CoStar Feature Spotlights Trends, New Projects and Construction Entering (Or Leaving) the Commercial Real Estate Development Pipeline
In The Pipeline is a column by Senior News Editor Randyl Drummer on significant land sales, transactions and trends affecting office, industrial, flex, multifamily, mixed-use, hotel and public works developers. Send us news leads about your new project -- or sign up to be added to our distribution list to receive future In the Pipeline columns for free by e-mail. Read the Nov. 18 column.
New Commerce Dept. Report Shows Development Declines
On Monday, the same day the government officially declared a recession, the Census Department reported that private nonresidential construction fell 0.7% in October from the previous month. It's the third decline in four months, leaving activity at a seasonally adjusted annual rate of $417.7 billion.
Hit by the continuing spiral in private residential construction, which plunged another 3.5% in October, overall construction spending fell 1.2% from September to October to a seasonally adjusted annual rate of $1.07 trillion.
While nowhere near as steep a drop-off as seen in housing, nonresidential activity has begun to weaken because the credit squeeze is making it tougher for developers to get financing.
But despite the weakening, private nonresidential construction spending is still up more than 9% over the same time last year. Public spending actually climbed 0.7% in October and 7.4% over last year. Several major nonresidential categories rose in October, according to numbers crunched by Associated General Contractors Chief Economist Ken Simonson: office construction 1.6% (8.9% compared with a year before); commercial retail, warehouse and farm, 1.3% ( -11% from October 2007); education, 1.1% (9.5%); manufacturing, 1.0% (54%); and lodging, 0.6% (18%). Health care construction was unchanged for the month (up 3.9% from a year earlier). Declining categories included highway and street construction, -0.8% (up 5.8% from October 2007) and power, -6.0% (22%).
Meanwhile, a forward-looking index of U.S. nonresidential construction activity 9-12 months in the future fell to the lowest level in its 13-year history in October, an architects' trade group said late last month. The Architecture Billings Index fell more than 5 points to 36.2 in October, the American Institute of Architects said. A reading below 50 indicates a decline in billings.
A separate measure of inquiries for new projects fell to 39.9, from 51 in September, also reaching a record low.
"Until recently, the institutional sector had been somewhat insulated from the deteriorating conditions affecting the commercial and residential markets," said AIA Chief Economist Kermit Baker. "Now we are seeing that governments and nonprofit agencies are having difficulties getting bonds approved to finance large scale education and healthcare facilities, furthering the weak conditions across the construction industry."
The AIA's survey began in 1995. It is considered a leading indicator of construction activity about nine to 12 months in the future.
Economists say they believe the construction industry will face continuing problems until a recovery in the larger economy is well under way. But most don't expect to see recovery until the second half of 2009, and some analysts believe the country has slipped into the worst recession since 1981-82 -- worsened by the most serious financial crisis to hit the nation since the Great Depression.
Construction economists believe that the next Congress will include infrastructure spending in a fiscal stimulus package, perhaps by the time President-elect Barack Obama is inaugurated Jan. 20. Obama announced in his Nov. 21 weekly address that he had directed his economic team to draw up a two-year ‘Economic Recovery Plan’ that would create 2.5 million jobs shoring up crumbling infrastructure, modernizing schools and building wind farms, solar panels and fuel-efficient cars.
"Construction measures are typically viewed as lagging indicators since the negotiating, planning and deal-making are often completed many months before actual construction begins," said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. "October 2008 shows the numbers for the first full month since the financial crisis brought the global financial system to a near-halt in mid-September, but the construction value put-in-place numbers hardly reflect the full impact of the events of September and October."
For the rest of 2008 and into 2009, "the data regarding private nonresidential construction activity will continue to deteriorate as fewer deals are brokered and as construction starts remain subdued," Basu said, but the market isn't without some bright spots.
"Even as the data deteriorate, the seeds of a construction recovery are being sown in the form of falling construction materials prices and interest rates," Basu said. "Given these factors as well as ongoing efforts to stimulate the economy, it may be that a weak 2009 will be followed by periods of considerably more robust construction activity."
New MOB Planned For Pontiac, MI
The Midwest Division of Ryan Companies US, Inc., announced plans to develop Oakland Crossing Medical Center, a 100,000-square-foot Class-A medical office building adjacent to Great Lakes Crossing Shopping Mall near Pontiac, MI.
Oakland Crossing Medical Center will be developed on an 18-acre site on Great Lakes Crossing Drive, about a half mile west of the intersection of Joslyn Road and Interstate 75.
"This development offers great visibility and will be a unique expansion opportunity for healthcare systems and specialized medical groups to service one of the strongest markets in the Detroit-metropolitan area," said Jim McDonald, director of development, Ryan Companies US, Inc.
