Commercial Real Estate • November 10, 2020

TRENDS IN COMMERCIAL REAL ESTATE SINCE THE PANDEMIC

by Dan Stiebel

The National Association of Realtors (NAR) just published a study showing how the apartment, office, retail, and industrial markets have been affected since the pandemic began. The report focuses on larger commercial properties (over $2,500,000 of value) in metropolitan areas. Although northern Michigan is faring better than larger urban markets, many of the overall trends shown in this study are reflective of our market as well.

Commercial sales in August were down compared to the previous year. The market averaged a 68% decline in transaction volume. Retail and office sales were down even more than that, while apartment and industrial sales fared slightly better. Although our local market is not down by as much, we did see a large dip in sales, and demand for office and retail dropped significantly more than industrial and apartments.

The NAR report also showed the spread between the 10-year treasury and cap rates increased recently. Investors are demanding a higher real return to account for the uncertainty and additional risk currently in the market. This “risk-premium” shows that hotels are deemed to have the most risk and are selling for cap rates that are 8% above the 10-year treasury rate. Retail and office were next with a 5.9% & 5.8% premium. Then industrial space with a 5.5% risk-premium and apartments came in the lowest at 4.7%. I am often asked what an appropriate cap rate should be on a property, and this is a great guideline for determining the risk with a particular property compared to the return on a low-risk asset such as a treasury bond. Interesting to note, the last time these spreads were as high was during the great recession (except hotels are perceived as even higher risk now).

Cap Rates

Source: Real Capital Analytics. Data on commercial real estate transactions of properties or portfolios of $2.5 million or greater cited in this report are sourced from Real Capital Analytics.

Although transaction volume was down significantly, prices were not. The report showed that while prices had dropped for apartments and industrial, they increased for office & retail. The office & retail spaces that sold were most likely prime locations, which is why the average prices were higher. In all cases, the prices had not increased or decreased by more than 10% showing relative stability in pricing.

Vacancy rates have also increased since the beginning of the year. The office market had the largest increase in vacancy, followed by industrial and retail. Asking rents did not decline in any of the categories as landlords look to maintain stable rental rates. This indicates that landlords expect occupancy to increase sooner rather than later. The NAR study predicts that there will be elevated vacancy rates in the office market until the first quarter of 2022.

For more detail on the specific asset classes, you can read the full report. There is also an interesting section that discusses the need for adaptive reuse of existing retail space. This is based on the fact that e-commerce is likely to permanently change the needed mix of retail and industrial space. Click HERE to read the full study.
Dan Stiebel, CCIM

Commercial Real Estate • October 9, 2020

JUDGING A PROPERTY BY ITS “TITLE”

by Dan Stiebel

Reading through the title work on a commercial real estate transaction can be a daunting and unpleasant task. Many buyers, and sometimes even their real estate agents, do not look carefully enough at these documents. Without scrutiny, the purchaser may subject themselves to buying a property that does not meet their needs. It is important to carefully review a property’s title work and examine all exceptions and requirements necessary to obtain a clear title. This will ensure that the property does not have impediments that may hinder the buyer’s intended use.

Exceptions

The list of exceptions contains many standard clauses such as liens, easements, and claims that are not shown in the public records. Exceptions to the title policy also include clauses for utility easements and road right of ways. Towards the bottom of the list are the exceptions that pertain to recorded documents with references to the liber and page number of the document. These should be carefully analyzed as they often include additional deed restrictions and easement.

To highlight the need for scrutiny, I will share some examples of issues I have come across. Last year I sold a building that had been used as a financial institution. The institution stated that they would put a 10-year deed restriction on the property preventing anyone from performing financial operations on the site. When the title work was ordered, we discovered there was a restriction on the previous deed from the 1970s that prevented the site from ever being used as a restaurant or gas station. Thankfully, the buyer was ok with these restrictions and purchased the property anyway. I also sold a development property that had an old deed restriction against any alcohol sales on the property. When this restriction was placed over 40 years ago the sellers lived next door and did not want a bar adjacent to their house. By the time I sold the property, it was the last residential house in the neighborhood and was surrounded by commercial properties, including bars & restaurants. The buyer was developing the site for a hotel and having a restaurant with alcohol sales was an important part of their use. Because we could not find the heirs of the original sellers that conveyed the deed with the restriction, we could not get it changed. Luckily, we were able to find a title company that agreed to insure over the restriction, but only because they had accidentally insured over the neighboring property that had the same restriction. If we had not been able to do that, we would have had to file a “quiet title” lawsuit which would have involved contacting the owner of every property in the originally platted subdivision.

