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Doing deals again.

Commercial real-estate activity is picking up. Property owners become more realistic.

The commercial real-estate downturn--which wasn't all that severe in Indiana to begin with--seems to be fading into history.

That's the conclusion of an assortment of Hoosiers in the real-estate business. The outlook varies somewhat in different Indiana markets, but brokers in general seem upbeat about the present and hopeful about the future.

"Our market is very active," says Steve Miller, president of Citizens Realty & Insurance in Evansville. "The confidence is high, and people are looking to make reasonable transactions."

"We're looking for a good year," agrees Jim Lohman, a partner at Harding, Dahm & Co. in Fort Wayne. "There are certain segments that are stronger than others, but when 12/31 rolls around, we believe it will be a better year than 1991. We've got a lot of things on the books and there are people looking. The market seems to be optimistic."

Christopher Davey, president of Cressy & Everett Commercial Co. in Mishawaka, also gives his area's real-estate scene high marks, adding that he never felt too bad about it. "We never really experienced a downturn. We're still really healthy up here."

The climate also seems especially favorable in Indianapolis, where a 1991 marked by a lot of "tire kicking" has turned into a 1992 full of deal making. That's an assessment shared by David Goodrich, president of the F.C. Tucker Co.'s Commercial Real Estate Services division, and Michael McKenna, vice president in charge of the local office of CB Commercial.

"We are having an exceptional year," says Goodrich. "Our commercial brokers' volume in the first six months exceeded all prior first-six-month periods. We could top 1991, which was the best year we've ever had."

What's made the difference for 1992? If more deals are being done, to what can the improvement be attributed? One factor may be improved confidence in the economy. The statisticians have declared the recession over, and that change in mood may have been enough to get some of the real-estate procrastinators into gear. "We're starting to see some of the tire kickers actually commit," Goodrich notes.

"Some people who were holding off making decisions in the last 12 to 18 months are finally making decisions," agrees McKenna.

In addition, Goodrich says, the notion of real estate as an investment--which had gotten a black eye during the free-fall of property values in some other regions--is getting some attention again. That's yielding some deals. "We're beginning to see properties attracting interest on the part of both local and national investors. We will see a pickup in the investment end of the business."

But there's also a sense that some sluggishness in the real-estate business was the fault of sellers who were hoping to get more out of their property than was reasonable. Goodrich thinks some of these sellers are coming around. "We're seeing some of the owners of troubled properties getting more realistic about the values of their properties."

That realism hasn't yet settled in everywhere, says John Bellio, marketing director for Roth & Wehrly Realtors in Fort Wayne. "Buyers are offering less, but a lot of sellers are not willing to take that yet," he says. The same problem is keeping some rental properties vacant, he adds. "A lot of landlords are being pretty unrealistic on their pricing, to the point where they think they can get what they were getting years ago."

In that type of situation, it may not be just the landlords that are holding out for more money, McKenna speculates. "The lenders are much more involved now, and in some cases they may decide that making a deal is worse than not making a deal. If you're encumbered with a long lease at a low rate and the market tightens up, then the tenants did the right thing and the landlords did the wrong thing."

Tenants' quest for economy may be behind a recent trend noted by Bill Hollett, a leasing representative for First Office Management, which manages the Bank One Center in downtown Indianapolis. The center includes the Bank One Tower, which is the tallest building in the state, but another part of the center is the Circle Building, a somewhat lower-priced space with the same prestigious address on Monument Circle. "We've had a tremendous amount of interest and activity, and most of it during the last three months has been in the Circle Building, which probably is a little more economical for tenants."

Hollett can point to one additional reason for increased leasing activity in 1992, one that's more coincidental than economic. "There didn't seem to be a lot of leases that expired in 1991. There was a lot of new construction and leasing from 1985 to 1989, and a great deal of those leases are now expiring this year."

