderma a potentially fatal condition. Characteristics of the disease include an over-production of collagen and damage to blood vessels. Approximately 300,000 people in the United States suffer from scleroderma. Scleroderma primarily affects women between the ages of 25 and 55. There is currently no known cause or cure, but every dollar we raise and the more aware people become, the closer we get to finding a cure.
For more information and to find out how you can help, please visit www.scleroderma.org |
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| Grubb & Ellis|Paramount Commerce joined 2,000 others on Saturday, October 18th at Calder Plaza in downtown Grand Rapids for the 11th annual Making Strides Against Breast Cancer event. The non-competitive; 5-kilometer walk, hosted by The American Cancer Society, helps raise money for programs supporting breast cancer patients, research, education and advocacy. Walkers participated from all over West Michigan and included cancer patients, survivors, family members, friends and those looking to support and raise awareness for the cause. The American Cancer Society raised $150,000 at Saturday's event. Together we can make a difference! For more information on the American Cancer Society please visit www.cancer.org |
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