Easements are also a red flag to watch out for. I sold a property that had a high-speed fiber internet line running through the middle of the 10-acre parcel. The developer planned to build homes on the whole property but ended up only being able to build on the front half of the property. The reason for this was because the cost of putting a road over the fiber cable, while still providing access for the easement, became too expensive. The seller had to reduce the price because the value of the property was decreased by the inability to affordably build on the back half.

Requirements

The title policy also has a list of requirements that need to be satisfied in order to close on a property. The requirements include items such as having the officers of a corporation show they have the right to sign on behalf of the company, as well as paying off previous financial obligations so that mortgages, assignments of rent, and other liens are released from the property before closing.

I am currently working on a closing where a wall was built on a property line and slightly encroached on the neighbor’s property. The building had been built over 100 years ago and in the 1980s the neighbor conveyed one foot of his property to the subject property owner so that there would not be an encroachment. Unfortunately, when the current owner bought the property in the 1990s the title company forgot to convey this extra one foot of land, leaving its ownership to the owner from the 1980s. Luckily, we were able to find the previous owner and he agreed to sign a quitclaim deed transferring the ownership of the missing one foot to the current owner.

In another example, the owner of a piece of property had purchased the property on a land contract. Before the owner paid off the land contract, the previous owner died. Not knowing better, the children of the deceased changed the deed from their deceased parent’s name to their names. When the land contract was paid off, the new owner received a deed that showed conveyance from the deceased parents he bought the property from. This was not a problem until the owner tried to sell the property over 30 years later. The title company told him that his deed was not from the rightful owner of the property since the property was owned by the children at the time, he received his deed. It took almost a year to locate all of the heirs and work out an agreement where the heirs would sign off on the correct conveyance of the title.

Not surprisingly, adding time to a closing to settle title work disputes can easily terminate a real estate transaction. Likewise, a deed restriction can materially change the value of a property if it restricts the use against a desirable use for that property. I have sold many bank buildings for 20-30% of what it cost to build the building, due to the fact that the building was no longer allowed to be used as a bank. If you are buying a property, make sure you fully understand your title work and ask your real estate agent and attorney to review the documents and answer all your questions. You may save yourself a lot of money and headache in the process.
Dan Stiebel, CCIM

Commercial Real Estate • September 24, 2020

Downtown Traverse City’s Rotary Square

by Dan Stiebel

Earlier this summer the Downtown Development Authority (DDA) announced its plans to purchase the TCF Bank site (formerly known as Chemical Bank/Northwestern Bank) on the corner of Union Street & State Street to become the City’s new civic square. The City has been looking for the perfect location and opportunity for a civic square for over two decades and has found a central location that will serve as a connection between Downtown and Old Town. The $1,750,000 purchase was made possible by a $1,000,000 grant from Rotary Charities, the organization that has been looking for a signature legacy project in Traverse City to commemorate its centennial anniversary. A $2,000,000 grant from the Michigan Economic Development Corporation will help make this vision a reality by providing additional funds needed to relocate TCF Bank and design and build the new “Rotary Square”.

At the beginning of last month, the city cleared a path to develop Parking Lot G on State Street across from Rotary Square by declaring the lot surplus property. This allows the underutilized lot to be developed by a private developer with the DDA’s vision of creating a new home for TCF Bank as well as an opportunity to build housing or a mixed-use building in a prime downtown location.

I recently talked to Jean Derenzy, the CEO of the DDA and her excitement for the project and surrounding area was palpable. She envisions the project drawing new businesses to the area and describes the block of Union Street between Front & State as a key connector street for the Square. While this block has had mixed reviews in the past because of its reputation as a bar street, she feels the square will help bring a better mix of businesses to the street and create opportunities for additional businesses to flourish in the area.