In Northwest Indiana, the news is somewhat mixed, says Stan Wolucka of Highland-based Price Realtors. "Our activity level is pretty good, about the same as last year. Deals are being made, no doubt about it, but the deals are a little slower in coming together. The ones that are coming together, though, are serious transactions."

This year's deal making, he says, may in fact be hampered a bit by the fact that a good number of deals were made last year. "The inventory isn't as strong as it could be, and that's one reason. For example, there's not a lot of good industrial space on the market, and I don't think there's an overabundance of commercial space. Office has got the biggest inventory of anything."

Most of the other Indiana markets have their stronger and weaker points as well. A strong point in Evansville, for example, is the area of medical office buildings, Miller says. Much of that activity is taking place on the city's east side, near where some local hospitals are building satellite facilities.

In the South Bend/Mishawaka area, the office sector is not quite what it used to be, Davey says. "I don't want to say it's not good, but it has slowed down a bit." Cressy & Everett may enjoy a bit of a breather, however, after completing the fast-track assignment of building a national headquarters facility for National Steel Corp. The developers simultaneously designed and built the 125,000-square-foot facility, completing the job for the Fortune 500 firm in just eight months.

While the office sector in Northern Indiana may be cooling, the retail sector remains hot, Davey says, with some new restaurants moving in. One is the area's first brewery and brewpub, the Mishawaka Brewing Co. "The industrial side is still pretty good," he adds, "and we've just broken ground on some condominiums."

In Fort Wayne, "the retail business is certainly slow," says Lohman of Harding, Dahm & Co. "There hasn't been a lot of movement, and some vacancies have not been filled. But the industrial sector is strong, and will continue to be that way."

The office sector, he says, is plagued by ups and downs, as well as all sorts of special situations that make the vacancy numbers relatively unreliable. For example, the vacancy in suburban Class A space may hit a seemingly alarming 40 percent on occasion, "but if you take out one or two large buildings, such as Mutual Security, you're down to more like 15 percent. The talk about percentage vacant and percentage occupied is really not an issue anymore."

In Central Indiana, the industrial sector is one of the star performers, according to Goodrich and McKenna. "The industrial segment remains quite strong," Goodrich says. "The primary part of the industrial market has turned to distribution."

"A lot of companies are looking at Indianapolis for distribution facilities," McKenna agrees. "We've gotten a lot of favorable press. We have a pretty central location, and we have just an exceptionally good interstate highway system." The city's interstates are so superior, he says, that it's been easier getting around during some major summer construction this year than it is in many other cities when all the lanes are open.

While the real-estate outlook seems pretty positive, Miller believes there would be a whole lot more activity if the federal government would approve some relief from the capital gains tax. It's the topic of a lot of election-year talk, but Miller says the idea is not just useless rhetoric. "Cutting the capital gains tax could change the entire picture. Activity would be robust almost immediately."

The problem with the current tax, he says, is that a lot of people simply can't afford to sell because the tax eats up too much of their profit. Tackling the tax, he says, would mean "a lot of people could then afford to sell their property, and could make it attractive for people to buy."

At the height of the real-estate downturn, the future of speculative commercial real estate seemed gloomy. But spec space is making a comeback, at least in Fort Wayne.

"There's some excellent new space coming onto the market, including the new NBD Center," says Lohman. The building isn't totally speculative; in fact, it gets its name from one of its signed tenants, NBD Bank. But a fair amount of space remained to be leased as construction began earlier this year.

The 75,000-square-foot, five-story NBD building is being developed by Murphy & Associates at Calhoun and Wayne streets. It'll be a high-tech addition to the city's Class A inventory, with state-of-the-art energy management, card-key security in the building and adjacent parking garage, and floor-to-ceiling windows. "That's going to be a great addition to downtown," Lohman says.

Because inventory in Northwest Indiana is limited and optimism is high, Wolucka says there's a good chance the not-too-distant future will include some more building activity. "Our local banks are pretty well set with money to lend, and creditworthy borrowers with a track record and collateral are getting pretty much what they want. I feel very positive about the rest of '92 and 1993."

