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Real estate around the state.

Real Estate Around the State

EVANSVILLE

In boom times, Evansville's economic development efforts have been termed too traditional--very conservative banks unwilling to go out on a limb for that risky venture, companies unwilling to pay for an expansion "just in case" bad times are down the road.

Turns out, bad times are here, and Evansville's doing just fine, thanks.

"There's no doubt in my mind, and I'm not just saying this, but because of its traditional, conservative nature, Evansville will weather bad times or a recession better than other places," says Jim McKinney, a managing partner with Regency Associates, one of the city's leading developers.

"People are paying more with cash rather than credit than before," McKinney continues. "And there's a very diversified economy here. There's not just one industry. There are numerous businesses and industries in our community." And the major ones, he points out, such as pharmaceuticals and plastics, are not having the downturn that was anticipated. The large base of petroleum producers in the area also has stabilized the economy in the wake of surging oil prices.

McKinney says, furthermore, that other developers seem to share his enthusiasm. "It's good to have a periodic slowdown in the economy; it shakes things out a bit. We're very confident about Evansville and the rest of the state."

Most of the excitement in the Evansville commercial real-estate market continues to be centered at the intersection of the new Interstate 164 and the Lloyd Expressway. Carved out of bean fields, that intersection of the city's two major roadways has seen tremendous development. Regency Associates commandeered one corner and is building the Cross Pointe Commercial Center, 183 acres of multiuse office space in a campus-like setting.

Cross Pointe's first major tenant, Charter Medical Corp. of Macon, Ga., already is building its $5.4 million psychiatric hospital. McKinney says Regency is planning the first of its office complexes on the site, buildings of 20,000, 15,000 and 6,000 square feet. "They will either be single-tenant or a small number of tenants," he says.

Cross Pointe is not alone at the bustling intersection.

The Eagle Crest Commerce Center will be anchored by a $5.5 million Hampton Inn hotel that should open this year.

Nearby, Deaconess Hospital, one of Evansville's major health-care facilities, plans to build a $15 million to $30 million medical center on 24 acres near the intersection just over the line in Warrick County.

Darrell Auterson, economic development director for Warrick County, says he expects more professionals to locate in Warrick County because of the new development. "We're real excited about this one," he says.

Nearby, Metro Centre East is under development closer to the Green River Road retail strip. That 52-acre complex, developed by Premier Group Ltd., includes restaurants, offices and retail shops.

Part of the developers' enthusiasm stems from the creation of a new economic development group in Evansville. Called "Vision 2000," it is headed by Ken Robinson, former economic development director for Butler County, Ohio. "Before, we didn't have the depth of attention and work that Vision 2000 now is applying for our area," McKinney notes.

Robinson's initial impression of the area was that it needed to overhaul its self-image to attract other development. Also, he thinks improved airline service, a highway linking the city to Indianapolis and additional spec buildings would be a shot in the arm for the Evansville area's economy.

Meanwhile, downtown Evansville continues to hold steady with a class A office vacancy rate of about 9 percent, according to David Matthews Associates, local real estate appraisers. Class A downtown space leases for $12 to $15.50, while comparable space in the suburbs rents for about a dollar less.

The city still is working to build a cultural arts, performing arts, hotel and convention center downtown, a move that would spur other development. There are smaller moves being made, too. The Evansville City Council voted to remove parking meters from downtown, long a sore point for shoppers.

FORT WAYNE

The day of the landlord in Fort Wayne may soon dawn, if it hasn't already.

While a couple of buildings are facing rehabilitation, that will do nothing to contribute a solution to the need for large blocks of class A office space downtown. And the financial hammerlock on credit for developers put any concrete answers in hibernation.

"I don't think we have the surplus of it. Downtown is pretty tight for space right now," says Barry Sturges, a partner in Sturges, Griffin, Trent & Co. "Before, we had too much space chasing too few tenants. For the landlords, it's going to be a plus. You're not going to see the inducements that were seen in the past."

"If anything, it's improved a little bit," says Al Zacher of Zacher Co. "The occupancy continues to be rather favorable. To find large blocks of space isn't easy to do."

That should signal a sense of urgency for prospective tenants, notes Mike Dahm, a partner in Harding, Dahm & Cohe. "Right now is an excellent time for a tenant to make a deal," he says. "A year from now, that opportunity isn't going to be as attractive as it is today. What is happening now is, we're not giving as many concessions. The rents are what they were before."

The fact that developers are hardpressed to win financing from banks will only improve the landlord's position.

"The ability to get speculative financing packages put together is difficult at best," Sturges says. "Therefore, it's only going to get tougher to get a building package put together to offer to the public. In a market this size, it was always difficult (anyway)."

"Right now, you can't afford to build, unless it's build to suit," Dahm says. "You need a built-to-suit long-term lease."