We discussed a vacant space I have listed for sale at 127 Union Street which in the past has been home to Ram’s, Harvest & Union Grill but currently sits vacant waiting for its next chapter. We agreed about the incredible opportunity this space has and how sought after the location may become in 2022 after the new Square is built and pedestrian traffic has more of a reason to come around the corner of Front Street. We talked about ideas for the space other than a restaurant and my favorite was dividing it in two and putting a retailer in the front of the building and a commercial kitchen in the alley, with access similar to what Charles & Reid Pizza (formerly Alley’s Pizza) has done. Jean said that developing Lot G would also strengthen the traffic for an alley based business.

Rotary Square will offer a place for outdoor and social activities. It will provide a place for art, performances, and cultural activity. It will be used year-round with possibilities of a Christmas tree, Santa’s house, and ice skating in the winter to a farmers market, music, and place to eat and hang out in the summer months. It is located very close to the new Fish Pass that will be on the Boardman River across the alley, giving locals and visitors another reason to come to the area.

It’s nice to see improvements coming to the area and more reasons for growth and development in our Downtown. Covid-19 has more people looking at living in smaller communities and I personally believe Traverse City is one of the best places to choose!

Note: The list price for 127 Union Street was dropped $100,000 as of the writing of this article to help spur a quick sale and giving a fantastic opportunity to a new buyer. Click here for details on the property.

Dan Stiebel, CCIM

Commercial Real Estate • March 16, 2020

What is a “Phase I” and Do I Need One?

by Dan Stiebel

When purchasing any commercial property, it is important to know the history of that property and find out if there might be contamination that could affect future plans or occupants of the property. In order to thoroughly evaluate a property and protect a new owner from liability for existing contamination, it is important to conduct what is called a “Phase 1 Environmental Site Assessment (ESA)”.

A Phase 1 ESA is conducted by an Environmental Professional, often an engineer or geologist. The American Society for Testing and Materials (ASTM) developed Standard E1527-13 as the criteria that should be followed for a Phase 1 ESA. The objective of the standard is to make sure a Buyer has conducted All Appropriate Inquiries (AAI) on a property, which must be performed to obtain certain protections from liability under federal laws.

The Phase 1 report does not include any soil testing, but instead, it examines the historical use of a property. It is an information gathering report that is designed to identify potential environmental contamination. It will include:

A history of past uses of the property and surrounding lands.
Interviews with the current owners and past users of the property.
A site visit to identify contaminants used around the site that may affect soils or groundwater.
A historical and visual search of above ground or buried tanks used on the property.
A database search of neighboring properties that may have adversely affected the subject property.

This data will be used to determine if there are any Recognized Environmental Conditions (RECs) on the property. If there are none, the buyer is then protected from liability under the federal CERCLA laws by having this report.

A REC could be a floor drain in a building where solvents and petroleum products are used, which might drain to a septic field and infiltrate the groundwater. It could be an area of dead vegetation outside the back door where chemicals may have been disposed of improperly. Other common RECs include evidence of old gas or oil storage tanks on the property, chemical storage, paint, old transformers, landfills and more. If RECs are identified, then a Phase 2 will most likely be needed.

A Phase 2 is where the Environmental Consultant will do testing of soils, groundwater, vapor gases and/or a host of other tests, to determine if there are pollutants on the property that may cause a future issue. If these reports come back negative, or with small amounts of contamination lower than a certain safety threshold, the buyer is then protected from liability and does not need to complete additional reports.

If there are contaminants on a property, a buyer is not obligated to clean up the site, but they must make sure they do not exacerbate the contamination. To protect themselves from liability, they will need to have their consultant write a Baseline Environmental Assessment (BEA) stating what contamination exists on the property, and a Due Care Plan stating how they will take steps to ensure they do not make the situation worse. Sometimes a developer plans to go down into the soil for footings or a basement of a new building and there will be a great cost to removing contaminated soils. Other times, the developer may just need to put a vapor barrier between the earth and slab and the added cost is minimal compared to the cost of the whole project. For existing buildings, a buyer may just need to show that they do not plan to continue the same use and do not use the same types of chemicals that are on the site, and then there is nothing further they need to do. There are many different situations that can arise, and it is important the buyer fully understands their responsibility and expenditures.