Construction on Oakland Crossing is expected to begin in spring 2009 with occupancy slated for summer 2010. The four-story building, which will offer floor plates of about 25,000 square feet, is currently going through programming and design.
Ryan is considering a number of different architectural design solutions to adapt to the challenging topography of the site along the I-75 corridor in northern Oakland County about 25 miles northwest of downtown Detroit. The market is one of the hottest for medical office and related developments because it is a fairly affluent community and the demand for medical office space far exceeds the existing supply, according to Ryan.
Urban Housing Group Begins Construction in Monrovia, CA
Architecture and planning firm KTGY Group, Inc. announced that after months of collaboration, developer Urban Housing Group has begun construction on a mixed-use commercial/residential urban community in the Old Town district of Monrovia, CA.
The Courtyards at Old Town re-uses a three-acre former office industrial property for development of 163 luxury apartments and 6,000 square feet of commercial office and retail space. Urban Housing Group purchased the property from Barratt-American earlier this year. Completion is expected by mid-2010.
The Courtyards, located in the San Gabriel Valley about five miles east of Pasadena, will consist of four stories of residential built over 2,000 square feet of retail and 4,000 square feet of commercial/flex space along the 700 block of Myrtle Avenue, which is located on the southern edge of Old Town. A four-story parking garage with more than 400 parking spaces will occupy the southeast corner of the site.
With an equal number of one and two-bedroom apartments, the units range in size from 746 square feet to 1,249 square feet. The Courtyards at Old Town will feature stooped entries at the street level, themed urban courtyards and a public plaza at the corner of Myrtle and Olive with opportunities for public artwork and outdoor seating.
Old Town comprises a six-block stretch of Myrtle Avenue about one mile north of the 210 Freeway. The area has been the center of town since the 19th century and features a variety of shops and services including a 12-screen movie theatre, a few nightclubs, restaurants, coffee houses, a bakery, bookstores, music stores, an appliance store, and dry cleaners. Last year, the redevelopment agency completed a $3 million upgrade of Old Town sidewalks, landscaping and street furniture. Next year, the community will have a new 28,000-square-foot community center and library. The project is about a mile from a proposed Metropolitan Transportation Authority (MTA) light-rail station site.
Two Land Sales Totaling 45 Acres Completed in I-88 Corridor
Burgess Enterprises LP has purchased two parcels totaling about 45 acres along the south side of Ferry Road just west of Route 59, near Naperville, IL. The firm will build a master-planned spec office and industrial development at the site.
Charles V. Canale, senior vice president, and Brian W. Kling, vice president, both with Colliers Bennett & Kahnweiler Inc.’s (Colliers B&K) Industrial Services Group, represented Burgess.
The assemblage consists of a 38-acre parcel located in Naperville, sold by Hartz Construction, and an adjacent 7-acre parcel in Warrenville, sold by Paul Swanson and Associates. Hartz Construction was self-represented, while Paul Swanson and Associates was represented by Joseph J. Dvorak, SIOR, executive vice president with Colliers B&K.
The purchase represents the third development for Burgess Enterprises in the area. Prior developments include the Aurora Corporate Center at Farnsworth and Bilter Road in Aurora, IL, and a two-building condominium development in Prairie Point of Naperville. The company plans to break ground in spring 2009 on a master-planned park called High Point of Naperville, a LEED-certified park consisting mostly of new speculative office, warehouse, and condominium development.
Burgess Enterprises has just passed the 100-unit mark for condos built in the I-88 corridor. Its campus style developments feature multiple flex and build-to-suit buildings.
"High Point represents our continued belief in the strength of the corridor," said Tom Burgess, president of Burgess Enterprises LP.
EconDev Project Funding Approved For Southwest VA
The Virginia Coalfield Economic Development Authority has approved nearly $4 million in loans and grants for regional economic development projects. The projects include a new energy research center in Wise County, a planned mixed-use business and technology park development in Tazewell County and an existing industry expansion in Lee County.
The VCEDA approved a loan and grant totaling up to $2 million for the Wise County Industrial Development Authority for the development of the Appalachia America Energy Research Center in Wise County, an R&D facility with an emphasis on energy-affiliated initiatives. The center has its first tenant in a planned new multi-tenant facility to be constructed in the Lonesome Pine Regional Business and Technology Park in Wise, said Jonathan Belcher, VCEDA executive director. The Virginia Tobacco Commission awarded the Wise County IDA $5 million grant funding for the project. The new center’s mission is to provide research space and an atmosphere for collaboration between the public and private sector, specifically in the arena of clean coal technology, coal-to-liquid fuels, and environmental remediation measures in energy generation and alternative fuels.
