Commercial Real Estate

New developments in the Madison market

Most market analysts agree the outlook for commercial real estate in 2014 is good — and getting better. As the national economy slowly improves, and as consumer confidence grows and businesses expand, they say, demand for many types of real estate is increasing.

Commercial lenders and property developers in the Madison area attest to real estate’s positive momentum. “Commercial real estate is rebounding, with occupancies up across the market,” says Randy Guenther, president and chief financial officer at T. Wall Properties L.L.C. “Growth is expected to continue at a modest but steady level as businesses recover from the recession.”

Development Downtown

Stephen C. Machotka, market president of Wisconsin Bank & Trust, says multi-family residential apartments have been the big story in development for the past few years. He predicts this type of development will stay strong in the coming months. “Based on the current pipeline of approved projects,” he said, late last year, “this trend is likely to continue into 2014.”

Bill McDonough, market president for Starion Financial, concurs, citing continued strong demand for and supply of new, high-end residential apartments in downtown Madison.

“When you look at the big picture, you realize that three years ago there was hardly a crane to be seen downtown, except for a few university and medical projects,” he says. “Now you see cranes on the horizon engaged in a variety of private projects. The private sector has really come back with downtown apartments and other commercial construction.”

Machotka attributes this mini-boom to historically low vacancy rates, increasing rents, aggressive lending, and some of the lowest interest rates on record. McDonough agrees. “Madison is as strong as any of the markets in the Midwest,” he says. “If you look at what’s driving that activity, one factor certainly is that the banks in the Madison area are healthy and, generally speaking, in a position to lend. I’d say there’s far more funding available for construction now than there was just a few years ago.”

At the Office

According to Guenther, both occupancy and demand are also increasing for office properties, particularly properties that are twenty-thousand square feet or larger. He explains: “Build-to-suit office buildings have been on the rise over the last several years, while interest rates and construction costs have remained affordable. Also, customers are interested in securing longer-term leases as they build more stable business plans.”

Making the Move

So who is investing in these new commercial spaces?

A majority of the clients of Wisconsin Bank & Trust are businesses that require lines of credit. They may need to finance equipment purchases or expansions related to improving an existing space or purchasing a new building.

“There do appear to be some interesting trends within the market, some of which have to do with demographics and some with technology,” Machotka says. “It is much easier to start your own business today with the technology that is available and at a much lower cost. Many professionals have decided to leave their employers and start up their own businesses. We are also starting to see the Baby Boomer generation retire and either sell or transition their businesses to the next generation of key employees. Wisconsin Bank & Trust can often help with these transactions, especially when they are enhanced with SBA, USDA, FSA and other government-guaranteed programs to help small businesses.”

Guenther notes that T. Wall Properties L.L.C. is a equipped to serve clients of every size, from the single-person startup and established local businesses, to national companies with headquarters and branch offices in Madison, and even Fortune 500 companies. “The organic growth here in Madison is energized by the well-educated workforce coming out of the university, along with successful local entrepreneurs,” Guenther says. “Some of the areas where we are seeing the greatest growth include the biotech sector and service industries.”

Taking the First Steps

McDonough says that his company, Starion Financial, works with many small business owners who are either starting a company or considering expansion. He explains the three-step process Starion Financial typically uses as a guide for these companies:

• Determine the needs of the business. Completing a full assessment will help clients imagine an ideal working environment -— space requirements, special equipment needs, location, visibility, accessibility, infrastructure. 

• Evaluate whether the company needs to lease or buy a space. Are there suitable properties available? Or does the business require a custom solution?

• Assess whether to commit funds to purchasing a building, or to leasing
a space in order to conserve capital.
This decision depends on the size of the business owner’s initial investment and need for liquidity.

Once a business owner recognizes that he or she needs to buy or build a commercial space, Starion Financial will structure a loan that makes sense for the client. “There are a number of resources we bring to the table — we have a lot of experience leveraging funding from the Small Business Association, local economic development corporations, and state agencies.”

McDonough says Starion Financial recommends partnering with experienced lenders who are familiar with putting together business plans and utilizing all the programs that are available. “That expertise can help business owners be successful,” he explains.

At T. Wall Properties L.L.C., client needs are served by a team of in-house professionals who work with customers from the start of the search for office space all the way through to daily maintenance requests when the customers become tenants. 

Guenther says that as a first step his company’s brokerage professionals meet with the customer to understand his or her business needs and translate that into a choice of office spaces. An in-house design and construction team then creates the right office space plans, while the legal and accounting staffs draw up the lease. Property management professionals coordinate the customer’s move-in and take care of any subsequent requests. Collectively, T. Wall Properties L.L.C. owns more than 2.6 million square feet of office space in forty-plus facilities throughout the Madison area. This provides the company with flexibility when it comes to accommodating customers’ changing needs. 

Guenther says he believes the commitment of his staff affords customers, “an easy and seamless experience, during a process that can otherwise be chaotic and time consuming.”

Elements of Design

Salaried employees regularly spend forty hours a week or more in an office environment. Yet offices today are increasingly different from the generic, sterile offices of the past. Today’s modern workspaces are designed to be efficient and functional, yes. But making them enjoyable environments for employees, as well, is a consideration that is growing in importance.

In general, the cultural shift affecting office design has been from providing the top executives the traditional corner office to creating open concepts that promote team environments. Natural light is also increasingly important in office design. With an increased focus on work/life balance, companies are interested in amenities such as workout rooms, fitness classes, full-service food cafeterias, multiple meeting and conference rooms, and locations close to shopping and restaurants. Employers are also interested in being environmentally responsible and in working with companies that use green building concepts.

Guenther says his company incorporates many such principles in their properties, which is one reason, he says, “we believe our customers will find a place where they will be comfortable and content for the long-term.”

Choosing Madison

A regular fixture on “best of” lists across a wide variety of criteria, Madison has consistently been ranked in Forbes Magazine’s Top 100 cities for businesses and careers. Even in challenging economic times, the city is a good place for companies to launch, to expand, and to put down roots.

Machotka sums up Madison’s appeal for commercial investment: “Businesses are seeking growth opportunities, educated employees, readily available capital, and a pool of investors to fund their growth and ideas,” he says. “They are also looking for quality health care, educational opportunities, low unemployment, low crime, and access to numerous recreational areas including…area lakes. All of these are available in Madison.”

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