It is also important to note that new Tenants in a building may have some liability if they are using certain products (ie petroleum products, paints, solvents, etc.) that may have been used on the site in the past. It would be advisable for any industrial user, dry cleaner, gas station or similar type of tenant to get a Phase 1 before leasing a building. It is also important to note that a Phase 1 does not cover every type of environmental condition and if an old structure is being removed from a property the buyer should also have an asbestos and lead-based paint survey performed.

A Phase 1 will typically cost between $1,500-$2,500. Most often, we see the buyer pay for the cost of the Phase 1, since it is giving protection to the buyer of the property, however, the cost is fully negotiable in the sales contract. If a Phase 2 is recommended, then we are more likely to see the seller share some of the cost of the Phase 2 and/or BEA & due care plan with the buyer. The cost of a Phase 2 will vary greatly depending on the scope of work that needs to be performed. So, do you need to perform a Phase 1 when buying a property? If liability protection is important to you, yes! If you have a high-risk property such as an industrial building or land in a highly developed urban area, it would be advisable. When buying a low-risk property, such as an office building, apartment complex or vacant land that has never been developed, you might consider a transaction screen ESA which is a limited report and less expensive, however, it will not provide the same federal liability protection.

Dan Stiebel, CCIM

Commercial Real Estate • February 17, 2020

When the Web Search Doesn’t Turn Up the Perfect Property

by Dan Stiebel

Searching for Commercial Real Estate Your real estate broker may know of an off-market opportunity that is just right for you. A “pocket listing” refers to a situation where a broker has a signed listing agreement with a seller but agrees not to publicly advertise the property for sale or enter it in the multiple listing service (MLS). This may be used for celebrities who do not want the public to know about their homes or sellers that want an above market price for their properties but do not want them in the MLS accumulating Days on Market (DOM) and looking stale. It is also sometimes used by agents to avoid sharing commissions although the growth of this practice has led the National Association of Realtors to impose rules against it.

Off Market Properties vs. Pocket Listings

Often agents use the term ‘pocket-listing’ interchangeably with an ‘off-market’ opportunity. An off-market opportunity is a property that a seller would like to sell, but they have not entered into a listing agreement with a broker. The seller may know multiple real estate agents and not want to choose one to represent him, or he may want to gauge interest in the market before committing to selling. In commercial real estate off-market sales often occur because sellers don’t want their tenants to find out and move, or their employees to find out and quit. Buyers often like these properties because there is less competition to buy them and the seller may be willing to give them more time for due diligence or to secure financing.

How do Buyers find out about off-market deals?

Finding off-market properties can be done by contacting property owners, looking through public records of vacated properties, direct mail, and networking with other investors and property owners. Since these are activities agents and brokers do every day, they often have a list of properties they know sellers would like to sell, that are not currently being marketed. The seller often tells the agent that they will pay the agent a commission if the agent brings them a buyer. If another agent brings a buyer to the seller or the buyer talks directly to the seller, the agent will not be compensated. Because of this, agents only tell their most trusted buyers about these opportunities.

Build Trust

If a buyer has a long-standing relationship with an agent, the agent will often call him and tell him about off-market opportunities. However, agents will not call a buyer with a history of working with multiple agents or directly with sellers, even if they know the buyer would be interested in the property. A buyer who enters into a written commitment with an agent to work with him, such as a buyer’s agency agreement, gives the agent the ability to disclose all available properties to the buyer knowing the agent will negotiate a commission with the seller without fear of being cut out of the deal. These agreements can be very specific to a neighborhood, or exclude properties the buyer is already considering, but create confidence that the parties will work together.

Are there many off-market deals?

The Traverse City assessor’s department tracked 515 arms-length property sales in 2019. Only 431 sales were reported in the MLS and of those, 47 sales were created after they sold. That means 131 properties sold, that were never advertised for sale in the MLS. That is 25% of all the sales within the city limits. If we look at commercial properties, the assessor tracked 69 sales, but only 35 sales were reported as sold in Traverse City in the MLS. That is almost 50% of the commercial transactions. Currently, I have no pocket listings but know of a handful of off-market opportunities where the seller would sell to anybody who brings him a buyer. These include downtown buildings, investment properties, and development sites. Last week I closed on an 8-unit apartment building that was not listed for sale and the parties did not want to have it entered in the MLS.