The board also approved up to a $1.5 million grant to the IDA of Tazewell County toward site development for the first phase of the 680-acre mixed-use Bluestone Regional Business and Technology Park near Bluefield, VA. The project will include sites for new businesses and industry, a work force training center, offices, a hotel and conference center, retail stores, residential units, a nine-hole golf course and walking trails. The board also approved up to a $200,000 loan to the IDA of Lee County to be used for development costs for the expansion and completion of a new building under construction at Constitutional Oaks Business Park.
Pfizer Manufacturing Plant For Sale
By Jennifer Herbert
CB Richard Ellis is selling a 935-acre multipurpose manufacturing plant site at 100 Pfizer Drive in Terre Haute, IN. The site features 23 manufacturing and warehouse facilities totaling approximately 560,000 square feet. About 779 acres of vacant land is suited for industrial development.
Developed by Pfizer Inc., the property has been operated to current Good Manufacturing Process (cGMP) standards, and the facilities can be purchased together or separately. The plant site has undergone $300 million in upgrades since 1999 and is within a day's drive of 75% of the United States' population.
Over the past ten years, more than half of the property’s state-of-the-art facilities have been constructed to cGMP manufacturing standards. Pfizer has operated the facility for more than 50 years, distributing products on a global scale.
The property is south of I-70 and features direct access to U.S. Highway 41 and State Highways 150 and 63, near Terre Haute International Airport.
Jeff Luebker, Terry Busch, Nick Arterburn and Zane Brown with CB Richard Ellis Indianapolis are marketing the property.
In The Pipeline is a column by Senior News Editor Randyl Drummer on significant land sales, transactions and trends affecting office, industrial, flex, multifamily, mixed-use, hotel and public works developers. Send us news leads about your new project -- or sign up to be added to our distribution list to receive future In the Pipeline columns for free by e-mail. Read the Nov. 18 column.
More New Developments and Land Transactions
Boos Development Group sold 3.53 acres at 500 Route 73 N. in Marlton, NJ, to an Ohio investor for $5.88 million, or about $1.66 million per acre. The land parcel was under a triple net lease to two tenants that own an 11,536-square-foot restaurant building on the site. Constructed in 2007, the building houses Bonefish Grill and Outback Steak house. Les Aron, Ken Carriero, David Goldstein and Matthew Reichenthal from Marcus & Millichap represented both sides of the deal. (By Michael Poole)
Chen’s Property Management LLC purchased 6.9 acres of industrial commercial land at 1801 Decker in Houston. Rob Stillwell of Grubb & Ellis’ Houston office represented seller in the transaction. Julie Yen of Sky Enterprises Realty represented the buyer in the transaction. (rd)
Monsanto signed a five-year, 116,000-square-foot built-to-suit office deal to take Duke Realty's remaining 8.5-acre parcel at Lakeside Crossing Business Park in Maryland Heights, MO. The agricultural biotechnology company currently occupies 127,778 square feet at Lakeside Crossing Office One and will fully occupy the sister location. Duke has invested more than $55 million and developed 916,551 square feet in its new, Class A office, service center and warehouse project in Lakeside Crossing Business Park, attracting several notable tenants, including State Farm Mutual Automobile Insurance, Johnson Controls, Shaughnessy, KPLR-Channel II, TALX and Parents as Teachers. The 14-building, 100-acre development is now fully leased.
This final building is scheduled for completion and occupation by December of next year. Whitaker Varley, Duke’s vice president of leasing, represented Duke in Monsanto's new lease deal. (By Dina Thomas)
Transwestern has announced that Goya Foods has taken occupancy at its new Midwest Distribution Center at 1401 Remington Boulevard in Bolingbrook, IL. The building, developed by Northern Builders, is 150,000 SF and sits on a 15 acre site. Senior Vice President of Transwestern, Robert Klinger, led the project management team, which was able to complete the building in six months, allowing for occupancy on Nov. 14. (By Erik Smith)
Triad Development sold a 16,799-square-foot parcel in downtown Settle to Kauri Investments Ltd. for approximately $5.7 million, or $335 per square foot. The land, which is currently used as a parking lot, consists of three lots on the corner of Broad St. and 5th Ave. North. The buyer had planned to construct an extended-stay hotel on the property, but CoStar could not confirm those plans. (By Travis Winn)
United States Postal Service sold the 0.82-acre lot at 5216 Liberty Ave. in Pittsburgh to local law firm Yurick Law Offices for $3 million. Plans for the property were undisclosed. Located at the corner of Liberty Avenue and Baum Boulevard, the partially paved 0.82-acre parcel is used for parking. Ralph Egerman and Pat Sentner of NAI Pittsburgh Commercial represented the Postal Service. (By Jonathan Gross)
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