Real Estate Rising
As the recession recedes and the real estate market rebounds, related industries roll with the changes.
We asked area commercial real estate and development experts to name the biggest recent change—be it a marketplace evolution or an internal innovation—that’s affected the way they do business. Here’s what they had to say.
As a longtime Dane County real estate developer, The Alexander Company focuses on urban redevelopment, often infill projects that revitalize brownfields or adapt existing structures to innovative new uses. It also handles large-scale, multi-phase new construction projects.
The company just launched Alexander Real Estate Services in the Madison area, which will eventually serve markets nationwide. The new firm provides residential and commercial property management, commercial brokerage services, and tenant representation.
“We’ve provided these services to our own lenders and investors for nearly thirty years,” says Joe Alexander, president of The Alexander Company. “We have the expertise and we’ve built up significant assets. We’re property owners and owners’ representatives, so we look at things from a business owner’s perspective. Our in-house design and architecture team will also provide support to clients and customers. These things set us apart from most third-party real estate companies.”
Valicia Gilbert is the new firm’s president and director of residential property management, leading a team of about twenty-five people, and Gregory Frahm, former head of DeForest’s economic development department, has recently joined. “We’re very pleased to have Greg on board. He’ll really bolster our tenant representation and commercial leasing capabilities,” Alexander says.
Alexander says the company’s target customers are both property owners and business owners. “They may own an apartment building as an investment, a printing company, or another business. For most people real estate isn’t their area of knowledge, but we’ve been doing it for thirty years, with all different types of properties in many markets. We have the expertise to take the burden off of our customers,” he explains.
Amigo Construction, a family-owned, certified minority business enterprise (MBE), focuses solely on commercial work within greater Madison. “We’re here to meet the needs of general contractors—currently J.H. Findorff & Son and Ghidorzi Construction Co.—and we work with different agencies, such as WHEDA,” says Wensy Melendez, president.
“For quite a number of years, we also had work in other parts of the state, but staying local has been great,” he says. “We have a lot of work in Madison, which makes time management and quality control easier. It also helps to have direct relationships with our general contractors and employees on a daily basis.”
If a good client offered a project elsewhere, Melendez says he would definitely consider it. “But working locally for about the last eighteen months has cut costs,” he notes. “As an employer, we had to pay for employees’ travel time, and most of the time, hotels. And we often had to hire temporary workers for out-of-town jobs.”
Amigo’s employees have said they do better work when they can go home to their families every day. “We’ve had the same staff for a long time and they’re really hard workers, so we try to attend to their needs,” says Melendez. “We’ve been together for so long that it’s more of a family environment.”
His company is working on Madison’s central library. “In that job, it’s nicer to be able to attend meetings regularly—so I can attend to the general contractor’s schedule and needs,” he says. “For faraway jobs, I have to send employees to the meetings, and they can’t always make decisions as quickly. By staying local, we meet our milestones with high quality and we’re much more efficient.”
Tax and regulatory changes
As with many election years, 2012 was a year of uncertainty, muses George Gialamas, president of The Gialamas Company, Inc. “Many businesses were waiting for the outcome of the election before making any major financial decisions, including the relocation or development of new office space. With the projected increase in capital gains taxes, many commercial real estate owners also chose to sell properties,” he says.
“This is changing the market, but The Gialamas Company has stayed strong and we’re proud of our ninety-five percent occupancy rate”, he adds. “We used last year to plan for future business changes, focus on improvements and cost savings for our current tenants, and to plan for future development.”
Tax and banking regulation changes are affecting commercial real estate in general, Gialamas indicates. “It’s taking more time and money to finance projects and there are more expenses when selling assets. I used to be able to arrange financing for a new project and make quick decisions with one phone call, but now there are multiple layers to this process that add time, effort and expense for all involved. I also need a team of accountants to figure out the financial ramifications of what used to be a simple calculation. It’s just not as fun as it used to be. But we’re still in the game and plan to stick around.”
The company still has over thirty acres available in Old Sauk Trails Park. “It’s the most prime commercial real estate on the west side of Madison,” says Gialamas. “We’ve also worked extremely hard on retaining and improving services for our valued tenants. We’ve been fortunate to build many long-term relationships and we still believe that providing superior service in-house makes us a better choice to meet tenant needs.”
He’s concerned about Madison’s ability to compete for commercial development opportunities, since the city doesn’t offer incentives similar to those offered by neighboring communities. “I’d like to see a shift in offering incentives and programs at a county level, which would help growth across the area and keep competition between municipalities to a minimum,” he says.
Lee & Associates has brokers specializing in industrial, retail and office buildings, and also handles some investment properties. “My segment, because Madison is a relatively small market, is both industrial and retail,” explains Blake George, principal.