If you are thinking about selling but not ready to list, or thinking about buying, but don’t see the right property listed on the MLS, call a real estate agent actively working the market you are looking for and there is a good chance they will be able to help facilitate a deal.

– Dan Stiebel, CCIM

(231) 633-0432 or dan@realestateTC.com

Commercial Real Estate • January 13, 2020

Traverse City Commercial Real Estate Recap for 2019

by Dan Stiebel

2019 broke the decade long trend of rising prices in commercial real estate in our area. For the first time in 10 years, the average sale price and price per square foot dropped below the sales prices of the previous year. This is easily explained by the huge jump we saw in pricing in 2018, since 2019 was still a solid increase over 2017. In the first part of 2019, we continued to see record-high sales of buildings that were being purchased for medical marijuana use, with the top sales of over $400 per square foot. 13 medical marijuana licenses were awarded in May 2019 and the competition was so great (over 60 applied for licenses) that sales for this use in 2018 & 2019 skewed the averages with record-high prices paid for buildings with compliant zoning. If we excluded these sales for the past two years, we would have seen commercial pricing continue to climb at a more even rate over both years. This is supported by the fact that the residential market was up for the year in both number of sales and average sale price compared to the previous year.

As reported in Northern Great Lakes Realtors MLS (NGLRMLS), there were 67 commercial properties sold in Grand Traverse County in 2019 (an increase from 59 the prior year). The average price decreased 21% from $625,000 to $516,000 and the median price decreased a similar amount (18%) from $400,000 to $339,000. Within the larger 5 county area (Grand Traverse, Leelanau, Antrim, Kalkaska & Benzie Counties), we had total commercial sales of 122 properties, which was down 10% from the prior year, with average and median sale prices decreasing 5% and 10% respectively.

Below is a breakdown of the commercial sales reported in NGLRMLS into the subcategories of industrial, office, retail, multi-family and vacant land. This helps gain a better understanding of the values and trends of our commercial real estate based on each property type.

Industrial/Warehouse Buildings
The Industrial market remains in tight supply and outperformed the general commercial market. Manufacturers and warehousing companies continue to do well and have a need for additional space to meet rising demand in a growing economy. Due to this demand and a sharp increase in construction costs, the average price in GT County increased to $61/SF and the average price for the 5-county area went up to $57/SF. This represents a 7% and 29% increase from the previous year and was one of the few categories to continue an upward trend.

Office & Medical Office
The office market saw the biggest dip in values. While 2018 showed the largest increase and spike in pricing, in 2019 the average price in Grand Traverse County dropped 14% to $109/SF. The 5-county average sale price of $112/SF was a decrease of 25% from the previous year. The reason the 5-county area had a higher sale price both years was due to multiple condominium units selling in the Gateway building, which is located in the Traverse City limits, but a section that is considered Leelanau County.

No Medical office buildings were reported as sold in 2019, while one medical office condo was sold. Although the price per square foot was up 20% to $159, one sale is not enough data to rely on any trends. Medical buildings continue to be difficult to sell as medical practices continue to be bought by Munson hospital and are going through a consolidation period.

Retail
Out of 11 retail sales in Grand Traverse County this year, 7 were mixed-use downtown buildings and 2 were sold for medical marijuana. The popularity of these two categories caused the average sale price to spike to a whopping $204/SF, a 92% increase from 2018. The 5-county area increased by 50% to $160/SF, again skewed by the downtown properties. While downtown Traverse City has become the hotspot for development and record land prices, traditional retail spaces in other areas continue to face downward pressure from consumers buying more online and less in retail stores.

Multi-Family Housing
This has been the strongest sector on a national scale and our area is no exception. 74 apartment units sold in 2019, up 14 from the previous year. The average price per unit was $102,000 up 19% from 2018. The average price per square foot increased by 23% to $118. Many new multi-family developments are being constructed and occupancy has been strong. There are not very many sellers in this category, or the sales would have been much higher.

