Shovel-ready?

3/14/2011 - Multi-family rentals, infill development and coastal cities are the bright spots in the real estate industry. But suburban markets, the middle of the country, and the office, industrial and retail sectors continue to lag.

That was the assessment of a panel of alumni experts March 2 at a discussion themed “Shovel Ready? The Future of Real Estate Development.” The event was moderated by Doug Kiersey ’02, senior vice president of Denver-based ProLogis.

Here’s what the professionals had to say about a few of the sectors in question:

Multi-family rentals: “The fundamentals are definitely improving” in the multi-family housing sector, said John Montaquila ’95, principal with M3 Capital Partners, a real estate private equity investment and advisory firm. “Companies are projecting strong growth and rent increases in the coming years.”

The second half of 2010 saw rent concessions in this market disappear as vacancy rates tumbled below 5 percent, noted Kent Swanson ’86, principal at The John Buck Company. Meanwhile, construction costs have dropped, because those in the building trades need the work. But “shovels are just going into the ground,” Swanson said, so there won’t be any new buildings for about two years.

“It’s a product type we’re interested in getting into,” said Rick Baer ’88, senior vice president at Bank of America. “There are a lot of banks that have an appetite to come back and lend,” he said, although they’re choosier than they were a half-decade ago. “If a deal has an element of weakness, there’s not much interest.”

Office: Swanson said that rents probably won’t be heading upward any time soon in the office sector, outside of a few markets like Washington and New York. Chicago’s Loop has probably hit its peak of 16 percent to 17 percent vacancy, but beyond build-to-suit opportunities, there probably won’t be much new construction for five years — and rents won’t rise until vacancy gets closer to 13 percent, he said.

Industrial: The industrial sector might come back more quickly, since those projects don’t take as long to build as office or retail. As a result, oversupply doesn’t mushroom, said Anthony Pricco ’02, principal at Bridge Development Partners. “Overall, vacancy rates are coming down, but they’re still high,” Pricco said. “From a macro level, we’re starting to see some good things happening.”

Retail: Pricco does not believe retail real estate will ever rebound to previous levels, given the growth of online shopping. “It will probably be the last sector to come back,” he said.