A local market change he’s seen is very low vacancy, under five percent, in apartment buildings. “We’re seeing new construction when developers can get financing,” he says.
All markets in Dane County are recovering, he says. “But the office sector is still struggling.”
Retail rents have held steady and new projects—Hy-Vee, Costco, Pizza Ranch, Woodman’s, Copps—are emerging. “That will continue,” says George. “We’ll see some new strip centers and big-box retail. There are still a lot of concepts in other parts of the country not yet here in Madison. And banks, like Starion and Settlers, are still opening branches.”
Leasing has been very active in the industrial sector over the last twelve months. “National companies see opportunities here to expand into a strong market,” George says. “There’s not as much new construction, but Ale Asylum, Rockford Industrial Welding Supply, and a few other, mostly owner-occupant, industrial buildings are going up.”
Stronger bank regulations are limiting community banks’ ability to do speculative real-estate lending, he notes. “It affects us in the raw land area. There are hardly any new, speculative buildings where you put them up half-occupied and make the other half available for rent.”
He cites the Orchard Pointe development in Fitchburg that his company is handling. “It’s a great success, but it’s taking longer than anyone would have imagined. The retail center is filled with Goodwill, Toppers Pizza, and AT&T, but the leases had to be signed before building it. Now you have to design and gather tenants before building.”
MIG Commercial Real Estate does new construction and renovations, primarily in at-risk or underdeveloped neighborhoods, and leasing and management of office and retail buildings. It also provides brokerage and private equity investment services and participates actively in charitable endeavors.
MIG’s biggest recent change was one of ownership, as Bradley Hutter, president and CEO, acquired all of the company’s assets. “The company and its employees were forced to weather my two-year-long, difficult divorce,” he says. “The employees banded together and stayed the course, and their willpower, commitment and loyalty to our mutual goals brought us through the crisis.”
The company is like a family, Hutter says. “Each of the key employees has been intimately involved in the organization’s growth since the late 1990s: its economics as well as its relationships. I’m proud of the culture we have here and we rarely lose employees once we bring them into our fold.”
This is not the case with some other companies in the area, Hutter notes. “Sadly, management and ownership upheaval has been more the rule than the exception in Madison commercial real estate over the past two or three years,” he says. “We’ve seen similar, sweeping changes within the ranks of our friendly local competitors.”
He and the MIG team look forward to developing relationships with new ownership or management at those peer organizations that have weathered the economic storms with stability. They’ll also deepen existing relationships and forge new ones in the community. Plans include a new restaurant concept at University Crossing (Hutter is co-developer and co-owner of Bonfyre American Grille), and the development of a new Class A, 90,000-square-foot office building on MIG’s Central Beltline Campus.
“Our team has become incredibly efficient and has learned through hardship to work together incredibly well,” says Hutter. “[Recent transactions put] our Arbor Gate office space at over ninety-five percent leased and … by year end we’re projecting one hundred percent. For a project of that size, in this market, during these economic times, that’s miraculous.”
The company’s Central Beltline Campus also has full or near capacity buildings at M3 Insurance, Core-BTS, and Suby/The Landmark Building. “MIG is stronger and more focused than ever in 2013, and without the economic and personal distractions of the past few years, we’re poised for some exciting successes during our next run,” says Hutter.
Raywood Development launched less than two years ago to design and build new-urban, infill projects that add new, sustainable homes to existing communities. Dale and Robin Ganser, a father-son team, joined together to accomplish their mission of providing high-quality, energy-efficient homes for families seeking walkable neighborhoods.
“This translates to an aesthetic that will look as good in fifty years as it does today and a structure that will perform as well,” says Dale. “Energy-efficiency, durable materials and flexible space planning make our homes more sustainable and more livable.”
Robin Ganser, formerly with land planning and landscape design firm Land Design Studio, in Austin, Texas, handles site planning and architectural design. Dale, founder and CEO of Openwood Studios, a leading producer of graphics and sign programs for the hospitality industry, takes care of construction management, interior design, and sales.
The Gansers are following a nationwide trend toward high-quality but less sprawling homes—theirs average 2,500 square feet—in vibrant neighborhoods. More Americans want to walk or bike to school, work, and entertainment venues. They want livable homes with smaller carbon footprints that don’t break the bank.
Raywood is currently developing an urban “pocket community” in the heart of Monona, with two homes for sale and the remaining four in the planning and development stages. The six homes co-exist on a former farmstead, with small, individual yards and common green space.