In Indianapolis, Hollett of First Office Management says he has reason to believe the current flurry of commercial real-estate activity in downtown Indianapolis will continue into the future.

"We're all encouraged by the news of the Circle Centre Mall tying up anchors," he says. "We're hopeful that will assist us in bringing new companies downtown and keeping companies downtown."

McKenna, too, has high hopes for the future. "I don't think we're going to see it back like the go-go days of the mid-1980s anytime soon. However, I think we're headed in the right direction."

Talk to Dave

He gave up a career in shipbuilding to share the helm of Indiana's leading real-estate brokerage firm.

If there had been much of a shipbuilding industry in America, the commercial real-estate scene in Indiana might look a lot different today.

That's because David W. Goodrich, co-owner of Indianapolis-based F.C. Tucker Co. and president of its Commercial Real Estate Services division, once had plans to become a ship designer. "I went to the University of Michigan because it offered undergraduate courses in naval architecture and marine engineering," he recalls. With a number of his relatives in marine businesses, Goodrich thought it might be right for him as well. "There is a romance of the sea that intrigued me."

Then reality set in. "There's virtually no shipbuilding industry left in this country," he found out. "And I realized my interests were broader than the narrow focus of that engineering school, so I got a degree in finance and economics."

Thus began a career that, though it hasn't involved shipbuilding, has been nonetheless diverse. Goodrich went to Columbus to work as a financial analyst for the Irwin Management Co. He then earned an MBA from the University of Virginia and moved to Puerto Rico to serve as director of financial planning for a subsidiary of the Sea Pines Corp. of South Carolina. Then it was off to Chicago to work in the corporate banking department of Continental Illinois National Bank and Trust Co., where he served a number of Indiana-based corporate clients.

Goodrich's career took another turn on a tennis court in the late '70s. His father-in-law, Robert Houk, was one of four partners at F.C. Tucker Co. at the time. Houk introduced Goodrich to George Charbonneau, a Tucker executive vice president who was in charge of the commercial and industrial business. "We played tennis one fall afternoon in 1978," Goodrich recalls. "He convinced me that I would make more money selling industrial real estate than being a bank vice president."

So Goodrich joined Tucker in 1979. A few years later, Goodrich moved into a high-profile position as listing agent for the American United Life tower in downtown Indianapolis. In seven years, his industrial and office transactions exceeded $50 million and involved more than 2.5 million square feet of space. How does one top that? Buy the company.

In January 1986, he joined with James Litten and Fred Tucker III to buy F.C. Tucker Co., setting up an unusual management partnership that no doubt looked dangerous on paper but has worked like a dream. Goodrich handles the commercial side, Litten the residential, and Tucker is president of the corporation. "We don't have a CEO," Goodrich notes. "We each have our individual talents and blend them."

The three have overseen the expansion of F.C. Tucker Co. out of the Indianapolis market, where it's been a dominant name for years. Mainly through franchising, Tucker has entered several other Indiana markets, focusing mostly on residential real estate. Goodrich says linking up with existing firms through franchising in general makes more sense than opening a satellite office in a new town.

"Real estate is a very local business," he says. "In order to be successful one needs to depend upon those people who have the kind of contacts in their communities that we have here in Indianapolis." In a couple of instances, Tucker did expand into a market with a start-up agency, but only after it was unable to identify an appropriate franchise partner. Even then, the company tried to fill the offices with local people, Goodrich says.

On the commercial side, F.C. Tucker Co. is an active member of Colliers International Property Consultants, and Goodrich serves as the organization's treasurer and on its executive committee. The affiliation, he says, gives Tucker a wealth of commercial real-estate contacts in other cities and in other countries, which can be quite helpful to clients interested in expanding beyond Indiana's borders.
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Title Annotation:Commercial Real Estate; includes related article; Indiana's commercial real estate activity
Author:Kaelble, Steve
Publication:Indiana Business Magazine
Article Type:Industry Overview
Date:Sep 1, 1992
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