"I think it's a huge, huge problem," says developer Don Steininger, president of Steininger Development Corp. "If you don't have a tenant, you may as well forget it. You're not going to get the money to build a spec building without a tenant. I think that's good."

Steininger has found business in the suburbs to be brisk, however. "Suburban space, to my absolute amazement--I've never had more interest that what there is now," he says. A year ago, that interest did not exist. "I can't believe it's turned that quickly, but it's possible it has."

The fact that no buildings have opened up in the past six to eight months accounts for the interest in suburban office space, Steininger thinks. "When you stop the supply from growing, it doesn't take demand long to catch up," he explains.

Still, there is 100,000 square feet available at the old Mutual Security Life Insurance Co. building and 15,000 square feet at Pointe Inverness, Dahm points out.

There are also some spaces of 5,000 to 7,000 square feet available, according to Sturges. "There's not a lot of options out there," he concludes.

INDIANAPOLIS

Though the capital city has been a commercial real estate boom town in recent years, development has leveled off. The market and the bankers both can claim some of the responsibility.

The focus in the downtown office scene switched from record building to record absorption in 1990. According to Coldwell Banker's commercial real estate services division, nearly 650,000 square feet of downtown office space was absorbed, up 100,000 from the record set the year before. But very little of that happened during the latter part of the year, since most of the activity was the result of leases signed in 1989.

And, for a change, very little happened on the office construction scene. No new downtown buildings were completed in 1990, the first time that's happened in a number of years. As a result, the office vacancy rate dropped to 19.3 percent in the fourth quarter of 1990; in the third quarter it was 20.5 percent, according to the F.C. Tucker Co.

"The downtown area is starting to tighten up a bit, until the new State Office Building opens, then I think you'll see another wave of vacancies," says Jim Revel, chairman and CEO of the Revel Cos. The state currently leases space around the downtown area for many of its agencies, and when those agencies move into the new office building later this year, as much as 400,000 square feet of space could open up downtown. "It's going to take a year and a half to two years to absorb that," Revel says, but he adds that the state will leave behind some large blocks of space, which currently are in short supply. That could help speed absorption.

Class A downtown office space is leasing for $16.50 to $23 per square foot, and David W. Goodrich, president of F.C. Tucker's commercial real estate services division, doesn't expect the rates to change substantially. "I do think we will see less free frontend rent" and other concessions, he says, noting that lenders these days are not as amenable to such arrangements, which have been common in the past. "Cash flow is king."

One thing that hasn't affected the downtown scene all that much is recession, Goodrich says. The suburbs are the place to look for recessionary influences. "The suburban office market tends to be affected more by the national companies while downtown is more local," he says, noting that as a whole national companies are not faring as well as local firms. "Because of the slowdown in the national economy, we're going to see a slowdown in new sales offices of companies that are headquartered elsewhere. I expect to see a slow year in the suburban areas."

The suburban office vacancy rate in the last quarter of 1990 was 22.7 percent, up from 21.9 percent in the third quarter. Class A office space in the suburbs is leasing from $9 to $19 per square foot. The suburbs are the only areas where leasable offices are under construction at this point, according to Michael J. McKEnna, vice president at Coldwell Banker. Even so, he says his records show only three major construction projects at the end of th year, two on the north side and one on the south side. That's not likely to change anytime soon, he predicts. "We don't feel that there will be many new speculative developments for office space, none downtown and very little suburban."

The same can be said of industrial space. Goodrich adds that less than 200,000 square feet of speculative industrial space came onto the market in 1990, and no new inventory is expeceted through the first nine months of 1991.

"There is a demand, a significant demand, and we will lose potential new businesses because we don't have immediate space to show someone," Goodrich says. "New projects just aren't getting built."

"Part of the reason is that lenders are becoming tough and scrutinizing very closely any property that is developed," McKenna explains. He says it may be a good thing that the days of looser credit are past, but he believes lenders have overcorrected. "I think the pendulum has now swung too far. I think they're too guarded at this point.

On the retail scene, Indianapolis is faring well. Goodrich says the vacancy rate in retail areas is about 7 percent, well under the national average of about 12 percent.

But Revel of the Revel Cos. wonders how some of the smaller tenants will fare during a recession. "That's another area of concern, how the B-shop tenants are going to hold out."

LAFAYETTE

As Subaru-Isuzu Automotive Inc. put the fiishing touches on its Lafayette plant in 1989, a Subaru television commercial touted the benefits of autos that would be manufactured in the belly of America. While locals might not have liked the terminology, few could dispute that their financial bellies were filling from benefits spurred by the plant.