The homes’ exteriors evoke the classic Craftsman architecture familiar to Midwesterners, with pillared porches and high-set windows on some walls that lend privacy while letting in natural light. The interiors are upscale contemporary spaces with open floor plans, plentiful woodwork, and sustainable features such as bamboo flooring and Energy Star appliances and fixtures.
Residents will easily walk to Monona parks, fitness clubs, grocery stores, coffee shops, and restaurants. Aldo Leopold Nature Center is just across the street.
Eric Schwartz, president and founder of Sara Investments Real Estate—which offers commercial brokerage, property management, acquisition and development, and investment services focused on properties up to ten million dollars—is starting to empower his staff to better operate the business from day to day. He’s fostered more creative thinking, which is yielding better outcomes for tenants and for the company.
“I’m giving people more latitude for decision making,” he explains. “I’m looking at a transition for myself as I push decision-making down. Typically entrepreneurs have flat organizational charts, and I’m trying make ours more structured.”
His employees are happier. “The energy in the building is incredible,” says Schwartz. “Before, every decision went through me, so if things were moving people had to stop and wait. We have better energy and better volumes. It’s been very illuminating for my wife [the company’s namesake] and me.”
For instance, during his vacation, senior staff called to say they’d canceled the acquisition of a significant asset. “We’d worked on the project for over eight months, but they’d found a laundry list of concerns. Instead they wanted to do another project. I wasn’t that wild about it initially, but it’s turned out to be phenomenal. It’s so compelling. And I’ve watched the one we didn’t do unfold.”
If you empower people, you get happier employees, better decisions, and more efficiency, Schwartz says. “At this point, they’re closer to their projects and they have their business plans of what they want to accomplish. This is how entrepreneurs operate generally.”
His advice to other businesspeople: “Don’t lose sight of the basics—honest, ethical behavior—or of the customer. It all comes down to us taking care of our tenants. That’s the core of who we are,” he says. “Just take care of your customers and, long-term, it will pay off.”
Spancrete® provides precast products, services, and machines, and its mission is to build innovation. It’s even trademarked the phrase Building Innovation™.
Clinton Krell, sales, cites the company’s diverse employee pool as one of its greatest strengths and as a source of innovation. “Since the beginning of 2012, we’ve put together a few key teams that are implementing improvements to keep Spancrete on the forefront of efficient building construction,” he says.
“For example, we’ve been developing pervious concrete storm-water management products that allow water to pass through, reducing the demand on urban drainage infrastructure,” Krell says. “We’ve also developed a total precast solution for single and multi-family residential housing in severe weather areas to withstand the forces of nature.”
Its worldwide network of Spancrete manufacturers has helped provide a global perspective. “It’s multiplied our resources tenfold—resulting in dramatic improvements to all those involved,” says Krell.
“Having so much individual employee interaction has been an encouraging force, creating positive corporate cultural change,” he adds. “We all have a voice and an opportunity to uniquely contribute to the success of Spancrete. The result is that, together, we have a more focused and driven team.”
Overall, the collaborative effort that goes into upgrading Spancrete’s design and production processes has improved solutions for precast buildings tremendously, Krell observes. “Our focus on innovation not only benefits our clients, it benefits our internal clients and the building industry as well.”
New Business Lending Services
Not only is Starion Financial opening a new Sun Prairie office to serve eastern Dane County, it’s expanding its business services. “We offer commercial leasing or loans to purchase owner-occupied space, and we’re expanding to help finance business operations as well,” says Bill McDonough, market president. “It’s just another service we can provide to add value for our business clients.”
Starion’s role has always been to help clients understand what’s available in the marketplace, how to fund an expansion, and the best way to acquire or build the space they need. “We understand market conditions and what financing is available, including conventional options and government programs,” explains McDonough. “Now we can continue to assist with financing when businesses are up and running.”
The outlook for acquiring space is positive. An annual real estate survey McDonough recently reviewed shows that of the more than 8,900 acres of business parks in Dane county, about 2,582 acres, or twenty-nine percent, are available for development. About 211 acres were developed in 2011, leaving an abundance of inventory.
“Especially with interest rates at historical lows, business owners can get great deals,” says McDonough. “And from our standpoint there are great funding opportunities available for real estate acquisition. On a number of projects, we’ve worked directly with business owners to acquire property, sometimes partnering with the Small Business Administration or local development companies for loans.”
Still, vacancy rates for commercial and office space are considerably lower than three years ago. “Previously business owners could dictate their own terms for leased space. Landlords no longer need to make as many concessions,” McDonough says.
Commercial building activity is beginning to increase as a result. “People still have space needs and particularly in Dane County, business is picking up and confidence is growing,” says McDonough. “There’s a lot more building activity than in 2010 or 2011.”
That’s one reason he and his team are so excited about their new Sun Prairie office. “It will really enable us to be active on all fronts in the eastside marketplace.”