Vacant Commercial Land
Development continues at a fervent pace throughout the downtown district. Financial institutions and residential short-term rentals are fueling demand. For the last few years, there was a wide range of pricing. While the low end, on the outskirts of the county, continue to sell in the mid $2,000/acre range, the high end, for downtown sites, continues to skyrocket. NGLRMLS reported sale prices of up to $80/SF for vacant land in the central business district an increase of 250% from last year’s high. In addition to the reported sales, there were multiple sales that occurred off market, one at over $300 per square foot! The sites commanding the highest prices are the ones that can be built the highest (60 feet) and zoning does not require any parking to be on site.

Leasing Activities
Leasing activity in Grand Traverse County decreased 27% last year with only 96 new leases reported. While there were more spaces that became available for lease last year, quality and pricing continue to be the issue for tenants looking for new locations. The days on market for new lease space decreased from 269 days to 201 days on average. This shows that when good locations came on the market at reasonable prices, tenants were faster to act and sign leases for those spaces.

Days on Market
Overall the days on market for all commercial properties decreased significantly in 2019. The average commercial property was on the market for 181 days last year compared to 303 days the year before. Part of this may be attributable to more off-market sales being reported in NGLRMLS (which shows up with a low number of days on the market). However, the other likely reasons are that competition for high-quality buildings and buyer confidence has empowered buyers to act faster when a quality property comes to market.

2019 ended strong and I want to say thank you for all the referrals this past year! Your support means a lot and I was pleased to be involved in one out of every four sales and lease transactions in Grand Traverse County this past year. I couldn’t have done it without you!

Dan Stiebel, CCIM

Commercial Real Estate • December 5, 2019

Certified Commercial Investment Member (CCIM). What does it mean?

by Dan Stiebel

What is a CCIM?
CCIM is a real estate industry designation that stands for Certified Commercial Investment Member. Those that have earned the CCIM designation have completed a minimum of 160 hours of graduate-level classes that focus on financial and market analysis of commercial real estate. They have also completed a portfolio of sales and leases that demonstrate their proficiency and knowledge in the complex field of commercial real estate transactions. CCIMs are recognized internationally as the leading experts in commercial investment real estate.

Investment Expertise
“Above all, the CCIM designation represents proven expertise in financial, market, and investment analysis, in addition to negotiation.” In addition to core classes such as Investment Decision & Financial Analysis for Commercial Investment Real Estate, CCIM classes include coursework such as ethics, negotiations, development of specialty use properties and sustainability. Recently I had the opportunity to join a webinar presented by the CCIM Institute on the very timely topic of Climate Risk and Real Estate Investment Decision Making. These courses are taught by industry experts with experience in their field, ensuring timely and relevant materials for designees. CCIMs have had the training and experience to help their clients minimize risk, make informed decisions, present well-thought-out development plans to investors and help facilitate transactions so that investors can close more deals. Click here for a list of current CCIM courses.

Who has earned the CCIM Designation?
This group of experts is comprised of a diverse range of real estate professionals across many disciplines in the industry. Members include commercial brokers, leasing professionals, appraisers, investment advisors, asset managers, corporate real estate executives, property managers, attorneys, developers, institutional investors, and commercial lenders and bankers. CCIMs have a global network and are located in every state and in more than 30 countries around the world

Why Use A CCIM?
There are many benefits to working with an expert in any field and commercial real estate is no exception. CCIMs help their clients achieve their investment goals. CCIMs have an average of 19 years’ experience and do 42% more transactions each year than the average broker specialist. Only 6% of commercial real estate practitioners are CCIMs. Their global network enables members to close thousands of transactions annually, representing more than $200 billion in value.

I am proud to be a part of this group of professionals that are consistently sought after for their dependability, intelligence, ethics, success, and confidence. Last year, Coldwell Banker Commercial with its 222 CCIMs, was named the number one company with the most CCIM designees. When you use a CCIM, you choose an expert with integrity who produces measurable results.