Development boomed as a strip of Indiana 26 from Interstate 65 to town gave up its cornfields for commerce. Among the new construction-- most of it just opening: Wal-Mart Shopping Plaza, complete with Sam's Wholesale Club, a bank and three fast-food restaurants; Theatre Acres, a light industrial/commercial park; and 92-unit Homewood Suites. The only announced development that didn't go was Park East, a retail-office complex now tied up in an estate settlement.

New strip malls dot the county landscape, Home Hospital has launched a $10 million expansion, and several commercial developments are under way near Purdue University in West Lafayette. In Purdue Research Park, Cook Co.'s MED Institute moves into new headquarters this spring. Further marketing of the park is in the planning stage, reports Stanley Mithoefer, director of real estate for Purdue Research Foundation.

Downtown class A office space rents for between $7 and $10 per square foot, while suburban space ranges from $10 to $12. There are commercial vacancies--including an entire strip mall in north Lafayette vacated by Ames Department Store--but local pulse takers remain confident.

Why? "Maybe we're a little bit of an island here that is very fortunate," suggests developer Jim Shook Sr. of The Shook Agency. "It's a product of our cities moving ahead on opportunities that have presented themselves. We haven't overbuilt, and we've had good absorption of the development that has occurred."

Specifically, community leaders list these pluses: a diversified job base, unemployment rates that consistently rank among the lowest in Indiana, and vigorous revitalization in both Lafayette and West Lafayette as railroads relocate and construction progresses on a new bridge spanning the Wabash Rver and linking th two towns.

"The bridge will be a catalyst for further development," says Josh Andrew, West Lafayette's director of development. Its year-end or early '92 completion will open areas in downtown Lafayette and West Lafayette's levee for cleanup and growth.

"The improvement resulting from the new bridge, relocation of the railroad line, and opening of the depot plaza at the foot of the Main Street Bridge feed nicely into development plans," says Lafayuette Railroad Relocation Project Manager Elizabeth Solberg.

Renovation begins this month on the Tippecanoe County Courthouse. Construction activity lends a busy air to a community that LeRoy Silva suggests may be more recession-proof than most. He's director of Purdue's Business and Industrial Development Center. Reflecting the community's confidence, he says, "This is a growth area, it's been targeted as such, and that tends to dampen any recession."

Silva points to Greater Lafayette Progress Inc., a non-profit development effort. "Long ago we established GLPI. It has done a lot to contribute to our growth and it will do a lot to keep the ball rolling." GLPI's new president, J. Michael Brooks, reports his office is "as busy if not busier than earlier in the year."

NORTHWEST INDIANA

Northwest Indiana, battered by the storms of recession far longer than the rest of the state, is remaining an island of calm while new storm clouds threaten the economy elsewhere.

Unemployment in northwest Indiana is about the same as it is in the rest of the state, and the steel industry, despite its reliance on automakers as customers, is relatively strong in terms of jobs and output, if not in net profits. The real-estate market has cooled somewhat in the last year, but prices on residential home sales continue to climb.

The office-space market, often one of the first sectors of the economy where trouble shows up, has remained one of growth and firm prices, according to the area's developers and economic development experts.

The area saw virtually no office construction throughout the 1980s, but now is undergoing an office construction boom, at least by the Calumet Region's standards. In the past two years, more than 200,000 square feet of new space either has come on the market or is under construction.

"The heart of it is that the buildings going up are half preleased, so there is no overbuilding," says Janet Cypra, director of the Lake County Economic Development Authority. "I think we went into this building period with so little class A office space, that this is just filling the gap that we have."

Developers say the demand is coming from Chicago-area professional firms that are moving or expanding into Indiana, from existing businesses that are growing and, to a lesser degree, from businesses that are new to the Midwest.

But despite the ties to the Chicago market, northwest Indiana has not yet felt the effects of the recent drop in rents in the Chicago area. Part of the reason is due to the fact that prices in Northwest Indiana are already so much lower, between $10 and $16 a square foot, compared with $18 to $22 a square foot in the suburbs south of Chicago and $28 in the city itself.

"We get a lot inquiries about concessions (on rents), but haven't given any," says Phil Hasiak, vice president of Merrillville-based Gough & Lesch Development Corp., one of the most active developers in the Region.

"If someone wants to be in this market, there is no reason to give them a concession, because we don't have much vacant space," says Hasiak. "If they're looking at us, they aren't comparing us to Chicago." He says he doesn't think prospective lessees comparison-shop the rents in Chicago and Northwest Indiana. "They want to be here because we're a different market," he explains.

Northern Indiana Public Service Co., which is in the process of leasing its former office building at the key intersection of U.S. 30 and U.S. 41 in Schererville, has found that the professional firms moving in from Illinois are expanding, not leaving Chicago. Earlier this year, a medical group and a suburban Chicago law firm both opened new offices at the Schererville location. Frederic Hanak, who's in charge of the building's rental, says the 20,000 square feet leased so far this year is about 20 percent more than what was expected when the 126,600-square-foot building was put on the market early this past number.

