Roof lift in Grand Rapids proves to be solution for manufacturing
Posted on Tue, Apr 12, 2011 @ 09:26 AM
A tale of two Markets
Manufacturing leading CRE comeback in industrial markets
By Nathan Peck | MiBiz
npeck@mibiz.com
WYOMING — Five years ago, Donald Shoemaker had a problem on his hands.
After purchasing the former Dematic Corp. facility at 4247 Eastern to tear it down to make way for a Wal-Mart store, the company reviewed its expansion plans and pulled out of the deal leaving Shoemaker, principal at Chicago-based real estate developer Franklin Partners, with a 318,000-square-foot facility with no buyer.
Today, the tune is much sweeter as Franklin Partners prepares to finish renovation of the property ahead of moving automotive supplier Undercar Products in after it outgrew its current plant on Hynes Ave.
“When the market crashed in 2008, we were exposed with 2 million square feet of empty manufacturing in West Michigan,” Shoemaker said. “If you had said we would go from 2 million feet empty (as) the commercial real estate market was going into the great recession, and that in February 2011 wishing I had more manufacturing space, I’d say you were nuts.”
That is not to say that the aforementioned deal was easy. The property was on the market for five years, and each winter Shoemaker said the company considered demolishing the building to save on holding costs associated with heating and keeping electrical service running to the building. Shoemaker turned to Duke Suwyn, president and CEO of Colliers International | West Michigan, to help market the property and find a suitable user. Through 10 months of work with Suwyn and Undercar, they ultimately navigated brownfield and local tax incentives, poured $7 million into improvements and raised the roof in 70 percent of the building from a height of 15 to 32 feet. For Undercar, the facility’s heavy-duty electrical service, compressed air system, heavy floors and parking lots made it attractive. Shoemaker said the work of Suwyn and city and state governments made the deal happen.
Shoemaker’s experience reflects that of a bright spot in the 113-million-square-foot commercial real estate market in West Michigan — industrial manufacturing properties are moving briskly. Industry experts say vacancy in class A manufacturing space is around 8 percent, half that of the languishing warehouse space. The number of distressed properties on the market is dragging prices down and also masking the effects of the healthy manufacturing market, which comprises nearly 75 percent of the local industrial sector in the region. Much of the warehouse space in the region has been hurt as manufacturers got lean and moved to just-in-time manufacturing, reducing the demand for warehouse space.
“There are almost two different markets out there. The general theme is for lease or sale, class A and newer properties are selling or leasing at higher rates than what people would consider normal these days. The warehouse distribution sector is the weakest sector …(and) is certainly hurting, primarily due to oversupply,” said Steve Marcusse, principal and industrial advisor for Colliers. “For the state-of-the-art manufacturing sector, it is slim pickings. Clients expect that I must be able to pick 10 of what I want anywhere. That simply is not the case when it comes to class A manufacturing space. When it becomes available, it sold quickly.
Gene Szpeinski, associate broker at Signature Associates, said there are segments of the market that are certainly outperforming others, but he noted activity is picking up in all sectors of the commercial real estate market.
“The trend has been one of increasing activity consistently through 2010 and into 2011, which is chipping away at our supply of available properties for lease and for sale. The supply of available lease space varies in the marketplace with a diminished supply of larger spaces over 100,000 square feet. There are a variety of excellent values in the for-sale market as financially distressed buildings have set the pricing points at bargain numbers,” Szpeinski told MiBiz. “We are seeing investor interest increase as well as users although financing requirements are still inhibiting sales activity. Some specialized buildings have lingered on the market due to lack of need and/or cost to retrofit. There has been good activity in truck facilities over the past 18 months. Good, well-located 8-15,000 square-foot buildings are in shorter supply.”
For Franklin Partners, a company that specializes in turning around industrial properties, the West Michigan market has been a good opportunity overall, if not for a few twists and turns during the chaos of the recession.
“If you look at the recent success we had selling buildings, it wasn’t full profit. I read the paper, banks call every day — it is no time to be pigs. There is the perception that, boy, those guys cleaned up. If they followed up the numbers, you’d see we were owning this empty building for five years,” Shoemaker said. “I feel Grand Rapids is outperforming the rest of the Midwest, even Chicago, where the market is so much larger. It has a diverse manufacturing base — it is automotive, it is medical, it is food. I’ve become a big fan of the area — there is definitely opportunity here.”