Dan Stiebel, CCIM

Commercial Real Estate • October 11, 2019

Forget Ghouls, Ghosts and Zombies…8 Frightful Facts related to Commercial Real Estate

by Dan Stiebel

As the ghosts, goblins, mummies, and gravestones appear all over town, thoughts turn to all things Halloween and spooky. Here’s a Halloween list of 8 menacing current events to give you Commercial Real Estate nightmares:

1. For years we have been told if the economy was a baseball game, we would be at the bottom of the 7th inning and the growth expansion will soon be over. By now I figure we must be in the bottom of the 10th inning. Statistically, it has been a longer run than most expansions.

2. Trade Wars lead to increased prices and hurt our buying power. Construction costs are rising and build-out costs for existing space are escalating. As consumer prices increase, consumption decreases and economies tend to contract.

3. Retail sales have been trending downward as more shoppers go online. Losing retail stores and not being able to see products before we buy them online is very frightening. Let’s face it, people like to go to the store and test out an expensive purchase before turning to the internet and finding a bargain.

Interesting exception: Sales of Halloween costumes, candy and decorations will surpass $9 billion this year – 3 times more than was spent 15 years ago.

4. The President, Impeachment, Claims of Fake News and daily reports from the White House are very frightening. Will the US remain the world’s superpower and will the dollar remain the global currency of choice?

5. Climate change and extreme weather events. Hurricanes, rising water levels, droughts, and climate change will severely impact where people can live. There will be massive costs to protect buildings or remove them from affected areas and relocate to more favorable habitats.

6. Driverless cars will be a game-changer for how and where we live and work. Predictions are all over the board on this one. The urban core could become denser because existing parking can be built on. On the contrary, access to suburban areas will increase and longer commutes will be more tolerable. These changes could greatly affect the current value of real estate and change the definition of prime locations.

7. Immigration restrictions. Fewer people moving to this country means less labor and lower demand for real estate. If the population does not keep increasing, we become oversupplied and a lack of buyers for existing houses leads to declining prices.

8. Perhaps the most frightful of all scenarios is being scared off by the previous risks and missing out on continued economic expansion and watching everyone else get rich while you sit on the sidelines. After all, risk creates opportunity. And don’t forget interest rates are declining and new tax laws have led to the lowest effective tax rates of our lifetimes for real estate investors.

Will this be another 1984 baseball game similar to when the White Sox beat the Brewers in a 25-inning game?

Dan Stiebel, CCIM

Commercial Real Estate • August 30, 2019

Michigan Idea Exchange

by Dan Stiebel

Last month I was able to attend the Michigan Idea Exchange at the Cobo Center in Detroit. It is an annual event for the commercial real estate industry sponsored by the International Council of Shopping Centers. Highlights of the presentations this year included trends in the restaurant industry, retailers expanding in Michigan, developments in Detroit, East Lansing & Grand Rapids, Opportunity Zones and the effects of the legalization of Marihuana on the real estate industry. Since the event is sponsored by a retail trade group, many of the conversations revolve around new retail and restaurants that are coming to different locations in Michigan.

Retail expansions continue to focus on internet resistant businesses such as entertainment and fitness as well as expansions of large discount warehouse clubs, such as Costco and BJ’s Wholesale. Companies specializing in “experiential” businesses are having a great deal of success as they are not competing with on-line businesses and consumers are looking for more options to replace the traditional shopping trip to the mall. One area that has seen a great deal of success is the fitness category — where you see a variety of studios opening up everywhere. These include everything from the traditional gym to Pilates, yoga, resistance training and HIIT classes (high-intensity interval training). We have seen a number of new local studios open in Traverse City as well as national and regional fitness studios looking to expand in our state. Some of the studios eyeing various sites in Michigan include Orange Theory, Solidcore & AKT Fitness.

Another business that fits perfectly in the experiential entertainment world is Andretti Indoor Karting & Games who will also be expanding into Michigan. These entertainment mega-centers offer 2 indoor go-cart tracks that include up to 4 stories of elevation change. In addition to the featured go-cart course, they offer zip lines, ropes course, arcade games, Virtual Reality, 2-story laser tag and an interactive motion theater, all in an indoor venue which makes it perfect for year-round entertainment in Michigan.