Certain projects, on the other hand, have been put on hold. Whiteco Industries, owner of the Radisson Star Plaza Resort in Merrillville, had intended to build a six-story office building near its hotel-theater-convention complex. Now, it plans to build two four-story office towers instead, with about the same square footage as in the original plan, starting in the spring. Ann Bowman, an attorney for Whiteco, says it will likely build one tower and then wait until the second tower is partially preleased before proceeding with construction. "It will be a more phased-in, more controlled development," she says.

SOUTH BEND

Most segments of the commercial market here seem to be holding their own, with a bit of softening in the demand for office space. Uncertain economic times are causing many businesses to stay put, instead of moving into new class A office space.

"The slowing in the office market hasn't just happened in the past few months. It has developed over the past year or more," says John O'Brien, head of the commercial division of Coldwell Banker Anchor Real Estate in South Bend. He doesn't expect the market to get any weaker. "Plus, in the spring, you get a natural upsurge in commercial and industrial activity."

Right now, industrial properties seem to be the hottest item in the area, with retail space a close second. A major South Bend industrial park complex got off the drawing board with more than $6.5 million in bond issues this past December. Funds will be used to pay for land acquisition and to develop the necessary roads and utilities. The development also received $1.8 million in Indiana lottery proceeds from the Build Indiana Fund last fall to help get the project rolling.

Dubbed "Airport 2010," the project spans some 2,500 acres of land west and north of Michiana Regional Airport in South Bend. The multiuse plan will include an office park, a light industrial area and a golf course. Construction is scheduled to start this spring, with completion targeted for early 1992.

"Industrial land around the airport has been in high demand for the past few years," O'Brien adds. "The existing industrial parks in that area are just about out of space. Airport 2010 will bring a lot of additional land into the picture."

Though office space development isn't as fast-paced as in the past, there is notable activity. The Edison Lakes Corporate Park on Mishawaka's north side, east of the Grape Road corridor, continues to be a high-profile development. Its newest addition, Park Place, is ahead of schedule. Eventually, Park Place at Edison Lakes will include up to 22 single-story office buildings on 24 acres of land.

South Bend's downtown area is bustling with new and rehab construction projects. "We've seen more private development downtown during the past year than we've seen in a long time," notes Carter Wolf, executive director of Center City Associates, a private, not-for-profit association of downtown businesses and organizations.

According to Wolf, new and rehab office space downtown is keeping up with demand. "I think we're going to see continued growth, though people are holding back a bit." The cautiousness in early 1991 will result in pentup demand for space late in the year and into early 1992 as the economy perks up. "Right now, it's hard to break ground for new office construction due to the tougher financing constraints caused by the S&L scare and the economy," says Wolf. These days, 60 percent prelease prior to construction is a fact of life.

"The people who lend money for development have taken such a beating in other markets it's difficult at times to get them to buy into the 'big picture' of this community," notes Chris Davey of Cressy and Everett Commercial Co. Inc., a major area developer. Banks have money to lend, he says, but they are being much more selective with it.

Cleo Hickey, downtown project manager for the South Bend Redevelopment Authority, is the chief compiler of vacancy figures for downtown and suburban office space. The latest report, released in December 1990, noted vacancy rates of 16 percent for downtown South Bend and 14 percent for downtown Mishawaka. The suburban office space vacancy rate was at 18 percent for South Bend and 28 percent for Mishawaka.

Rental rates for class A space range from $12.50 to $15.50 per square foot downtown, and from $13.50 to $16.25 in suburban South Bend, according to Coldwell Banker Anchor.

Recently completed office buildings in downtown South Bend include the Memorial Skyway Plaza, adjacent to Memorial Hospital, developed by the Holladay Corp.; a new Internal Revenue Service building completed by Panzica Development Co. of South Bend; and a two story office building on North Michigan Street developed by Five-Star Enterprises.

The East Race area has seen completion of The Pointe of St. Joseph, a large, upscale apartment complex between the East Race and the St. Joseph River; the first unit of the East Race Condominiums; and the two-story office building for McGladrey & Pullen, a South Bend accounting firm.

New class A space that is being created has generated a surplus of class B office space. "As things continue slowing down, class B space will grow in pupularity in the interim due to its lower cost," says Wolf. It's an oft-repeated scenario in the office development business.
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Title Annotation:commercial real-estate update for Evansville, Fort Wayne, Indianapolis, Lafayette, Northwest Indiana and South bend
Author:Derk, James S.; Margolis, Jay; Kaelble, Steve; Mayer, Kathy; Isidore, Chris; Pethe, Gary
Publication:Indiana Business Magazine
Date:Feb 1, 1991
Words:3886
Previous Article:Where's the money coming from? The financial spigot is not completely turned off for Indiana developers.
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