A New Market Foothold
Tim O’Brien Homes capitalized on a successful business model to open its Madison division ahead of schedule, in January 2012, with Don Esposito as division president. The company has carved out a niche serving move-up buyers by focusing on affordable green features with stylish details. “Our approach enabled us to thrive through the recession and gain a market foothold in Dane County,” Esposito says.
In its first year, the division built twenty-two homes and closed on fourteen. “We plan to exceed that significantly this year,” says Esposito. “I’m really proud of the customer-centric, experienced team we’ve built, recently bringing on additional people in anticipation of growth.”
Customizing is key. “Our focus is to provide an extraordinary building experience and build homes that far exceed building-code requirements for energy efficiency,” Esposito continues. “We add must-have details in our homes that we know the buyers here expect in a new home—nine-foot ceilings, solid-core doors, dimensional roof shingles—and offer the flexibility to meet individual customers’ needs rather than just using prepared floor plans and prepackaged options.”
The Madison division is building its first Parade home this year in Waunakee. “We’ll highlight the green elements and energy efficiency built into every home—and also include added features like solar panels for increased energy savings,” Esposito says.
Always looking to add convenience, Tim O’Brien Homes has started offering a transferable, ten-year limited warranty. “It’s an investment to give buyers peace of mind, while adding to a home’s resale value,” says Esposito. “We stand behind our products and our insurance company backs us up.”
David Simon, president of operations at Veridian Homes, is finding that consumers are feeling positive again and confident about the housing market and the Dane County economy in general. “Whether accurately or not, they’ve felt uncertain for years,” he says. “We want to communicate the excitement that the storm has passed, and we want to help them achieve their dreams and enrich their lives.”
The company is positioning its homes to communicate those changes. “It’s the value we bring in terms of personalization and customization,” says Simon. “The market has gone from, ‘I want green,’ to choosing among fourteen shades of green. Consumers want things their way and they should.”
Veridian helps consumers make good decisions and be creative. “We have more building opportunities and we’re looking at how to capitalize on them and meet consumer needs as they emerge,” Simon says.
“We make sure we’re in line with consumer wants,” he continues. “They have different lifestyles than ten years ago and want much more flexible, open floor plans.
Veridian homes offer “flex room” that can have a variety of uses as families evolve. “It’s really a great-room space including the kitchen, dining room and entertainment area,” says Simon. “There’s flexibility as families increase and decrease in size. The dining room could be for formal dining, a kids’ media room or the parents’ office, for instance.”
Consumers also want energy efficiency. “We were an early adopter of the green trend—our homes have been certified since 2010—and now it’s common,” says Simon. “If people want high-performing homes, they should look not just at the cost to get in, but at the experience over the life of the home. People may not consider energy savings when looking at a fifteen-year-old home versus a new one. We take the time to educate consumers on the equation of continuing value. There’s the energy savings in just year one … and also the obsolescence factor—items will need replacing faster in an older home.”
When it comes to commercial real estate, University Research Park’s specialty is science and technology space, such as wet labs. “Many, if not all of our companies come out of the university, and the level of activity has slowed somewhat over the last few years,” says Mark Bugher, director.
“People still have good ideas, but the willingness of faculty to take a risk and start a company has slowed with the economy,” he says. “There’s a limitation on the amount of funding companies can receive based on the type of technology they’re deploying, which plays into the kind of space they need and their ability to make commitments.”
Although the economy has improved, there’s still a lot of apprehension in the market. “Medical device companies are concerned about Affordable Care Act issues, and taxation, and there’s a whole array of issues for all technology companies,” says Bugher. “What happens with taxes affects hiring and decision making. When signs about the national economy become clearer, people will become more comfortable about starting businesses or expanding.”
The competition for tenants is fiercer overall than a few years ago, too, because other developers and building owners have vacant space. “They’re much more aggressive in quoting rents, which benefits tenants but adversely impacts those leasing,” Bugher says. “But there isn’t a lot of competition in this type of space. Some people build office buildings and want to convert space to wet labs, but our buildings are built as wet labs. They can handle the infrastructure companies involved in lab and bench work need rather than modifying for a tenant.”
The park is quite full, with occupancy just under ninety-four million square feet or about ninety-one percent. And the organization recently received final approval for its new park, which it anticipates bringing online in early 2014.
“It will provide sixty-six additional sites for early-stage and growing companies in the greater Madison area,” says Bugher. “The UW and the Research Park have made a significant commitment to the long-term growth of Dane County and are committed to helping the local economy. We’d like to see more computer science, software development, and medical device companies at the new park. And biotech companies will always be strong in this market, in my view.”