While dining out continues to grow, so does ordering in and the largest changes in the restaurant industry are occurring in the delivery sector. With apps such as DoorDash, Uber Eats & GrubHub, restaurants are rethinking the way they position themselves for takeout and delivery and finding they need less on-site seating and a smaller footprint than they did a few years ago. They are also moving towards loyalty apps to track customers, make ordering easier and offer incentives to lure customers back.

Newer trends that are gaining in popularity include “clean” menus with healthy, natural options including vegan, chemical-free, gluten-free, keto-friendly and plant-based proteins, such as the impossible burger. Clean Juice is one such business looking to expand in Michigan. Restaurants are also trending towards eco-friendly packaging with less plastic and a push for paper cups and straws. Fast-casual restaurants are looking for spaces with easier ingress & egress, smaller store sizes and room for a drive-up or pick up window.

While the educational component of the event and trends in the industry were informative, the networking was the best reason to attend. In addition to networking opportunities at the conference, there was a meet and greet the evening before at a restaurant in downtown Detroit where I had a chance to talk to numerous real estate agents and developers who have done work in Traverse City in the past, are currently looking for sites in our area, or have said they would love to buy and develop in our area if they could find a project that met their search criteria. As real estate, the economy and tourism continue to be strong in our area, we will continue to see these groups pursuing new developments and businesses in northern Michigan.

– Dan Stiebel, CCIM

Commercial Real Estate • June 20, 2019

Coldwell Banker Commercial at the Boca Beach Club

by Dan Stiebel

Last month I was honored to be invited to Boca Raton for an event for the Top 2% of Coldwell Banker Commercial agents internationally. In addition to getting a jump start on warm weather in sunny Florida, I was able to connect with top agents and gain insight into new strategies other agents are using to help their clients in other markets. We were joined by the corporate management team, including the Coldwell Banker CEO, Charlie Young and Dan Spiegel, the managing director of Coldwell Banker Commercial. We learned about recent trends in commercial real estate, new tools to help clients sell properties, and many other ‘best practices’ in commercial real estate.

Dan Spiegel started at Coldwell Banker Commercial just a few months ago. Not only is his name just two letters different from mine, but he is a very interesting person to talk to and he brings a wealth of knowledge to the job from his days working for both Colliers and Grubb & Ellis. He shared five trends in commercial real estate which are important for buyers, landlords, investors, agents, and developers to consider when developing new projects or redeveloping existing spaces.

Some of these trends have been developing for a while, such as the shift that online companies have created with traditional Business to Business (B2B) models shifting to Business to Consumer (B2C) models. With wholesalers selling directly to consumers, we see fewer retail outlets and higher demand for industrial space, as well as an increased importance of logistics and transportation for last-mile delivery. Other trends were more novel, such as the ‘fracking of real estate’. This phrase refers to how value in real estate is being extracted by a tenant leasing a space and not necessarily benefiting the landlord. For example, when a co-working company such as WeWork leases an entire floor of a building and then leases memberships to individuals for office and desk space in order to receive a higher rent. Or when a residence is leased on an annual basis, but the tenant rents it nightly on Airbnb. This is a trend that property owners will need to address and decide what model fits their business and income goals.

The other trends Dan discussed were experiential, data analytics, and technology. The idea of a cashier-less store where RFID stickers on merchandise track a consumer through a store and automatically charges their phone when they put items in their cart encompasses all three of these trends, but they are also important to examine on their own. Both consumers and office workers are becoming more focused on the ‘experience’ of their environment. Shopping becomes combined with entertainment; eating may be in a food hall with games and a brewery. Even the office experience includes a mix of private space, video conference rooms, shared space for collaborating, espresso bars, game areas, and work out facilities. New office spaces need to account for these desired amenities. The technological advances and data tracking are worthy of a whole separate blog. They encompass anything from glass walls that go dark for privacy to driverless cars and car-sharing services reshaping traditional parking needs.

Our hosts made sure they left time for agents to relax which included events such as a catamaran sail in the ocean and dinner on a yacht in the Intercoastal Waterways. As the meeting wound up, attendees put together a list of words to describe the core values of a Coldwell Banker Commercial agent. I’m proud to be part of a great real estate company where the agents exemplify expertise, integrity, collaboration, professionalism, entrepreneurship, community, and knowledge.

– Dan Stiebel, CCIM